G J COELHO Vs. STATE OF MADRAS

JUDGEMENT

(1.) UNDER the provisions of the Madras Agricultural Income-tax Act (V of 1955) the petitioner was assessed to tax in the assessment year 1955-56 on his agricultural income from his plantation known as the Silver Cloud Estate, in the " previous year " ending with June 30, 1954. The petitioner purchased that estate in 1950 for Rs. 3, 10, 000 to pay which he had to borrow Rs. 2, 90, 000 from two sets of creditors. In the year of account the petitioner paid those creditors a sum of Rs. 22, 628-9-8 as interest on these loans and he claimed that the whole of that payment should be deducted before his assessable income was computed. The Department held that the petitioner was entitled only to the relief for which section 5(k) of Act V of 1955 provided and deducted a sum of Rs. 1, 570-10-7. The petitioner appealed to the Tribunal. The Tribunal rejected his contention that he was entitled to have the whole amount deducted under section 5(e) of the Act. It was 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

(2.) 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 in 1950 and 1951 was expended for the purchase of the land, the estate, that was an expenditure of a capital nature. That may have no direct bearing on the question, whether the amount expended as interest in the year of account falls within the scope of section 5(k) of the Act. Independent of the capital nature of the expenditure incurred when the estate was purchased by the petitioner, we are clearly of opinion that the payment of interest charges in the year of account did not fall within the scope of section 5(k). WHAT section 5(k) requires is that the borrowed amount should have been actually spent on the land. When the petitioner used the money he had borrowed for the purchase of the land itself, it is difficult to look upon it as an expenditure on the land within the scope of section 5(k). No portion of that borrowed money was spent on the land itself, for example, for any agricultural or horticultural purposes or any purpose subservient thereto. The expenditure for the purchase of the land is not, in our opinion, an expenditure on the land as we understand the scope of that expression in section 5(k) of Act V of 1955 The petitioner's claim has been all along that the deduction he claimed fell within the scope of section 5(e) of the Act. That the expenditure was incurred in the year of account was never in dispute That expenditure in the year of account was not of a capital nature.

(3.) 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 Section 5(e) of the Act, of course, does not in express terms provide for interest charges. If the express provision made for deducting interest charges in section 5(k) of the Act were to apply, then obviously the application of section 5(e) would be excluded even if all the statutory requirements of section 5(e) are satisfied, on the short ground that an express statutory provision of special application like section 5(k) excludes the operation of another like section 5(e) which is general in its scope. WE have already held that section 5(k) of the Act does not apply to the expenditure incurred by the petitioner. Whether the claim falls within the scope of section 5(e) is, therefore, independent of any possible application of section 5(k) of the Actrovision for deduction of interest charges incurred by an assessee in computing his net or assessable income is familiar enough in the Indian Income-tax Act. Express provision for such deduction has been made in the proviso to section 8 (income from securities), section 9(iv) (income from property) and section 10(2)(iii) (income from business) of the Income-tax Act. No such express provision is made in section 12 of that Act for computing the income from other sources. But what section 12(2) of the Income-tax Act permits is a deduction of any expenditure not being in the nature of a capital expenditure incurred solely for the purpose of earning income, profits and gains WE are leaving out of account the cases decided under the English Income-Tax Act, where the statutory provisions for the allowance and express provisions for disallowance of interest charges are different the scheme is quite different from that which underlies the Indian Income-tax Act In Eastern Investments Ltd. v. Commissioner of Income-tax the Supreme Court laid down at page 4