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Commissioner Of Income-Tax, Delhi Petitioner v. Dr. M.S Shroff
Summary of Opinion — Hardayal Hardy, J.
Factual and Procedural Background
The Commissioner of Income-tax referred a common question of law under Section 256(1) of the Income-tax Act, 1961 arising out of two orders of the Income-tax Appellate Tribunal (Delhi Bench ‘C’). The assessment year in issue was 1962-63.
The assessee, an Ophthalmic Surgeon in New Delhi who earned professional income and a salary from Dr. Shroff's Charity Eye Hospital, undertook a foreign tour during the accounting year ending 31 March 1962 to visit hospitals in several European countries and Egypt to keep abreast of developments in ophthalmology. Total expenditure on the tour amounted to Rs. 10,079 (including Rs. 3,617 for air fare and Rs. 161 for visa and related items; the balance was for upkeep abroad).
The assessee claimed a deduction of the full Rs. 10,079. The Income-tax Officer disallowed the entire claim as being capital in nature (an enduring benefit) and partly personal. On appeal, the Appellate Assistant Commissioner held that one-half was personal and disallowed it; of the other half (Rs. 5,040) he allowed only Rs. 2,520 as professional expenditure, disallowing the remaining Rs. 2,520 as attributable to duties as a salaried employee, resulting in a net deduction of Rs. 2,520.
Both the Revenue and the assessee appealed to the Income-tax Appellate Tribunal. The Tribunal found that the assessee visited foreign countries on his own (was not deputed), that the main purpose of the tour was to keep himself up-to-date professionally, and that incidental benefit to his employment did not justify the apportionment made by the Appellate Assistant Commissioner. The Tribunal adjusted the estimate of personal expenses to Rs. 3,100 and allowed deductions totalling Rs. 6,979 out of Rs. 10,079. The reference to this Court asked whether the expenditure of Rs. 6,979 was an admissible deduction while computing the assessee's total income.
Legal Issues Presented
- Whether on the facts and in the circumstances of the case the expenditure of Rs. 6,979 out of a total expenditure of Rs. 10,079 incurred by the assessee on his foreign tour was an admissible deduction while computing the assessee's total income?
Arguments of the Parties
Revenue (as represented by Mr. A.N. Kripal)
- The entire amount of Rs. 6,979 allowed by the Tribunal was capital expenditure or, at least, personal expenditure of the assessee and therefore not deductible.
- The further contention that the deduction of Rs. 2,519 (approximately Rs. 2,520) could not be allowed because it had been disallowed by the Appellate Assistant Commissioner as attributable to the assessee's duties as a salaried employee; since Section 7 of the Income-tax Act, 1922 exhaustively provides deductions under the head "Salaries", no such deduction was permissible under that head.
Assessee
- The assessee claimed a deduction of the full expenditure incurred on the tour (Rs. 10,079) on the basis that the trip was undertaken to keep himself up-to-date in his profession and that the expenditure was therefore deductible.
- Before the Tribunal the case was accepted on the factual finding that the tour's main object was professional study and not a deputation by the employer; the Tribunal allowed most of the expenditure as deductible.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Dr. P. Vadamalayan v. Commissioner of Income-Tax (40 ITR 501) | The view that expenditure of the nature incurred to keep professional knowledge up-to-date can be allowable under Section 10(2)(xv) of the Indian Income Tax Act, 1922 and is not necessarily capital or personal expenditure. | The Court regarded this decision as endorsing the view that the Tribunal's finding supports allowance under Section 10(2)(xv), and found that this view commended itself to the present Court. |
| Seshasayee Brothers Limited v. Commissioner of Income-Tax, Madras (42 ITR 568) | The decision was noted as tending to confirm the principle in Dr. Vadamalayan, though the actual decision in that case went against the assessee on its facts. | The Court treated this authority as affirming the principle in suitable circumstances; it was cited to support the proposition that such study-tour expenses can fall within Section 10(2)(xv) depending on facts. |
| Ambica Mills Limited v. Commissioner of Income-Tax, Gujarat (54 ITR 167) | Illustrates circumstances in which expenditure on foreign tours was held to be capital expenditure because the tours were undertaken to replace obsolete machinery and resulted in enduring benefit to the business (relating to fixed framework of profit-making apparatus). | The Court distinguished this authority on its facts, observing that Ambica Mills concerned replacement of machinery and an enduring capital benefit, which was not the situation in the present case. |
Court's Reasoning and Analysis
The Court accepted the Tribunal's primary factual findings: that the assessee had gone abroad on his own (was not deputed by his employer) and that the main object and purpose of the trip was to keep himself up-to-date in the techniques of his profession. The Court explicitly held that the Tribunal's statement on object and purpose was a finding of fact, not a mere expression of opinion, and that the department did not contend that the finding was perverse or unsupported by evidence.
