Ram Bahadur Thakur Ltd. v. Commissioner Of Income Tax

The Judgment of the Court was delivered by

G. Sivarajan, J.:— A recurring question regarding the allowability of the expenditure incurred on the foreign tour of the wife of a Director of a company in the computation of income under the head “profit and gains of business” under S. 37(1) of the Income Tax Act, 1961 (for short ‘the Act’) arises in this reference.

2. A Division Bench consisting of one of us (Sivarajan, J.) & C.N Ramachandran Nair, J. has referred this case to a larger Bench stating that there is a conflict between the decision in I.T.R No. 9/98 on the one hand and in Commissioner of Income Tax v. Aspinwall and Co. Ltd. (Ker.) ((1999) 235 ITR 106) and Commissioner Of Income-Tax v. Appollo Tyres Ltd. ((1999) 237 ITR 706) on the other on this question. The Income Tax Appellate Tribunal, Cochin Bench, at the instance of the assessee, has referred the following question of law for the decision of this Court:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure incurred on the foreign tour of the wife of a Director of the Company is not an allowable deduction under the Income Tax Act, 1961?

3. The brief facts are as follows:- The assessee is a public limited company, mainly engaged in the business of growing tea. In the assessment for the year 1990-91 the assessee, inter alia, claimed deduction of an amount of Rs. 5,80,570/- being expenditure incurred on the foreign travel of a Director and his wife. The assessing authority took the view that the expenditure incurred in relation to the wife of the Director cannot be considered to be wholly and exclusively for the purpose of business.He accordingly disallowed a sum of Rs. 2,90,285/- being one half of the said expenditure.The first appellate authority, in appeal by the assessee, had allowed the said claim relying on the decision of the CIT (Appeals) and the Tribunal in the case of the assessee itself for an earlier year. However, the Income Tax Appellate Tribunal, on appeal by the Department, relying on its earlier order in the case of the assessee for the Year 1987-88 which had upheld the disallowance, cancelled the order of the CIT (Appeals) and restored the order of the assessing authority. The Tribunal, on application by the assessee under S. 256(1) of the Act has referred the question set out in para 3 above for the decision of this Court.

4. Here, it must be noted that the decision of the Tribunal in the case of the assessee for the assessment year 1987-88 relied on by the Tribunal for deciding this case was upheld by this Court in the judgment dated 5.6.2002 in I.T.R No. 9 of 1998 (Ram Bahadur Thakur Ltd. v. Commissioner Of Income Tax ((2002) 257 ITR 289). It is also relevant to note in this context that this court by judgment dated 26.9.2002 in ITR No, 197 of 1996 filed by the revenue against the order of the Tribunal in the case of the assessee for the year 1985-86 set aside the appellate order of the Tribunal and remitted the case for fresh consideration as the Tribunal had not given any reason for allowing the claim. It is observed in the said judgment that the assessee has to prove that it is not to be treated as personal expenditure.The decision of this Court in ITR No. 9 of 1998 was, however, not noticed.

5. Learned counsel appearing for the assessee submitted that Mrs. Sarma, wife of one of the Directors of the assessee company accompanied her husband on a business tour to U.S.A The Assessing Officer had allowed deduction of the expenses incurred by the Director for the foreign tour which would clearly show that the travel was undertaken by the said Director for the business of the assessee and that the assessing authority had disallowed the expenses incurred for the travel of the wife of the Director accompanying him without assigning any reason at all. The counsel also submitted that the assessee company by its resolution had permitted the Director to take his wife also for the foreign tour solely for the purpose of promoting the business of the assessee and therefore the assessing officer or for that matter the appellate authorities were not justified in disallowing the said claim. The counsel also pointed out that neither the assessing officer nor the two appellate authorities had considered the factual situation and that all of them went by the decision in the case of the assessee for the earlier assessment year. The counsel also relied on the decisions of this Court in Aspinwal & Co. Ltd.'s case and Appollo Tyres Ltd.'s case, mentioned supra which according to the counsel support the assessee's case. He also submitted that the very question in the case of the assessee for the year 1985-86 is now pending consideration by the Tribunal pursuant to the judgment of this Court in ITR No. 197 of 1996 and, therefore, this case must also be remitted to the Tribunal for entering a specific finding on facts regarding the allowability of the claim.

