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TMI Blog1960 (1) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... s the correctness of that decision that the petitioner challenged in this petition presented under section 54(1) of the Act. The relevant statutory provisions in section 5 of Act V of 1955 are : The agricultural income of a person shall be computed after making the following deductions, namely... (e) any expenses 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;... (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 to twenty-five per cent of the agricultural income from the land in that year. What the petitioner paid to his creditors in the year of account was interest on the amount borrowed for the purchase of the land, on the income from which he was liable to be assessed to tax. When the principal amount borrowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate object of the expenditure, i.e., payment of interest, is to liquidate a personal liability of the proprietor as a debtor. That after such borrowing the debtor used it as sale price and acquired the estate, cannot make the payment of interest an expenditure wholly and exclusively laid out for the purpose of the plantation. The language of the various sub-divisions of section 5 of the act referring to the various items of permissible deductions must have a direct and proximate connection. Here the proximate connection of the payment is with a personal loan and not with the plantation...... I hold that the claim had been rightly rejected. 4. We are unable to accept as correct that, where a personal liability was also discharged by a payment, it can never constitute expenditure incurred wholly and exclusively for the purpose of the land. Section 5(e) of the Act would be robbed of much of its content if such a narrow view is taken, because in most cases, and not only in cases of payment of interest, there will always be also a personal liability which is discharged by the payment. 5. Section 5(e) of the Act, of course, does not in express terms provide for interest charges. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lely. 9. At page 7, the learned judges observed : This being an investment company, if it borrowed money and utilised the same for its investments on which it earned income, the interest paid by it on the loans will clearly be a permissible deduction under section 12(2) of the Income Tax Act. 10. The statutory requirements of section 5(e) of Act V of 1955 are more analogous to those of section 10(2)(xv) than those of section 12(2) of the Income Tax Act. What section 5(e) of Act V of 1955 requires is that the expenditure should be laid out wholly and exclusively for the purpose of the land. Section 10(2)(xv) of the Income Tax Act requires the expenditure to be laid out wholly and exclusively for the purpose of the business. Laid out or expended for the purpose of the business is obviously of greater amplitude that expended for purposes of earning the income which it is necessary to establish to permit a deduction under section 12(2) of the Income Tax Act. The decision in Eastern Investments Ltd. v. Commissioner of Income Tax makes it clear that the payment of interest on a loan contracted for investment is an expenditure for purpose of earning income from that investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal liability, made no difference. The personal liability for the loan had itself been incurred for purposes of the land, that is, for the purpose of acquiring land and the income it was expected to yield. The learned Government Pleader referred to the observations of Stone, C.J., in Metro Theatre, Bombay Ltd. v. Commissioner of Income Tax Dealing with section 10(2)(xii) of the Income Tax. Act as it stood then (it corresponds to section 10(2)(xv) of the present Income Tax Act), the learned Chief Justice observed : In my judgment this interest payment on unpaid instalments cannot be stated to be wholly or exclusively a payment for purposes of such business. No doubt the payment of interest on the arrears of the purchase price of this leasehold interest in which the business is carried on may be said to be for the purposes of the business, but it is not wholly and exclusively for the purposes of the business. For example, if the cinema business had to be closed down, the appellant would still have to make this payment unless he was prepared to have the licence forfeited. 12. These observations were really in the nature of obiter. Besides there is obviously a difference between ..... X X X X Extracts X X X X X X X X Extracts X X X X
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