Statutory ceiling on interest deduction prevents netting off interest received before computing allowable expenditure.

Under section 5(k) of the Tamil Nadu Agricultural Income-tax Act, interest received could not be netted off against interest paid before computing the deduction. The computation of income and deductible expenditure had to be made separately: interest received remained income, while interest paid was deductible only to the extent permitted by the statutory ceiling then in force. The assessee could not enlarge the allowance by first reducing interest paid by interest received and then applying the cap. The deduction was therefore to be worked out on the gross interest paid, subject to the statutory limit, favouring the Revenue.

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Issues: Whether interest received could be set off against interest paid before computing the deduction admissible under section 5(k) of the Tamil Nadu Agricultural Income-tax Act, 1955.

Analysis: The computation of income and the computation of deductible expenditure must be made separately. Interest received forms part of income, while interest paid can be deducted only to the extent permitted by section 5(k), which imposed a ceiling on the allowable deduction at the relevant time. The assessee could not enlarge the statutory deduction by first netting off interest received against interest paid and then claiming deduction on the balance. The earlier observation relied on by the assessee did not consider the statutory ceiling and therefore did not support the claimed method of computation.

Conclusion: The set-off method was impermissible, and the deduction had to be computed on the total interest paid subject to the statutory ceiling, in favour of the Revenue.

Ratio Decidendi: Where a provision allows deduction of interest only up to a statutory ceiling, the deductible amount must be computed on the gross expenditure as authorised by the statute and cannot be artificially enlarged by netting off corresponding income before applying the ceiling.

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