Mr.d.b.madan, Madras v. The Commissioner Of Income-Tax, Madras

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 18/09/2002 CORAM THE HONOURABLE MR.JUSTICE V.S.SIRPURKARandTHE HONOURABLE MR.JUSTICE N.V.BALASUBRAMANIAN T.C.No.1294 of 1992 Mr.D.B.Madan, Madras. ..... Applicant. -Vs- The Commissioner of Income-tax,Madras. ..... Respondent. Reference arising out of the order of the Income-tax AppellateTribunal, Madras Bench in I.T.A.No.2403/Mds/ 84, at the instance of theassessee. !For applicant :: Mr.P.P.S.Janarthana Raja ^For respondent :: Mr.T.C.A.Ramanujam,Sr.St.Counsel for IT. :JUDGMENT N.V.BALASUBRAMANIAN,J.The Supreme Court of India in Civil Appeal No.1754(NT) of1991, by order dated 25.3.1991, was pleased to direct the Income-tax AppellateTribunal, Chennai to state a case and refer the question of law set out in itsjudgment and the Appellate Tribunal in compliance with the directions of theSupreme Court has stated a case to this Court and referred the followingquestion of law:- " Whether on the facts and circumstances of the case, the Tribunal wasjustified in holding that the expenditure on the Air Travel of the assessee'swife was not incurred wholly and exclusively for purpose of the business ofthe assessee and that the benefit derived by the wife would detract from theexclusiveness of the outlay, so as to render it ineligible as a deductibleexpenditure?" 2. The assessee is an individual and he is a clearing andforwarding agent for U.S.S.R. lines of vessels. The assessee filed hisreturn of income for the assessment year 1983-84 with the relevant previousyear ending 31.3.1983 and claimed deduction of a sum of Rs.51,994 /- whichrepresented the foreign travel expenses incurred for the assessee's wife whoaccompanied the assessee in his foreign trips to Singapore, Tokyo, Hong Kong, etc. 3. The Income-tax Officer, while completing the assessment, disallowed the assessee's wife's foreign tour expenses for the reasons statedin the earlier assessment orders. On appeal, the Commissioner of Income-tax(Appeals), following its earlier orders, held that the assessee's wife hadaccompanied the assessee in his foreign tours and the assessee was a cardiacpatient and it was necessary for the assessee's wife to accompany the assesseeto look after him. The Commissioner of Income-tax (Appeals) allowed theappeal preferred by the assessee and deleted the addition made by theIncome-tax Officer. 4. The Revenue carried the matter in appeal to the Income-tax Appellate Tribunal and the Appellate Tribunal held that the expenses incurredin the foreign tours on the assessee's wife while she was accompanying theassessee cannot be considered to be an expenditure incurred for the purpose ofbusiness of the assessee. In that view of the matter, the Appellate Tribunalset aside the order passed by the Commissioner of Income-tax (Appeals) andallowed the appeal preferred by the department. 5. The assessee thereafter sought for a statement of case on the questions of law set out in the reference application under section 256(1)of the Income-tax Act, 1961. The Appellate Tribunal rejected the referenceapplication following the decision of this Court in C. I.T. v. HAJEE MOOSA& CO. (153 ITR 422). Thereupon the assessee filed a petition under section256(2) of the Income-tax Act before this Court and this Court also rejectedthe tax case petition on the ground that no referable question of law aroseout of the order of the Appellate Tribunal. The assessee moved the SupremeCourt in Civil Appeal No.1754 (NT) of 1991 and the Supreme Court directed theAppellate Tribunal to state a case to this Court on the question of law setout earlier. That is how the reference is before us. 6. Mr.P.P.S.Janarthana Raja, learned counsel for the assessee the questions of law set out in the reference application under section 256(1)of the Income-tax Act, 1961. The Appellate Tribunal rejected the referenceapplication following the decision of this Court in C. I.T. v. HAJEE MOOSA& CO. (153 ITR 422). Thereupon the assessee filed a petition under section256(2) of the Income-tax Act before this Court and this Court also rejectedthe tax case petition on the ground that no referable question of law aroseout of the order of the Appellate Tribunal. The assessee moved the SupremeCourt in Civil Appeal No.1754 (NT) of 1991 and the Supreme Court directed theAppellate Tribunal to state a case to this Court on the question of law setout earlier. That is how the reference is before us. 6. Mr.P.P.S.Janarthana Raja, learned counsel for the assessee submitted that the assessee was a cardiac patient and it was necessary for theassessee's wife to accompany him during his foreign tours and therefore theexpenditure incurred by the assessee for the travel of his wife wouldconstitute an expenditure wholly and exclusively for the purpose of business.He submitted that the decision of this Court in C.I.T. v. HAJEE MOOSA & CO.