Puthutotam Estates (1943) Ltd. vs State of Tamil Nadu

Ramanujam, J.—These tax revision cases filed by the assessee are directed against the order of the agricultural Income Tax Appellate

Tribunal, Madras, in A.T.A. Nos. 44 and 45 of 1980.

The assessee-company owns Puduthotam and Korangumudi estates in Anamalai Hills of Pollachi Taluk in Coimbatore District. The crops

grown in the said two estates are coffee, tea and cardamom. But we are concerned in this case mainly with the coffee plantation. Before the Agrl.

ITO, the bank. The Agrl. ITO allowed the claim in part subject to the limitation provided in s. 5(k) of the Act. When the matter was taken on

appeal to the AAC, he sustained the order of the ITO. On a further appeal to the T ribunal, the Tribunal, held that the interest on the amount

borrowed f or maintaining the immature coffee plants on the replanted area cannot be excluded from the purview of s. 5(k), even, though the

interest on amounts borrowed on the plantation in general will fall under s. 5(e). In that view, the Tribunal remitted the matter back to the Agrl. ITO

for further consideration in the light of the directions of the Tribunal that the amount of interest paid in respect of the loans for maintaining immature

plants can only be considered under s. 5(k) and not under s. 5(e). That view of the Tribunal is challenged before us.

Thus, the matter involves the relative scope and ambit of s. 5(e) and s. 5(k) in respect of interest paid on borrowings made by the assessee in

relation to the plantation.

Section 5(e) and 5(k) read 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)

(k) any interest paid in the previous year on any amount borrowed and actually spent on the land from which the agricultural income is derived :

Provided that the need for borrowing was genuine having due regard to the assets of the assessee at the relevant time :

Provided further that the interest allowed under this clause shall be limited to nine per cent. on an amount equivalent to twenty-five per cent. of the

agricultural income from the land in that year.

Section 5(e) provides for deduction of any expenditure incurred wholly or exclusively for the purpose of land while s. 5(k) deals with interest

payment on the amount borrowed and actually spent on the land from which agricultural income is derived. The expression ""land"" occurring in s. 5

was substituted for the original word ""plantation"" by s. 6(1) of the Tamil Nadu Plantation

Agricultural Income Tax (Amendment) Act, 1958. The first proviso to s. 5(k) says that the borrowing should be genuine having due regard to

the assets of the assessee at the relevant time. The second proviso stipulates that the interest allowed under s. 5(k) shall be limited to 9% on an

amount equivalent to 25% of the agricultural income from the land in that year.

It is well established that there is a clear-cut distinction between moneys borrowed and expended wholly and exclusively for the purposes of the

land and money borrowed and actually spent on the land. G. J. Coelho Vs. State of Madras, and State of Madras Vs. Thiru Arooran Sugars Ltd.,

. In the first case, the court has taken the view that s. 5(e) is a general provision and s. 5(k) is a special provision, that if s. 5(k) applies to certain

interest charges, the application of s. 5(e) would be automatically excluded even if all the statutory requirements of s. 5(e) were satisfied on the

ground that the express statutory provision of special application like s. 5(k) would exclude the operation of another provision like s.5(e) which is

general in its scope. In the second case, the view taken in the first case is accepted and the court has observed thus (p. 311 of 55 ITR) :

There is a clear distinction between moneys borrowed for expenses wholly and exclusively for the purposes of the land and moneys borrowed

and actually spent on the land.

In this case, the assessee has borrowed moneys both for the purpose of the land and for actual spending on the land, i.e., for raising immature

coffee plants and also for the existing plantation. Though the ITO as well as the appellate authority have proceeded on the basis that the expenses

incurred for the maintenance of the immature plants will amount to a capital expenditure, the Tribunal has taken the view that the expenditure on

immature plants is a revenue expenditure following the decisions in The Travancore Rubber and Tea Co. Ltd. Vs. The Commissioner of

Agricultural Income Tax, Kerala, , Commissioner of Agricultural Income Tax, Trivandrum Vs. Calvary Mount Estates (Private) Ltd., and The

Cuchterlony Valley Estates (1938) Ltd. Vs. Government of Madras, . If the cost of maintaining the immature plantation is a revenue expenditure as

has been held by the Tribunal, then any interest paid on the amount borrowed for maintaining the immature plantations will clearly fall under s. 5(e)

and it will not fall under s. 5(k) as the amount borrowed cannot be said to have been actually spent on the land from which the agricultural income

is derived. The Tribunal, having said that the expenses incurred for maintaining the immature plant is a revenue expenditure, has proceeded to say :

It is not possible to make a distinction between land which yielded some produce and the rest, and, therefore, the interest paid on the lands for

replanting can only be considered u/s 5(k) and not u/s 5(e)."" The assessee is aggrieved by the decision of the Tribunal holding that the expenditure

incurred on the maintenance of immature plants in the replanted area would come within the general provision of s. 5(e) and it will not be subject to

the limitations provided for under s. 5(k).

