Judgment

SIKRI J. : The respondent, hereinafter referred to as the assessee, purchased an estate in 1950, known as Silver Cloud Estate, consisting of tea, coffee and rubber plantations, in Gudalur Nilgiris, Madras State. Out of the sale price of Rs. 3,10,000/-, he borrowed Rs. 2,90,000/-, at interest varying from seven to eight per cent, per annurn. For the assessment year 1955-56, the assessee claimed to deduct interest on this sum, amounting to Rs. 22,628/9/8. The Agricultural Income-tax Officer, Gudalur, disallowed Rs. 21;057/15/1, allowing Rs. 1,570/10/l, under S. 5 (k) of the Madras Plantations, Agricultural Income-tax Act (Madras Act. V of 1955), (hereinafter referred to as the Act). The relevant part of the assessment order is reproduced below :

"Interest on borrowing Rs. 21,057-1. The assessee has claimed Rs. 22,628-9-8 towards interest. It is seen that about Rs. 80,000 has been borrowed from various parties, for the maintenance of the estate. Under S. 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