Bombay High Court
George Wills & Sons (India) Ltd. vs Assistant Commissioner Of Income-Tax. on 6 June, 1995
Equivalent citations: [1995]55ITD252(MUM)
ORDER
Per J. K. Verma, AM - Both these appeals involve a common point and hence they are being disposed of by a common order for the sake of convenience.
2. The brief facts giving rise to these cross-appeals are that the assessee is a private limited company whose Managing Director is one Shri Nusli N. Wadia. His wife is Mrs. M. N. Wadia. There is nothing on record to show that she is in any way connected with the business of the assessee-company. During the relevant previous year Shri Nusli Wadia went on tour to foreign countries viz. 15 days to Switzerland and USA and for 40 days to UK and USA. Mrs. M. N. Wadia accompanied her husband during these tours. An amount of Rs. 1,01,049 was incurred on the air tickets of Mrs. Wadia. No separate sanction for foreign exchange in the name of Mrs. Wadia was taken but the total foreign exchange drawn in the name of Mr. Nusli N. Wadia was Rs. 1,03,093. The Assessing Officer after considering the facts and circumstances of the case and taking into account the explanation given by the assessee took the view that the visit of Mrs. Wadia was not wholly and exclusively for the purposes of assessees business and hence he disallowed the entire claim pertaining to the air-tickets in respect of Mrs. Wadia and disallowed 50% of the foreign exchange amount spent by the couple, treating 50% as having been incurred on or by Mrs. Wadia which was not wholly and exclusively for the purposes of assessees business and thus disallowed and added back an amount of Rs. 51,547 on this account.
3. When the assessee went in appeal before the ld. CIT (Appeals) he also took into account the explanation and the evidence filed on behalf of the assessee. Yet, he took the view that the expenditure incurred on the air-tickets of Mrs. Wadia was not for the purposes of assessees business and hence upheld the disallowance of expenditure on air tickets of Mrs. Wadia amounting to Rs. 1,01,049. However, regarding the expenditure incurred in terms of foreign exchange drawn in the name of Mr. Wadia, the ld. CIT (Appeals) took the view that most of the expenditure in foreign exchange was incurred by Shri Wadia of which Mrs. Wadia was an incidental beneficiary. On this consideration he estimated an amount of Rs. 10,000 as pertaining to Smt. Wadias own expenditure and confirmed the disallowance to that extent and allowed a relief of Rs. 41,547 to the assessee.
4. In the cross-appeals now before us the assessee has claimed that the entire expenditure incurred on Mrs. Wadia was for the purposes of assessees business and should have been allowed whereas in the appeal filed by the revenue, it has been contended that the ld. CIT (Appeals) erred in allowing a relief of Rs. 41,547 to the assessee by accepting that only Rs. 10,000 should have been incurred as expenditure on Mrs. Wadia.
5. The ld. Counsel for the assessee has very vehemently relied on a large number of Tribunal and High Court decisions as given below :
(1) Glaxo Laboratories (India) Ltd. v. Second ITO [1986] 18 ITD 226 Bombay Bench A Special Bench.
(2) ITO v. E. F. Ferguson & Co. [1986] 19 ITD 620.
(3) Parthas Textiles v. ACIT 121 Taxation 97 (sic).
(4) Apollo Tyres Ltd. v. Dy. CIT [1992] 44 TTJ (Coch.) 534.
(5) ITO v. Delhi Press Samachar Patra (P.) Ltd. [1990] 32 ITD 650 (Delhi).
(6) Delhi Cloth & General Mills Co. Ltd. v. CIT [1986] 158 ITR 64 (Delhi).
(7) Bralco Metal Industries (P.) Ltd. v. CIT [1994] 206 ITR 477 (Bom.).
(8) CIT v. Indian Products Ltd. [1994] 207 ITR 647 (Cal.).
We find that her arguments were based mainly on the fact that the Board of Directors of the assessee-Co. had approved a note to the following effect in a meeting held on 20-8-1986 :
"The Board noted and approved the following :
1. Foreign Travelling expenses of Rs. 3,08,703 incurred during the year by the Company, out of which Rs. 1,01,409 are the expenses towards airfare for Mrs. Wadias trip to U.K. & W. Europe and USA. Since her presence with the Chairman was required necessarily and exclusively for the purpose of the business of the Company."
