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TMI Blog1967 (9) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... e owned in the year of account extensive estates in which it grew its own sugarcane. From the sugarcane thus grown on its own estates the assessee utilised a major part for conversion into sugar in its factory and the rest after meeting the requirements of the factory it also disposed of at times. Over and above this quantity of sugarcane it occasionally used to make purchases of sugarcane which were comparatively very small. For the purposes of its business the assessee had appointed managing agents, who have been paid remuneration at the statutory percentage being 10% of the profits of the company. The total remuneration which was debited in the profit and loss account of the assessee for the relevant year as its business expenditure in respect of its managing agency commission was Rs. 4,86,228-6-0. It seems that in the past years the assessee used to be assessed on the basis that part of its managing agency commission as well as several other items of expenditure were partly attributable to their agricultural income and partly to the income from business and the assessee had accepted that position. In the year of account also the assessee had furnished similar statements and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at rule 23 would not apply in the circumstances of the case because the rule merely provides for determining that part of the income which has to be excluded under section 4(3)(viii) and it does not affect the rule that all allowable expenditure must be deducted from the assessable profits of a business. It pointed out that in making allowance for expenditure it was not possible to allocate the expenditure to the excluded portion of the profits of a company and only allow that much expenditure which is proportionately attributable to the taxable income of the assessee. The Tribunal held that the sum of Rs. 1,26,359 which was a part of the total amount paid as the managing agency remuneration could not, in the circumstances, have been disallowed. It was under these circumstances that the question which we have stated above has been referred for our decision. The Tribunal in its order has referred to several cases particularly to S. A. S. S. Chellappa Chettiar v. Commissioner of Income-tax and the decision of this court in Salt & Industries Agencies Ltd. v. Commissioner of Income-tax and to a decision of the Supreme Court in Commissioner of Income-tax v. C. Parakh & Co. (India) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er whether rule 23 makes any difference to this position in law. Rule 23 runs as follows : " 23. (1) In the case of income which is partially agricultural income as defined in section 2 and partially income chargeable to income-tax under the head ' business ', in determining that part which is chargeable to income-tax the market value of any agricultural produce which has been raised by the assessee or received by him as rent-in-kind and which has been utilised as raw material in such business or the sale receipts of which are included in the accounts of the business shall be deducted, and no further deduction shall be made in respect of any expenditure incurred by the assessee as a cultivator or receiver of rent-in-kind. (2) For the purposes of sub-rule (1) ' market value ' shall be deemed to be :--- (a) where agricultural produce is originally sold in the market in its raw state or after application to it of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render it fit to be taken to market, the value calculated according to the average price at which it has been so sold during the year previous to that in which the assessment is made ; (b) wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he direction that no further part of the agricultural expenditure can be deducted. Now it is clear that when the clause just referred to uses the words " further deduction " it refers back to deduction of an expenditure in the agricultural activity of the assessee. The qualification on the words " no further deduction ", as laid down by the clause is, " in respect of any expenditure incurred by the assessee as a cultivator ". The question is whether the amount of the managing agency commission can possibly be covered by these words. Is the managing agency commission or any part of it " expenditure incurred by the assessee as a cultivator ". The rule contemplates a case of an assessee whose business consists of more than one activity, namely, business and agriculture and deals with how the income from these two activities has to be dealt with and the income chargeable to income-tax has to be determined. It is difficult to hold that the expenditure incurred by the assessee in appointing managing agents of their company would be expenditure incurred by them " as a cultivator ". The expression is not " in respect of " cultivation or " in connection with " cultivation but the expressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed as the managing agents of a business and the remuneration payable to them must be held to be expenditure incurred by the assessee for the purposes of their business. It can by no stretch of language be held to be expenditure incurred by the assessee as a cultivator. We do not think therefore that rule 23 prohibits the allowance of the full amount of the remuneration paid to the managing agents in this case. Thirdly, we may point out that where these rules intended that any part of the income earned from agriculture should be treated as a business income the rule expressly says so. For instance, in rule 24 it is provided that : " Income derived from the sale of tea grown and manufactured by the seller in the taxable territories shall be computed as if it were income derived from business, and 40 per cent of such income shall be deemed to be income, profits and gains liable to tax." Now here by a fiction the legislature has treated the agricultural income as if it were business income to a certain extent. If the intention of rule 23 was the same we have no doubt that those who framed the Rules would have similarly said so in clear terms. As it is, the expression which they h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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