Composite business deduction upheld for managing agency commission despite mixed agricultural and taxable operations.

A composite sugar business was treated as one indivisible undertaking, so managing agency commission paid for that business remained deductible if laid out wholly and exclusively for its purposes. The fact that part of the business related to non-taxable agricultural cultivation did not justify splitting the expenditure or denying deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. Rule 23 applied only to the limited computation of taxable income where agricultural produce is used as raw material and did not cover managing agency commission or authorise disallowance of business expenditure incurred as a cultivator.

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Issues: Whether the entire managing agency commission paid in respect of a single and indivisible business was deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922, notwithstanding that part of the business related to agricultural cultivation, and whether rule 23 barred disallowance or split-up of the commission.

Analysis: The assessee's cultivation of sugar-cane and manufacture of sugar formed one composite business. Deduction under section 10(2)(xv) depends on whether the expenditure was laid out wholly and exclusively for the purpose of that business, and not on whether part of the business produced income not chargeable to tax. The statute requires the allowance to be examined according to its own language, and equitable considerations cannot control the computation of business profits. Rule 23 applies to the computation of taxable income where agricultural produce is utilised as raw material and prohibits further deduction only of expenditure incurred by the assessee as a cultivator or receiver of rent in kind. Managing agency commission is not such expenditure and is outside the scope of that rule.

Conclusion: The entire managing agency commission was deductible and the disallowance was unsustainable. The answer to the referred question was therefore in favour of the assessee.

Ratio Decidendi: Where a single composite business is carried on, expenditure incurred wholly and exclusively for that business is deductible under section 10(2)(xv) even if part of the business yields non-taxable agricultural income, and a rule restricting deductions for expenditure incurred as a cultivator does not authorise splitting of business expenditure such as managing agency commission.

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