Sabyasachi Mukharji, J. - (1.) The assessee is a limited company having a sugar mill at Motihari in North Bihar and also running an agricultural farm for growing sugarcane which is also used for the production of sugar in its mill. Under a managing agency agreement dated the 16th of October, 1954, Messrs. Hanuman Industries (India) Ltd. were appointed managing agents for a period of ten years from 1st of October, 1954, and that the managing agents were entitled to a remuneration, by way of commission, equal to 10% of the pet profits subject to a minimum payment of Rs. 2(0,000. The assessee claimed deduction of the managing agency commission amounting to Rs. 48,735. The Income-tax Officer found that the commission was worked out at 10 per cent. of the net profits including the agricultural profits amounting to Rs. 97,407. The Income-tax Officer was of the opinion that the assessee was entitled to claim as deduction from the textile profits only the remuneration at 10 per cent. of the profits which are subjected to income-tax. He disallowed a sum of Rs. 9,741 out of the managing agency remuneration.
(2.) On appeal, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer.
(3.) There was a further appeal before the Tribunal. The Tribunal held that there were agricultural operations carried on at the sugarcane farm at Motihari. The Tribunal was of the opinion that as agricultural income Was outside the scope of Section 10 of the Income-tax Act any income which was attributable to profits arising out of the; agricultural operations could not be allowed as deduction while computing the income, profits and gains under Section 10 of the Indian Income-tax Act, 1922. The Tribunal found that, as the profit of Rs. 97,407 arising out of the agricultural farm was not assessable to income-tax, the expenditure attributable to earning of the said agricultural income could not be allowed while ascertaining the profits of the sugar mill under Section 10 of the Act. The Tribunal, therefore, upheld the order of disallowance.;