Given the Tribunal's factual findings, the Court reasoned that the expenditure allowed by the Tribunal fell within the ambit of Section 10(2)(xv) of the Indian Income Tax Act, 1922 and thus was allowable as a deduction. The Court rejected Revenue's contention that the expenditure was of a capital nature or merely personal expenditure.
The Court considered authorities relied on by counsel. It relied on Dr. P. Vadamalayan and noted Seshasayee Brothers as supportive of the principle that, in appropriate circumstances, such study-tour expenses are deductible; Ambica Mills was treated as distinguishable because it turned on facts where visits led to replacement of machinery and an enduring capital benefit.
The Court also addressed the Revenue's point concerning the Rs. 2,519 disallowed by the Appellate Assistant Commissioner on the ground that it related to the assessee's duties as a salaried employee and hence could not be allowed outside the exhaustive deductions in Section 7(2) of the 1922 Act. The Court observed that (i) Section 7(2) does limit deductions against salaries to the enumerated clauses, (ii) the question of apportionment between professional and salaried roles is a mixed question of fact and law and varies with circumstances, but (iii) it was unnecessary to decide that complex question in this case because the Tribunal allowed the deduction mainly under Section 10(2)(xv) and reference to Section 7 was incidental.
Holding and Implications
HOLDING: The question is answered in the affirmative — the expenditure of Rs. 6,979, as allowed by the Tribunal, was an admissible deduction.
Implications:
- Direct effect: The assessee's deduction as allowed by the Tribunal (Rs. 6,979, more precisely Rs. 6,979 out of Rs. 10,079) is upheld. The assessee is awarded the costs of the reference, including counsel's fee of Rs. 200.
- Scope for future cases: The Court's decision rests on the Tribunal's factual finding that the tour was undertaken by the assessee to keep himself professionally up-to-date and applies Section 10(2)(xv) on those facts. The opinion distinguishes situations (such as Ambica Mills) where tours produce an enduring capital benefit (e.g., replacement of machinery), which may lead to a different outcome. The Court did not lay down a broader new rule beyond applying existing principles to the facts of this case.
Reference answered accordingly. Costs to the assessee. Counsel's fee Rs. 200.
Hardayal Hardy, J.:— The following common question of law arising out of two orders passed by the Income-tax Appellate Tribunal (Delhi Bench ‘C’), has been referred to this Court at the instance of the Commissioner of Income-tax, under Section 256(1) of the Income-tax Act, 1961.
“Whether on the facts and in the circumstances of the case the expenditure of Rs. 6979 out of a total expenditure of Rs. 10,079 incurred by the assessee on his foreign tour was an admissible deduction while computing the assessee's total income?
The assessment year in question is 1962-63. The assessee is an Ophthalmic Surgeon in New Delhi. He derives income from his profession as well as from salary received by him from Dr. Shroff's Charity Eye Hospital. During the accounting year ending 31st March, 1962 the assessee visited several hospitals in different countries of Europe and in Egypt. He undertook the tour in order to keep himself abreast with the latest techniques in ophthalmology and spent a total sum of Rs. 10,079 on the tour. The amount consisted of Rs. 3,617 spent on air-journey ticket and Rs. 161 on visa etc., while the balance was spent on his up-keep abroad.
In the computation of his total income for the assessment year 1962-63 the assessee claimed a deduction of the above sum of Rs. 10,079. The Income-tax officer dis-allowed the claim in its entirety on the ground that the knowledge gained by the assessee as a result of his tour abroad was of an enduring benefit to him and as such the expenditure incurred was of capital nature. He also observed that a part of the expenditure was purely on personal account and had therefore no relation to his income for purposes of assessment.