We further find that in the notes submitted before the lower authorities as well as in the grounds of appeal, the assessee as well as ld. Counsel for the assessee have repeated the language used in the decision of the Special Bench of the Tribunal in the case of Glaxo Laboratories (India) Ltd. (supra) to the effect that in the modern age, and more so in the Western countries, the senior executives are, as a matter of social custom, accompanied by their wives since most foreign visits though for business purpose have invariably and necessarily some social aspect also. It has also been emphasized during the course of arguments that business aggregating to Rs. 22.83 lakhs was concluded during the period of Mr. Wadias visit to USA and Europe.
6. The ld. Departmental Representative on the other hand vehemently argued that as per assessees own contentions Mrs. Wadia had accompanied the Chairman of the Company not for the purposes of assessees business but for the purposes of several social engagements/appointments, and in accordance with the social customs as mentioned on page 3 of the Paper Book filed by the assessee. In these circumstances, according to the Departmental Representative, the expenditure incurred on Mrs. Wadia could not be said to have been incurred for the purposes of assessees business at all, much less "wholly and exclusively for the purposes of assessees business". In these circumstances according to the ld. Departmental Representative, the expenditure claimed by the asssee-company as having been incurred on Mrs. Wadia could not be said to be allowable under the provisions of the Indian Income-tax Act. He further submitted that the Assessing Officer was very reasonable in etimating that 50% of the foreign exchange must have been incurred on Mrs. Wadia and 50% on Mr. Wadia, and hence in the absence of any material on record the ld. CIT (Appeals) was not justified in estimating that an amount of only Rs. 10,000 should have been incurred on or by Mrs. Wadia and an amount of about Rs. 93,000 should have been incurred on and by Mr. Wadia. He, therefore, prayed that the estimated disallowance made by the Assessing Officer was very reasonable and should be restored. Finally the ld. Departmental Representative referred to the decisions in the case of CIT v. T. S. Hajee Moosa & Co. [1985] 153 ITR 422 (Mad.) and Bombay Mineral Supply Co. (P.) Ltd. v. CIT [1985] 153 ITR 437 (Guj.).
7. We have carefully considered the rival submissions and have taken into account the material on record. In the first instance, we find it interesting to note that while there was so much of dispute regarding the expenditure on foreign travel having been incurred for the purposes of assessees business, there is no discussion whatsoever in the orders of either the ITO or of the ld. CIT (Appeals) as to what is the annual nature of business of the assessee-company and the purpose for which the tours were undertaken by Mr. Wadia. In other words, except for mentioning that the visits were for the purposes of assessees business and that Mr. Wadia contacted several parties whose names are given, there is nothing on record to show as to what were the commodities in which the assessee-company was dealing and what was the business purpose achieved by these visits. We do find something by way of office note in the copy of assessment order filed by the revenue to the effect that for the assessment year 1985-86 the entire sales of Rs. 12,85,46,625 had been made to M/s. George Wills & Sons (P.) Ltd., U.K to whom the company has always been exporting goods and that the company had never effected any exports to any party in Singapore, Kualalumpur, Geneva, Italy and France being countries visited by Mr. Nusli Wadia in that year. From the copy of profit and loss account filed by the assessee we have noticed that this year assessees sales have fallen down to Rs. 8,41,90,318. It is true that the expenditure incurred on foreign travelling cannot be directly or immediately correlated with the sales yet there is nothing on record to indicate that the presence of Mrs. Wadia along with Mr. Wadia was for the purpose of assessees business. We have further taken note of the fact that the assessee-company had a blank exchange permit during that year and in its report submitted to the RBI, in the prescribed proforma the name of only Mr. Nusli N. Wadia, Chairman and Executive Director has been mentioned and the purpose given is export promotion. Nowhere has it been indicated that the blank exchange permit was to be utilised by taking Mrs. Wadia with the Chairman and Executive Director. In fact in item 3(1) (a) of the Report which requires name(s) of the person(s) deputed, name of only Mr. Nusli N. Wadia has been given in both the reports. This would clearly indicate that even an intimation for taking Mrs. Wadia was not given to the RBI. Further, while mentioning the particulars of the business done also it has been mentioned as under :
"Business aggregating to Rs. 19.22 lakhs was concluded during the period of Mr. Wadias visit to Switzerland and USA."
Similarly in the second report it is mentioned :
"Business aggregating to Rs. 3.61 lakhs was concluded during the period of Mr. Wadias visit to USA & U.K."
Mrs. Wadias name is not mentioned anywhere.
