M/S. WATERFALL ESTATES LTD., MADRAS versus THE COMMISSIONER OF INCOME-TAX, TAMIL NADU I, MADRAS

Citation: [1996] SUPP. 1 S.C.R. 141 · Decided: 10-04-1996 · Supreme Court of India · Bench: B.P. JEEVAN REDDY · Disposal: Dismissed

Judgment (excerpt)

M/S. WATERFALL ESTATES LTD., MADRAS 
v. 
THE COMMISSIONER OF INCOME-TAX, 
TAMIL NADU I, MADRAS 
APRIL 10, 1996 
[B.P. JEEVAN REDDY ANDS. SAGHIR AHMAD, JJ.] 
Income Tax Act, 1961: Sections 28 and 37(1). 
A 
B 
lnconie Tax-Assessnient year 1964-6~Business expenditure--
C 
Managing agency commission-Apportioning of between three categ01ies of 
income-Wlwlly taxable, pa1tially taxable (from tea estates) and wholly ex-
empted (from coffee estates )-In proportion to expenditure incwred on 
respective activities-Assessment year 1968-69-Assessee deducted managing 
agency commission from total income-Held : Income Tax Appellate 
Tiibunal rightly held managing agency commission not an allowable deduc-
D 
tio1t--1he Tribunal was justified in directing allocation of managing agency 
comn1ission to each category of income in proportion to expenditure incurred. 
Incon1e T~usiness-Single or several-Test to detennine-<Jne or 
two i"elevant circumstances-Relied on-By Income Tax Appellate Tribunal E 
to anive at conclusion-Existence of other relevant circunzstances which 
sustained finding by Tribunal-Held : no single test could be treated as 
universal and conclusive-All relevant facts to be taken into considera-
tion-Hence, niere fact that it also relied on one or two in·elevant circunistan-
ces did not waJ?"ant inteiference with its finding. 
The appellant-assessee was a public limited company. Its income was 
derived from tea and coffee during works. It had appointed another limited 
company as its Managing Agent. Until the assessment year 1963-64, the asses-
F 
see used work out the net income from taxable and non taxable sources 
separately without taking into account head office expenses including Manag- G 
ing 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 estate) in the proportion of the expenditure 
incurred on respective activities. With effect from Assessment year 1%4-65, 
however the assessee changed its method of arriving at net income. It worked 
out its taxable income from Tea business on account of managing agency H 
. 141 
142 
SUPREME COURT REPORTS [ 1996] SUPP. 1 S.C.R. 
A 
commission. For the Assessment Year 1968-69, tlie assessee sought to treat 
its various activities as one single activity and deduct various expenses on 
that footing. The Income Tax Appellate Tribunal held that the method of 
accounting adopted by the assessee until the Assessment Year 1964-65 was 
the proper one and that proper allocation of the managing agency commis-
B 
c 
D 
E 
F 
G 
sion was called for in proportion to the expenditure incurred on those 
activities. The Tribunal concluded that for the Assessment Year 1965-66 the 
several activities carried on by the assessee constituted separate and dis-
tinct activities. The decision of the Tribunal was upheld by the High Court. 
Thereupon the asses see obtained the reference under Section 256(1) of 
Income Tax Act, 1961. 
On behalf of the assessee it was contended that some of the tests 
applied by the Tribunal were erroneous, which had vitiated its findings; and 
that the circumstance that closure of one unit would not affect the activities 
of the other units and the fact that the several units were acquired at 
different points of time, were irrelevant. 
Answering the reference against the assessee, this Court 
HELD : 1.1. The question as to whether the activities carried on by the 
appellant-assessee constituted one single integrated activity or they repre-
sented distinct businesses, is essentially one of tact. No single test can be 
devised as universal and conclusive. The question has to be decided on a 
consideration of all the relevant facts and circumstances. Some facts may tend 
one way and some others the other way. An overall view has to be taken and a 
conclusion arrived at. Even if it is found that one or two circumstances among 
the several circumstances relied upon are not relevant, the finding of fact 
recorded by the Tribunal cannot be interfered with if there are other relevant 
circumstances which sustain the finding. [145-B·C; 147-A] 
1.2. Jn the present case, there number of other factors - apart from 
what are pointed out as irrelevant (assuming for the sake of argument that 
they are irrelevant) - to support the finding of the Tribunal. [147-B] 
Meenakshi Mills v. CIT, 31 ITR 88, relied on. 
CIT v. Maharashtra Sugar Mills Ltd., (1968

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