The assessee appealed. The Appellate Assistant Commissioner held that out of the total claim made by the assessee, one-half could be treated as personal expenditure. He therefore sustained dis-allowance of this one half of the expenditure. As regards the other half, he was of the view that the same could be attributed to non-personal items which would be normally allowable. But he observed that since the assessee was carrying on a profession and was also the Chief Medical Officer employed in Dr. Shroff's Hospital, it could reasonably be assumed that the expenditure was laid out partly for the purposes of his employment. He accordingly held that out of the sum of Rs. 5040 a sum of Rs. 2520 only could be allowed as professional expenditure and the balance of Rs. 2520 should be dis-allowed. In the result, he granted a net deduction of Rs. 2520 only.
Against the order of the Appellate Assistant Commissioner, both the Income-tax Officer as well as the assessee went up in appeal before the Income-tax Appellate Tribunal. The contention urged on behalf of the Revenue was that the Appellate Assistant Commissioner was not justified in allowing a sum of Rs. 2520 while the claim made on behalf of the assessee was that the disallowance of Rs. 5040 as representing personal expenditure of the assessee was wrong nor was there any justification for dis-allowance of Rs. 2519 (Rs. 2520) on the ground that it was attributable to the assessee's duties as a salaried employee rather than as a professional man.
The Tribunal found it as a fact that the assessee had visited foreign countries on his own and not that he had been deputed by his employer viz. Dr. Shroff's Charity Hospital. The Tribunal also found that the main object and purpose of the expenditure was for the assessee to keep himself upto date in the techniques of his profession. It however said that the fact that in this process, the assessee also incidentally derived some benefit in his capacity as an employee, was not a circumstance that justified apportionment of the expenses, as had been done by the Appellate Assistant Commissioner. The Tribunal also went on to add that on the reasoning of the Appellate Assistant Commissioner, it could be said that the expenditure dis-allowed by him from the professional income of the assessee, was necessarily incurred by the assessee for the purpose of his employment as a doctor in the aforesaid hospital and that the deduction of the expenditure would to that extent be justified against the income computed under Section 7 of the Indian Income-tax Act, 1922; but since the assessee was claiming the deduction of the total expenditure from his total income, it did not make any difference even if it is apportioned under two separate heads.
The Tribunal therefore rejected the appeal of the Income-tax Officer and allowed the assessee a further deduction of Rs. 2519 which had been dis-allowed by the Appellate Assistant Commissioner. It also granted a deduction of Rs. 1940 inasmuch as it held that the estimate of personal expenses should at best be taken at Rs. 3100 and not Rs 5040. The net result of the Tribunal's orders was that the assessee was allowed a total deduction of Rs. 6980 (Rs. 6979 to be more precise) out of a total expenditure of Rs. 10,079. The question referred by the Tribunal relates to the afore-mentioned deduction.
Mr. A.N Kripal, learned counsel for the Revenue, tried to persuade us to hold that the entire amount of Rs. 6979 allowed by the Tribunal was in the nature of capital expenditure or, at any rate, personal expenditure of the assessee, as had been held by the Income-tax Officer. It however seems to us that on the finding recorded by the Tribunal the expenditure incurred by the assessee was allowable as a deduction under Section 10(2)(xv) of the Indian Income Tax Act, 1922 and was neither an expenditure of capital nature nor personal expenditure. This was the view taken by the Madras High Court in Dr. P. Vadamalayan v. Commissioner of Income-Tax (40 ITR 501)(1) and this is the view that commends itself to us. The principle laid down in the above decision may also be said to have been confirmed by the same High Court in another case Seshasayee Brothers Limited v. Commissioner of Income-Tax Madras (42 ITR 568)(2), although the actual decision in that case went against the assessee. There a director of the assessee was deputed by the company managed by it, to attend the conference of medical manufacturers in London. The managed company bore his expenses to the extent of Rs. 9995. The assessee claimed that the opportunity was availed of in deputing the director to visit other countries also to acquaint himself with the manufacturing conditions prevalent there and in this process a sum of Rs. 14,625 had been spent on the director's tour. The assessee however failed to furnish details of the places visited by the director so that it was not possible to decide what precisely was the object of his visit.
