1962 (1) TMI 90

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....isition of the estate. The Agricultural Income Tax Officer determined the assessable income of the firm from the estate as 60% of the total income determined by the Income Tax Officer acting under the Indian Income Tax Act. Each one of these petitioners claimed by way of deduction 60% of the interest paid on their respective capital borrowing. In computing the income under the Indian Income Tax Act the petitioners were allowed deduction to the extent of 40% on their borrowed capital as 40% of the income alone was taxable under that Act. The claim to deduct interest on borrowed capital, to the extent of 60%, in computing the petitioners share of the agricultural income having been negatived by the taxing authorities as well as by the Appella....

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....us year, shall be assessed, and the sum payable by him on the basis of such assessment shall be determined. 3. What comes in for computation of agricultural income in respect of a registered firm is the total income of each partner of the firm. Section 5 of the Act provides for deductions which can be made in determining the taxable income. Section 5(k) reads : 5. (k) Any interest paid in the previous year on any amount borrowed and actually spent on the land from which the agricultural income is derived : Provided that the need for borrowing was genuine having due regard to the assets of the assessee at the time : Provided further that the interest allowed under this clause shall be limited to nine per cent on an amount equivalent t....

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....7. These provisions make it quite clear that the share of each partner of the firm owning the Havukal estate is liable to tax under the Act to the extent of 60 per cent of the income from tea. But computing the share income each partner is entitled to deduction as provided for under section 5 of the Act. The claim of the petitioners to allow the interest payment as a charge upon their respective share income can be brought only within section 5(e) or 5(k). A Division Bench of this court has held in G. J. Coelho v. State of Madras, that interest paid on capital borrowed for the purpose of purchasing a plantation will be a permissible deduction not under section 5(k) but under section 5(e) of the Act. The applicability of section 5(k) was neg....

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....er or the nature of the disbursement or utilisation of the capital. We have no doubt that the payment of interest for a borrowed capital is not in the nature of capital expenditure. We have equally no doubt in holding that the expenses incurred by paying interest for such a capital cannot be called personal expenses of the assessee. 9. Can it be said that the expense was laid out or expended wholly and exclusively for the purpose of the land ? It is worthwhile to note the difference in terminology between section 5(e) and section 5(k). The words in section 5(k) are "amount borrowed and actually spent on the land"; and the words in section 5(e) "expenses of the assessee laid out or expended wholly and exclusively for the purp....