Ruby Rubber Works Ltd. vs Agricultural Income Tax Officer-I and Others

T. Kochu Thommen, J.—The petitioner-company is an assessee under the Kerala Agrl. I.T. Act, 1950. The petitioner challenges exts. P-3, P-4 and P-6 which are the orders of respondents 1, 2 and 3, respectively, in each of the petitions. By ext. P-6, the 3rd respondent, the Commr. of Agrl. I.T., affirmed the findings of the officers below, that the petitioner was not entitled to claim deduction of interest paid by it in the previous year in respect of a non-possessory mortgage on the lands in question. The 3rd respondent rejected the contention on the ground that the deductions allowable u/s 5(f) of the Kerala Agrl. I.T. Act, 1950, could be recognised only where the mortgage was created for the purpose of deriving agricultural income. He found that the sum borrowed on the mortgage in the present case was, in fact, spent for business purposes. Accordingly, he held that the deduction u/s 5 (f) was not available to the petitioner.

Section 5 reads :

" Computation of agricultural income.-

The agricultural income of a person shall be computed after making the following deductions, namely :--......

(f) where the land from which the agricultural income is derived is subject to a mortgage or other capital charge, any interest paid in the previous year in respect of such mortgage or charge ;"

The section is clear in so far as it allows deduction of interest in respect of any mortgage or charge on the property from which income has been derived. The purpose for which the mortgage was created is immaterial for the purpose of the section so long as the property was subject to a mortgage or charge and interest was payable in respect of the same. Any interest thus paid out is an item of expenditure which is deductible under the section.

It has, therefore, to be ascertained whether as contended by the petitioner, a mortgage existed at the relevant time and interest was payable in respect of the same. If the petitioner''s contention is right, it is entitled to claim deduction for the interest paid. Accordingly, the 3rd respondent will ascertain whether the facts alleged existed at the relevant time. If so, the petitioner''s claim has to be allowed in regard to interest on mortgage.

The petitioner also contends that the claim in respect of the bonus paid to employees was not allowed as a deduction. Bonus can be allowed to be deducted only if the bonus paid to employees can be ascribed to the mature area which yielded income. This, again, is a question which has to be determined. Such determination may be made with reference to the deduction already allowed in respect of the salary paid in proportion to the mature area.

The third contention of the petitioner is that on the basis of an inspection report prepared in 1974, the company is sought to be assessed in respect of the previous years relevant to the assessment years 1972-73 and 1973-74. According to the petitioner, the trees had yielded more income as years went by and the income of 1974 was, therefore, not a guide to the income in relation to the previous years. This, again, would depend upon the nature of the growth of the trees and their condition. This fact has to be determined.

In the circumstances, I quash exts. P-3, P-4 and P-6 in each of the petitions in so far as they hold that the petitioner is not entitled to the dedutions aforesaid. These questions have to be redetermined in the light of what is stated above. The 3rd respondent is accordingly directed to pass appropriate orders as urgently as possible.

The original petitions are thus disposed of. No costs.