6. Sri. George K.George, learned standing counsel for the Revenue submitted that the question regarding the deduction of the expenditure incurred on the foreign tour of the wife of the Director of the assessee company under the Act was considered by this Court in ITR No. 9/1998. By judgment dated 5.6.2002, the Court had upheld the disallowance of the said expenditure. The standing counsel also submitted that the said Division Bench had considered the earlier decisions of this Court in Aspinwall & Co. Ltd's case and Appollo Tyres Ltd.'s case relied on by the assessee in the said decision. The standing counsel further submitted that the fact of the present case are also similar to the one decided by this Court in ITR No. 9 of 1998.

7. We have already set out the brief facts, as could be gathered from the paper book. No details are available from the records regarding the purpose or the circumstances under which the assessee has permitted the Director to take his wife also for the foreign tour to U.S.A There is also nothing to show that the assessee had placed all the materials in support of its contention that the assessee had permitted the wife of the Director to accompany the Director for the purpose of promoting the business of the assessee. The assessing authority had also not made any effort to verify with the assessee regarding the above. In fact it was open to the assessing authority, rather, it was his obligation to verify with the assessee as to whether the foreign tour of the Director itself was solely for the purpose of the business of the assessee and as to whether there was any compulsive reason for the accompaniment of the wife of the Director with him and the business purpose, if any, in that regard. As already noted, the assessing authority simply assumed that the foreign travel of the Director was for business purposes and the accompaniment of the wife of the Director was for personal purposes. The two appellate authorities also went by the earlier decisions in the case of the assessee itself. Both the appellate authorities, according to us, failed to note that for taxation purposes each year is an independent unit and the issue has to be determining with reference to the factual situation obtaining in the particular year.

8. Admittedly the claim for deduction of the expenditure incurred for the foreign travel of the Director and the wife of the Director of the assessee company were made under S. 37(1) of the Act which reads as follows:

“37.General:-(1) Any expenditure (not being expenditure of the nature described in Ss.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 of profession.”

9. In order that a particular item of expenditure may be deductible under this sub-section the following conditions should concur: (1) the expenditure should not be of the nature described in Ss. 30 to 36, (2) it should have been incurred in the accounting year, (3) it should be in respect of a business which was carried on by the assessee and the profits of which are to be computed and assessed, (4) it should not be in the nature of personal expenses of the assessee, (5) it should have been laid out or expended wholly and exclusively for the purpose of such business and (6) it should not be in the nature of capital expenditure.

10. The dispute in this case is only regarding the fulfillment of condition No. 5 mentioned above, i.e, the expenditure should have been laid out or expended wholly and exclusively for the purpose of the business of the assessee. In other words, the sole question that arises for consideration is as to whether the expenditure incurred on the foreign tour of the wife of the Director of the assessee company is an expenditure laid out or expended wholly and exclusively for the purpose of the business of the assessee. The expression “for the purpose of the business” occurring in S. 10(2)(xv) of the Income Tax Act, 1992 which is in pari materia with S.37(l) of the Act was considered by the Supreme Court in Commissioner of Income Tax v. Malayalam Plantations Ltd. ((1964) 53 ITR 140). The Supreme Court observed thus:

“The aforesaid discussion leads to the following result: The expression “for the purpose of the business” is wider in scope than the expression “for the purpose of earning profits”. Its range is wide; it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a precondition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicity in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business.”

11. Again the Supreme Court in Gordon Woodroffe Leather Mfg. Co. v. C.I.T ((1962) 44 ITR 551) in the context of the provision of S. 10(2)(xv) of the Income Tax Act, 1922 observed thus:

“In our opinion the proper test to apply in this case is, was the payment made as a matter of practice which affected the quantum of salary or was there an expectation by the employee of getting a gratuity or was the sum of money expended on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business. But this has not been shown and therefore the amount claimed is not a deductible item under S. 10(2)(xv)”.

