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TMI Blog1977 (9) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... cture of sugar. It owns about 2,000 acres of agricultural land on which it grows sugarcane for the purpose of manufacture of sugar. The company borrowed certain amounts. Those amounts are credited to the agricultural section, for which separate accounts are maintained. The interest that the company had to pay on the borrowings has been claimed as a deduction out of the business income. The ITO disallowed an amount of Rs. 2,03,750 towards proportionate interest attributable to the advances credited to agricultural section. On appeal by the assessee, the AAC upheld the disallowance made by the ITO. When the company went up in appeal, the Tribunal following its decision in I.T.A. Nos. 828 and 965 dated August 24, 1972, allowed the appeal, sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deducted, and no further deductions shall be made in respect of any expenditure incurred by the assessee as a cultivator or receiver of rent-in- kind. " Admittedly, the market value of the sugarcane raised by the assessee was deducted from the income. After deducting the market value of the sugarcane, the question is whether the assessee is also entitled to deduct interest paid by it on the borrowings made and utilised for the purposes of expenditure in raising the sugarcane. What is prohibited from further deduction under r. 7 is any deduction in respect of any expenditure incurred by the assessee as a cultivator. Therefore, question arises whether interest paid by the assessee can be said to be an expenditure incurred by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ausae sine quibus non. The source from which the interest is derived has not thereby been ascertained ...... There is no commercial connection between the interest and the rented land and an effective source-not land-has become apparent." In the present case also the money borrowed might have been utilised by the assessee in cultivating and producing sugarcane, but at the same time, it cannot be said that the expenditure incurred in payment of interest had any connection or was attributable directly to the agricultural operation. Borrowing money and payment of interest is a mere commercial transaction. In CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452, decided by the Supreme Court, the assessee-company owned extensive lands on wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducted from the gross profit. If it is not permissible under the Act, it has to be rejected. The Supreme Court also considered r. 23 of the 1. T. Rules, 1922, which is same as present r. 7 and said that reference to the expenditure incurred by the assessee as a cultivator mentioned in r. 23 applies to the process ordinarily employed by a cultivator in raising the crops. In CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466, the Supreme Court also said that " agriculture " in its primary sense denotes the cultivation of the field and is restricted to cultivation of the land in the strict sense of the term, meaning thereby tilling of the land, sowing of the seeds, planting and similar operations on the land. Therefore, it is only the mon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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