8. Regarding the approval given by the Board of Directors we may mention that besides the fact that it is a private limited company, where without question the Chairman carries subscribed weight and it is not improbable that the Board granted approval to suit the convenience of the Chairman, while the expenditure was incurred between 27-3-1985 to 10-4-1985 and 21-5-1985 to 30-6-1985, approval of the Board was given on 20th August, 1986 after a lapse of about one year and 2 months perhaps when it was realised that the expenditure incurred on Mr. Wadia may not be allowed, by income-tax authorities. Taking all these factors into account we are of the opinion that on the facts of this particular case, as we have found, it cannot be said that the expenditure which was incurred on the air-tickets of Mrs. Wadia was in any way connected with the business of the assessee-company. Further, so far as the estimate of disallowance out of foreign exchange utilised for the foreign visits of the couple is concerned in the absence of material having been specifically supplied by the assessee to show as to how much and on what items the expenditure was incurred by Mr. and Mrs. Wadia separately, we are of the opinion that the view taken by the Assessing Officer only would be correct, viz that an equal amount should have been spent by each one of them when they were together and there is no reason to presume that only an amount of Rs. 10,000 should have been spent by Mrs. Wadia during a period of 15 days in Switzerland and USA and 40 days in UK and USA. In fact, according to the ld. CIT (Appeals)s estimate the expenditure on Mrs. Wadia would work out to less than Rs. 250 per day which cannot be considered to be reasonable as having been incurred by a lady of Mrs. Wadias status in Switzerland, U.K. and USA. We would, therefore, restore the estimated disallowance in respect of foreign exchange spent by Mrs. Wadia to the figure of Rs. 51,547 which was disallowed by the Assessing Officer. We may clarify that so far as the expenditure on air-tickets is concerned, the entire expenditure of Rs. 1,01,049 (while Boards approval is for Rs. 1,01,409 which shows that the Board has not even cared to correctly verify the figures for which the approval was given) is to be disallowed and hence in this regard the decision of the lower authorities is upheld.
9. Now we may deal with the case law on which the ld. counsel for the assessee has very vehemently relied. We find that in the case of Indian Products Ltd. (supra), the Assessing Officer himself had allowed 50% of the expenditure on the travelling of the wife of the Director. Moreover, the wife of the Director herself was a Director in the Company and in this view of the matter the Honble Court had taken the view that the foreign travel of Mrs. M. N. Shah was also a business tour, otherwise no portion of the foreign travel expenses attributable to her could have been allowed by the ITO as business expenditure. In the instant case, as we have already mentioned, Mrs. Wadia is not only not a Director, no part of her expenditure incurred on foreign travelling had been allowed by the Assessing Officer and we have also given a finding that her foreign travelling has not been proved to be for the purposes of assessees business, much less wholly and exclusively for assessees business. Hence ratio of this decision does not apply to assessees case.
10. In the case of Bralco Metatl Industries (P.) Ltd. (supra) their Lordships noted on page 482 of the report that the controversy was regarding the expenditure incurred in connection with the foreign tours of assessees Managing Director as a deduction under section 37(1) of the Income-tax Act in computation of its income. On page 483 of the report their Lordships further noted that they did not find any serious controversy in regard to the fact that the expenditure in question was business expenditure, and that the only contention of the revenue was that it was an expenditure of capital nature. It is obvious that the facts and circumstances of that case being entirely different its ratio will not apply to assessees case.
11. In the case of Delhi Cloth & General Mills Co. Ltd. (Supra) the Honble Delhi High Court had allowed the expenditure on foreign tours of Shri Charat Ram and Dr. Bharat Ram and the employees of the D.C.M. because it had been found that they had gone to attend a conference which was beneficial for assessees business. On the other hand in assessees case before us no services rendered by Mrs. Wadia could be identified or pin pointed and hence ratio of this decision also will not apply to assessees case.
