10 April 1996
Supreme Court
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M/S. WATERFALL ESTATES LTD.MADRAS Vs THE COMMISSIONER OF INCOME-TAX, TAMIL NADU I, MADRAS

Bench: JEEVAN REDDY,B.P. (J)
Case number: Appeal (civil) 6108 of 1983


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PETITIONER: M/S. WATERFALL ESTATES LTD.MADRAS

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME-TAX, TAMIL NADU I, MADRAS

DATE OF JUDGMENT:       10/04/1996

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) AHMAD SAGHIR S. (J)

CITATION:  JT 1996 (4)   185        1996 SCALE  (3)476

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T B.P.JEEVAN REDDY,J.      This batch of appeals-preferred against the Judgment of the Madras High Court raises a common question. The assessee is the  same in  all the  appeals; only the assessment years are different.  The following  three questions were referred for the  opinion of  the High  Court under Section 256(1) of the Income Tax Act.      "(1) Whether  on the  facts and  in      the circumstances  of the  case the      conclusion   of    the    Appellate      Tribunal that  the entire  managing      agency commission claimed anc shown      in the  accounts was  not allowable      as a  deduction for  the assessment      year 1965-66  as per  the ratio  of      the decision  in 82 I.T.R. 452 (SC)      is valid in law?      (2) Whether on the facts and in the      circumstances  of   the  case   the      decision of  the Appellate Tribunal      that for  the assessment year 1965-      66 the  various lines  of  activity      like  tea  estate,  coffee  estate,      coffee curing, plantation etc , did      not  constitute   one  single   and      integrated activity or business but      independent units  of business,  is      correct  inference   on  the  facts      found and valid in law?      (3) Whether on the facts and in the      circumstances  of   the  case   the      Appellate Tribunal was Justified in      its conclusion  that  the  Managing      agency   commission   has   to   be      allocated in  accordance  with  the

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    directions given  by the  Appellate      Tribunal in  para 39  of its order,      by  allocating   the  same  to  the      various  sources  of  income  vis.,      tea, coffee,  coffee  curing  works      and so on?"      The assessment years concerned are 1964-65 to  1969-70.      The appellant  is a  Public Limited Company. Its income is derived  from tea  and coffee  estate and  coffee  during work. Its  tea and  coffee estates  are located at different places. It  owns extensive  forest  lands  and  one  of  the estates  contains   cardamom  and   orange  plantations.  It acquired other  estates during  the accounting year relevant to assessment year 1967-68. The assessee-company was managed by the  Managing  Agents  M/s.  Kothari  Mehta  and  Company Limited. They  were appointed  for a  period of twenty years with effect from 1.1.1955 under an agreement dated March 23, 1950. there  was a  further agreement  on March 17, 1960 and another on  October 6,  1965 -  practically in  same  terms. Until the  assessment year  1963-64, the  appellant used  to work out the net income from taxable and non taxable sources separately without  taking into account head office expenses and then  apportion  the  head  office  expresses  including Managing Agency  Commission between  the three categories of income viz., wholly taxable income, partially taxable income (from the  tea estates) and wholly exempted income (from the coffee  estates)   in  the  proportion  of  the  expenditure incurred  on   respective  activities.   With  effect   from Assessment Year  1964-65, however,  the assessee changed its method of  arriving at net income. It worked out its taxable income from  tea business  by deducting  10%  of  the  total profits from  Tea   business on  account of  managing agency commission. The  method of accounting adopted by it has been set out  in detail  in the statement of the High Court which we do not think it necessary to reproduce here. For the next three assessment  years also, the assessee followed the same method of  arriving at  its net  income. For  the Assessment Year 1968-69,  it adopted a different method again which too as been set out in detail in the judgment of the High Court. Suffice it  to say  that the  assessee sought  to treat  its various activities as one single activity and deduct various expenses on  that footing.  All this  was done,  it appears, drawing inspiration  from the  decision of  the Bombay  High Court in  Commissioner of  Income Tax  v. Maharashtra  Sugar Mills Limited  [(1968) 68 I.T.R. 512. The Income Tax Officer rejected the said change. On appeal, the Appellate Assistant Commissioner upheld  the assessee’s  claim which  indeed had the effect  of granting it relief more than asked for by it. The Revenue  appealed to  the Tribunal.  The   Tribunal held after an  exhaustive consideration of the relevant facts and contentions that  the method  of accounting  adopted by  the assessee until  the Assessment  Year 1964-65  was the proper one and  that  proper  allocation  of  the  managing  agency Commission was  called for in proportion  to the expenditure incurred on  those activities.  The matter  was remitted  to Income Tax  Officer to  work out the details.  Thereupon the assessee  applied  for  and  obtained  the  reference  under Section 256(1).      The issue  arising from  questions No. 1 and 2 in short depends upon  the answer to the question whether the various activities  being   carried  on  by  the  appellant-assessee constitute  one   single  integrate   activity  or  do  they represent distinct  business. The   question of this nature, it  is  evident,  is  essential  a  question  of  fact.  The statement of  the case  drawn up  by the Tribunal summarises

