The judgment of the court was delivered by
RAMAMURTHY J. - The State has preferred this revision petition against the order of the Tribunal, allowing certain deductions under section 5(e) and section 5(k) of the Madras Agricultural Income-tax Act.
The assessee is Thiru Arooran Sugar Mills Ltd., and the assessment relates to the year 1958-59. The dispute in the revision case relates to two categories of deductions : (a) interest paid by the assessee in respect of the balance of the purchase consideration due by the assessee; (b) interest paid on money borrowed for expenses incurred by the assessee while carrying on its business, i.e., agricultural operations and manufacture of sugar. There is no dispute about other items. The assessee for the purpose of his business had purchased large extends of lands for raising sugarcane for about rupees 58 lakhs out of which after payments so far made there is a balance of about rupees 21 lakhs carrying interest at 6%. The assessee claimed a deduction of a sum of Rs. 1,22,520 towards interest paid on the unpaid purchase money aforesaid. The Tribunal upheld this claim following the Bench decision of this court in G. J. Coelho v. State of Madras. In that case the assessee had borrowed money for purchasing an estate consisting of tea, coffee and rubber plantations in Nilgris, Madras State. The Bench held that the loan which was utilised and spent for acquiring the plantations was wholly and exclusively for the purpose of the sources of income of the assessee, and that the payment of interest on the amount so borrowed was an allowable deduction under section 5(e) of the Act. The matter went in appeal to the Supreme Court and in State of Madras v. G. J. Coelho the Bench decision of the Madras High Court was affirmed. In view of this, the State cannot resit the claim of the assessee for deduction under section 5(e).
In respect of the other expenses incurred by the assessee while carrying on its business of agricultural operations and the manufacture of sugar, the Tribunal held that certain expenses would be governed by section 5(k) under which there is a ceiling limit as regards the quantum of expenses as well as the rate of interest allowable if loans are raised for providing for those expenses. In respect of certain other items of expenditure, the Tribunal held that they would come under section 5(e), and that the assessee would be entitled to deduction of the entire interest paid on the loans borrowed by the assessee for meeting those expenses. For convenient reference of the allocation made by the Tribunal the following statement of account contained in page 7 of the typed papers supplied by the assessee may be extracted :
Extract of allocation shown in the judgment
Tribunal allowed the claim under section 5(k)
Tribunal allowed the claim under section 5(e)
Cultivation labour, etc., expenses about
Salaries and wages about
Laobut, etc, included in the cost of cultivation
Establishment, executive office, etc
Tractor and maintenance
Wages & labour charges
Oil engine and pump set maintenane
Land revenue & water charges
Tractor and pump set hire charges
Consumption of stores, cost of cane seed and manures included in the cost of cultivation
Consumption of stores: Loss on agricultural implements
There is no revision by the assessee against the view taken by the Tribunal that the various expenses mentioned in item (a) would be governed by section 5(k). The only dispute now raised by the State is that the expense under item (b) which has been allowed by the Tribunal under section 5(e) would really come under section 5(k), and that the Tribunal is wrong in upholding the claim for deduction under section 5(e). Section 5 which deals with the computation of agricultural income provides for certain allowances and deductions. Section 5(e), one of the deductions allowed, runs as follows :
'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.'
Section 5(k) is in these terms :
'any interest paid in the previous year on any amount borrowed and actually spent on the land from which the agricultural income is derived.'
In decision, G. J. Coelho v. State of Madras, referred to earlier, the Bench has taken the view that section 5(e) is the general provision and that section 5(k) is a special provision, and that if section 5(k) applies to certain interest charges, the application of section 5(e) would be excluded even if all the statutory requirements of section 5(e) are satisfied on the ground that the express statutory provision of special application like section 5(k) would exclude the operation of another provision like section 5(e) which is general in its scope.
The Supreme Court, while affirming the decision of the Madras High Court, put the matter thus :
'Applying the above principles to the facts of this case, it seems to us that it is impossible to dissociate the character of the assessee as the owner of the plantation and as a person working the plantation. The assessee had bought the plantation for working it as a plantation, i.e., for growing tea, coffee and rubber. The payment of interest on the amount borrowed for the purchase of the plantation when the whole transaction of purchase and the working of the plantation is viewed as an integrated whole, is so closely related to the plantation that the expenditure can be said to be said to be laid out or expended wholly and exclusively for the purpose of the plantation. In this connection, it is pertinent to note that what the Act purports to tax is agricultural income and not agricultural receipts. From the agricultural receipts must be deducted all expenses which in ordinary commercial accounting must be debited against the receipts. There is nothing in the Act which prohibits such expenses from being deducted. No farmer would treat interest paid on capital borrowed for the purchase of the plantation as anything but expenses, and as long as the deductions he claims, apart from any statutory prohibition, can be fairly said to lead to the determination of the true net agricultural income, these must be allowed under the Act. In principle, we do not see any distinction between interest paid on capital borrowed for the aquisition of a plantation and interest paid on capital borrowed for the purpose of existing plantations : both are for the purpose of the plantation.'
According to the judgment of the Supreme Court there is no difference between interest paid on moneys borrowed for the acquisition of a plantation and interest paid on moneys borrowed for the purpose of working the existing plantation, and that both would be for the purposes of the plantation, or expended wholly and exclusively for the purpose of the land. It may be noticed that the Supreme Court decided the case on the ground that the money borrowed was wholly and exclusively for the purpose of the land and did not advert to this aspect, i.e., the general provision in section 5(e) being excluded by the special provision in section 5(k).
The question is whether the particular loans borrowed would amount to 'moneys borrowed and actually spent on the land' from which agricultural income is derived within the meaning of section 5(g). Looking at the several sub-clauses of section 5 we find that in section 5(d) the legislature has used the words 'was purchased or constructed for the benefit of the land' from which the agricultural income is derived. In section 5(e) the words used are 'expenses laid out or expended solely or exclusively for the purpose of the land'; in section 5(k) the words used are 'any amount borrowed and actually spent on the land'. There is a clear distinction between moneys borrowed and actually spent of the land
In G. J. Coelho v. State of Madras the distinction between section 5(e) and section 5(k) was pointed out in these terms :
'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.'
From this it is clear that 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. 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 scope of section 5(e). When we examine the items allowed by the Tribunal under section 5(e) it is impossible to regard anyone of these items as money spent on the land. In our opinion, it is impossible to agrue contra, and the view of the Tribunal is perfectly correct. Salaries and wages for establishment and executive office, tractor maintenance, oil engine and pump-set maintenance, tractor and pump-set hire charges and repairs to buildings, repairs to road, contribution to local development scheme, expenditure on temporary structure, travelling and postage cannot possibly be contended as items of expenditure incurred in connection with the lease of lands. The learned Government pleader did not contend that it would not come under section 5(e). As none of the items would come under section 5(k), it is necessary in this case to define the demarcating line between the scope of the expenses under section 5(e) and section 5(k). It may be, that in a particular case there may be difficulty in determining whether a particular expense is for the purpose of the land or is expenditure spent on the land. As observed earlier there is no such problem in the instant case and we are clear that everyone of the items now in dispute would come only under section 5(e).
Our attention was drawn to the provision of the Kerala Agricultural Income-tax Act as well as the Mysore Agricultural Income-tax Act. Even though the main scheme as well as the claim for deduction under the three enactments appears to be of the same pattern, we find that the classification of the heads of allowances and deductions in the other two enactments is more detailed, and is not of much assistance in determining the relative scope of section 5(e) and section 5(k) of Madras Act.
This revision petition is dismissed, but no costs.