(153 ITR 422) requires reconsideration in the light of the decision of thisCourt in C.I.T. v. SUNDARAM CLAYTON LTD. (240 ITR 271). He also relied onthe decision of the Madhya Pradesh High Court in C.I.T. v. STEEL INCOTS PVT.LTD. (220 ITR 552 ) and the decision of the Gauhati High Court in C.I.T. v.GEORGE WILLIAMSON (ASSAM) LTD. (234 ITR 130) and also the decisions of theKerala High Court in C.I.T. v. ASPINWALL AND CO. LTD. (235 ITR 106) andC.I.T. v. APPOLLO TYRES LTD. (237 ITR 706) wherein the High Courts haveheld that the travel expenses incurred by the wife on her foreign trips wouldbe allowable as a business expenditure. Learned counsel in his fairness alsobrought to the attention of this Court the decision of the Kerala High Courtin RAM BAHADUR THAKUR LTD. v. CIT (2002) 175 CTR 539) where the Kerala HighCourt distinguished its earlier decisions in Aspinwall's case and AppolloTyres Ltd. case referred to above and held that the expenditure incurred onthe foreign tour by the assessee's wife was not an allowable expenditure. 7. Mr.T.C.A.Ramanujam, learned counsel for the Revenue, on the other hand, submitted that the ratio of the decision of this Court inHajee Moosa's case (153 ITR 422) would squarely apply to the facts of the case. 8. We have carefully considered the submissions of the learned counsel for the assessee and the learned counsel for the Revenue.This Court in Hajee Moosa's case (153 ITR 422) has upheld the disallowance ofexpenditure 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 ofthe assessee's wife. In so far as the disallowance of expenditure on theground that it was the personal expenditure of the assessee is concerned, thefollowing observation of the Court is relevant:- " The state of health of a person is not in any way related to the other hand, submitted that the ratio of the decision of this Court inHajee Moosa's case (153 ITR 422) would squarely apply to the facts of the case. 8. We have carefully considered the submissions of the learned counsel for the assessee and the learned counsel for the Revenue.This Court in Hajee Moosa's case (153 ITR 422) has upheld the disallowance ofexpenditure 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 ofthe assessee's wife. In so far as the disallowance of expenditure on theground that it was the personal expenditure of the assessee is concerned, thefollowing 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 inhealth 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 thebusiness activities carried on by a person. If a businessman, not in goodhealth, desires to secure the help and assistance of an attendant, then, it ispurely to satisfy his personal need. Such a need is not very different fromsay, his need for food and clothing, except that this need is directed towardsthe maintenance of his health. The expenses incurred for availing of theservices of an attendant would, in our view, be only to satisfy or meet thepersonal need and in that context, it is really immaterial whether the personconcerned 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 hiswife on the tour, having regard to his state of health, he would have beenobliged to engage the services of probably a professionally trained nurse and,even in such a case, the expenses would have been purely personal. While weagree that a businessman in indifferent health ought not to be discouragedfrom undertaking a foreign tour accompanied either by his wife or nurse orother attendant, we cannot at the same time hold that expenses incurred eitherfor availing himself of the company of his wife or the services of a nurse orattendant are any the less personal, however much the expenses are eithernecessary or even otherwise productive of good health or other enjoyableresults from the point of view of the personal need and requirement of such abusinessman." 9. This Court also examined the question whether the expenditure would be allowable under section 37 of the Income-tax Act and heldthat the expenditure was not laid out wholly and exclusively for businesspurposes. 