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TMI Blog1997 (8) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... tions and now they are before us questioning the legality or otherwise of such disallowance of the claim made by the authorities below. The pivotal question centres round the interpretation of clauses (e) and (k) of section 5 of the Act. Clauses (e) and (k) of section 5 relevant for the present purpose, as they stood then, read as under : "5. Computation of agricultural income.---The agricultural income of a person shall be computed after making the following deductions, namely---... (e) 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... (k) any interest paid in the previous year and 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." From what has been extracted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time. From clause (e) of section 5 of the Act we are able to notice the phraseologies or expressions, namely, "laid out or expended wholly and exclusively for the purpose of the land" and from clause (k) thereof, we are able to discern the expression, "any amount borrowed and actually spent on the land from which the agricultural income is derived". The question whether the agricultural income referred to in clause (k) means gross agricultural income or taxable agricultural income, which can be found out only after making all the allowances or deductions provided for in the various clauses of the said section was posing some agonising situations to the authorities and solution to such a question was also found or arrived at by this court in certain decisions. The interpretation of the expressions as above actually caused some difficulties in giving relief to assessees, by way of deduction in the computation of the agricultural income and the difficulties or obstacles posed in, giving interpretation to those expressions had been nicely solved with ease and grace, by this court, on occasions more than one, and profitable it is for us, to refer to those decisions. In Cauvery Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Madras Agricultural Income-tax Act, 1955, is in the nature of a residuary clause and would take in not only those expenditure incurred for the purpose of earning the agricultural income but also very many expenses involved in carrying on the agricultural activity as an occupation. The expression 'for the purpose of the land' is much wider inscope than the expression 'for the purpose of deriving the agricultural income from the land'. It covers a wide range of expenses taking in not only the expenses incurred actually for deriving agricultural income but also expenses which are not directly incurred for deriving agricultural income but have been expended in connection with the lands which do not have any relationship to the agricultural income derived in the previous year. If the expenses are reasonably connected with the holding of the land and using it for the purpose of agriculture, those expenses will come under the expression 'for the purpose of the land'." In expressing as above, this court took into consideration certain decisions of the Supreme Court, which happened to consider similar questions. In Travancore Rubber and Tea Company Ltd. v. Commr. of Agrl. I. T. [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come". In Puthutotam Estates (1943) Ltd. v. State of Tamil Nadu [1984] 148 ITR 341 (Mad), the distinction between clauses (e) and (k) of section 5 of the Act had been brought about and what their Lordships of this court said on that aspect of the matter is as below : "Sections 5(e) and 5(k) of the Tamil Nadu Agricultural Income-tax Act, 1955, operate in different areas. Section 5(e) applies to any expenditure laid out or expended wholly and exclusively for the purpose of the land, not being in the nature of capital expenditure or personal expenses of the assessee. Section 5(k) applies only to interest paid on the amounts borrowed and actually spent on the existing crop on the land, from which income is derived and will not apply to any interest payments on amounts borrowed for maintaining the other areas or plants from which agricultural income is not derived in the assessment year. The distinction made by the statute between lands in general and lands from which agricultural income is derived cannot be overlooked. Consequently, the interest payments made on the amounts borrowed and actually spent on the maintenance of the crop which yielded agricultural income will fall under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 5 of the Act came up for consideration and what the Division Bench of this court said thus is relevant : "Interest paid by the assessee on the unpaid part of the consideration for the purchase of agricultural land due to the vendor is deductible from the income derived from such land under section 5(e) of the Madras Agricultural Income-tax Act, 1955 ; There is a clear difference between 'moneys borrowed for expenses wholly and exclusively for purposes of the land' referred to in section 5(e) and 'moneys borrowed and actually spent on the land' referred to in section 5(k). For section 5(k) to apply the money borrowed should have been actually 'spent on the land' and it is not enough that the money was spent for the purpose of the land in connection with the business activities of the assessee which resulted in the earning of the agricultural income and it is for the State to establish that particular items represent moneys actually spent on the land so as to take out any portion of those items from the scope of section 5(e). Section 5(e) is the general provision and section 5(k) is a special provision, and if section 5(k) applies to certain interest charges the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. The rationale or reasoning adopted by learned counsel for the Revenue is twofold. One is, as found by the Tribunal, that when there is net loss, there cannot be any deduction under clause (k) of section 5 of the Act. The other reasoning is that a portion of the borrowal was not utilised on the land from which the agricultural income was derived. On the basis of the rationale or reasoning of the said learned counsel for the Revenue, a Division Bench of this court expressed in paragraphs 5, 6 and 7. "Anyway, since learned counsel for the Revenue herself submits that the abovesaid entire amount of Rs. 2,91,664 would fall under section 5(e) of the Act and, hence, deductible, the assessee will in no way be aggrieved. No doubt, learned counsel for the assessee sought to initially argue that the term 'agricultural income' used in the abovesaid proviso to section 5(k) of the Act would also include a loss. But, he could not press that point very much. In our view also, that term would mean only a plus figure and not a minus figure. It must be noted that the term used in the said proviso is only 'agricultural income' as defined under section 2(a) of the Act, Ind from which all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provided in the abovesaid second proviso. In the present case, the allowance has been given only partly and by all the authorities including the Tribunal, which is not correct. We hold that in view of the abovesaid reasoning, the assessee is entitled to full allowance without any monetary limit under section 5(k) of the Act. Accordingly, we set aside the orders of the authorities below including the Tribunal with reference to the abovesaid deduction claimed by the assessee under section 5(k) of the Act. The assessing authority has to work out the deduction in accordance with this judgment. The tax case is allowed accordingly. No costs. We may also add that while dealing with this question, in our abovereferred judgment dated August 1, 1995, in Tax Case No. 83 of 1986 at the end of the paragraph 5 thereof we had stated thus : 'Though total agricultural income may also include a minus figure (loss) the term "agricultural income" would not include a minus figure or loss' and that evidently, this observation would apply only with reference to the term 'agricultural income' used in the abovesaid second proviso to section 5(k) of the Act." The decision in Bonaventure Estate's c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate that none of the authorities below recorded any finding that the need for the borrowing was genuine, having due regard to the assets of the assessee at that time. There is also no finding recorded by any of them as to the gross income of the assessee relating to the previous year in question. Further, there is no semblance of materials traceable to the orders of the authorities below as to the quantifying of the allowable interest under the second proviso to clause (k) of section 5, in the sense of finding out initially an amount equivalent to 25 per cent. of the gross income and then again arriving at nine per cent thereof that is to say, on an amount equivalent to twenty-five per cent. of the gross income in giving relief to the respective assessees. What all the authorities recorded was the interest claimed, interest allowed or disallowed, either under clause (e) or clause (k) of section 5 of the Act and nothing further. In such state of affairs, it is not at all possible for this court to determine the question as to whether the interest claimed is capable of being allowed or not either under clause (e) or (k) of section 5 of the Act. We having been placed in such a predic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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