One of the contentions urged before the Tribunal which was accepted by it was, that the experience, if any, gained by the director was a benefit of an enduring nature and the expenditure was capital in nature. On a reference to the High Court it was held that since the assessee had failed to establish that the sum of Rs. 14,625 was expenditure laid out wholly and exclusively for the purpose of its business the amount was not an allowable deduction but the Tribunal's view that the expenditure was of capital nature was not correct.
Mr. Kirpal next referred to the case of Ambica Mills Limited v. Commissioner of Income-Tax Gujarat (54 ITR 167)(3). In that case the assessee company which carried on the business of textile manufacture, authorised a tour by the director and the superintendent of the company's mills for two purposed viz.,
(i) in order to make an on-the-spot study of the latest developments in the manufacture, designing and processing of cloth in the United Kingdom and other countries;
(ii) to make a report on their return on the work done by them as to the latest developments in the manufacturing, designing and processing of textiles seen by them, and recommend as to whether the latest developments should be adopted and for that purpose to purchase new machinery which would bring an enduring benefit to the assessee company and which also would bring a change in the methods of manufacturing, designing and processing.
After their visit the assessee-company actually imported newly improved and modern machinery for the purpose of being used in running its textile mills.
The Tribunal came to the conclusion that the object of the tour was to re-place the old and out-of date or obsolete machinery used in the textile mills of the assessee-company by the more modern one and that the expenditure incurred in these circumstances, related to the fixed frame-work of the profit-making apparatus of the assessee and not to its carrying on of the business and was, therefore, a capital expenditure.
The decision of the Tribunal was up-held by the High Court on the ground that the finding of fact recorded by the Tribunal, though of an intermediate fact as to the object of the tours, cannot be said to be either perverse or not based on evidence and therefore the High Court would not be justified in interfering with it. It was made clear that on the facts, it was not possible for the High Court to say that the tours were undertaken as study tours merely to keep acquaintance with the new methods of production and new machinery or only for adding to the knowledge of the assessee-company's representatives and therefore the expenses incurred were in the nature of revenue expenditure.
The decision is clearly distinguishable on its own facts.
Mr. Kirpal finally tried to assail the Tribunal's finding on the ground that the Tribunal had merely expressed its opinion about the object and purpose of the tour and as such its finding could not be regarded as a finding of fact. We do not agree. The Tribunal has clearly stated that the assessee's object and purpose in going abroad was to keep himself up-to-date in the techniques of his profession. This is a pure finding of fact and is not merely an expression of opinion. It is not the case of the department that the finding is either perverse or is not supported by evidence.
In this view of the matter, it is not possible for us to hold that the expenditure in respect of which deduction has been allowed by the Tribunal was not an admissible deduction either on the ground that it was not an expenditure that had been incurred wholly and exclusively for the purposes of assessee's profession or on the ground that it was in the nature of capital expenditure or personal expenses of the assessee. The deduction therefore clearly comes within the ambit of section 10(2)(xv) of the Act of 1922.
Mr. Kirpal next urged that in any event the deduction of Rs. 2519 could not be justified on any ground. He contended that the amount had been dis-allowed by the Appellate Assistant Commissioner on the ground that it was attributable to the assessee's duties as a salaried employee rather than as a professional man and inasmuch as section 7 of the Income-tax Act, 1922 is exhaustive of the various deductions permissible under the head “Salaries” no such deduction could be allowed by the Tribunal.
It is true that under sub-Section (2) of Section 7 the income chargeable to tax under the head “Salaries” has to be computed after making the deductions mentioned in clauses (i) to (iii) and that no other deduction can be made. The deduction of Rs. 2519 obviously does not come under any of these three clauses. The question as to how far the expenditure incurred by a salaried employee who proceeds on a study tour abroad and thereby acquires knowledge and experience which not only benefits his employer but also adds to his professional and mental equipment, can be apportioned, is one on which opinions may differ. The question at any rate, is a mixed question of fact and law and its answer may vary from case to case depending upto the facts and circumstances of each case. In the present case, it does not seem necessary to answer that question because on facts the assessee's claim for deduction has been allowed by the Tribunal mainly on the basis of Section 10(2)(xv) of the Act and reference to Section 7 was merely incidental.
The result is that the question is answered in the affirmative. The assessee will have his costs of this reference. Counsel's fee Rs. 200.
A.B.S Reference answered accordingly.
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