TMI Blog1979 (1) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and in the circumstances of the case, the Appellate Tribunal was justified in its conclusion that the managing agency commission had to be allocated in accordance with the directions given by the Appellate Tribunal in para. 39 of its order, by allocating the same to the various sources of income, viz., tea, coffee, coffee curing works and so on ? Though, in the questions, reference is made only to the assessment year 1965-66, the statement of the case shows that the assessment years under consideration are 1964-65 to 1969-70. We, therefore, proceed to consider the case as if it relates to all the assessment years 1964-65 to 1969-70. The assessee-company was incorporated on 29th April, 1943 and started its business by taking over the Waterfall Estates from a British concern. The Coovercolly Estate in Coorg was purchased in the year 1956. The Kesinvurthy Estate was also a later purchase. The company obtained licence for the establishment of a coffee curing works at Hassan in Mysore State. The coffee curing works started their operations during the accounting year ending on 30th June, 1961. Out of the above estates, Waterfall Estates was one where both tea and coffee were grow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he total profits from the tea business on account of managing agency commission. The result was that out of the managing agency commission of Rs. 1,62,215, the assessee claimed only Rs. 90,149 as deduction from the profits of the tea business. The way in which the profit was worked out may be summarized as follows: Rs. Rs. Net sale of tea 40,74,863 Less: Expenditure on tea estate (Waterfall Estates as a whole) 23,67,575 Less: Expenditure on coffee 1,53,293 Balance 22,14,282 Add : Sales tax, Excise duty, etc., debited in the head office accounts 5,96,452 Proportionate expenses on head office in proportion to expenditure on tea, coffee and curing works 2,12,106 Proportionate normal and additional depreciation on acreage basis 1,20,985 Development rebate 29,547 31,73,372 Balance profits 9,01,491 Less: Managing agency commission at 10% of the above figure 90,149 Balance income from the tea estate 8,11,34240% of the same being taxable as income from tea 3,24,536 There was a loss in coffee curing works during the year and the assessable income declared was Rs. 1,82,573. For the subsequent three assessment years, viz., 1965-66 to 1967-68, the assessee fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e managing agency, commission at 10% of such income. The balance of the managing agency commission stood disallowed. The assessee filed appeals before the AAC for all the years, who, following the decision of the Bombay High Court in the case of CIT v. Maharashtra Sugar Mills Ltd. [1968] 68 ITR 512, held that the apportionment made by the ITO was not justified. The result of the AAC's order was that the assessee got full deduction for the entire managing agency commission against the assessable income, so that a figure greater than that claimed by the assessee in its return of income came to be allowed. This has since been rectified. The revenue, aggrieved by the orders of the AAC, appealed to the Appellate Tribunal contesting the allowance of the entire managing agency commission in all the years against the assessable income. By the time the Tribunal came to dispose of the appeal, the appeal to the Supreme Court against the decision of the Bombay High Court in the case of Maharashtra Sugar Mills Ltd. [1968] 68 ITR 512 (Bom) had been disposed of, and the judgment of the Supreme Court was available as reported in CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452. The Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a new case. However, the learned counsel for the assessee was given an opportunity to examine this aspect of the matter and consult his client if necessary, and let the Tribunal know whether he would be prepared to argue the case on the basis of the materials on record or whether he would require an opportunity to lead evidence in this regard. In case the learned counsel required an opportunity to lead evidence, the Tribunal was prepared to remand the case for finding out all the relevant facts necessary for the determination of the issue. The case was accordingly adjourned by about 10 days. When the case came up again for hearing, this is what the Tribunal records in para. 10 of its order : " When the case came up again for hearing the learned counsel for the assessee informed us that while he maintained his objection to the admission of what he called 'the new case made out by the departmental representative', he was prepared to argue the case on the facts on the record and did not want an opportunity to lead fresh evidence. Accordingly, both the learned counsel as well as the learned departmental representative were heard on that day as well as on the subsequent day." It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstance. For the foregoing reasons we agree with the view taken by the High Court ".(underlining ours). The earlier decisions relevant to the point were noticed, and one of those decisions, on which again very strong reliance was placed by the assessee before us, was that of the Supreme Court in CIT v. Indian Bank Ltd. [1965] 56 ITR 77. In that case, a banking company in the course of its business invested a large sum in securities both of the Central and State Govts. (including Mysore Govt.). The interest on Mysore Govt. securities was exempt from income-tax and super-tax under a notification issued under s. 60 of the Indian I.T. Act, 1922. The assessee bought and sold the Govt. securities including Mysore Govt. securities and the profits and losses on the purchase and sale of such securities were duly taken into account in computing the income of the assessee under the head " Business ". For the assessment year 1951-52, the assessee claimed a deduction of Rs. 25,91,565 as interest paid to various depositors under s. 10(2)(iii) of the Indian I.T. Act of 1922. The I.T. authorities and the Tribunal disallowed a part of the interest to the extent of Rs. 2,80,194 by calculating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before