Calcutta H.C : Whether, on the facts and in the circumstances of the case, the Tribunal had no evidence or had relied on irrelevant or partly irrelevant materials in holding that the assessee’s activities of growing and manufacturing tea and those of growing paddy, jute and other crops constituted an indivisible business and/or whether such finding of the Tribunal was otherwise unreasonable or perverse ?

Counsel Appeared

A.N. Bhattacharjee, for the Petitioner : R.N. Bajoria, for the Respondent

SABYASACHI MUKHARJI, J. :

In the order of the Tribunal it was observed as follows: “If we look into the facts of the present case we find that the facts are almost identical except with the difference that in the case before us the assessee is not growing tea on the lands lying fallow but it is raising some other crops. Bat we do not think that this fact would have any material bearing in regard to the principles laid down by their Lordships of the Supreme Court. The assessee’s activity of raising tea, selling tea and also the activity of raising paddy and other crops on the fallow land for the time being constituted an indivisible business. The accounts are all consolidated and the management is the same. There is no separate activity as such. All constitute a single activity. In such a situation, there can be no manner of doubt that the indirect expenses which are incurred in the head office and the branch office relating to the whole activity will have to be allowed in full without bifurcating a Portion on the ground that a portion is relatable to agricultural activity and, therefore, disallowable. Applying the above principles, we have no hesitation to hold that the ITO went wrong in disallowing a portion of the indirect expenses on the ground that portion relates to the agricultural activity of the assessee. It may be mentioned here before concluding this issue that the assessee accounted for the income arising from other agricultural products in its P&L a/c for all these years under appeal and they formed the subject-matter of computation of income of the assessee r/w rule I of the IT. Rules. It is not the case of the Revenue that the income in respect of the products other than the tea is not includible for the purpose of computation of income of the assessee in accordance with r. 8 of the ITtax Rules. There is thus no question of disallowing a further portion of indirect expenses as was done by the ITO for the years under appeal.

We, accordingly, hold that no part of the indirect expenses could be disallowed. But we are told by Mr. Bajoria very fairly that the amount of land Revenue relating to the particular land will have to be disallowed as payment of land Revenue is a direct expenditure connected with agriculture. Following are the amounts of land Revenue which are to be disallowed : Assessment year Amount of land revenue to be disallowed

2. On this the Revenue wanted a reference and that application was refused by the Tribunal. Then the Revenue made an application under s. 256(2) of the IT Act, 1961, to this Court suggesting the following two questions:

“1. Whether, on the facts and in the circumstances of the case, the Tribunal had no evidence or had relied on irrelevant or partly irrelevant materials in holding that the assessee’s activities of growing and manufacturing tea and those of growing paddy, jute and other crops constituted an indivisible business and/or whether such finding of the Tribunal was otherwise unreasonable or perverse ?

2. Whether, on the facts and in the circumstances of the case, and on a correct interpretation of r. 8 of the IT Rules, 1962, the Tribunal was correct in law in holding that no part of the indirect expenses could be disallowed in computing the assessee’s income liable to income-tax?”

The Court issued a rule nisi on the following question: “3. Whether, on the facts and in the circumstances of the case, and on a correct interpretation of r. 8 of the IT Rules, 1962, the Tribunal was correct in law in holding that no part of the indirect expenses could be disallowed in computing the assessee’s income liable to income-tax ?”

3. Therefore, the question whether the finding of the Tribunal that the activities of growing paddy, jute and other crops as also growing tea formed an indivisible business was perverse or unreasonable was categorically challenged and

disallowed by the Court and on the second question rule was issued. The principle applicable to this question is well settled by the decision of the Supreme Court in the case of CIT vs. Maharashtra Sugar Mills Ltd. 1973 CTR (SC)

. Rs.

1969-70 579

1970-71 1,157

1971-72 1,542

1972-73 2,120

1973-74 771

500 : (1971) 82 ITR 452 (SC). There also the Supreme Court found that growing of “sugarcane and production of sugar” formed an indivisible business of the assessee. There the Supreme Court at p. 454 of the report observed that the finding of the Tribunal that the cultivation of sugarcane as well as the manufacture of sugar constituted one business was a finding of fact and that finding had not been challenged before the Court. Precisely the same position prevails here and that is the reason why in the previous year this Court on the identical question discharged the rule. We were also not addressed by any argument on the misapplication of the principle by the Tribunal based on this finding that growing of paddy and jute formed an indivisible business with the production of tea. On the other hand, we were addressed on the ground that the finding of the Tribunal was not correct or was really perverse.

4. Our attention was drawn to two decisions of the Madras High Court in the case of Waterfall Estates Ltd. vs. CIT (1980) 10 CTR (Mad) 279 : (1980) 10 CTR (Mad) 279 : (1981) 131 ITR 207 (Mad), where also the Tribunal had made a finding that different ventures did not constitute the same business. Similar is the position in the case of Waterfall Estates Ltd. vs. CIT (1980) 16 CTR (Mad) 287 :(1981) 131 ITR 223. It is on this basis we had previously discharged the rule. We also pointed out this to the learned advocate appearing for the Revenue but he was insisting on the perversity of the finding of the Tribunal and even tried to invite us to look into the balance- sheet to show the perversity. Unfortunately we cannot allow this Court’s time to be used for the experiment of a new argument to be made on behalf of the Revenue. Normally this Court had followed the practice of not allowing the costs especially against the Revenue because the costs would naturally be borne by the taxpayers. But in order to discourage frivolous applications and waste of time this is a fit case where the rule should be discharged with costs with the aforesaid observations.

C.K. BANERJI, J. :

I agree.

[Citation : 141 ITR 517]