Business expenditure on managing agency commission cannot be proportionately disallowed merely because part of receipts are agricultural income.

Managing agency commission paid for a single integrated business of sugar manufacture was held to remain fully deductible as business expenditure. Because sugarcane growing was only incidental to that business, Rule 23 of the Indian Income-tax Rules, 1922 did not permit proportionate disallowance merely on the ground that part of the receipts was agricultural income. The expression referring to expenditure incurred by an assessee as a cultivator was confined to normal cultivation expenditure and did not extend to remuneration paid to managing agents for running the company's business. The contention that deduction would create a double advantage was rejected.

---

---

Issues: Whether the department could disallow a proportionate part of the managing agency commission paid by the assessee-company on the footing that part of the expenditure was attributable to agricultural income.

Analysis: The assessee's business was the manufacture of sugar, and the growing of sugarcane was only an incidental activity subserving that single business. The managing agency commission was expenditure incurred for the business of manufacture of sugar and was prima facie allowable under section 10(2)(xv) of the Income-tax Act, 1922. Rule 23 of the Indian Income-tax Rules, 1922, did not authorise disallowance of that commission merely because a part of the assessee's receipts was agricultural income. The expression used in the rule, namely expenditure incurred by the assessee as a cultivator, was held to be confined to normal agricultural or cultivation expenditure and not to remuneration paid to managing agents appointed to manage the company's business. The contention that allowing the deduction would give the assessee a double advantage was rejected as covered by authority.

Conclusion: The proportionate disallowance was not justified, and the question was answered in the negative in favour of the assessee.

Final Conclusion: The full managing agency commission remained deductible as business expenditure, and no part of it could be apportioned and disallowed on the ground that the assessee also earned agricultural income.

Ratio Decidendi: Where a company carries on one integrated business and an expenditure is incurred wholly for that business, it cannot be apportioned and disallowed merely because part of the receipts are agricultural income, unless the governing rule expressly brings that expenditure within the limited category of cultivation expenditure.

---