Kerala High Court
Ram Bahadur Thakur Ltd. vs Commissioner Of Income-Tax on 5 June, 2002
Equivalent citations: [2002]257ITR289(KER)
Author: K.K. Denesan
Bench: K.K. Denesan
JUDGMENT K.K. Denesan, J.
1. The following question of law has been referred by the Income-tax Appellate Tribunal, Cochin Bench, at the instance of the assessee :
"Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the expenditure incurred on the foreign tour of a wife of the director of a company is not an allowable deduction under the Income-tax Act, 1961 ?"
2. The assessee is a private limited company. In computing the total income for the assessment year 1987-88, the assessee claimed deduction for a sum of Rs. 74,656 as foreign travel expenses of the wives of the directors of the company. The Assessing Officer did not allow the claim stating that the foreign tour of the wives of the directors was not for the purpose of the business. The Commissioner (Appeals) confirmed the disallowance concurring with the Assessing Officer. Before the Tribunal the assessee contended that the claim was allowable in view of the decision of the Tribunal (Bombay Bench) in the case of Glaxo Laboratories Ltd. as also that of A.F. Ferguson and Company. But the Tribunal placing reliance on the decisions of the Madras High Court in CIT v. T.S. Hajee Moosa and Co. [1985] 153 ITR 422 and of the Gujarat High Court in Bombay Mineral Supply Co. P. Ltd. v. CIT [1985] 153 ITR 437 (Appex.), upheld the order of the Commissioner (Appeals) sustaining the disallowance. The High Court of Madhya Pradesh in CIT v. Steel Ingots Pvt. Ltd. [1996] 220 ITR 552, has also taken the view, in the facts of that case, that the claim for deduction on account of the travel expenses of the wife of the financial director of the assessee-company therein, was allowable. It is in the light of the aforesaid conflicting decisions that the Tribunal has referred the question to be answered by this court.
3. Section 37(1) of the Income-tax Act, 1961, provides that any expenditure (not being expenditure of the nature described in Sections 30 to 36 and Section 80VV 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." It is clear from the above provision that expenditure incurred for the travel of the wives of the directors will not qualify for deduction if the journey was undertaken not for business purposes. The section further says that it should be shown to be wholly and exclusively for the purposes of the business or profession and not for personal purposes. We find that the learned judges of the High Court of Madras as also of the Gujarat High Court have applied the law to the facts of the cases before them keeping in mind the requirement to be established under Section 37(1) of the Income-tax Act. In the case before the Madras High Court the claim of the assessee-company was for deduction of the expenditure incurred by it on account of the wife of the senior partner accompanying him on a foreign tour for the purpose of attending on him as he was a diabetic. The learned judges of the Madras High Court took the view that the expenditure incurred for the travel of the wife of the senior partner under the above circumstances, was in the nature of personal expenses. It was further observed that even if it is assumed that the expenditure related to business purposes, the foreign tour had a dual or twin purpose and served not only the purpose of business but also a personal or private purpose, and, therefore, it was not an expenditure incurred exclusively to serve the business. In the decision of the Gujarat High Court reported in Bombay Mineral Supply Co. P. Ltd. v. CIT [1985] 153 ITR 437 (Appex.), the assessee claimed that the director of the company who was keeping indifferent health required the company of his wife and on that ground claimed the benefit of deduction. The learned judges of the Gujarat High Court held that the journey undertaken by the wife of the director of the company was for a private purpose and not for the purpose of business of the assessee. However, in the case before the Madhya Pradesh High Court reported in CIT v. Steel Ingots Pvt. Ltd. [1996] 220 ITR 552, there were materials to show that the board of directors of the assessee-company had authorised the travel and medical expenses of the financial director and his wife on account of commercial expediency. The learned judges noticed that the Tribunal after perusing the relevant records produced by the assessee had found that the claim made was genuine and allowed the deduction. Having regard to the finding thus entered by the Tribunal, the learned judges of the Madhya Pradesh High Court sustained the claim for deduction under Section 37(1) of the Income-tax Act.
4. Learned counsel for the assessee has brought to our notice two decisions of this court reported in CIT v. Aspinwall and Co. Ltd. [1999] 235 ITR 106 and CIT v. Appollo Tyres Ltd. [1999] 237 ITR 706 in support of the claim for deduction made by the assessee. But we may hasten to point out that the said decisions were rendered in favour of the assessee in the facts and circumstances of those cases. In the decision reported in CIT v. Aspinwall and Co. Ltd. [1999] 235 ITR 106 (Ker), the document produced by the assessee revealed the fact that the assessee-company took a decision to permit such travel and there was nothing to show that the travel was not for business purposes. In the second case reported in CIT v. Appollo Tyres Ltd. [1999] 237 ITR 706 (Ker), the finding of fact entered by the Tribunal was that the travel undertaken by the wife of the director of the assessee-company was for business purposes and therefore entitled to the benefit of deduction. This court acting upon that finding of fact, answered the question in favour of the assessee.
5. The trend of the decisions discussed above would go to show that the question as to whether the expenditure incurred on the foreign tour of a wife of the director of a company is an allowable deduction or not cannot be answered in the abstract. We agree with the view taken by the Madhya Pradesh High Court as well as this court that in appropriate cases depending on facts, deduction as envisaged in Section 37(1) of the Income-tax Act is allowable and that the requirement to be satisfied for such deduction is that the travelling was undertaken not for personal purposes but wholly and exclusively for the purpose of the business. We, however, do not endorse the view that whenever the wife of the director of the company undertakes a foreign tour along with that director, it should be presumed that such foreign travel is wholly and exclusively for business purposes. Applying this principle to the facts of this case we do not think that any interference is called for, with the concurrent findings of fact arrived at by the assessing authority, the appellate authority and the Tribunal that no materials are available to establish that the expenditure incurred on the foreign tour of the wife of the director of the assessee-company was for its business purposes. We answer the question referred, against the assessee and in favour of the Department.