Income-Tax

----Business expenditure ---Assessee carrying on business of curing of coffee, steamer agency, clearing and forwarding agency---Expenditure incurred on foreign travel of wife of chief executive---Tribunal finding that no material to show that travel was for my other purpose other than business purpose-- Expenditure was incurred for foreign travel of assessee's employee and wife of employee and not wife of its own partner or director---Tribunal limiting disallowance of expenditure to fifty per cent of amount claimed since foreign visit might have social aspects also---Justified---Indian Income Tax Act, 1961, S.37(1):

For the assessment year 1985-86, the assessee-company engaged in the business of curing of coffee, steamer agency, clearing and forwarding agency, claimed deduction of Rs:2,08,465 as business expenditure on foreign travel which included Rs.33.796 incurred on the tour of the wife of the chief executive of the ,assessee-company. The Assessing Officer disallowed the claim for deduction on the ground that the expenditure was incurred for non- business purposes. The Commissioner (Appeals) affirmed the order of the Assessing Officer. On further appeal, the Tribunal took the view that the wife of the chief executive accompanied him in the business travel and that there was no material to show that her travel was for any other purpose other than business, that the modern trend was that the senior executives were accompanied by their wives on visits for business purposes, that, however, since the visit might have some social aspects also, the entire amount could not be allowed as deduction and, therefore, the Tribunal disallowed 50 per cent of the amount of Rs.33,796. On a reference:

Held that the Tribunal had found that the travel was undertaken by the wife of the senior executive only for the purpose of business. This was a case where the assessee had incurred expenditure for the travel of its employee and the wife of the employee and not the wife of its own partner or director. It was under these circumstances that the Tribunal took the view that when the assessee permitted such travel, in the absence of contrary evidence, it had to be taken that the wife of the chief executive had to undertake the travel for business purposes. Therefore, the expenditure incurred on the foreign travel of the wife of the chief executive of the assessee-company was an allowable deduction.

Bombay

Mineral Supply Co. (P.) Ltd. v. CIT (1985) 153 ITR 437 (Guj.) (Appex.) and CIT v. T.S: Hajee Moosa & Co. (1985) 153 ITR 422 (Mad.) ref.

P. K. R. Menon, Senior Advocate and N.R.K. Nair for the Commissioner.

C. N. Ramchandran Nair for the Assessee.

JUDGMENT

MRS. K.K. USHA, J.---This reference, at the instance of the Revenue, arises out of an order of the Income-tax Appellate Tribunal, Cochin Bench, in I.T.A. NoJ66 (Cock.) of 1989. The relevant assessment year is 1985-86. Following are the questions raised for the opinion of this Court:

"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact:

(i) in allowing the foreign travel expenditure of the wife of the executive of the company?

(ii) in presuming business interest in the foreign trip of the wife of the executive in view of the approval of the company and is not such an approval automatic and disapproval against common place and common sense and the Tribunal is justified in the least in relying on the so-called 'approval'?"

The relevant facts are as follows:

The assessee-company is engaged in the business of curing of coffee, steamer agency, clearing and forwarding agency. For the assessment year 1985-86, the assessee claimed an expenditure of Rs.2,08,465 on foreign travel which included Rs. 33,796 incurred on the tour of the wife of the chief executive. The Assessing Officer disallowed Rs.33,796 holding that the expenditure; was incurred for non-business purposes. The Commissioner of Income-tax (Appeals) confirmed the above view. But, on second appeal, the Tribunal limited the disallowance to 50 per cent of Rs.33,796.

It is contended by learned standing counsel for the Revenue that the Tribunal has erred in not following the dictum laid down by the Madras High Court in CIT v. T.S. Hajee Moosa 8: Co. (1985) 153 ITR 422 and the Gujarat High Court in Bombay Mineral Supply Co. (P.) Ltd. v. CIT (1985) 153 ITR 437. The expenditure incurred was in the nature of personal expenses and, therefore, it will not qualify for deduction under section 37(1) of the Income Tax Act, 1961. The above section provides that any expenditure (not being expenditure of the nature described in sections 30 to 36 and section 80-VV and not being in the-nature of capital expenditure or personal expenses of the assessee), laid cat 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". According to the Revenue, the expenditure incurred for the travel of the wife of the senior executive will not come within the purview of section 37(1).

We heard learned counsel for the respondent also.

The Tribunal took the view that the wife of the chief executive accompanied in a business travel and that there was no material to show that her travel was for any purpose other than business. The Tribunal has taken note of the modern trend in which senior executives are accompanied by their wives on visits for business purposes. But, since the visit may have some social aspects also, it took the view that the entire amount cannot be allowed. It was under these circumstances, the Tribunal disallowed fifty per cent. of the amount claimed under this head.

The facts in the two decisions relied on by the Revenue are different. In CIT v. T.S. Hajee Moosa & Co. (1985) 153 ITR 422 (Mad.), the claim of the assessee-firm was for deduction of the expenditure incurred by it on the wife of the senior partner accompanying him on a foreign tour. The definite case of the assessee therein was that the wife of the senior partner had to accompany him for the purpose of attending on him as he was a diabetic. 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. Even if it is assumed that the expenditure related to business purpose, it had a dual or twin purpose and served not only purposes 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 in Bombay Mineral Supply Co. (P.) Ltd. v. CIT (1985) 153 ITR 437 also, the case of the assessee was that since the director of the company, who had to undertake foreign tour, was keeping indifferent health, his wife had to accompany him. Therefore, the reason for the travel of the wife was to look after her husband, the director. But, in the present case, the factual finding of the Tribunal is to the effect that travel was undertaken by the wife of the senior executive only for the purpose of business. It is also relevant to note that this is a case where the assessee had incurred expenses for the travel of its employee and the wife of the employee, and not the wife of its own partner or director. It was under these circumstances, the Tribunal took the view that when the assessee permitted such travel, in the absence of contrary evidence, it has to be taken that the wife of the chief executive had to undertake the travel for business purpose. On the basis of the above factual finding entered by the Tribunal, we do not find any merit in the contention raised by the Revenue that the Tribunal had committed an error in not following the dictum laid down by the Madras and Gujarat High Courts in the decisions referred to above.

We, therefore, answer question No.(i) in the affirmative, in favour of the assessee and .against the Revenue. We decline to answer question No.(ii), in view of our answer to question No.(i).

A copy of this judgment, under the seal of this Court and the signature of the Registrar, shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.

M.B.A./4059/FCReference answered.