Case: State Of Madras Vs. C. J. Coelho

after such payment." (emphasis (here in ) supplied)13. Accordingly, we hold that there is no force in the contention that the payment of interest was capital expenditure within S. 5 (e) of the Act14. The next point, namely, that the payment of interest was a personal expense is equally without substance. We are unable to appreciate that any expense to discharge a personal obligation becomes a personal expense within S. 5(e). Personal expenses would include expenses on the person of the assessee to satisfy his personal needs such as clothes. food, etc., or purposes not related to the business for which the deduction is claimed.15. The third ground raised by Mr. Chetty needs careful scrutiny. This Court. after reviewing English and Indian cases, summarised this position in Commr, of Income-tax. Kerala v. Malayalam Plantation Ltd., Civil Appeals Nos. 384 and 385 of 1963 D/- 10-4-1964 : (AIR 1964 SC 1722 ). as follows :"The aforesaid discussion leads to the following result : The expression "for the purpose of the business" is wider in scope than the expression "for the purpose of earning profits". Its range is wide: it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business. It cannot include sums spent by the assessee as agent of a third party, whether the origin of the agency is voluntary or statutory; in that event, he pays the amount on behalf of another and for a purpose unconnected with the business."16. Before deciding the question, it is necessary to mention three other decisions of this Court. In Eastern Investments Ltd, v. Commr. of income-tax, West Bengal, 1951 SCR 594 : (AIR 1951 SC 278 .) this Court held that interest on debentures issued by an investment company was to be allowed as business expenditureunder S. 12(2) of the Indian income-tax Act. It observed that this being an investment company it it borrowed and utilised the same for its investments on which it earned income, the interest paid by it on the loans will clearly be a permissible deduction under S. 12(2) of the Act, Earlier, it had observed that Scottish North American Trust v. Farmer, (1912) 5 Tax Cas 693 was a somewhat similar case.17. In Dharamvir Dhir v. Commr. of Income-tax, (1961) 3 SCR 359 : (AIR 1961 SC 668 ) this Court held that a payment of 11/ 16th of the net profits of the assessees 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.18. In the Commr, of Income-tax Bombay v. Jagannath Kissonlal, (1961) 2 SCR 644 : (AIR 1961 SC 748 ) this Court upheld the claim of the assessee to deduct the amount it had to pay the bank on a joint promissory note.19. The only caste cited by Mr. Chetty, which has some resemblance to the present case the decision of the Bombay High Court in Metro Theatre Bombay Ltd. v. Commr. of Income-tax, (1946) 14 ITR 638 (Bom) . 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 paid and the cinema business. As Kania J., as he then was, put it, "if the interest was not paid the result would be not necessarily the stoppage of showing films, but the assessee will not acquire the lease of this property20. Applying the above principles to the facts of this case, it seems to us that it is impossible to dissociate the character of the assessee as the owner of the plantation and as a person working the plantation. The assessee had bought the plantation for working it as a plantation, i.e., for growing tea, coffee and rubber. The payment of interest on the amount borrowed for the purchase of the plantation when the whole transaction of purchase and the working of the plantation is viewed as an integrated whole, is so closely related to the plantation that the expenditure can be said to be laid out or expended wholly and exclusively for the, purpose of the plantation. In this connection, it is pertinent to note that what the Act purports to tax is agricultural income and not agricultural receipts. From the agricultural receipts must be deducted all expenses which in ordinary commercial amounting must be debited against the receipts. There is nothing in the Act which prohibits such expenses from being deducted. No farmer would treat interest paid on capital borrowed for the purchase of the plantation as anything but expenses, and as long as the deductions he claims, apart from any statutory prohibition, can be fairly said to lead to the determination of the true net agricultural income, these must be allowed under the Act. In principle, we do not see any distinction between interest paid on capital borrowed for the acquisition, of a plantation and that between interest paid on capital borrowed for the purpose of existing plantations, both are for the purposes of the plantation.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]10. If we apply these principles to the facts of this case, the answer seems clear that the payment of interest is revenue expenditure.No new asset is acquired with it; no enduring benefit is obtained. Expenditure incurred was part of circulating or floating capital of the assessee. In ordinary commercial practice payment of interest would not be termed as capital expenditure.Accordingly, we hold that there is no force in the contention that the payment of interest was capital expenditure within S. 5 (e) of the Act14. The next point, namely, that the payment of interest was a personal expense is equally without substance. We are unable to appreciate that any expense to discharge a personal obligation becomes a personal expense within S. 5(e). Personal expenses would include expenses on the person of the assessee to satisfy his personal needs such as clothes. food, etc., or purposes not related to the business for which the deduction is claimed.Applying the above principles to the facts of this case, it seems to us that it is impossible to dissociate the character of the assessee as the owner of the plantation and as a person working the plantation. The assessee had bought the plantation for working it as a plantation, i.e., for growing tea, coffee and rubber. The payment of interest on the amount borrowed for the purchase of the plantation when the whole transaction of purchase and the working of the plantation is viewed as an integrated whole, is so closely related to the plantation that the expenditure can be said to be laid out or expended wholly and exclusively for the, purpose of the plantation. In this connection, it is pertinent to note that what the Act purports to tax is agricultural income and not agricultural receipts. From the agricultural receipts must be deducted all expenses which in ordinary commercial amounting must be debited against the receipts. There is nothing in the Act which prohibits such expenses from being deducted. No farmer would treat interest paid on capital borrowed for the purchase of the plantation as anything but expenses, and as long as the deductions he claims, apart from any statutory prohibition, can be fairly said to lead to the determination of the true net agricultural income, these must be allowed under the Act. In principle, we do not see any distinction between interest paid on capital borrowed for the acquisition, of a plantation and that between interest paid on capital borrowed for the purpose of existing plantations, both are for the purposes of the plantation.