Mr. D.B. Madan vs The Commissioner of Income Tax

N.V. Balasubramanian, J.—The Supreme Court of India in Civil Appeal No.1754(NT) of 1991, by order dated 25.3.1991, was pleased to

direct the Income Tax Appellate Tribunal, Chennai to state a case and refer the question of law set out in its judgment and the Appellate Tribunal in

compliance with the directions of the Supreme Court has stated a case to this Court and referred the following question of law:-

Whether on the facts and circumstances of the case, the Tribunal was justified in holding that the expenditure on the Air Travel of the assessee''s

wife was not incurred wholly and exclusively for purpose of the business of the assessee and that the benefit derived by the wife would detract

from the exclusiveness of the outlay, so as to render it ineligible as a deductible expenditure?

The assessee is an individual and he is a clearing and forwarding agent for U.S.S.R. lines of vessels. The assessee filed his return of income for

the assessment year 1983-84 with the relevant previous year ending 31.3.1983 and claimed deduction of a sum of Rs.51,994/- which represented

the foreign travel expenses incurred for the assessee''s wife who accompanied the assessee in his foreign trips to Singapore, Tokyo, Hong Kong,

etc.

The Income Tax Officer, while completing the assessment, disallowed the assessee''s wife''s foreign tour expenses for the reasons stated in the

earlier assessment orders. On appeal, the Commissioner of Income Tax (Appeals), following its earlier orders, held that the assessee''s wife had

accompanied the assessee in his foreign tours and the assessee was a cardiac patient and it was necessary for the assessee''s wife to accompany

the assessee to look after him. The Commissioner of Income Tax (Appeals) allowed the appeal preferred by the assessee and deleted the addition

made by the Income Tax Officer.

The Revenue carried the matter in appeal to the Income Tax Appellate Tribunal and the Appellate Tribunal held that the expenses incurred in the

foreign tours on the assessee''s wife while she was accompanying the assessee cannot be considered to be an expenditure incurred for the purpose

of business of the assessee. In that view of the matter, the Appellate Tribunal set aside the order passed by the Commissioner of Income Tax

(Appeals) and allowed the appeal preferred by the department.

The assessee thereafter sought for a statement of case on the questions of law set out in the reference application u/s 256(1) of the Income Tax

Act, 1961. The Appellate Tribunal rejected the reference application following the decision of this Court in Commissioner of Income Tax Vs. T.S.

Hajee Moosa and Company, . Thereupon the assessee filed a petition u/s 256(2) of the Income Tax Act before this Court and this Court also

rejected the tax case petition on the ground that no referable question of law arose out of the order of the Appellate Tribunal. The assessee moved

the Supreme Court in Civil Appeal No.1754 (NT) of 1991 and the Supreme Court directed the Appellate Tribunal to state a case to this Court on

the question of law set out earlier. That is how the reference is before us.

Mr. P.P.S. Janarthana Raja, learned counsel for the assessee submitted that the assessee was a cardiac patient and it was necessary for the

assessee''s wife to accompany him during his foreign tours and therefore the expenditure incurred by the assessee for the travel of his wife would

constitute an expenditure wholly and exclusively for the purpose of business. He submitted that the decision of this Court in Commissioner of

Income Tax Vs. T.S. Hajee Moosa and Company, requires reconsideration in the light of the decision of this Court in Commissioner of Income

Tax Vs. Sundaram Clayton Ltd., . He also relied on the decision of the Madhya Pradesh High Court in Commissioner of Income Tax Vs. Steel

Ingots Pvt. Ltd., and the decision of the Gauhati High Court in Commissioner of Income Tax Vs. George Williamson (Assam) Ltd., and also the

decisions of the Kerala High Court in Commissioner of Income Tax Vs. Aspinwall and Co. Ltd., and Commissioner of Income Tax Vs. Appollo

Tyres Ltd., wherein the High Courts have held that the travel expenses incurred by the wife on her foreign trips would be allowable as a business

expenditure. Learned counsel in his fairness also brought to the attention of this Court the decision of the Kerala High Court in RAM BAHADUR

THAKUR LTD. v. CIT where the Kerala High Court distinguished its earlier decisions in Aspinwall''s case and Appollo Tyres Ltd. case referred

to above and held that the expenditure incurred on the foreign tour by the assessee''s wife was not an allowable expenditure.

Mr. T.C.A. Ramanujam, learned counsel for the Revenue, on the other hand, submitted that the ratio of the decision of this Court in

Commissioner of Income Tax Vs. T.S. Hajee Moosa and Company, would squarely apply to the facts of the case.