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its findings in the following manner:      "(a) the  various estates  and  the      coffees  curing   works  exist   at      different place  and in  so far  as      the  assessee  was  concerned  they      were acquired  at different  times.      They are independent and closure of      one   would    not    affect    the      continuance of another;      (b)  each   estate  has   its   own      subsdiary accounts  and is  managed      locally although  overall the  head      office controls all the estates and      maintains a  single profit and loss      account;      (c) there  are separate  staff  for      the various  estates and  even  for      tea and coffee estates in Waterfall      Estates separately;      (d) the  various  estates  are  far      flung and  not in  one  place;  the      characters of the business ventures      in   the    various   estates   are      different;      (e) apart  from the  existence of a      centralised  management   and  head      office where  a single set of final      accounts is  maintained there is no      evidence relating  to inter-lacing,      inter-connection     and     inter-      dependence of  the various  estates      in the  day-to-day  affairs  or  of      their functioning  being dovetailed      into one another.      It is  on the  basis of  the above  findings  that  the Tribunal held  that the several activities carried on by the appellant-assessee   constitute    separate   and   distinct activities. On reference, the High Court has agreed with the Tribunal and  answered the  said questions  in favour of the Revenue and against the assessee. We are of the opinion that on the findings recorded by the Tribunal, the High Court was justified in rejecting the assessee’s contention.      Sri Ramachandran  learned counsel  for  the  appellant, however, contended that the some of the tests applied by the Tribunal are  erroneous, which  has vitiated its finding. In particular,  the   learned  counsel   submitted   that   the circumstance that  closure of  one unit would not affect the activities of  the other  units is  not at  all a separately relevant consideration. Similarly, the fact that the several units were  acquired at  different points of time is said to be equally  irrelevant.  He  strongly  relied  upon  certain decisions  including   the  decision   of  this   Court   in Commissioner of  Income Tax  Bombay City  I  v.  Maharashtra Sugar Mills Limited [(1971) 82 I.T.R. 452] in support of his contention.      So far  as Maharashtra  Sugar Mills  is  concerned  the factual  findings   therein  are   entirely   distinct   and different. In  that case  it was found by the Tribunal "that the cultivation  of the sugarcane as well as the manufacture of the  sugar constitute one business"  and that finding was not challenged  by the  Revenue before  this Court.  It  was contended  all   the  same   that  the  assessee’s  business consisted of  two distinct  parts. It  was  this  contention which was  rejected. The  said decision is therefore clearly distinguishable in  the light  of the  facts  found  in  the

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present case. Mr. Ramachandran then relied upon the decision in Commissioner  of Income-Tax  Madras v.  Prithvi Insurance Co.Ltd. (1967)  63 I.T.R. 632], Produce Exchange Corporation Ltd.  v.  Commissioner  of  Income-Tax  (Central),  Calcutta [(1970) 77  I.T.R. 739],  Standard Refinery  and  Distillery Ltd. v Commissioner of Income-Tax (Central) Calcutta  (1971) 79 I.T.R.  589] and  B.R. Ltd. v. V.P.Gupta, Commissioner of Income-Tax,  Bombay   [(1978)  113   I.T.R.  647].  All  the decisions were  rendered with  reference to Section 24(2) of the Indian  Income Tax  Act, 1922. The question in all these cases was  whether the business continued by the assessee in the relevant  assessment years  is the  very  same  business wherein loss was originally sustained within the meanings of Section 24(2). The question considered in these decisions is not the  same as  concerned herein. The object of enquiry on both the  cases  is  not  identical.  We  do  not  think  it necessary to  deal with  the facts  of each of the decisions for the  aforesaid reason and also because the said question is essentially  a question  of fact.  No single  test can be devised as  universal and conclusive. The question has to be decided on  a consideration  of all  the relevant  facts and circumstances. Some  facts may  tend one way and some others the other  way. An  overall view  has  to  be  taken  and  a conclusion arrived  at. Even  if it is found that one or two circumstances among  the several  circumstances relied  upon are not  relevant, the  finding  of  fact  recorded  by  the Tribunal cannot  be  interfered  with  if  there  are  other relevant circumstances which sustain the finding, as held by this Court  in Meenakshi Mills v. Commissioner of Income Tax [91 I  .T.R. 88].  In the  present case, there are number of other  factors   -  apart  from  what  are  pointed  out  as irrelevant (assuming  for the sake of argument that they are irrelevant) - to support the finding of the Tribunal.      Mr. Ramachandran  also  relied  upon  the  decision  in Commissioner of  Income-Tax, Madras  v. Indian  Bank Limited [(1965) 56  I.T.R. 77].  The appellant therein was a banking company, which  invested, in  the course  of its business, a large sum  in securities  including securities  the interest from which was exempt from tax. While computing the business income of  the assessee,  securities were  duly  taken  into account. The contention of the Revenue was that where a part of the profits of a business is not taxable, the expenditure incurred for  earning those  profits cannot  be  allowed  as deduction. It  was accordingly  submitted that  interest  on monies  borrowed   from   various   depositers   should   be proportionately  disallowed  keeping  in  view  the  amounts invested  in   non-taxable  securities.  This  argument  was rejected with  reference to  and on  the  basis  of  Section 10(2)(xv) of  the 1922  Act (corresponding  to Section 37 of the present  Act). We  are unable  to see  how this decision helps the assessee on the question at issue.      Once we  answer the  questions  1  and  2  against  the assessee it  is agreed,  the third  question does not really present any  differently. It  too has to be answered against the assessee.      For all  the above  reasons the  appeals fail  and  are dismissed. No costs.