1. As the point arising in all these three tax cases is thesame, they can be dealt with together, though they had been filed by different assessees. The question that is raised in these cases is as to whetherthe deduction under Section 5(k) of the Madras Agricultural Income-taxAct towards the interest paid by the assessee in the previous year on theamounts borrowed and actually spent on the land from which agriculturalincome is derived should be limited to an amount equivalent to 25% of thenet agricultural income or the gross agricultural income.
2. According to the assessees, the expression 'agricultural income', occurring in the second proviso to Section 5(k), should be understood in the sense in which it has been defined in Section 2(a) and if so read the assessee will be entitled to the deduction of interest paid in the previous year on the amounts borrowed and actually spent on the land up to the limit of 25% of the gross agricultural income received during the year. The learned counsel seeks support for that position from the decision of Rajagopalan J. in Soundarapandian and Bros. v. Agricultural Income-tax Officer, : (1957)2MLJ431 wherein it has been expressed:
' I might, however, record that the learned Government Pleader conceded the claim of the petitioners, that the second proviso to Section 5(k) was not correctly applied by the Agricultural Income-tax Officer. The Agricultural Income-tax Officer was wrong in allowing only 25 per cent. of the assessable agricultural income as a deduction within the scope of Section 5(k). What should have been the basis of computation for relief was the ' agricultural income ' as defined by Section 2(a). '
3. Though the above observations proceed on the basis of a concession on the part of the revenue, we are of the view that the principle laid down therein sets out the correct legal position. The agricultural income has been defined under Section 2(a) as meaning any rent or revenue derived from land and any income derived from such land by agriculture, etc. The word 'agricultural income' as defined seems to include various categories of receipts from land. The question is whether the expression 'agricultural income' occurring in the second proviso to Section 5(k) has been used in a restrictive sense so as to mean only the taxable income, i.e., the income as computed under Section 5. Section 5 provides for computation of the agricultural income and it says that the agricultural income of a person shall be computed after making the deductions set out in various sub-sections set out thereunder. Sub-section (k) provides for deduction towards interest paid on the amount borrowed and actually spent by the assessee on the land. At the stage of finding out the deduction towards interest paid by the assessee, it is not possible to ascertain as to what exactly is the net taxable income, for the taxable income has to be computed only after making the deductions contemplated under the various subsections including Sub-section (k). Therefore, when the second proviso limits the deduction to 25% of the agricultural income from the land, it can only mean the gross agricultural income and not the taxable agricultural income which can be found out only after making all the allowances or deductions provided for in the various sub-sections. We are, therefore, of the view that the assessees in these cases are entitled to deduction in the previous year on the amounts borrowed and actually spent on the land up to 25% of the gross agricultural income.
4. The view of the Appellate Tribunal in this regard is, therefore, modified. But the order of the Tribunal directing remand of the matter for finding out whether the sums borrowed had actually been spent on the land will stand. No orders as to costs.