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1997 DIGILAW 879 (MAD)

Stanmore Estate v. State of Tamil Nadu

1997-08-19

AKBAR, R.JAYASIMHA BABU

body1997
Judgment :- JAYASIMHA BABU, J. This is yet another case which raises the issue regarding the applicability and scope of sections 5(e) and 5(k) of the Tamil Nadu Agricultural Income-Tax Act. 1955. The assessment year in question is 1983-84. The assessee claimed a sum of Rs. 1, 25, 000 as permissible deduction under section 5(k) and Rs. 2, 18, 461 under section 5(e) of the Act. Out of the sums so claimed, a sum of Rs. 2, 26, 939 has been disallowed. The Tribunal has held that interest can only be claimed under section 5(k); that merely because a part of the amount claimed as interest cannot be allowed under section 5(k), the amount so disallowed is not necessarily to be allowed under section 5(e). We agree with that statement of law. However, we find from the order of the Tribunal that it has not adverted to the statement furnished by the assessee wherein, according to the assessee, interest paid was allocated to the purposes specified in section 5(k) and there were other items which according to the assessee could only be allocated under section 5(e). Even the order of the Appellate Assistant Commissioner does not refer to this. We had occasion to consider the same question in T.C. No. 700 of 1986 wherein we have taken the view that the assessing authority must apply its mind to the purposes for which the borrowing was effected and the manner in which the amount so borrowed was utilised, for deciding as to whether the interest paid on that borrowing is deductible under section 5(k) or section 5(e) or not at all. Section 5(k) deals with any interest paid in the previous year on any amount borrowed and actually spent on the land from which the agricultural income is derived. The proviso requires the assessee to establish the borrowing being genuine having due regard to the assets of the assessee at that time, and limits the deduction to the extent of 9 per cent. on an amount equivalent to twenty-five per cent of the agricultural income from the land in that year. The proviso requires the assessee to establish the borrowing being genuine having due regard to the assets of the assessee at that time, and limits the deduction to the extent of 9 per cent. on an amount equivalent to twenty-five per cent of the agricultural income from the land in that year. This clause thus deals with the amount borrowed and actually spent on the land from which the agricultural income is derivedSection 5(e) deals with any expenditure incurred in the previous year (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of the land. The expression used in this clause is "for the purpose of the land" in contrast to what has been mentioned in section 5(k) "the land from which the agricultural income is derived". Any borrowing for being utilised and in fact utilised on the land from which the agricultural income is derived can only be dealt with under section 5(k) and not under section 5(e). The ceiling on the amount of interest that can be claimed as deduction, is applicable in respect of all borrowings spent on the land from which the agricultural income is derived. Deduction can be claimed under section 5(e) in respect of interest paid on borrowings, only when such borrowing does not fall within the ambit of section 5(k). No claim can be made under section 5(e) in respect of interest disallowed by virtue of the ceiling on the permissible interest under section 5(k) in respect of the amount borrowed and spent on the land from which the agricultural income is derived. It is possible to visualise the borrowings which fall under both the categories. The words used in section 5(e) are broad. It refers to "land" without qualifying it in any manner, while "land" referred to in section 5(k) is only the land from which agricultural income is derived. Thus, the borrowing for the purposes of the land is also a borrowing for the use on the land from which agricultural income is derived. Such borrowing and interest paid thereon can only be dealt with under section 5(k) and not under section 5(e). Thus, the borrowing for the purposes of the land is also a borrowing for the use on the land from which agricultural income is derived. Such borrowing and interest paid thereon can only be dealt with under section 5(k) and not under section 5(e). It is only the borrowing which cannot be regarded as borrowing for use on the land from which agricultural income is derived, that could arise for consideration under section 5(e)This necessarily requires examination of the purpose of the borrowing, the need for the borrowing and the manner in which the amount so borrowed is utilised. It is after such examination that the assessing authority will be in a position to decide as to whether the interest claimed as deduction is on the borrowing spent on the land from which agricultural income is derived. If the answer is in the affirmative, the deduction claimed can only be dealt with under section 5(k) and no part of it can be claimed under section 5(e). If the borrowing is found to be one which cannot be regarded as having been borrowed and spent on the land from which agricultural income is derived, interest paid on that borrowing can be dealt with under section 5(e). As the authorities below have not examined the data said to have been furnished by the assessee, we have no alternative except to remand the matter to the Agricultural Income-tax Officer, Yercaud, who will scrutinise all the details furnished by the assessee and then decide as to whether, if at all, interest should be allowed and if so, the extent to which it can be allowed under section 5(k) and the amount of interest if any that can be allowed under section 5(e), depending upon the purpose of the borrowing. We, therefore, set aside the order of the Tribunal and remand the matter to the Agricultural Income-tax Officer. No costs.