Apportionment of common expenditure in a composite business must follow a fair, workable basis to avoid distortion.

Common overhead expenses in a composite tea and coffee business were required to be apportioned by a fair and workable formula, and the method reflected in rule 9 of the Madras Agricultural Income-tax Rules, 1955 was treated as a practical basis because it avoided artificial fluctuation and double allowance. Managing agency remuneration was also a common charge for the whole business, and in the absence of any special feature justifying a different approach, the same apportionment principle was considered appropriate for that item as well. The result was that common expenditure had to be recomputed on the same rational basis.

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Issues: (i) Whether general overhead expenses in respect of a composite tea and coffee business should be allocated by adopting the basis in rule 9 of the Madras Agricultural Income-tax Rules, 1955; (ii) Whether managing agency remuneration should be allocated on the same basis as general overhead expenses or on a different basis.

Issue (i): Whether general overhead expenses in respect of a composite tea and coffee business should be allocated by adopting the basis in rule 9 of the Madras Agricultural Income-tax Rules, 1955.

Analysis: The common overheads were not directly referable to either tea or coffee and therefore had to be apportioned by a rational formula. The method reflected in rule 9 was treated as a practical and equitable basis because it avoided artificial fluctuation and the possibility of double allowance, and it provided a uniform method for allocating common expenditure in a composite estate.

Conclusion: The allocation of general overhead expenses on the basis of rule 9 was correct and was upheld in favour of the assessee.

Issue (ii): Whether managing agency remuneration should be allocated on the same basis as general overhead expenses or on a different basis.

Analysis: Managing agency remuneration was a common charge for the whole business and there was no special feature justifying a different method from that applied to overheads. Allocation wholly to tea was held to be neither logical nor equitable, and the same apportionment principle applicable to overheads was considered appropriate for this item as well.

Conclusion: The Tribunal's different allocation method for managing agency remuneration was not sustainable, and the matter was answered against the assessee to the extent that the same basis as overheads had to be applied.

Final Conclusion: The reference was answered by upholding the assessee's contention on general overheads while rejecting the separate allocation method adopted for managing agency remuneration, requiring recomputation accordingly.

Ratio Decidendi: Common expenditure in a composite business must be apportioned by a fair and workable method that avoids double allowance and artificial distortion, and where no special reason exists, the same principle should govern all common charges.

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