Madras High Court
Puthuthottam Estate (1943) Ltd. vs State Of Tamil Nadu on 2 September, 1997
Equivalent citations: [2000]243ITR172(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
ORDER R. Jayasimha Babu, J.
1. The assessee has come up in revision against the order of the Tribunal which has disallowed the assessee's claim for deduction of the amount paid by it as interest, except the extent to which had been allowed by the AO. The assessment years in question are 1983-84 and 1984-85.
2. The assessee has claimed deduction of a sum of Rs. 8,75,159 as the amount of interest paid by it during the year 1983-84 and has claimed a sum of Rs. 10,57,881 as interest paid during the year 1984-85. Of these sums, a sum of Rs. 5,66,015 and Rs. 7,08,422, respectively, were allowed as deductions under s. 5(k). The amount disallowed for the asst. yr. 1983-84 is Rs. 3,49,459.
3. The assessee had urged before Tribunal and the same point is urged before us that interest paid on the loans incurred in earlier years should be allowed to be deducted under s. 5(e) irrespective of the purpose of borrowing.
4. We have rejected such contention in T.C. decided on (sic).
5. Sec. 5(k) does not limit its application only to the borrowings made in the previous year or the monies spent in the previous year from out of the borrowings. The borrowings made in earlier years for purposes specified in s. 5(k) and the expenditure incurred from out of such borrowings in earlier years, are also required to be considered under s. 5(k) whenever deduction is claimed for the amount of interest paid in the previous year in respect of such old borrowings that remained unpaid. The Tribunal has rightly held that the interest paid on the borrowings for the purposes specified in s. 5(k) can only be claimed under s. 5(k) subject to the ceiling mentioned therein.
6. The Tribunal has again further held that all amounts paid as interest can only be claimed under s. 5(k) that is plainly incorrect as if the purposes of the borrowings and its utilisation does not fall within the scope of s. 5(k), it has to be considered under s. 5(e). The assessee can only claim deduction of interest in respect of that borrowing under s. 5(e).
7. From the details of the loans set out in the order of the Tribunal, we find that all the loans except one were obtained as crop loans. Crop loans clearly are loans meant for expending on the land from which agricultural income is derived and for the benefit of obtaining the income. Interest paid on corp loans whether borrowed in the previous year or in the earlier years can only be claimed under s. 5(k) subject to the ceiling mentioned therein. However, replanting loans obtained by the assessee for the purpose of replanting a part of the land cannot be said to fall under s. 5(k). Interest paid on the replanting loan has therefore, to be considered under s. 5(e). The assessee is entitled to that benefit under that section.
8. The assessee has claimed a sum of Rs. 90,244 as interest paid on a medium-term coffee replanting loan. The Tribunal has disallowed that interest erroneously. The assessee is entitled to deduction under s. 5(e) of the Act for the asst. yr. 1983-84.
9. In respect of the asst. yr. 1984-85 against bulk of the loans in respect of which interest had been paid are ad hoc crop loans. Interest paid on such loans can only be claimed under s. 5(k). However, in respect of the medium-term tea development loan a sum of Rs. 16,380 was paid. On another medium-term ad hoc development loan for tea interest of Rs. 10,505.15 was paid. The assessee is entitled to deduction under s. 5(e) of the Act, in respect of these sums as those loans relate to medium-term development of the estate. The Tribunal was in error in rejecting the assessee's claim for deduction of interest paid in the previous year on the loans.
10. In the result, the order of the Tribunal is modified to the extent indicated above. Interest paid on replanting and development loans being now held to be deductible under s. 5(e). The revision petitions are allowed in part.