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Section 3 of the Kerala Agricultural Income-tax Act, 1950 - Agricultural income - Assessability of - Whether interest on loan allowed as deduction under section 5, which is subsequently remitted constitutes agricultural income of assessee -Held, no Facts The assessee was allowed deduction of interest on loan under section 5. Later on the interest was waived by the creditor and the amount of interest paid was remitted to the assessee. The assessing authority-brought the amount remitted to tax. The Tribunal, however, held that the amount so remitted was not assessable as the assessee's agricultural income. The High Court held that 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 assessee. The High Court observed that what was returned to the assessee had nothing to do with the activities of the assessee, and that it did not arise from the agricultural operations carried on by the assessee. The High Court, therefore, held that the impugned amount was not assessable in the assessee's hands as agricultural income. On appeal: Held The remission could not be considered as amounting to the receipt of agricultural income. What teas allowed to be deducted from the total agricultural income of the assessee was interest pursuant to section 5. It was a deduction made permissible by the Act. To be regarded as taxable in the hands of the assessee the amount which was the subject of remission must be capable of being described as agricultural income. The amount remitted could not be described as such. Moreover, a deeming provision like section 41(1) of the Income-tax Act, 1961 does not exist in the Kerala Agricultural Income-tax Act. The High Court was, therefore, justified in holding that the impugned amount did not constitute the assessee's agricultural income. Decision of the Kerala High Court affirmed. Cases referred to CIT v. Lakshmamma [1964] 52 ITR 789 (Mys.) and Mohsin Rehman Penkar v. CIT [1948] 16 ITR 183 (Bom.). JUDGMENT Pathak, J. -This appeal by special leave is directed against the judgment of the…

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