Madhya Pradesh High Court
Commissioner Of Income-Tax vs Steel Ingots Pvt. Ltd. on 24 January, 1996
Equivalent citations: [1996]220ITR552(MP)
Author: S.B. Sakrikar
Bench: S.B. Sakrikar
JUDGMENT S.B. Sakrikar, J.
1. In pursuance of the directions issued by this court in St. C. C. No. 284 of 1985 (see [1989] 175 ITR 290) on August 5, 1988, the Tribunal forwarded the statement of the case under Section 256(2) of the Income-tax Act, 1961, and referred the following question, as directed by this court for its opinion (page 291) :
" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the expenditure incurred on the foreign tour of the director and his wife in connection with the medical treatment of the director, was business expenditure of the assessee and allowable as a deduction under the Income-tax Act, 1961 ?"
2. The facts of the case lie in a narrow compass. The non-applicant-assessee, Steel Ingots Private Ltd., Indore, is a private limited company deriving income from manufacture and sale of steel ingots from waste iron material and scrap. For the assessment year 1981-82, it claimed total foreign travel expenses to the tune of Rs. 1,68,125. These foreign tour expenses were incurred by the assessee-company on the foreign travel of the directors Shri K.S. Trivedi, Shri P.P. Gupta, Airen and the wives of Shri Trivedi and Shri Gupta. The expenditure mentioned above also included the travel and medical expenses incurred for Shri R.R. Agrawal and his wife. During the relevant accounting period, Mr. R.R. Agrawal was the financial director of the company and was suffering from heart ailment. The board of directors of the assessee-company, therefore, passed a resolution on April 12, 1980, for incurring the expenditure on medical treatment of Shri R.R. Agrawal in the U. S. A. and also authorised expenditure for travel along with him for his wife. The Inspecting Assistant Commissioner (Assessment) during the course of assessment proceedings, disallowed the entire expenditure, incurred on the foreign travel of the directors of the company and their wives. The assessee, therefore, went in appeal before the Commissioner of Income-tax (Appeals), who dismissed the appeal of the assessee and upheld the order of the Inspecting Assistant Commissioner (Assessment). Copies of the orders passed by the Inspecting Assistant Commissioner (Assessment) and the Commissioner of Income-tax (Appeals) are annexures "A" and "B", respectively, along with the statement of the case.
3. Aggrieved by the orders of the Commissioner of Income-tax (Appeals), the assessee filed an appeal before the Income-tax Appellate Tribunal, Indore Bench at Indore. The Tribunal, after hearing the parties, partly allowed the appeal of the assessee and held that the expenditure incurred on medical treatment of Mr. R.R. Agrawal and on the journey of his wife accompanying him to attend on him was in the best interest of the assessee's business and was thus wholly and exclusively essential for the purposes of the business of the assessee-company. The Tribunal, therefore, directed the Inspecting Assistant Commissioner (Assessment) that out of the total amount of Rs. 1,68,125 disallowed by him, the total expenditure incurred on travel and medical treatment of Mr. Agrawal and on travel of Mrs. Agrawal along with him alone, should be allowed as a deduction. The order of the Tribunal passed on November 30, 1984, is annexure "C".
4. Aggrieved by the order of the Tribunal, the Commissioner of Income-tax, Bhopal, filed an application under Section 256(1) of the Income-tax Act, requesting the Tribunal to refer the question of law to the High Court, for its opinion. The Tribunal dismissed the application of the Revenue. Thereafter, the present applicant filed an application before this court under Section 256(2) of the Income-tax Act directing the Tribunal to refer the question of law along with the statement of the case.
5. This court by its order dated August 5, 1988, passed in M. C. C. No. 284 of 1985 (see [1989] 175 ITR 290) ordered the Tribunal to refer the aforesaid question of law for its opinion along with the statement of the case. In compliance with the order of this court, now, the Tribunal has referred the aforesaid question of law along with the statement of the case for the opinion of this court.
6. We have heard, Shri D.D. Vyas, learned counsel for the applicant/ Department, and Shri Shrivastava, learned counsel for the non-applicant/ assessee.
7. Learned counsel for the applicant contended that the assessee was requested to furnish the details of the foreign tour of the directors of the company including the travel and medical expenses incurred by Shri R.R. Agrawal and his wife, but the assessee failed to submit any details about foreign tour of Shri Agrawal and his wife. In the circumstances, the order of the Tribunal is not well-founded allowing the deduction of the actual expenses incurred on tour of Mr. and Mrs. Agrawal and medical expenses incurred on Mr. Agrawal on their tour to U. S. A.
