JUDGMENT

PATHAK, J.:— This appeal by special leave is directed against the judgment of the High Court of Kerala disposing of an Agricultural Income-tax Reference and answering the following question in favour of the assessee and against the Revenue :

"Whether on the facts and circumstances of the case the Tribunal was justified in holding that the amount of Rs. 33,747.09 is not agricultural income for the assessment year 4964-65."

2. The assessees Kerala Estate Mooriad Chalapuram, is a broad description of seven persons possessing the status of tenants-in-common under the Kerala Agricultural Income- tax Act, 1950. They owned an estate from which they derived agricultural income liable to be assessed in the year 1963-64. The assessees followed the mercantile system of accounting. In assessment proceedings for the year 1963-64, the assessees claimed a deduction of Rs. 33,747.09 from their agricultural income on the ground that it was payable towards interest on a loan of Rs. 4,00,000/- taken by them from M/s. Associated Planters Ltd., Calicut. The deduction was allowed. During the accounting period relating to the assessment year 1964-65 M/s. Associated Planters Ltd. waived payment of the interest of Rs. 33,747.09, and accordingly the amount was credited to the revenue accounts of the assessees. The assessing authority brought the amount to tax. The case was ultimately carried in second appeal to the Tribunal on the question whether the sum of Rs. 33,747.09 credited in the relevant previous year could be assessed to tax for the year 1964-65. The Tribunal, by majority, held that it was not agricultural income. At the instance of the Commissioner of Agricultural Income-tax, Kerala, a reference was made to the High Court of Kerala under sub-s. (2) of S. 60 of the Kerala Agricultural Income-tax Act on the question of law set forth earlier, and the High Court has answered the question in the affirmative. The High Court has taken the view that it was immaterial that the assessees followed the mercantile system of accounting, because the case was not one of an actual or constructive receipt or any receipt at all but only one of remission. According to the High Court a remission could not give rise to a credit item in the accounts of the assessees, and that what had been given up by the creditor in favour of the assessees or returned to them could not constitute the income of the assessees. The High Court observed that what was returned to the assessees had nothing to do with the activities of the assessees, and that it did not arise from the agricultural operations carried on by the assessees.

3. The Kerala Agricultural Income-tax Act, 1950 provides for the levy of tax on agricultural income in the State of Kerala. S. 3 of the Act provides that agricultural income shall be charged for each financial year on the total agricultural income of the previous year of every person at the rates specified in the Schedule. S. 4 defines what total agricultural income is, and S. 5 details the deductions to be made in computing the agricultural income. Cls. (e), (g), (h), and (i) of S. 5 refer to interest paid by an assessee in different kinds of cases. The interest in all these cases has to be deducted from the agricultural income of a person before the levy is imposed. It is not disputed that the interest allowed to be deducted in the assessment of the present assessees falls under one of those clauses and was, therefore, rightly deducted in computing their agricultural income. The question is whether the interest waived by M/s. Associated Planters Ltd. and credited to the revenue accounts of the assessees can be regarded as their agricultural income.

4. There has been serious controversy through the years on the question whether an amount refunded or remitted constitutes the income of an assessee. In Commr. of Income-tax, Mysore v. Lakshmamma, (1964) 52 ITR 789 the Mysore High Court took the view that a refund received by the assessee in respect of e