it can be allowed." These two decisions lay down the principle that where an assessee carried on an indivisible business, and a part of its profits is not liable to tax, the entire expenditure incurred for the purpose of business should be allowed as deduction, even though a part of the expenditure may, in strict view, be attributable to the earning of the non-taxable profits. It is this aspect which has been brought out in M. S. P. Raja v. CIT [1976] 105 ITR 295 (Mad)., Two brothers were partners in two different firms, and were also partners in a firm which owned a coffee estate. The capital for the purchase of this coffee estate was provided by them by withdrawing the required amount from one or the other firms in which they were partners, and in which they had a running account. The two firms from which they had borrowed charged interest on the drawings made by the respective partners. The interest so charged was claimed as deduction by them in their personal assessments. The ITO disallowed a part of the interest on the ground that the withdrawals related to non-business purposes, namely, for the purchase of agricultural estate, income from which was not taxable, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on several, distinct businesses. In the present case, however, question No. 2 challenges the correctness of the inference drawn by the Tribunal that the several lines of activity like tea estate, coffee estate, coffee curing, plantation, etc., did not constitute one single and integrated activity or business, but independent units of business. Mr. K. Srinivasan, learned counsel for the assessee, vehemently contended that the assessee was carrying on only one business as shown by the fact that there was a single account and a single balancesheet and profit and loss account and that the activities were all controlled from the head office. It is, therefore, necessary to examine whether the different lines of activities constituted a single business or not. On this aspect, the learned counsel for the assessee drew our attention to the latest decision of the Supreme Court in B. R. Ltd. v. V. P. Gupta, CIT [1978] 113 ITR 647. In that case, the Supreme Court disposed of an appeal by special leave granted under art. 136 of the Constitution, against the order of the Commissioner, Bombay. The assessee, in that case, carried on business in (i) general insurance, (ii) brokerage and commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stinct and separate businesses and it must always be a question of fact whether those businesses are separate businesses or whether they are so interlocked with the main chief business of the company as to be really one business, for example, a railway company carrying on a steam boat business in connection with its railway." Thus, the proposition put forward for the assessee that whenever company carries on several activities, all those activities are to be construed as a single and integrated activity cannot be accepted. Whether a company carried on a single activity or different businesses is a matter to be ascertained from the facts of each case. Even where an assessee was carrying on a business in the exhibition of cinematograph films in theatres at two different places, viz., Ahmedabad and Bombay, the businesses were held to be separate in L. M. Chhabda and sons v. CIT [1967] 65 ITR 638 (SC). It was held that there is no such general principle that where an assessee carries on business ventures of the same character at different places, it must be held as a matter of law that the ventures are parts of a single business. In that case, the assessee had taken a lease of a ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing with current trends of thinking we felt that Waterfall Estates, a purely agricultural company, should also have an industrial side so that it there is depression in any particular sectors of the economy, the company will be able to withstand the strain drawing on the resources in the other sphere. With this end in view, we have obtained a licence for the establishment of a coffee curing works at Hassan which is in the course of construction." Further, in the directors' report for the accounting year 1964-65, under the heading " Capital Expenditure " it was mentioned as follows: "Building: The new tea factory was commissioned in May, 1965. With this the bifurcation of the two factories is complete and the two factories are independently managed ". (Underlined by us). From the above speeches, the Tribunal has drawn the inference that the history of the company's expansion itself shows that the later additions of coffee estates as well as the commissioning of coffee curing works did not form an integral part of the original business of the assessee. The company itself has been apportioning all the expenses including managing agency commission among the different activities b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission that the assessee did not maintain any account in all these estates has been disbelieved and this finding of the Tribunal cannot be said to be wrong. With regard to the plea of the maintenance of a single account at the head office, the Supreme Court has pointed out, in the case of L. M. Chhabda and Sons v. CIT [1967] 65 ITR 638, noticed already, at p. 642 as follows : " It is true that the appellants were conducting cinema theatres in Ahmedabad and Bombay, and the result of the accounts of the different ventures was entered in the accounts maintained at the head office, but from that circumstance no inference necessarily arises that the exhibition of films in different theatres constituted the same business." Therefore, the incorporation in the head office books of the financial statements sent from the different centres cannot by itself sustain the plea that a single business alone was carried on. As regards the capital contribution, the Tribunal pointed out in para. 34 of its order as follows: " It was claimed by the learned counsel for the assessee that the funds are all supplied from the head office to the various estates. In our opinion, this is a statement ..... X X X X Extracts X X X X X X X X Extracts X X X X
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