12. Meeting a contention taken by the department that since the Davids and Tatas were indirectly benefitted by the retrenchment of the services of the employees of the company and payment of compensation to them and since there was no necessity to retrench the services of all the employees the expenditure in question could not be treated as expenditure laid out wholly and exclusively for business purpose of the company the Supreme Court in Sassoon J. David and Co. P. Ltd. v. C.l.T ((1979) 118 ITR 261) observed at page 275 of the report as follows:

“It has to be observed here that the expression “wholly and exclusively” used in S. 10(2)(xv) of the Act does not mean “necessarily”. Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under S. 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure. It is relevant to refer at this stage to the legislative history of S. 37 of the I.T.Act, 1961, which corresponds to S. 10(2)(xv) of the Act An attempt was made in the I.T Bill of 1961 to lay down the “necessity” of the expenditure as a condition for claiming deduction under S.37 S.37(l) in the Bill read “any expenditure…..laid out or expended wholly, necessarily and exclusively for the purposes of the business or profession shall be allowed…..”. The introduction of the word “necessarily” in the above section resulted in public protest. Consequently, when S. 37’was finally enacted into law, the word “necessarily” came to be dropped. The fact that somebody other than the assessee is also benefited by the expenditure should come in the way of an expenditure being allowedby way of deduction under S. 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law.”

13. The Supreme Court in that context relied on, its earlier decision in CIT v. Chandulal Keshavlal & Co. ((1960) 38 ITR 601) where it was observed as follows:

“In deciding whether a payment of money is a deductible expenditure one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trasing. If the payment of expenditure is incurred for the purpose of the trade of the assessee it does not matter that the payment may inure to the benefit of a third party (Usher's Willshire Brewery Ltd. v. Bruce ((1914) 6 TC 399 (HL)). Another testis whether the transaction is properly entered into as a part of the assessee's legitimate commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a third party also benefits thereby (Eastern Investments Ltd v. Commissioner Of Income Tax, West Bengal ((1951) SCR 594 ; 20 ITR 1 (SC). But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee.”

14. Relying on the aforesaid principles the Supreme Court in Sassoon's case mentioned above considered the question. In that case it was the case of the company that many of the employees were old and superfluous and the business could be carried on with a smaller number and the only way in which they could reduce the number was to terminate the services of all the employees by paying them compensation and thereafter re-employing some, of them only, that if the company felt that it was a method which would enure to its benefit, it cannot be said that the payment of compensation was made with an oblique motive and without regard to commercial considerations or expediency and therefore the High Court erred on the facts and in the circumstances of the case in holding that the sum of Rs. 1,27,511/- was not deductible under S. 10(2)(xv) of the Act.

15. The Supreme Court in Indian Molasses Co. (P) Ltd. v. CIT, West Bengal((1959) 37 ITR 66) observed that apart from the conditions specified in S. 37(1) of the Act there are other principles which are also fundamental. It was observed thus:

“The income-tax law does not allow as expenses all the deductions a prudent trader would make in computing his profits. The money may be expended on grounds of commercial expediency but not of necessity. The test of necessity is whether the intention was to earn trading receipt or to avoid future recurring payments of a revenue character. Expenditure in this sense is equal to disbursement which, to use a homely phrase, means something which comes out of the trader's pocket. Thus, in finding out what profits there be, the normal accountancy practice may be to allow as expense any sum in respect of liabilities which have accrued over the accounting period and to deduct such sums from profits. But the income tax laws do not take every such allowance as legitimate for purposes of tax.”

16. As already observed by the Supreme Court in Chandulal Keshavlal & Co. 's case mentioned supra “in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee.” In order that an expenditure should qualify for deduction as contemplated by S. 37(1) of the Act one of the requirements of the provision is that the expenditure must have been laid out wholly and exclusively for the purpose of business. Hence it is for the assessee who claims deduction of the expenditure under this sub section to satisfy the department of the purpose for which the amount is spent. In view of the provisions of S. 40A(2) of the Act, so far as a company is concerned, it is open to the taxing authorities to go into the reasonableness of the expenses also. The assessing officer is also entitled to be satisfied as to the commercial necessity of spending that amount. In other words, there must be nexus between the expenditure and the business purpose. The capacity in which the assessee spends will also be relevant. The purpose must be for the purpose of business, i.e, the expenditure must be incurred for carrying on of the business and the assessee should have incurred it in his capacity as a person carrying on the business. The terms “wholly” refer to the quantum of the expenditure and “exclusively” refer to the motive, objective and purpose of the expenditure. The true test of an expenditure laid out wholly and exclusively for the purposes of trade or business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and of making it pay and not in any other capacity then that of a trader. The manner to apply the test is to ask the question - Has the expense been incurred with the sole object of furthering the trade or business interest of the assessee unalloyed or unmixed with any other consideration? It is trite that where an assessee seeks to deduct from his business profits certain items of expenditure the onus of proving that such deductions are permissible falls on the assessee. This is all the more so when the claims are based on facts which are within the exclusive knowledge of the assessee. Thus, the assessee has to place all the facts and circumstances before the revenue authorities and the latter must examine these and make up its mind as to whether the expenditure was justified by commercial expediency.

