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Section 2(1) of the income-tax act, 1961, read with rule 7 of the income-tax rules, 1962 Agricultural income Assessee-company manufacturing sugar from sugarcane grown as also locally purchased ITO disallowed certain expenses as attributable to agricultural operations Tribunal deleting entire disallowance treating the entire business as composite business-Whether tribunal's action legally correct Held, on facts, yes. Facts The assessee-company manufactures sugar from sugarcane grown on its own lands as also purchased from other ryots. For the assessment year 1962-63, the ITO disallowed Rs. 3,92,600, out of the total expenses, as expenses attributable to agricultural operations. In appeal, the AAC sustained an addition of Rs. 1,84,975 as proportionate overhead expenses attributable to agricultural activities. On a further appeal, the Tribunal deleted the entire addition. On reference by the Revenue: Held 1. The details furnished show that the allocable management expenses of Rs. 24,53,955 do not include any expenses pertaining to agricul- tural operations and they pertain to management of the company. It cannot be said that the cultivation of sugarcane and manufacture of sugar by the assessee do not constitute one single and individual business. The department has absolutely no basis to disallow either Rs. 3,92,600 or any portion thereof on the assumption that it represents management overhead expenses towards the agricultural activity. The expenses incurred by the assessee towards agricultural operations have not been claimed in the present reference as revenue expenditure. 2. The Tribunal was, accordingly, correct in law in allowing deduction from business income of a portion of the expenses incurred in its agricultural operations for raising sugarcane. Case review CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452 (SC) followed. Cases referred to CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452 (SC) and CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466(SC). Judgment Kondaiah C.J.-This is a reference made by the Income-tax Appellate Tribunal, Hyderabad Bench, under section 256(2) of the Income-tax Act, 1961, pursuant to the directions of this court…

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