Common managerial expenditure must be apportioned where businesses are separate and no single integrated business is proved.

Common managerial expenditure is fully deductible only where the assessee proves a single integrated business with real interlacing, interdependence and unity of operation. The court found that common head office, accounts or control were insufficient, and that the assessee had separate estates, staff and functioning with no day-to-day interdependence. Managing agency commission could not therefore be wholly charged against taxable income and had to be apportioned among the distinct activities. The Tribunal's allocation of the commission on a reasonable basis, consistent with the assessee's own past treatment of common expenses, was upheld.

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Issues: (i) Whether the managing agency commission was wholly deductible against the assessee's taxable income where the assessee carried on tea, coffee and coffee-curing activities; (ii) Whether the assessee's various activities constituted one single and integrated business or separate businesses; (iii) Whether the Tribunal was justified in directing apportionment of the managing agency commission among the different sources of income.

Issue (i): Whether the managing agency commission was wholly deductible against the assessee's taxable income where the assessee carried on tea, coffee and coffee-curing activities?

Analysis: Deductibility of expenditure depends on the nature of the business carried on by the assessee. Where an assessee carries on a single indivisible business, expenditure laid out wholly and exclusively for that business is allowable even if part of the profits is exempt. Where, however, the assessee carries on distinct businesses, expenditure attributable to the non-taxable or separate activities cannot be wholly charged against taxable income. On the facts found, the assessee had itself apportioned common expenses in earlier years and had not established that the managing agency commission related only to a single integrated business.

Conclusion: The claim for full deduction failed; the issue was decided against the assessee.

Issue (ii): Whether the assessee's various activities constituted one single and integrated business or separate businesses?

Analysis: The existence of a common head office, common accounts or common control does not by itself prove a single business. The decisive test is whether there is real interlacing, interdependence, dovetailing and unity of operation. The Tribunal found separate estates, separate staff, separate functioning and no material showing day-to-day interdependence. The assessee also failed to discharge the burden of proving that the activities formed one integrated business.

Conclusion: The activities were separate businesses, not one single business, and the issue was decided against the assessee.

Issue (iii): Whether the Tribunal was justified in directing apportionment of the managing agency commission among the different sources of income?

Analysis: Once the activities were held to be separate businesses, the Tribunal was entitled to direct a reasonable allocation of common managerial expenditure in the same manner in which the assessee itself had previously allocated head office expenses and commission. The method adopted was consistent with the assessee's own past treatment and disclosed no legal error.

Conclusion: The Tribunal's direction for apportionment was upheld; the issue was decided against the assessee.

Final Conclusion: The reference was answered in favour of the Revenue, and the assessee's claim for full deduction of the managing agency commission was rejected on the facts and legal principles governing separate businesses and allocation of common expenditure.

Ratio Decidendi: Where an assessee carries on distinct businesses, common managerial expenditure must be apportioned to the respective activities, and full deduction is available only where the assessee proves a single integrated business with real interlacing and interdependence.

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