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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 ..... so 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 had shown that out of its profits amounting to Rs. 39,70,000 (in round figures), the profits relating to agricultural income would be about Rs. 28 lakhs. On that proportion the Income-tax Officer also apportioned the item of expenditure of the managing agency commission fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessable 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. These cases lay down the principle that, where income of an assessee is either excluded or income is exempt under any provision of the Income-tax Act, it is not permissible to disallow the proportionate part of the expenditure attributable to such excluded income or exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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) where agricultural produce is not ordinarily sold in the market in its raw state, the aggregate of--- (1) the expenses of cultivation ; (2) the land revenue or rent paid for the area in which it was grown and (3) such amount as the Income-tax Officer finds, having regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lification 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 expression is expenditure incurred as a cultivator. That would imply that the expenditure should be of a nature which is normally made by a cultivator--and not expenditure which is somehow connected with the activities of a cultivator. Managing agents are not normally appointed by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 have used is " expenditure incurred by the assessee as a cultivator " and we do not think that even having regard to the nature of the business of the assessee in this case the remuneration which the assessee paid to their managing agents could be said to be et expenditure i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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