B. P. Jeevan Reddy, J. - (1.) 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) Where on the facts and in the circumstances of the case the conclusion of the Appellate Tribunal that the entire managing agency commission claimed and 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 ITR 452 (SC) is valid in law (2) Whether on the facts and in the circumstances of the case the decision of the Appellant 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 a 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 had to be allocated in accordance with the directions given by the Appellate Tribunal in para 39 of its order, by allocating the same to the various sources of income viz., tea, coffee, coffee curing works and so on -
(2.) The assessment years concerned are 1964-65 to 1969-70.
(3.) The appellant is a Public Limited Company. Its income is derived from tea and coffee estate and coffee curing works. 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 1-1-1995, under an agreement dated March 23, 1950. There was a further agreement on March 17, 1960, and another on October 6, 1995- 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 expenses 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 case and the judgment 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 has 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 ITR 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 that proper one and the 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 refence under Section 256 (1).;