8. In oppugnation, learned counsel appearing for the non-applicant, supported the view taken by the Tribunal.
9. On a perusal of the record, it is found that the board of directors of the assessee-company passed a resolution on April 12, 1980, authorising foreign tour and medical expenses on Mr. Agrawal for his treatment in U. S. A. as well as Mrs. Agrawal to accompany him on the ground that as Shri Agrawal was the financial director of the company, his services were absolutely necessary for the purposes of the assessee's business. Since Mr. Agrawal was suffering from heart trouble, he could not go by himself and, therefore, his wife had to accompany him and for this purpose, foreign exchange was sanctioned by the Reserve Bank of India for both Mr. and Mrs. Agrawal. A copy of the same was filed by the assessee before the Tribunal. In the circumstances, the Tribunal held that the expenses incurred on the tour of Mr. Agrawal in the U. S. A. in which Mrs. Agrawal accompanied him, was clearly on the principle of commercial expediency, as he had been rendering valuable services to the assessee-company.
10. In similar facts and circumstances of the case, in the case of Mehboob Productions Private Ltd. v. CIT [1977] 106 ITR 758, the Bombay High Court held as under (headnote) :
" In view of the facts and conclusions arrived at by the Tribunal regarding the basis on which the resolution was passed by the company, the entire amount of medical expenses occasioned by M's illness which were borne by the assessee-company pursuant to the resolution, should be allowed as a deduction on the footing that the decision to reimburse was taken on the principle of commercial expediency and that no part of such expenses was held to be not proved or arbitrary, excessive or unreasonable."
11. The importance of services being rendered by the financial director, Shri R.R. Agrawal, can be appreciated in the backdrop of the position that other directors, namely, Shri K.S. Trivedi, Shri V.P. Gupta and Shri Airen, and the wives of Shri Trivedi and Shri Gupta, toured U. S. A. to look after the proper medical treatment of Shri R.R. Agrawal. It is a different matter that the assessee before the Tribunal did not press any claim regarding allowance of foreign tour expenses with regard to the aforesaid directors and their wives and restricted the claim only to the tour expenses concerning Shri R.R. Agrawal and his wife. We noticed that there was necessity of medical treatment of Shri R.R. Agrawal in the U. S. A. Such advice was tendered by eminent doctors like Dr. K.G. Nair, heart specialist of Bombay, and Dr. R.S. Mehta, a renowned physician and cardiologist. Shri Agrawal has proceeded to U. S. A. for a by-pass heart surgery. The assessee-company failed to say that the services of Shri Agrawal, acting as a financial director, were absolutely necessary for the purposes of the assessee's business, as such passed the resolution.
12. Section 37 of the Income-tax Act provides that any expenditure (not being expenditure of the nature described in Sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". The expenditure is linked with the business of the assessee. The Revenue placed no material on record to destroy the worth of the resolution passed by the assessee. At the bottom, every case turns on its own facts. In the instant case, there is enough material on record to show the commercial expediency if the assessee thought it fit to provide the best medical treatment to its financial director so that he remains fit to manage the affairs of the company. It cannot be said that the expenses so incurred were inconnectible with the purpose of the business. That being so, the Tribunal does not seem to have made any error.
13. Considering the facts in the case on hand, it emerged that by resolution dated April 12, 1980, the board of directors of the assessee-company, authorised the foreign tour and medical expenses of Mr. Agrawal for his treatment in U. S. A. as well as Mrs. Agrawal for accompanying him, on the principle of commercial expediency. It is not the case of the Department that the expenses as incurred on the travel of Mrs. and Mr. Agrawal and medical expenses on Mr. Agrawal were arbitrary, excessive or unreasonable, therefore, the order passed by the Tribunal allowing the actual expenses incurred on Mr. and Mrs. Agrawal, as deductible for the assessment of the income-tax, does not suffer from any infirmity.
14. We accordingly answer the question referred to us for our opinion, in the affirmative, i.e., in favour of the non-applicant/assessee and against the Department.
15. However, we make no orders as to costs of this miscellaneous civil case. Counsel fee is fixed at Rs. 750 on each side, if certified.
16. A copy of this order shall be transmitted to the Tribunal, through the Registrar of this registry.