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TMI Blog1979 (2) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... 1955, and treat the balance of general overheads as allocable to income from tea? 2. Whether the Tribunal was also right in holding that the managing agency remuneration payable by the company should be allocated to tea and coffee on the basis of profits from tea and coffee and if there are losses from coffee estates and profits from tea estates the entire managing agency remuneration should be allocated to tea ? " The assessee is a company owning coffee and tea plantations. In computing the income for the assessment years 1963-64, 1964-65 and 1965-66, the assessee claimed that the general overhead expenses should be allocated on gross receipts basis between (a) coffee which is not chargeable to Central income-tax, and (b) tea, 40% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal allowed the appeals holding that the overhead expenses referable to income from coffee, which was agricultural income, should be computed in the proportion which the agricultural income bore to the sum total of the agricultural and non-agricultural incomes, that is, from coffee and tea and the balance of overhead expenses would have to be allocated towards the gross income from manufacture of tea. As regards the managing agency remuneration, the Tribunal held that the allowance should be on the basis of the net profits of the managed company in proportion to the income from tea and coffee. It is this order of the Tribunal which has given rise to the questions which are already set out. The two questions relate to two types of expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove rule contemplates, so far as this State is concerned, taking the receipts of a composite estate consisting of coffee and tea plantations. From out of the receipts from the tea plantations, the expenditure relating to the operations regarding tea will be separately allocated, and the balance of the income from the tea plantations will be arrived at. Similar would be the case with coffee. While deducting the expenses mentioned above, the general overhead expenses and the managing agency remuneration will not be taken into account. The overhead expenses and the managing agency remuneration will thereafter be allocated between the two in proportion to the respective incomes. It is this rule that was applied by the Tribunal on the ground tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure method which is suggested by the revenue would not be a proper one. For instance, between two estates, one estate may be in a position to get away with a smaller wage bill than the other which, because of certain circumstances, namely, labour being more vociferous, had to pay a larger amount of salaries and wages. In such an event, the allocation would be different. The net receipts, if taken into account, would avoid any such fluctuation on the basis of the difference existing between the two estates. Further, all the expenses are incurred only to get the receipts, and should thus be linked to the net receipts. In the case of commodities like coffee and tea the prices realised, though they may fluctuate in each year, will sti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allocated in proportion to direct expenses. But, where separate accounts are not maintained for direct expenses, the allocation may be made on the basis of the data available from the accounts of similar assessees who keep separate accounts. Interest charges should be normally allowed according to the purpose for which the borrowing was made. If this is not possible, they may be allocated in proportion to the average capital employed in each kind of estate." Thus, there are three different methods of allocating the expenditure suggested in this circular. One is, in proportion to the direct expenditure ; the second is, where accounts are not maintained for direct expenses, then one has to allocate the same on the basis of what similar asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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