On a due consideration of the matter, we are inclined to agree with the contention of the learned counsel for the assessee. As has been pointed

out earlier, sections 5(e) and 5(k) are operating in different areas. Section 5(e) takes in any expenditure laid out or expended wholly and

exclusively for the purpose of the land, not being in the nature of capital expenditure or personal expenses of the assessee. The expenditure

incurred on immature coffee plants is a revenue expenditure, and not a capital expenditure, and as such any interest paid on the borrowings made

for maintaining the immature plants will clearly fall under s. 5(e).

Coming to s. 5(k), it is seen that the interest paid on the amount borrowed and actually spent on the land from which agricultural income in

derived alone is covered by that provision. Though the Tribunal says that it is not possible to make a distinction between the land from which

agricultural income is derived and the other lands, we are not inclined to agree with the Tribunal''s view, for, s. 5(k) specifically uses the expression

amount borrowed and actually spent on the land from which agricultural income is derived."" This means that the s. 5(k) is intended to apply to the

interest payments on the borrowings which have been spent on the land from which agricultural income is being derived. The land from which

agricultural income is derived cannot be equarted to the entire plantation area. Thus, s. 5(k) appears to apply to interest paid on the amounts

borrowed and actually spent on the existing crop in the land from which income is derived and will not apply to any interest payments on amount

borrowed for maintaining the others areas or plants from which agricultural income is not derived in the assessment year. When the statute makes a

distinction between land in general and lands from which agricultural income is derived, that distinction cannot be overlooked. In this view, we have

to disagree with the Tribunal and hold that the interest payments made on the amounts borrowed and actually spent on the maintenance of the

crops which yields agricultural income will fall under s. 5(k) while the interest paid on the amounts borrowed for maintaining the immature coffee

plants not yielding any income will fall under s. 5(e).

The learned counsel for the Revenue then contends that s. 5(k) being a special provision dealing with all interest payments should exclude the

general provision like s. 5(e). We are not inclined to agree with this contention for the reason that s. 5(k) deals with only particular interest

payments and not all interest payments, and, therefore, that cannot be taken to be a special provision regarding all interest payments. The purpose

of having a provision like s. 5(k) is to see that while giving an allowance for the interest payments on the amount borrowed for spending on the

crop which yields income, there should be a limits as otherwise it is possible for the assessee to claim a substantial portion of the income as an

expenditure incurred for maintaining the crop which yields the income. The Legislature might have though that no such limitation is necessary in

respect of the interest payments on other borrowings for the maintenance of immature coffee plants. Dealing with the relevant scope of ss. 5(e) and

5(k), a Division Bench of this court in State of Madras Vs. Thiru Arooran Sugars Ltd., has observed that ""there is a clear difference

between''moneys borrowed for expenses wholly and exclusively for purposes of the land"" referred to in s. 5(e) and ''moneys borrowed and

actually spent of the land'' referred to in s. 5(k), that for s. 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 land in connection with the business activities of the assessee which resulted in the

earning of agricultural income, and that it is for the State to establish that particular items represent money actually spent on the land so as to take

out any portion of those items from the scope of section 5(e)."" The Court observed that ""section 5(k) being a special provision, 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.

Thus, s. 5(e) will stand excluded only if s. 5(k) applies. If s. 5(k) does not apply for the reason that the amount borrowed has not been actually

spent on the land from which income is derived, then s. 5(e) cannot be excluded if the statutory requirements of s. 5(e) are satisfied. In Kil Kotagiri

Tea and Coffee Estates Co. Ltd. Vs. Government of Madras, , another Division Bench, of which one of us was a party, has ruled that s. 5(e) is in

the nature of a residuary clause and would take in not only the expenditure incurred for the purpose of earning the agricultural income but also very

many expenses involved in carrying on the agricultural activity as an occupation, that the expression ""for the purpose of the land"" is much wider in

scope than the expression ""for the purpose of deriving the agricultural income from the land"", that s. 5(e) covers a wide range of expenses taking in

not only the expenses incurred actually for deriving agricultural income but also expenses which are not directly incurred for deriving agricultural

income but have been expended in connection with the lands which do not have any relationship to the agricultural income derived in the previous

year, and that those expenses will come under the expression ""for the purpose of the land"" and will have to be dealt with under s. 5(e).

In this case, the amount borrowed is a sum of Rs. 4,61,570.50, out of which the Agrl. ITO allowed a deduction under s. 5(k) only in respect

of a sum of Rs. 64,973. The (interest on the) balance of Rs. 3,96,597 has been disallowed on the ground that it exceeds the restrictions contained

in s. 5(k). The Tribunal has given a direction to the Agrl. ITO to take the expenses incurred for the maintenance of immature plants also as

expenses coming under s. 5(k). As we have held that the expenditure in respect of maintenance of immature plants will fall under s. 5(e), the

interest paid on the amounts borrowed for maintaining the immature plants will have to be treated as an expenditure coming under s. 5(e). In

respect of a deduction to be made under s. 5(e), there is no question of any restriction as is found in s. 5(k). Therefore, while sustaining the remittal

order passed by the Tribunal, we direct the Agrl. ITO to apply s. 5(k) only in relation to the interest payments on the amounts borrowed and

actually spent on the land from which the income has been derived in the previous year. The tax cases are allowed accordingly. The assessee will

be entitled to costs. Counsel''s fee Rs. 250 (one set).