134. Capitalisation of interest.

As between the lender and the borrower the practice of adding interest to principal on outstanding loans does not constitute a payment of interest1; and the capitalisation of interest by a mortgagee is not a payment of interest2.

Whatever sum is paid to the mortgagee over and above the original capital loan is in law a payment of interest3. Where an interest-bearing security is sold and part of the sale price represents accrued but hitherto unpaid interest, that accrued interest is not chargeable to tax in the hands of the vendor4 unless it can be treated either by tax legislation