17. The question regarding the allowability of the expenditure incurred on the foreign tour of the wife of a partner of a firm or the wife of a director of a company or the wife of an executive of the company came up for consideration before the Gujarat, Madras and Madhya Pradesh High Courts in Bombay Mineral Supply Co. Pvt. Ltd. v. CTT ((1985) 153 ITR 437 Guj) followed by CIT v. Shahibag Enterpreneurs Pvt. Ltd. ((1995) 215 ITR 810) (Guj.), CIT v. Hajee Moosa (T.S) & Co. ((1985) 153 ITR 422 (Mad.) and CIT v. Steel Ingots Pvt. Ltd. ((1996) 220 ITR 552 (M.P)). The said question had also come up for consideration before this Court in CIT v. Aspinwall and Co. Ltd. ((1999) 235 ITR 106), Commissioner Of Income-Tax v. Appollo Tyres Ltd. ((1999) 237 ITR 706), and in Ram Bahadur Thakur Ltd. v. Commissioner Of Income Tax ((2002) 257 ITR 289). In Bombay Mineral Supply Co. Pvt. Ltd. case mentioned supra the Gujarat High Court considered the question regarding the allowability of the foreign tour expenses of the wife of the Managing Director of the assessee company. In that case the Managing Director had undertaken a tour of Japan for business purposes but since he was keeping indifferent health, he needed some time to look-after him and therefore the wife of the Director accompanied him on the foreign tour. It is stated that the assessee company had agreed to bear the expenses of the wife of the Director, for otherwise the company would have had to engage a nurse to accompany the Director to look-after him. The company claimed deduction of this expenditure as business expenditure. It was disallowed by the Income Officer. The first appellate authority agreed with the contention of the assessee company. The ITO carried the matter in appeal before the Tribunal and the Tribunal reversed the finding of the Appellate Assistant Commissioner holding that the expenditure could not have been incurred for the business of the assessee company. It was contended before the High Court that where it was found that the Managing Director was maintaining indifferent health and that he was a vegitarian, it should follow as a necessary corrollary that the service of his wife to attend on her husband should also be treated on par with that of a nurse and the expenses incurred in respect of the tour of the wife should be allowed as business expenses since there is no distinction in principle in the real nature of the expenses. The Gujarat High Court observed as follows:

“We are sure that tax collectors do not want to discourage business executives and managing directors from undertaking foreign tours for business purposes nor to deprive them of the company of their wives in such tours, but for that we do not think that, in law, it would be permissible for the ITO to allow the expenses incurred for rendering such company, however necessary and enjoyable it may be from the point of view of personal needs of those executives. In our view, these are all personal expenses as explained by the Supreme Court in State of Madras v. Coelho ((1964) 53 ITR 186 at page 192).”

18. The following observation of the Supreme Court in the judgment mentioned above was also extracted:

“Personal expenses would include expenses on the person of the assessee or to satisfy his personal needs such as clothes, food etc., Or purposes not related to the business for which the deduction is claimed.”

19. The Gujarat High Court accordingly held that the need of the managing director of the assessee company to have the services of his wife who was not a qualified or a trained nurse either to attend on him for his indifferent health or to prepare food for him since he happened to be a strict vegetarian would not entitle the assessee-company to claim the proportionate expenses as business expenses.

