Law:

Section:

JUDGMENT Kotval, CJ.-The short question that has been referred for our decision in this reference is : "Whether, on the facts and in the circumstances of this case, the department could disallow a sum of Rs. 1,26,359 a portion of the managing agency commission paid by the assessee-company for the assessment year 1957-58, in computing the income from business of the assessee-company?" The question arises because the assessee, the Maharashtra Sugar Mills Ltd., carries on two inter-connected business activities. It is engaged in the manufacture of sugar and for the purposes of that business the assessee owned in the year of account extensive estates in which it grew its own sugarcane. From the sugarcane thus grown on its own estates the assessee utilised a major part for conversion into sugar in its factory and the rest after meeting the requirements of the factory it also disposed of at times. Over and above this quantity of sugarcane it occasionally used to make purchases of sugarcane which were comparatively very small. For the purposes of its business the assessee had appointed managing agents, who have been paid remuneration at the statutory percentage being 10% of the profits of the company. The total remuneration which was debited in the profit and loss account of the assessee for the relevant year as its business expenditure in respect of its managing agency commission was Rs. 4,86,228-6-0. It seems that in the past years the assessee used to be assessed on the basis that part of its managing agency commission as well as several other items of expenditure were partly attributable to their agricultural income and partly to the income from business and the assessee had accepted that position. In the year of account also the assessee had furnished similar statements and it had shown that out of its profits amounting to Rs. 39,70,000 (in round figures), the profits relating to agricultural income would be about Rs. 28 lakhs. On that proportion the Income-tax Officer also apportioned the item of expenditure of the managing agency commission for the year in question. Therefore, out of the total managing agency commission of Rs. 4,86,228-6-0 he held that a sum…

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