TMI Blog1967 (6) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... rise for consideration: " (1) Whether, on the facts and in the circumstances of the case, the disallowance of the sum of Rs. 13,797.53 being the sum paid to financiers in lieu of interest by the petitioner is valid in law ? and (2) Whether, on the facts and in the circumstances of the case the disallowance of Rs. 4,355 out of cultivation and management expenses claimed by the petitioner is justified in law?" So far as the second question is concerned, we may straightaway answer it in the negative and against the assessee. The disallowance is based on the merits of the claim and scarcely any question of law arises. On the first question, we are of opinion that the claim of the assessee is one of substance. The assessee succeed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee) laid out or expended wholly and exclusively for the purpose of land. " What this clause provides for is deduction of revenue incurred by the assessee in the previous year in order to earn his profits during that year. Whether the payment in question made by the assessee partakes of that character will depend upon the nature and effect of the transaction entered into between the assessee and Mr. John. If it is amounts to an advance of money which is expended on the lands for the assessee to earn profits therefrom, such expenditure obviously will be of a revenue character. If, on the other hand, what was paid by Mr. John was in the nature of an investment, different consideration may arise. On a careful consideration of the variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right through the leasehold interest should be regarded as belonging to the assessee notwithstanding the fact that moneys paid out by Mr. John to the assessee were expended on the leasehold lands. The main characteristics of debtor and creditor relationship are that one of the parties lends to the other a certain sum of money on the understanding that the receiver will repay it on demand or in accordance with other stipulations which may be repayment only after a particular period, or in the happening of a particular contingency and that in view of the advance the debtor agrees to pay interest periodically or otherwise. Payment of interest need not necessarily be an essential element of a debt. But its presence will clearly indicate the cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded for the revenue that if the amount in respect of the claim for deduction is made to be regarded as interest paid in the previous year, the deduction will be subject to the terms of section 5(k). But the revenue itself has not treated the amount sought to be deducted as relating to payment of interest. Apart from that, what was paid under the agreement was a share of the net profits, which was in lieu of interest. We referred to the aspect of interest earlier in order to test the nature of the transaction as a borrowing. In the circumstances, therefore, there is no reason why the deduction sought for is not to be allowed under section 5(e). The first question is answered in favour of the assessee, but with no costs. - - TaxTMI - TM ..... X X X X Extracts X X X X X X X X Extracts X X X X
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