We have carefully considered the submissions of the learned counsel for the assessee and the learned counsel for the Revenue. This Court in

Commissioner of Income Tax Vs. T.S. Hajee Moosa and Company, has upheld the disallowance of expenditure on two grounds; (i) it was purely

a personal expenditure; and (ii) there was a dual object in incurring the expenditure on the foreign tour of the assessee''s wife. In so far as the

disallowance of expenditure on the ground that it was the personal expenditure of the assessee is concerned, the following observation of the Court

is relevant:-

The state of health of a person is not in any way related to the business activities carried on by him. A good businessman may be bad in health

and a good and healthy person may be no good at all in business. Therefore, the state of health has no relevance or bearing at all to the business

activities carried on by a person. If a businessman, not in good health, desires to secure the help and assistance of an attendant, then, it is purely to

satisfy his personal need. Such a need is not very different from say, his need for food and clothing, except that this need is directed towards the

maintenance of his health. The expenses incurred for availing of the services of an attendant would, in our view, be only to satisfy or meet the

personal need and in that context, it is really immaterial whether the person concerned avails himself of the services of his wife or that of a stranger.

In this case, if the partner of the assessee had not been accompanied by his wife on the tour, having regard to his state of health, he would have

been obliged to engage the services of probably a professionally trained nurse and, even in such a case, the expenses would have been purely

personal. 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 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 any the less 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.

This Court also examined the question whether the expenditure would be allowable u/s 37 of the Income Tax Act and held that the expenditure

was not laid out wholly and exclusively for business purposes. It was held that the expenditure was laid out for a dual purpose, viz., (i) to satisfy the

personal needs of the assessee and (ii) for the purpose of business, and therefore the expenditure was not incurred wholly and exclusively for the

purpose of business and it would not qualify for allowance. In other words, the Court held that the expenditure was for a dual purpose and it

would not qualify for allowance. This Court after noticing some of earlier cases on this aspect held as under:-

... the object of the partner of the assessee at the time when he took his wife along with him on his foreign tour was only to serve or assist him and

not for any business purposes, albeit there was also another object, namely, the furtherance or the promotion of the business of the assessee by the

partner taking his wife along with him. Even in such a case, it would only be a dual purpose in respect of which the expenditure had been incurred.

On a consideration of the principles laid down in the aforesaid decisions, it is difficult to support the conclusion that the expenditure in question was

wholly and exclusively laid out for business purposes.

In our view, the decision of this Court in Commissioner of Income Tax Vs. T.S. Hajee Moosa and Company, would squarely apply to the facts of

the case.

As far as the decision of this Court in Commissioner of Income Tax Vs. Sundaram Clayton Ltd., , in which one of us was a party, is

concerned, the decision is not applicable as the factual position was different and in that case, the expenditure incurred by the assessee was not on

the spouse of its director on his business tour abroad, but the expenditure was incurred on the persons whom the assessee had invited having

regard to the beneficial effect of their visit on the business interest of the assessee, those invitees being none other than the Chairman and the

managing director of the company with whom the assessee had collaboration, and the foreign company which was the holding company, had some

control over the assessee company and the object of the assessee company was to promote the business interest and to maintain good relationship

with the foreign company as its business interest could not possibly prosper to a significant extent without the aid and support of that foreign

company. Therefore the decision which was rendered on a different set of facts is not applicable to the facts of the case.

In so far as the decisions of the Kerala High Court, viz., Commissioner of Income Tax Vs. Aspinwall and Co. Ltd., and Commissioner of

Income Tax Vs. Appollo Tyres Ltd., and the decision of the Madhya Pradesh High Court in Commissioner of Income Tax Vs. Steel Ingots Pvt.

Ltd., are concerned, it was found on facts of those cases that the travel was undertaken by the wife of the chief executive/Managing Director of the

company and the foreign travel was only for the purpose of business. The Kerala High Court rendered its judgment on the basis of the finding of

the Appellate Tribunal to the effect that the travel was undertaken by the wife of the chief executive only for the purpose of business. The Kerala

High Court also noticed that it 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. The Kerala High Court upheld the view of the Tribunal and held that when the assessee permitted

its employee to travel, in the absence of contrary evidence, it had to be taken that the wife of the chief executive had undertaken the travel for

business purposes. In Commissioner of Income Tax Vs. Appollo Tyres Ltd., also, the judgment was rendered on the basis that there was no

material to show that the travel was not for the business purposes and hence, it was for business purposes and the order of the Tribunal allowing

the expenditure was upheld.

Both the decisions were distinguished by the Kerala High Court in a subsequent decision in RAM BAHADUR THAKUR LTD. v. C.I.T. on

the ground that the findings in both the decisions were rendered on the basis of facts of each case. The Kerala High Court held that the question

whether the expenditure is allowable or not would depend upon the facts of each case. It held that only after satisfying the condition that the travel

was undertaken not for personal purpose, but wholly and exclusively for the purpose of business, the amount would be allowable. The Kerala High

Court held that that it would not endorse the view taken in the earlier case that whenever the wife of a Director undertook a foreign tour along with

the director, it should be presumed that the expenditure on the wife of the director was incurred wholly and exclusively for the purpose of business.

