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TMI Blog1964 (4) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... d from various parties, for the maintenance of the estate. Under section 5(k) the interest has to be limited to six per cent. on an amount equivalent to 25 per cent. of the agricultural income in that year. The gross income is Rs. 1,04,710-13-11. So the borrowing has to be limited to 25 per cent. of Rs. 1,04,710-13-11 which is Rs. 26,177-11-6. Interest at six per cent. on this amount is Rs. 1,570-10-7. So a sum of Rs. 21,057-15-1 is disallowed (22,628-9-8 minus 1,570-10-7)." The assessee appealed to the Assistant Commissioner of Agricultural Income-tax without success. He then appealed to the Madras Plantations Agricultural Income-tax Appellate Tribunal, hereinafter referred to as the Tribunal. The Tribunal observed as follows : " It is not possible to agree with the contention that interest paid in the year of account towards a loan borrowed by the proprietor for the purpose of acquisition of the estate will fall within the category of " expenditure wholly and exclusively laid out for the purpose of the plantation ". The immediate object of the expenditure, i.e., payment of interest, is to liquidate a personal liability of the proprietor, as a debtor. That after such borrowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tea as is defined to be agricultural income for the purposes of the enactments relating to Indian income-tax ; Explanation II.--Agricultural income derived from such plantation by the cultivation of coffee, rubber, cinchona or cardamom means that portion of the income derived from the cultivation, manufacture and sale of coffee, rubber, cinchona or cardamom, as the case may be, as may be defined to be agricultural income for the purposes of the enactments relating to Indian income-tax ; ... (r) 'plantation' means any land used for growing all or any of the following, namely, tea, coffee, rubber, cinchona or cardamom; " Section 3 is the charging section and it directs that " agricultural income-tax at the rate or rates specified in Part I of the Schedule to this Act shall be charged for each financial year commencing from 1st April, 1955, in accordance with and subject to the provisions of this Act, on the total agricultural income of the previous year of every person. " Section 4 describes what is " total agricultural income ". Section 5 is concerned with the computation of agricultural income and directs the deduction of various items. We are concerned with two sub-clauses a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract Corporation v. Styles. (2) Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade : vide Viscount Cave L.C. in Atherton v. British Insulated and Helsby Cables Ltd. If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. Thus, if labour saving machinery was acquired, the cost of such acquisition cannot be deducted out of profits by claiming that it relieves the annual labour bill, the business has acquired a new asset, that is, machinery. The expressions ' enduring benefit ' or ' of a permanent character ' were introduced to make it clear that the asset or the right acquired must have enough durability to justify its being treated as a capital asset. (3) Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s prohibited to be deducted are any capital withdrawn from or any sum employed or intended to be employed as capital in such trade, profession or employment or vocation, and any annual interest or any annuity or annual payment payable out of profits. The English cases like the European Investment Trust Co. case are distinguishable because in England there existed the prohibitions enumerated above. There are no such prohibitions in the Act with which we are concerned. But apart from these prohibitions, Lord Herschell observed in Gresham Life Assurance Society v. Styles as follows : " I think the fourth rule was primarily designed to meet such a case as that in which a trader had contracted to make an annual payment out of his profits; as, for example, when he had agreed to make such a payment to a former partner or to a person who had made a loan on the terms of receiving such a payment. But for the rule it might plausibly have been contended that in such a case a trader was only to return as his profits what remained after making such payment. " (Emphasis supplied) Accordingly, we hold that there is no force in the contention that the payment of interest was capital expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for its investments on which it earned income, the interest paid by it on the loans will clearly be a permissible deduction under section 12(2) of the Act. Earlier, it had observed that Scottish North American Trust v. Farmer was a somewhat similar case. In Dharamvir Dhir v. Commissioner of Income-tax this court held that a payment of 11/16 of the net profits of the assessee's business was an expenditure wholly and exclusively laid out for the purposes of the business as the assessee had arranged financing of the business on the best terms that he could manage. In Commissioner of Income-tax v. Jagannath Kissonlal this court upheld the claim of the assessee to deduct the amount it had to pay the bank on a joint promissory note. The only case cited by Mr. Chetty, which has some resemblance to the present case is the decision of the Bombay High Court in Metro Theatre, Bombay Ltd. v. Commissioner of Income-tax. But this case is distinguishable, for the interest claimed to be deducted, and which was disallowed, was in respect of the amount borrowed for acquiring land on 999 years lease, on which a cinema was subsequently built. There was no immediate connection between the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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