1979 (2) TMI 11 - HC - Income Tax

Court rules on allocation of overhead expenses and agency remuneration method under tax rules

The High Court ruled in favor of the assessee regarding the allocation of general overhead expenses based on gross receipts rather than direct expenses, ... Business Expenditure Issues involved: The judgment addresses the allocation of general overhead expenses and managing agency remuneration for a company owning coffee and tea plantations.General overhead expenses allocation: The assessee claimed that general overhead expenses should be allocated between coffee and tea based on gross receipts, while the ITO allocated them based on direct expenses. The AAC and Tribunal supported the assessee's method, citing Madras Agricultural Income-tax Rules, rule 9, to avoid double allowance and ensure equitable allocation. The Tribunal's method was deemed proper and equitable by the High Court.Managing agency remuneration allocation: The managing agency remuneration was disputed, with the AAC and Tribunal supporting the allocation based on net profits of the company. The High Court found the Tribunal's allocation method for managing agency remuneration to be inequitable and recommended adopting the same method as for general overhead expenses.Conclusion: The High Court answered the first question in favor of the assessee regarding general overhead expenses allocation and the second question in the negative, suggesting a proper amount be determined based on the observations provided. No costs were awarded in the judgment.