1936 (2) TMI 22 - HC - Income Tax

Court rules interest on borrowed money for agriculture not deductible. Flour mill rent /= agricultural income. Lambardari fees not exempt.

H.T. Conville Versus Commissioner of Income Tax, Lahore

H.T. Conville Versus Commissioner of Income Tax, Lahore - [1936] 4 ITR 137 Issues:1. Deductibility of interest paid on borrowed money under Section 10(2)(iii) of the Indian Income Tax Act.2. Classification of rent from a mill-site as agricultural income under Section 2(1).3. Treatment of Lambardari fees as agricultural income under Section 2(1).4. Inclusion of net profit from commission charged on tenants' produce as agricultural income under Section 2(1).Analysis:1. The first issue pertains to the deductibility of interest paid on borrowed money under Section 10(2)(iii) of the Income Tax Act. The assessees argued that the interest paid to bankers was for capital borrowed for business purposes and should be exempt from income tax. However, the court held that Section 10 applies to business assessable under the Act, not agricultural income. Therefore, money borrowed for paying land revenue cannot be exempted under Section 10(2)(iii).2. Regarding the classification of rent from a mill-site as agricultural income, the court ruled that income derived from a flour mill site does not fall under agricultural income as defined in Section 2(1). Operating a flour mill is not considered an agricultural purpose, and rent from such a site does not meet the criteria outlined in the Act for agricultural income.3. The issue of treating Lambardari fees as agricultural income was also addressed. The court analyzed the exemption specified in Section 4(3)(vi) for allowances incurred in the performance of duties. It was determined that Lambardari fees do not qualify as a special allowance specifically granted to meet necessary expenses. Therefore, the fees collected by a Lambardari are not considered agricultural income under Section 2(1).4. Lastly, the court examined the net profit from commission charged on tenants' produce. The assessees argued that the commission represented expenses incurred in processing the produce. However, the court found that only a portion of the expenses claimed by the assessees was allowed by the Income Tax Officer. The net profit from commission did not meet the criteria for agricultural income as defined in Section 2(1).In conclusion, the court answered all four questions referred by the Commissioner of Income Tax in the negative, stating that the deductions and classifications sought by the assessees were not permissible under the relevant provisions of the Income Tax Act.