Agricultural income tax interest deduction turns on apportionment where borrowed funds were pooled and earlier use was unproved.

Interest on outstanding borrowings under the Tamil Nadu Agricultural Income-tax Act was not fully deductible under section 5(e) where the assessee failed to furnish particulars showing how the borrowed funds had been used in earlier years. Section 5(k) applies to interest on amounts borrowed and actually spent on land from which agricultural income is derived, and it is not limited to borrowings made in the same previous year. Because the funds were pooled in a common account and the earlier utilisation could not be identified, the assessing authority was entitled to adopt a fair apportionment method, using the proportion of expenditure falling under sections 5(e) and 5(k) in the relevant year.

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Issues: Whether interest paid on outstanding borrowings could be allowed wholly under section 5(e) of the Tamil Nadu Agricultural Income-tax Act, 1955, or had to be apportioned between sections 5(e) and 5(k) where the assessee had not furnished full particulars of the earlier utilisation of borrowed funds.

Analysis: Section 5(k) governs interest paid in the previous year on amounts borrowed and actually spent on the land from which agricultural income is derived, and it is not confined to borrowings made in the previous year. Where borrowed funds were pooled in a common account and the assessee did not supply the particulars necessary to identify the precise application of the borrowed moneys in earlier years, the assessing authority was entitled to adopt a fair and workable method. In that situation, the proportion of expenditure falling under sections 5(e) and 5(k) in the relevant year could be used as the basis for allocating the interest on outstanding borrowings.

Conclusion: The interest was not wholly deductible under section 5(e); the apportionment adopted by the authorities between sections 5(e) and 5(k) was upheld.

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