The Gauhati High Court in Commissioner of Income Tax Vs. George Williamson (Assam) Ltd., held that the expenditure was allowable. The

Gauhati High Court held that the finding of the Appellate Tribunal that the travel expenses incurred by the assessee for the two wives of the

directors were allowable on the basis of the material available before it and the said finding was not challenged before the High Court and hence,

the decision of the Gauhati High Court in Commissioner of Income Tax Vs. George Williamson (Assam) Ltd., does not assist the assessee.

As far as the decision of the Madhya Pradesh High Court in Commissioner of Income Tax Vs. Steel Ingots Pvt. Ltd., is concerned, it was

found that the expenditure was backed up by the Board''s resolution. It was also found that the expenditure was in connection with the business of

the assessee and therefore the High Court held that the Tribunal was justified in allowing the travel and medical expenses of the financial director

and his wife.

We are of the view that the decisions of the Kerala High Court, the Gauhati High Court and the Madhya Pradesh High Court which were

relied upon by the learned counsel for the assessee were rendered with reference to the facts of each case and they do not assist the assessee in

claiming that the expenditure incurred for the travel of the assessee''s wife should be allowed as business expenditure in all cases. It would depend

upon the facts of each case. The Appellate Tribunal in the present case has found that the expenditure incurred on the foreign trips of the

assessee''s wife cannot be considered to be for the purpose of business of the assessee.

It is relevant to notice the speech of Lord Brightman, in MALLALIEU v. DRUMMOND (1983) 2 ALL ER 1095), particularly the following

passage:-

The object of the taxpayer in making the expenditure must be distinguished from the effect of the expenditure. An expenditure may be made

exclusively to serve the purposes of the business, but it may have a private advantage. The existence of that private advantage does not necessarily

preclude the exclusivity of the business purposes. For example a medical consultant has a friend in the South of France who is also his patient. He

flies to the South of France for a week, staying in the home of his friend and attending professionally on him. He seeks to recover the cost of his air

fare. The question of fact will be whether the journey was undertaken solely to serve the purposes of the medical practice. This will be judged in

the light of the taxpayer''s object in making the journey. The question will be answered by considering whether the stay in the South of France was

a reason, however subordinate, for undertaking the journey, or was not a reason but only the effect. If a week''s stay on the Riviera was not an

object of the consultant, if the consultant''s only object was to attend on his patient, his stay on the Riviera was an unavoidable effect of the

expenditure on the journey and the expenditure lies outside the prohibition in s. 130.

The above speech was considered by House of Lords in McKNIGHT v. SHEPPARD (1999) 3 ALL ER 491) and the House of Lords held as

under:-

If Lord Brightman''s consultant had said that he had given no thought at all to the pleasures of sitting on the terrace with his friend and a bottle of

Cotes de Provence, his evidence might well not have been credited. But that would not be inconsistent with a finding that the only object of the

journey was to attend upon his patient and that personal pleasures, however welcome, were only the effects of a journey made for an exclusively

professional purpose. This is the distinction which the special commissioner was making and in my opinion there is no inconsistency between his

conclusion of law and his findings of fact.

We are of the view that if the object of the foreign tour by the assessee''s wife was to attend on the assessee and for his personal comforts, the

expenditure would not qualify for deduction though the result of such expenditure may increase the efficiency of the assessee in attending to his

business. However, where the object of the foreign tour undertaken by the assessee''s wife was for the purpose of business of the assessee and

incidentally she attended her husband who was a cardiac patient, then the expenditure would be allowable as business expenditure. Similarly, if the

object of the expenditure is two fold, viz., for the purpose of business and to attend the personal comforts of her husband, then the expenditure

would not qualify for allowance as the object of the expenditure would be dual in nature and the expenditure would not qualify for deduction as it

was not incurred wholly and exclusively for the purpose of business.

On the facts of the case, it was found by the Appellate Tribunal that the expenditure incurred by the assessee on the foreign trips of his wife

was not for the purpose of the business of the assessee and therefore, the decision of this Court in Commissioner of Income Tax Vs. T.S. Hajee

Moosa and Company, would apply to the facts of the case and following the said decision, we hold that the Appellate Tribunal has correctly come

to the conclusion that the expenditure is not a business expenditure for allowance in the computation of the business income of the assessee.

Accordingly, we answer the question of law referred to us in the affirmative, against the assessee and in favour of the Revenue. No costs.