JUDGMENT
1. These revision petitions arise under the Agricultural Income-tax Act and pertain to the assessment years 1981-82 to 1985-86. The petitioner is engaged in the business of carrying on plantation and other activities. It has its registered office at Pollibetta in Kodagu District in the Karnataka State. The crops raised by the petitioner are coffee, cardamom, pepper and cocoa and certain other minor crops. The petitioner is also engaged in trading activities such as curing coffee and deriving income therefrom and certain other investments. The assessing authority held for the relevant years in question that the claim regarding office expenditure will have to be allocated on the basis of the gross receipts of agricultural and non-agricultural activities. In doing so, he relied upon a decision in CAIT v. Manjushree Plantations Ltd. [1981] 130 ITR 908 (Mad) and the decision in CIT v. Johnsons Estates and Agencies Pvt. Ltd. (1964] 52 ITR 629 (Ker). When the matter was carried in appeal, the appellate authority took the view that it could not be said that the allocation of the expenditure made by the assessing authority was arbitrary, unjustified or perverse. The Tribunal also took a similar view and dismissed the appeal. Hence, these revision petitions.
2. Shri Sarangan, learned senior advocate, pointed out that though the company's principal activity is cultivation of coffee crop and the main source of income is from coffee cultivation, the income from other activities is relatively very small. When the dominant activity of the petitioner is that of raising agricultural crops and coffee curing or investments being only ancillary activities to the main business of coffee cultivation and the overhead expenses having been incurred mainly for cultivation of coffee, there is no justification for re-allocation of the expenses in the manner done by the assessing authority and affirmed by the appellate authority .
3. Shri Sarangan further relied upon the decisions in CIT v. City of Ahmedabad Spg. and Mfg. Co. Ltd. [1981] 129 ITR 507 (Guj) ; CIT v. Maharashtra Sugar Mills Ltd. and CIT v. Sabarkantha Zilla Kharid Vechan Sangh Ltd. [1977] 107 ITR 447 (Guj). In these decisions, the question which fell for consideration where all were cases arising under the Income-tax Act, was as to the modes of bifurcation of the business expenditure in relation to income from different heads and in what manner expenditure had to be apportioned head wise and not the question with which we are concerned in the present case. Therefore, any principle stated therein will be of no relevance to the present case and those decisions cannot be of any assistance to the petitioner.
4. On behalf of the Department, it was contended that there is a connection between the expenditure and income and unless such connection is clearly established, it would not be appropriate to grant any deductions by way of expenses unless it could be clearly stated that they are relatable to an agricultural activity. In respect of non-agricultural activity, it was submitted that the petitioner could certainly claim deductions from its other income which is assessable under the Income-tax Act, which is a non-agricultural income. On that basis, it was submitted that the view taken by the authority should be affirmed.
5. The finding recorded by the assessing authority was that the assessee has a head office and it has overhead expenditure and it cannot be directly identified with reference to any one of the activities of the petitioner, but the expenditure incurred was a necessary and essential one and was actually laid out and incurred to derive both types of income--agricultural and non-agricultural--and since the books of account had been maintained in that manner that all head office expenditure incurred by the petitioner cannot be identified specifically with definiteness with any one of the main objects of the company, i.e., deriving income from plantation or from non-plantation activities, the assessing authority adopted the course of the principle set out in Rule 7 of the Karnataka Agricultural Income-tax Rules. The said rule reads as follows :
"Computation of deduction on mixed income.--Where a deduction in respect of any item admissible under Section 5 or under Rule 5, is a com-
mon charge incurred for the purpose of deriving agricultural income assessable under the Act, and income chargeable under the Indian Income-tax Act, 1922, the deduction admissible under the Act shall be the actual amount relating to the income derived from agricultural operations and proved by accounts or other conclusive evidence. Where no such accounts or evidence is produced the Agricultural Income-tax Officer shall proceed to assess the income to the best of his judgment."
6. The crucial words in the said rule are that the deductions admissible under the Act shall be the actual amount relating to the income derived from agricultural operations and proved by accounts or other conclusive evidence. Where no such accounts or evidence is available, the Assessing Officer can proceed to assess the income to the best of his judgment. When a somewhat similar question came up for consideration before the Madras High Court in Manjushree's case [1981] 130 ITR 908, the rule that fell for consideration was almost identical to the one adopted herein and so far as the crucial part is concerned, the same reads as follows (page 911) :
".. the deduction admissible under the Act shall be such proportion of the common charge as the agricultural income under Section 2(a) of the Act bears to the total of such agricultural income and the income chargeable under the Indian Income-tax Act, 1922, in respect of which such common charge is incurred."
7. The manner in which the deductions stood admissible was clearly spelt out in the rule. Therefore, the Madras High Court had no difficulty in drawing an inference that deduction admissible under the Act will be in a particular proportion so far as the expenditure incurred for deriving agricultural income and non-agricultural income would be in the same proportion as incomes are derived under the enactments--Income-tax Act and/or the Agricultural Income-tax Act. But, if such a test is adopted by the assessing authority in arriving at a best judgment, we do not think such a test can be stated to be irrelevant, improper or perverse. As stated earlier, the accounts made available would not clearly indicate to which of the activities the expenditure could be related. Therefore, in these circumstances, the view taken by the assessing authority appears to us to be reasonable and proper and the reliance placed by the authorities concerned on Manjushree's case [1981] 130 ITR 908 (Mad), also is justified.
8. Even otherwise, there must be a connection between the expenditure and item of income and such connection must be definite and real and not vague or elusive. Therefore, any expenditure that would be incurred should be definitely relatable to the agricultural activity or to another activity which is not agricultural. When such bifurcation is not permissible, some reasonable test will have to be adopted as indicated in Manjushree's case [1981] 130 ITR 908 (Mad). In that view of the matter, we find no merit in these petitions.
9. Petitions are dismissed.
10. The assessee appealed to the Supreme Court.
11. G. Sarangan, Senior Advocate (Sanjay Kumar, R.N. Keshwani and Narayan N. Keshwani, Advocates, with him) for the appellant. Sanjay R. Hegde and Satya Mitra, Advocates, for the respondent.
ORDER
12. We are of the view that the High Court was right and that, therefore, the orders under challenge do not require any interference. Having regard to the materials on record, it is clear that the Agricultural Income-tax Officer had to proceed to assess the income of the assessee to the best of his judgment in terms of Rule 7 of the Karnataka Agricultural Income-tax Rules. In doing so he adopted the method of apportioning the gross receipts from the assessee's agricultural operations and non-agricultural operations. It cannot be said that this was a perverse method to apply. It might be that, had the assessee furnished all the relevant particulars and so urged, the apportionment could have been on the basis of the proportion between the net income from these sources ; but that is no reason for us to interfere in the present cases. The High Court has relied upon the judgment of the Madras High Court in CIT v. Manjushree Plantations Ltd. [1981] 130 ITR 908 to say, "(T)herefore, any expenditure that would be incurred should be definitely relatable to the agricultural activity or to another activity which is not agricultural. When such bifurcation is not permissible, some reasonable test will have to be adopted as indicated in Manjushree Plantations Ltd.'s case [1981] 130 ITR 908 (Mad)", and that this appears to be correct.
13. In the circumstances, these civil appeals are dismissed.
14. No order as to costs.