12. So far as the decisions of the Income Tax Tribunal, including the Special Bench decision, are concerned, we find that the facts and circumstances of those cases were also different. Thus, in the case of Glaxo Laboratories (India) Ltd. (Supra) it had been noted by the Tribunal in para 70 of that order that the Chairman and his wife had moved applications before the RBI for release of foreign exchange and they had been allowed foreign exchange separately. It has also been noted that in Companys application to the Assistant Controller, Exchange Control Department, RBI, it was mentioned that they had received invitations from the Chief Executive of "Glaxo Holdings". Moreover, in that case the Tribunal had accepted it as a fact that the wife of the Chairman had accompanied her husband because of business consideration. In the instant case as we have seen earlier, nowhere at any stage to any authority it had been declared that Mrs. M. N. Wadia was going to foreign countries on account of business necessities of the company. Further, as mentioned earlier even the Boards approval was given after about 1 year and 2 months of the visits of Mrs. M. N. Wadia. In the case of E. F. Ferguson & Co. (supra), the Tribunal had noted that the assessee was assessed at an income of Rs. 35,65,020 and the claim of Rs. 25,090 forms a very negligible proportion thereto, and that the assessee-company was a reputed firm of Chartered Accountants which also represented in India and internationally renowned accounting firm Peat Marwick Mitchell & Co. and that the aforesaid international accounting firm had associates in countries all over the world. It was also noted that the assessee received substantial amount of professional work in the form of clients, educational facilities, literature and training of their staff from this foreign firm. Moreover, in this case also the wife of the senior partner had been invited in connection with conferences to be held in foreign countries and in the application made to the RBI the assessee had disclosed to the RBI that Mrs. Khanna was to accompany in connection with professional purposes of the assessee-firm. In the instant case, the computation of income filed by the assessee shows that out of total income of Rs. 15,23,782 as per the profit and loss account, income to the tune of Rs. 11,29,441 consisted of income by way of dividends of Rs. 7,71,625 and Rs. 3,28,991 by way of profit on sale of import entitlements. Finally an income of Rs. 1,99,310 only was offered for assessment which was arrived at after deductions of expenditure on foreign travelling of Mr. and Mrs. Wadia to the tune of Rs. 3,08,702 as given on page 2 of the Paper Book.
This would indicate that the considerations which would have weighed with the Tribunal while deciding the case of E. F. Ferguson & Co. (Supra) do not exist in the present case. In the case of Parthas Textiles (Supra) the lady whose expenditure on foreign travelling was in dispute was a Partner on the assessee-firm. The Assessing Officer had disallowed the expenditure on the ground that she was an aged lady and the visit was a personal one. The Tribunal, however, found it as a fact that firm was established by the husband of that lady in the year 1962 and ever since that period the lady had been a Partner in that firm and had been looking after its business at Ernakulam and that she undertook the tour in the year under consideration, which was assessment year 1989-90 for promotion of assessees business. Further, in that case also the RBI had granted blank permit in the name of Shri K. C. Shivkumar and Partners. Hence, the ratio of decision in that case also would not apply. In the case of Appollo Tyres Ltd. (Supra) the amount in dispute was merely the air fare amounting to Rs. 1,37,816 and visa fee and other additions amounting to a few hundred rupees. The ld. Members of the Tribunal decided the issue taking into account the fact that visit was approved by the Directors and was for business purposes of the assessee. We may mention that the ld. Members in the case of Apollo Tyres have merely relied on the decision of the Special Bench of the Tribunal in the case of Glaxo Laboratories (India) Ltd. (Supra) and, with respect to the ld. members, have not distinguished the High Court decisions in the case of Hajee Moosa & Co. (Supra) and Bombay Minerals Supply Co. (P.) Ltd. (Supra), themselves but have merely referred to the distinction given by the Special Bench with respect to those 2 decisions of the Honble Madras and Gujarat High Courts. In any case on the facts of that case and the case before us we find distinction inasmuch as in that case the Tribunal had held it as a fact that the expenditure incurred on the foreign travel of the wife of the Chairman, which was approved by the Board of Directors, was a business expenditure whereas in the instant case we have found it as a fact that there was no business purpose, much less the tour of Mrs. Wadia could be proved to be wholly and exclusively for the purposes of assessees business.
13. Now, coming to the decisions of Honble Madras High Court and the Gujarat High Court in the cases of Hajee Moosa & Co. (Supra) and Bombay Mineral Supply Co. (P.) Ltd. (Supra) we may mention that their Lordships have laid down the law very clearly on the subject. Thus, in the case of Eajee Moosa & Co. (Supra) their Lordships have observed on page 426 of the report as under :
While we agree that a businessman in indifferent health ought not to be discouraged from undertaking a foreign tour accompanied either by his wife or a nurse or other attendant, we cannot at the same time hold that expenses incurred either for availing himself of the company of his wife or the services of a nurse or attendant are anytheless personal, however much the expenses are either necessary or even otherwise productive of good health or other enjoyable results from the point of view of the personal need and requirement of such a businessman."