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 thepurpose of business, and therefore the expenditure was not incurred wholly andexclusively for the purpose of business and it would not qualify forallowance. In other words, the Court held that the expenditure was for a dualpurpose and it would not qualify for allowance. This Court after noticingsome 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 assisthim and not for any business purposes, albeit there was also another object,namely, the furtherance or the promotion of the business of the assessee bythe partner taking his wife along with him. Even in such a case, it wouldonly 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, itis difficult to support the conclusion that the expenditure in question was " ... 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 assisthim and not for any business purposes, albeit there was also another object,namely, the furtherance or the promotion of the business of the assessee bythe partner taking his wife along with him. Even in such a case, it wouldonly 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, itis 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 Hajee Moosa's case (153 ITR 422)would squarely apply to the facts of the case.10. As far as the decision of this Court in C.I.T. v.SUNDARAM CLAYTON LTD. (240 ITR 271), in which one of us was a party, isconcerned, the decision is not applicable as the factual position wasdifferent and in that case, the expenditure incurred by the assessee was noton the spouse of its director on his business tour abroad, but the expenditurewas incurred on the persons whom the assessee had invited having regard to thebeneficial effect of their visit on the business interest of the assessee,those invitees being none other than the Chairman and the managing director ofthe company with whom the assessee had collaboration, and the foreign companywhich was the holding company, had some control over the assessee company andthe object of the assessee company was to promote the business interest and tomaintain good relationship with the foreign company as its business interestcould not possibly prosper to a significant extent without the aid and supportof that foreign company. Therefore the decision which was rendered on adifferent set of facts is not applicable to the facts of the case. 11. In so far as the decisions of the Kerala High Court, 11. In so far as the decisions of the Kerala High Court, viz., C.I.T. v. ASPINWALL AND CO. LTD. (235 ITR 106) and C.I.T. v.APPOLLO TYRES LTD. (237 ITR 706) and the decision of the Madhya Pradesh HighCourt in C.I.T. v. STEEL INGOTS PVT. LTD. (220 ITR 552) are concerned, itwas found on facts of those cases that the travel was undertaken by the wifeof the chief executive/Managing Director of the company and the foreign travelwas only for the purpose of business. The Kerala High Court rendered itsjudgment on the basis of the finding of the Appellate Tribunal to the effectthat the travel was undertaken by the wife of the chief executive only for thepurpose of business. The Kerala High Court also noticed that it was a casewhere the assessee had incurred expenditure for the travel of its employee andthe wife of the employee and not the wife of its own partner or director. TheKerala High Court upheld the view of the Tribunal and held that when theassessee permitted its employee to travel, in the absence of contraryevidence, it had to be taken that the wife of the chief executive hadundertaken the travel for business purposes. In Appollo Tyres Ltd. case (237ITR 706) also, the judgment was rendered on the basis that there was nomaterial 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 theexpenditure was upheld.12. Both the decisions were distinguished by the Kerala HighCourt in a subsequent decision in RAM BAHADUR THAKUR LTD. v. C.I.T. (2002)175 CTR 539) on the ground that the findings in both the decisions wererendered on the basis of facts of each case. The Kerala High Court held thatthe question whether the expenditure is allowable or not would depend upon thefacts of each case. It held that only after satisfying the condition that thetravel was undertaken not for personal purpose, but wholly and exclusively forthe purpose of business, the amount would be allowable. The Kerala High Courtheld that that it would not endorse the view taken in the earlier case thatwhenever the wife of a Director undertook a foreign tour along with thedirector, it should be presumed that the expenditure on the wife of thedirector was incurred wholly and exclusively for the purpose of business. 