TMI Blog1971 (8) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... ing agency commission paid by the assessee-company for the assessment year 1957-58, in computing the income from business of the assessee-company ? " The assessee is M/s. Maharashtra Sugar Mills Ltd. The concerned assessment year is 1957-58, the corresponding accounting year ending on September 30, 1956. The assessee is a limited company. It carries on business of manufacture of sugar from sugar-cane. It owns extensive lands in which sugar-cane is grown. The sugar-cane grown in these lands is used by the assessee for manufacture of sugar in its factory. The finding of the Tribunal is that the cultivation of sugar-cane and the manufacture of sugar by the assessee constitute one single and indivisible business. The assessee-company is managed by managing agents. The managing agents were paid remuneration in accordance with the agreement entered into between the assessee-company and the managing agents. The managing agents' commission roughly worked out at 10 per cent. of the profits of the company. In the assessment year in question the managing agents were entitled to a commission of Rs. 4,86,228-6-0. In its assessment proceedings, the assessee claimed deduction of this sum under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 10(1) in respect of a business should be computed after deducting the allowances mentioned therein. One of the allowances allowed is that mentioned in section 10(2)(xv) which says that any expenditure laid out of expended wholly and exclusively for the purpose of such business shall be deducted as an allowance. The mandate of section 10(2)(xv) is plain and unambiguous. Undoubtedly, the allowance claimed in this case was laid out or expended for the purpose of the business carried on by the assessee. The fact that the income arising from a part of that business is not exigible to tax under the Act is not a relevant circumstance. For the foregoing reasons we agree with the view taken by the High Court. Turning now to the decided cases, we shall first refer to the decision of the Madras High Court in S. A. S. S. Chellappa Chettiar v. Commissioner of Income-tax. The facts of that case are : The assessee was carrying on the business of money-lending in Burma. For the purpose of that business he was borrowing money from others at a lower rate of interest and advancing loans to his constituents at a higher rate. In the course of his business, he was obliged to receive agricultu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly true that as far as the parent company is concerned, the profits made at Kandla could be said to have arisen and accrued at Kandla, but as far as the managing agents are concerned, their commission has nothing whatever to do with those profits. Their commission is only concerned with the ultimate determination of all the workings of the company and the, finding out whether and what profit has been earned by the company. It cannot be said that, as profits were earned by the parent company, the commission also was accruing or arising to the managing agents." The ratio of the decision in Commissioner of Income-tax v. C. Parakh Co. (India) Ltd. bears on the question of law that we are considering. The assessee-company therein was resident and ordinarily resident in India. It had its head office in Bombay. It maintained a branch at Karachi for purchasing cotton for shipment to Bombay or to export direct to other places. By an agreement, the managing agents of the assessee-company were entitled to a remuneration of 20 per cent. of the annual net profits of the assessee-company, to ascertain which the result of the trade in all its branches had to be taken into account. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the respondent, a banking company, in the course of its business, invested a large sum in securities, including securities the interest on which was exempt from tax. Profits and losses on the purchase and sale of such securities were duly taken into account in computing the business income of the respondent. The question for decision was whether the interest paid by the respondent on the amount invested in securities, whose interest was tax free, was deductible from its gross profits. This court held that interest paid by the respondent on moneys borrowed from its various depositors had to be allowed in its entirety under section 10(2)(iii) of the Act and there was no warrant for disallowing a proportionate part of the interest referable to moneys borrowed for the purchase of securities whose interest was tax free. In the course of the judgment Sikri J. (as he then was) observed : " In our opinion, in construing the Act, we must adhere closely, to the language of the Act. If there is ambiguity in the terms of a provision, recourse must naturally be had to well-established principles of construction but it is not permissible first to create an artificial ambiguity and then try ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merit in this contention. Rule 23, to the extent material for our present purpose, reads : " 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 a 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." Rule 23 lays down the method of computing the taxable income of a business which partly arises from the utilisation of agricultural produce as raw material in the business. It says that, in computing the taxable income, agricultural income as defined in section 2 of the Act should be deducted from the total income for arriving at the taxable income. For determining what the agricultural income is, the Income-tax Officer must determine the market value of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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