20. In CIT v. T.S Hajee’Moosa & Company ((1985) 153 ITR 422) the Madras High Court considered a claim made by an assessee - firm for deduction of expenditure incurred by it on the wife of the senior partner accompanying him on a foreign tour for the purpose of attending on him as he was a diabetic patient. The claim made by the assessee was negatived by the assessing officer but upheld by the two appellate authorities. The Appellate Asst. Commissioner allowed the claim of the assessee relying upon the correspondence between the assessee and the Reserve Bank of India relating to the release of foreign exchange as well as the medical certificates and recognising what was styled as a modem trend in commercial and business organization requiring the wives of the top executives to accompany their husbands on foreign tours allowed the claim of the assessee holding that the expenses incurred in connection with the trip of the wife of the partner of the assessee was wholly and exclusively incurred for business purposes. The Tribunal had taken the view that the need for the partner of the assessee to maintain efficiency and fitness to make the tour effective and purposeful assumed importance and in that context, the role played by the wife of the partner, who was also on tour as a “nurse”, would be as much a business purpose, as the tour itself and further that the foreign tour of the partner of the assessee with his wife had been a successful one in that its export sales had gone up as a result of the tour. Accordingly the claim was directed to be allowed. The Madras High Court relying on the decision of the Supreme Court in State of Madras v. Coelho ((1964) 53 ITR 186) took the view that the expenses incurred was in the nature of personal expenses only. The Court observed that the wife of the partner who accompanied her husband on a foreign tour did so only with a view to look after him so that he may not be deprived of the company of the wife while on such foreign tour, which she would have done, even otherwise, if he had stayed at home and that in doing so, there was no rendering of any service by the wife to the business. The court also observed that it also does not appear that the wife was requested or authorised by the assessee to accompany her husband on his foreign tour and this is also not without significance considering that she is the wife of the partner who went on the foreign tour. It is also observed that in this there is only the satisfaction or fulfillment of the personal need of the partner to have his wife with him to attend on him and no more and by no stretch of imagination, the expenditure incurred in that connection can be said to relate to business. The court also dealt with a contention taken by the revenue that even assuming that the expenditure incurred related to business purposes, such expenditure was not laid out or expended wholly and exclusively for the purpose of the business. The gist of the said contention was that the expenditure was laid out for a dual purpose, namely, to satisfy the personal needs as well as for purposes of business and not solely and exclusively for business purposes and that would take it out of S.37(l) of the Act. The Madras High Court interpreting the expressions “wholly” and “exclusively” and relying on the decisions of the English Courts held that the object of the partner in taking his wife with him on the foreign tour, on the facts of this case, was not exclusively for the purpose of the promotion of the business, but also with the object of securing the company of the wife in order that she may be in a position to attend on him during the course of his tour and even if the business motive was predominant, yet the expenditure does not qualify for the allowance. Again the Gujarat High Court in Shahibag Enterpreneurs Pvt. Ltd's case mentioned supra, following its earlier decision in Bombay Mineral Supply Co. Pvt. Ltd. v. CIT and the decision of the Madras High Court in CIT v. Hajee Moosa and Co. mentioned above held that the expenditure on foreign tour of the wife of the director of the assessee company, in the absence of evidence that the expenditure was incurred for the purposes of the business of the assessee, cannot be allowed as a deduction under S.37 of the Act. In Steel Ingots Pvt. Ltd.'s case mentioned supra the Madhya Pradesh High Court considered the question of allowability of the expenditure incurred on the foreign tour of the director and his wife in connection with the medical treatment of the director as an eligible deduction under the Act. The assessing authority rejected the claim for deduction and the same was confirmed in appeal by the first appellate authority. In further appeal by the assessee the Tribunal allowed the said claim. On reference at the instance of the revenue pursuant to the direction issued by the High Court under S.256(2) of the Act and Madhya Pradesh High Court upheld the order of the Tribunal allowing the claim. The Madhya Pradesh High Court noted that by resolution dated April 12th 1980, the Board of Directors of the assessee company authorised the foreign tour and medical expenses of Mr. Agarwal for his treatment in U.S.A as well as Mrs. Agarwal for accompanying him, on the principle of commercial expediency. After reproducing the provision of S. 37(1) of the Act the court observed that the expenditure is linked with the business of the assessee; that the Revenue placed no material on record to destroy the worth of the resolution passed by the assessee; that at the bottom, every case turns on its own facts and that 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. The court accordingly held that it cannot be said that the expenses so incurred were inconnectible with the purpose of the business.

