9911796707
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Issues:
- Deduction of interest paid on borrowed capital for acquiring an estate in computing agricultural income. Analysis: The judgment involves a tea and coffee estate owned by a firm with multiple partners. The petitioners, some partners of the firm, borrowed money for acquiring the estate and claimed a deduction of 60% of the interest paid on their capital borrowing against agricultural income. However, taxing authorities and the Appellate Tribunal denied this deduction, leading to the filing of revision petitions. The main issue in question is whether a partner of a registered firm earning agricultural income can claim a deduction for interest paid on capital borrowed for acquiring the estate. The assessment of income of a registered firm is governed by section 17(5) of the Act, which mandates the assessment of each partner's total income. Section 5(k) allows deduction for interest paid on borrowed capital spent on the land from which agricultural income is derived, subject to certain conditions. The judgment emphasizes the distinction between sections 5(e) and 5(k) of the Act. While section 5(e) allows deductions for expenses laid out wholly and exclusively for the land, section 5(k) pertains to interest actually spent on the land. The court concurs with a previous Division Bench ruling that interest paid on borrowed capital for acquiring the estate qualifies as a permissible deduction under section 5(e), as it is not considered a capital expense but an expense laid out for the purpose of the land. The court further clarifies that the payment of interest for borrowed capital is not a capital expenditure but an expense incurred wholly and exclusively for the land. Consequently, the deduction claimed by the petitioners for interest paid on borrowed capital should have been allowed in computing agricultural income. The judgment aligns with the previous decision and grants relief to the petitioners by allowing the deduction. No costs are awarded in this matter.
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