Common overhead expenses in a composite sugar business were fully deductible; no implied apportionment between agricultural and business activity.

Common overhead and managerial expenses of a company carrying on a single integrated sugar-manufacturing and sugarcane-growing activity were held deductible in full in computing business income. The Court applied the principle that expenditure laid out wholly and exclusively for the business remains allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922, and ruled that rule 23 of the Indian Income-tax Rules, 1922, does not permit apportionment of common expenses where there are no separate and severable businesses. Rule 24 was read as showing that any artificial agricultural-business allocation must be expressly provided by statute. Accordingly, no proportionate disallowance of the common overheads was justified.

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Issues: Whether common overhead expenses incurred by a company carrying on a composite sugar-manufacturing and sugarcane-growing activity could be apportioned between agricultural and business activities so as to disallow the entire claim only to the extent attributable to agriculture, or whether such expenses were allowable in full in computing business income.

Analysis: The reference concerned a company whose business was treated as one integrated and indivisible activity of manufacturing sugar, though it also maintained agricultural operations for growing sugarcane. The Court applied the principle that expenditure laid out wholly and exclusively for the purpose of the business remains deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922. It further held that rule 23 of the Indian Income-tax Rules, 1922, which prevents further deduction in respect of expenditure incurred by an assessee as a cultivator, does not authorise apportionment of common managerial and overhead expenses where the assessee is not carrying on separate and severable businesses. The Court also drew support from rule 24, which expressly deems certain agricultural produce income to be business income only where the rule so provides, indicating that no similar artificial apportionment could be introduced by implication.

Conclusion: The common overhead expenses could not be apportioned between agricultural and business activities and were admissible as deductions in their entirety in computing the assessee-company's income.

Ratio Decidendi: Where an assessee carries on a single indivisible business, common overhead or managerial expenses incurred for that business are allowable in full under the business deduction provision, and they cannot be proportionately disallowed merely because part of the profits arise from exempt agricultural activity unless the statute expressly requires such apportionment.

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