14. Their Lordships also dealt with the question that the expenditure might have been incurred partly for the benefit of the business and partly for the benefit and advantage of the Partner and finally laid down as under :
"The expenditure incurred thus, served not only purposes of business, but also a personal or a private purpose and if the expenditure does not exclusively serve the purposes of business, then, it does not qualify for allowance under section 37(1) of the Act. Viewed thus, the expenditure in this case had a twin purpose and did not qualify for allowance." (page 429) Similar view has been taken in the case of Bombay Mineral Supply Co. (P.) Ltd. (supra) which has been referred to and relied upon in the case of Hajee Moosa & Co. (supra). In the case of Bombay Mineral Supply Co. (P.) Ltd. (supra) their Lordships have quoted from the decision of the Honble Supreme Court in the case of State of Madras v. Coelho [1964] 53 ITR 186 at page 192 to the following effect :
"Personal expenses would include expenses on the person of the assessee or to satisfy his personal needs such as clothes, food, etc., or purposes not related to the business for which the deduction is claimed." - [1985] 153 ITR 437 at page 439.
In the appeal before us, as we have already mentioned, the assessee has repeatedly emphasised that Mrs. Wadias presence with the Chairman & Executive Director was required as it involved several social engagements/appointments and that the senior executives are as a matter of social custom accompanied by their wives since most of foreign visits though for business purpose, have invariably and necessarily some social aspects also.
15. From what has been discussed in the preceding paragraphs of this order we may sum up that in the instant case, the Chairman & Executive Director of this Private Ltd. Co. viz. Shri Nusli N. Wadia had gone to Switzerland and USA for 15 days and again to UK and USA for 40 days between 27-3-1985 to 30-6-1985. He was accompanied by his wife Mrs. M. N. Wadia on both these occasions, and expenditure of Rs. 1,01,049 was incurred on the air-tickets of Mrs. Wadia only. In addition to that there was an expenditure of Rs. 1,03,093 in terms of foreign exchange which was incurred by the couple. There is no evidence on record to show that any prior intimation was given or permission was taken from the RBI or any other authority regarding the Travelling of Mrs. Wadia for the purposes of assessees business. There is no evidence on record to show that any report was submitted either to the RBI or to any other authority or even to the Board of Directors regarding the actual work done by Mrs. Wadia during her visits to foreign countries. Of course, there is an approval of the Board dated 20-8-1986 which shows that foreign travelling expenses of Rs. 3,08,703 incurred during the year by the company, out of which Rs. 1,01,409 against actual figure of Rs. 1,01,049, are the expenses towards air-fare for Mrs. Wadias trip to UK and Western Europe and USA and that her presence with the Chairman and Executive Director was required necessarily and exclusively for the purposes of the business of the company. This note also does not specify about any work done by Mrs. Wadia. The report submitted to the RBI mentioned the name of only Mr. Nusli N. Wadia and made no mention about Mrs. Wadia accompanying him. In these circumstances we hold that the foreign travelling of Mrs. Wadia was not for the purpose of assessees business and hence cannot be allowed as a deduction while computing the business income of the assessee-company. We find support while taking this view from the decision of the Jurisdictional High Court in the case of Cooper Engg. Ltd. v. CIT [1982] 135 ITR 597 (Bom.). We may mention that in that case also there was nothing on record to show as to what was the purpose for which the expenditure on foreign tours of a technical Director of the Company was incurred, although a resolution was passed by the Board of Directors as well as an application was made to the RBI to show the purple for which the tour was undertaken and hence it was argued that it should be held that the expenses which were incurred were also for the purposes of assessees business.
Their Lordships, however, observed as under :
"We are not impressed by these arguments. It is one thing to mention the purpose for which the tour is sought to be undertaken in documents which are prepared prior to the commencement of the tour. It is a different thing to attribute the expenses actually incurred to the said purpose or purposes. For, the purpose of which the tour is undertaken may not actually be achieved and the moneys may be spent for a different purpose. It is necessary, therefore, that the relevant evidence is placed on record to prove the purpose for which the expense is actually incurred." (Page 602 of the report)
16. In view of these observations of the Honble Court even if it could be argued that our decision contrary to the decision of the Special Bench of the Tribunal or other Benches of the Tribunal, which in fact it is not as we have distinguished the facts of those cases, still since our decision is more in consonance with the decision of the Jurisdictional High Court, we would respectfully follow it. We, therefore, allow the appeal filed by the revenue and dismiss the appeal filed by the assessee.