21. In Commissioner of Income Tax v. Aspinwall and Co. Ltd. mentioned supra this Court considered the claim for deduction of the expenditure incurred for the foreign travel of the wife of chief executive of the assessee company under S. 37(1) of the Act. The assessing officer rejected the said claim holding that the expenditure was incurred for non-business purposes. This was confirmed in appeal by the Commissioner of Income Tax (Appeals). In further appeal the Tribunal limited the disallowance to 50% of the claim. At the instance of the revenue the Tribunal referred the question as to whether the Tribunal is right in law and fact in allowing the foreign travel expenditure of the wife of the executive of the company. This court observed that the Tribunal has found as a fact that the travel was undertaken by the wife of the senior executive only for the purpose of the business. The court also observed that it is a case where the assessee had incurred expenses for the travel of the employee and the wife of the employee and not the wife of its own partner or director. On the basis of the factual finding of the Tribunal this Court did not find any merit in the contention of the revenue based on the decisions of the Madras and Gujarat High Courts. Again this Court in AppolloTyres Ltd.'s case mentioned supra considered the correctness of the finding of the Tribunal that the expenditure incurred for the wife of the Chairman-cum-Managing Director of the company for foreign travel is an allowable deduction. The Division Bench noted that neither the assessing officer nor the appellate authority has got a case that the foreign tour made by the Chairman- cum-Managing Director is not for any business purposes or that the accompaniment of the wife of the Chairman is not for the purpose of fulfilling the social aspects considered by the special Bench of the Tribunal in Glaxo Laboratories (India) Ltd. v. Second ITO ((1986) 18 ITD 226 (Bom.)). The court further observed that the authorities below have no case that the accompaniment of the wife of the Chairman-cum-Managing Director did not result in any advantage to the assessee. The court also noted that the Board of Directors of the company by resolution had permitted the same. This Court had thus upheld the order of the Tribunal. This Court in ITR No. 9 of 1998 now reported in Ram Bahadur Thakur Ltd. v. Commissioner Of Income Tax ((2002) 257 ITR 289) considered the question whether 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. The assessing authority did not allow the claim stating that the foreign tour of the wives of the Directors was not for the purpose of the business. This was confirmed in appeal by the Commissioner of Income Tax (Appeals). The second appeal by the assessee before the Tribunal was. also unsuccessful. After adverting to the decisions of the Gujarat, Madras, Madhya Pradesh High Courts and the decisions of this Court the Division Bench observed thus:

“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 S. 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.”

22. We have already noted that another Division Bench considered the same question in the case of the assessee itself in respect of the assessment year 1985-86 in the judgment dated 26.9.2002 in ITANo. 197 of 1996. The Division Bench observed that the Tribunal has not given reasons with regard to the travelling expenses of the wives of the Directors; mere statement that the travelling expenses incurred by the wives of the Directors were considered to be admissible expenses does not mean that this is personal expenditure; the assessee has to prove that it is not to be treated as personal expenditure. The Division Bench in the above circumstances took the view that the matter has to be considered by the Tribunal again and had accordingly set aside the order of the Tribunal and remitted the matter to the Tribunal. All these decisions, it must be noted, turned on the facts and circumstances peculiar to those cases and on evidence placed by the parties.

