Interest on borrowed capital for acquiring agricultural land was deductible as expenditure incurred wholly for the land's purpose.

A partner's share of agricultural income from a registered firm was to be computed separately, and the available deductions depended on the agricultural income tax provisions. Interest on borrowed capital used to acquire a tea estate did not qualify under section 5(k) because that provision applied only where borrowed funds were actually spent on the land itself. The interest was, however, not capital expenditure or personal expense and was treated as an expenditure laid out wholly and exclusively for the purpose of the land under section 5(e). The deduction was therefore allowable in computing the partner's agricultural income.

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Issues: Whether a partner of a registered firm carrying on tea cultivation was entitled to deduct interest paid on borrowed capital used to acquire the estate, while computing his share of agricultural income.

Analysis: Under section 17(5)(a) of the Madras Agricultural Income Tax Act, the share income of each partner of a registered firm is assessed separately. The deductions available in computing agricultural income are governed by section 5. The claim could not be sustained under section 5(k), because that provision applies only where the borrowed amount is actually spent on the land, and money borrowed for purchase of the land itself is not so spent. The claim was examined under section 5(e), which excludes capital expenditure and personal expenses but allows expenditure laid out wholly and exclusively for the purpose of the land. Interest paid on borrowed capital is not capital expenditure, is not personal expense, and is an expense incurred for acquiring the land producing the agricultural income.

Conclusion: The interest paid on borrowed capital for acquisition of the estate was deductible under section 5(e), and the deduction claimed by the petitioners was allowable.

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