RAMASWAMY C Vs. COMMISSIONER OF AGRICULTURAL INCOME TAX

JUDGEMENT

(1.) A tea and coffee estate named Havukal estate at Kotagiri is owned by a firm consisting of nine partners. The petitioners are some of the partners. The firm is registered under the provisions of the Madras Agricultural Income-tax Act for the year of assessment 1958-59 (accounting period May 1, 1957, to March 31, 1958). The petitioners had borrowed money from money-lenders and bankers for contributing towards the purchase price of acquisition of the estate. The Agricultural Income-tax Officer determined the assessable income of the firm from the estate as 60% of the total income determined by the Income-tax Officer acting under the Indian Income-tax Act. Each one of these petitioners claimed by way of deduction 60% of the interest paid on their respective capital borrowing. In computing the income under the Indian Income-tax Act the petitioners were allowed deduction to the extent of 40% on their borrowed capital as 40% of the income alone was taxable under that Act. The claim to deduct interest on borrowed capital, to the extent of 60%, in computing the petitioners share of the agricultural income having been negatived by the taxing authorities as well as by the Appellate Tribunal, these revision petitions have been preferred.

(2.) THE particulars of interest paid and the claim for deduction against agricultural income by the petitioners are given in the tabular statement below :

(3.) SECTION 5 (e) is a general provision and the conditions necessary to its applicability are : (i) the expenditure should not be in the nature of capital expenditure; (ii) it should not be in the nature of personal expenses of the assessee; and (iii) it should be laid out or expended wholly and exclusively for the purpose of the land. Interest paid on borrowed capital by an assessee is not a capital expense. Payment of interest is necessitates to raise the capital. The capital may be employed in several ways, like investment in a business or purchase of property. It is only the investment of capital that can be called the incurring of a capital expense. The liability to pay interest being only an incident of the procurement of the capital cannot partake of the character or the nature of the disbursement or utilisation of the capital. We have no doubt that the payment of interest for a borrowed capital is not in the nature of capital expenditure. We have equally no doubt in holding that the expenses incurred by paying interest for such a capital cannot be called personal expenses of the assessee.