23. The broad principles that can be deduced from the aforesaid discussion on the scope of S. 37(1) of the Act vis-a-vis the question of law involved in the case can be summarised as follows: (1) In order to constitute an expenditure falling under S.37(l) of the Act the six conditions, viz., (i) the expenditure should not be of the nature described in Ss. 30 to 36, (ii) it should have been incurred in the accounting year, (iii) it should be in respect of a business which was carried on by the assessee and the profits of which are to be computed and assessed, (iv) it should not be in the nature of personal expenses of the assessee, (v) it should have been laid out or expended wholly and exclusively for the purpose of such business and (vi) it should not be in the nature of capital expenditure should concur. (2) Though the expressions “for the purposes of the business” is wider in scope than the expression for the purpose of earning profits” and may comprehend many acts incidental to the carrying on of a business its limits are implicit in it and the purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business. (3) The expenditure incurred is on the ground of commercial expediency and in order, indirectly, to facilitate the carrying on of the business. (4) The fact that there was no compelling necessity to incur the expenditure on which deduction is claimed is irrelevant to constitute expenditure under S. 37(1) of the Act. (5) Even an expenditure incurred by an assessee in the course of his or its business voluntarily and | without necessity can be allowed as a deduction under S. 37(1) of the Act if it is ‘ incurred for promoting the business and to earn profits even though there was no compelling necessity to incur such expenditure (6) If the payment of expenditure is incurred for the purpose of the trade of the assessee it does not matter that the payment may enure to the benefit of a third party also. (7) In every case it is a question of fact whether the expenditure was incurred wholly and exclusively for the purpose of trade or business of the assessee (8) Where an assessee seeks to deduct from his or its business profits certain items of expenditure the onus of proving that such deductions are permissible is on the assessee. This is particularly so when the claims are based on facts which are exclusively within the knowledge of the assessee. Thus, it is for the assessee to plead and prove before the authorities that the expenses are incurred wholly and exclusively for the purpose of the business of the assessee. (9) When a claim for deduction of an expenditure under S. 37(1) of the Act is made by an assessee the assessing officer is bound to conduct an enquiry as to whether the assessee satisfied all the requirements of the section before either allowing or rejecting the claim. The officer cannot mechanically either allow the deduction or deny the same. We make it clear that these are not exhaustive and the application of these principles may vary from ease to case and will depend on the facts and circumstances of each case.

24. Let us now examine as to whether the assessing authority and the appellate authorities including the Tribunal had considered the question in the light of the above legal principles. We have already noted in para. 4 of this judgment that the assessing officer had allowed the foreign travel expenses of the director of the assessee company and also rejected the foreign travel expenses of the wife of the director both in a mechanical manner. The assessing officer simply assumed that the foreign travel of the Director of the assessee company was for business purposes but the foreign travel of the wife accompanying the director was not for business purposes. In fact, the assessing officer was bound to conduct an enquiry and to afford an opportunity to the assessee to establish its claim by adducing evidence, if any, as provided under S. 143(2) and (3) of the Act. The first appellate authority and the Tribunal also did not consider the matter keeping in mind the legal principles. They went by the decisions rendered by them for the earlier years. The resultant position is that no factual finding is rendered by the authorities and the Tribunal as ordained under law.

25. We are of the view that in all cases where an assessee makes a claim for deduction of an expenditure under S. 37(1) of the Act the assessing officer is bound to consider the said claim, be it in respect of expenses for the foreign tour of the director of a company or in respect of the expenses for the foreign tour of the wife of the director accompanying him, meticulously keeping in mind the legal principles governing the question and to arrive at a decision either way after affording a reasonable opportunity to the assessee. The appellate authorities are also bound to consider the matter in accordance with law and in the light of the broad legal principles summarised above. Of course the burden is on the assessee to furnish all relevant materials to establish its claim that the expenditure on which deduction is claimed falls under S.37(l).

26. In the present case the only dispute is regarding the claim for deduction of the expenses incurred for the foreign travel of the wife of the director accompanying him and the case of the assessing officer is .that it does not constitute business expenditure. Since there is no categoric finding by the Tribunal on facts as to the requisite condition, viz., the expenditure was incurred wholly and exclusively for the purpose of the business of the assessee we decline to answer the referred question. We, instead, set aside the appellate order of the Tribunal and direct the Tribunal to dispose of the appeal afresh in accordance with law and in the light of the broad legal principles stated in this judgment. Since this case has come up before the Full Bench only because of the reference made by the Division Bench stating that there is a conflict between the decisions of this Court in ITR No. 9 of 1998 (assessee's own case for the assessment year 1997-98), in Aspinwall and Co. 's case and in Appollo Tyres 's case mentioned supra we are bound to express our view in that regard. According to us there is no conflict of opinions as such. These decisions are to the effect that in every case it is a question of fact whether the expenditure was incurred wholly and exclusively for the purpose of trade or business of the assessee and that the question has to be decided on the basis of the facts and materials placed by the assessee in support of the claim. The decisions further show that if the Tribunal, keeping in mind the legal principles, on the basis of materials placed before it, enters a finding of fact this Court in its advisory jurisdiction will not ordinarily upset such finding of fact arrived at by the Tribunal.

27. 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.

The ITR is disposed of as above.