13. The Gauhati High Court in C.I.T. v. GEORGE WILLIAMSON (ASSAM) LTD. (234 ITR 130) held that the expenditure was allowable. TheGauhati High Court held that the finding of the Appellate Tribunal that thetravel expenses incurred by the assessee for the two wives of the directorswere allowable on the basis of the material available before it and the saidfinding was not challenged before the High Court and hence, the decision ofthe Gauhati High Court in George Williamson' s case (234 ITR 130) does notassist the assessee. 14. As far as the decision of the Madhya Pradesh High Court in C. I.T. v. STEEL INGOTS PVT. LTD. (220 ITR 552) is concerned, it wasfound that the expenditure was backed up by the Board's resolution. It wasalso found that the expenditure was in connection with the business of theassessee and therefore the High Court held that the Tribunal was justified inallowing the travel and medical expenses of the financial director and hiswife. 15. We are of the view that the decisions of the Kerala High Court, the Gauhati High Court and the Madhya Pradesh High Court which wererelied upon by the learned counsel for the assessee were rendered withreference to the facts of each case and they do not assist the assessee inclaiming that the expenditure incurred for the travel of the assessee's wifeshould be allowed as business expenditure in all cases. It would depend uponthe facts of each case. The Appellate Tribunal in the present case has foundthat the expenditure incurred on the foreign trips of the assessee's wifecannot be considered to be for the purpose of business of the assessee. 16. It is relevant to notice the speech of Lord Brightman, in MALLALIEU v. DRUMMOND (1983) 2 ALL ER 1095), particularly the followingpassage:- 15. We are of the view that the decisions of the Kerala High Court, the Gauhati High Court and the Madhya Pradesh High Court which wererelied upon by the learned counsel for the assessee were rendered withreference to the facts of each case and they do not assist the assessee inclaiming that the expenditure incurred for the travel of the assessee's wifeshould be allowed as business expenditure in all cases. It would depend uponthe facts of each case. The Appellate Tribunal in the present case has foundthat the expenditure incurred on the foreign trips of the assessee's wifecannot be considered to be for the purpose of business of the assessee. 16. It is relevant to notice the speech of Lord Brightman, in MALLALIEU v. DRUMMOND (1983) 2 ALL ER 1095), particularly the followingpassage:- " The object of the taxpayer in making the expenditure must bedistinguished from the effect of the expenditure. An expenditure may be madeexclusively to serve the purposes of the business, but it may have a privateadvantage. The existence of that private advantage does not necessarilypreclude the exclusivity of the business purposes. For example a medicalconsultant has a friend in the South of France who is also his patient. Heflies to the South of France for a week, staying in the home of his friend andattending professionally on him. He seeks to recover the cost of his airfare. The question of fact will be whether the journey was undertaken solelyto serve the purposes of the medical practice. This will be judged in thelight of the taxpayer's object in making the journey. The question will beanswered 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 onlythe effect. If a week's stay on the Riviera was not an object of theconsultant, if the consultant's only object was to attend on his patient, hisstay on the Riviera was an unavoidable effect of the expenditure on thejourney 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 thoughtat all to the pleasures of sitting on the terrace with his friend and a bottleof Cotes de Provence, his evidence might well not have been credited. Butthat would not be inconsistent with a finding that the only object of thejourney was to attend upon his patient and that personal pleasures, however welcome, were only the effects of a journey made for an exclusivelyprofessional purpose. This is the distinction which the special commissionerwas making and in my opinion there is no inconsistency between his conclusionof law and his findings of fact." 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 thoughtat all to the pleasures of sitting on the terrace with his friend and a bottleof Cotes de Provence, his evidence might well not have been credited. Butthat would not be inconsistent with a finding that the only object of thejourney was to attend upon his patient and that personal pleasures, however welcome, were only the effects of a journey made for an exclusivelyprofessional purpose. This is the distinction which the special commissionerwas making and in my opinion there is no inconsistency between his conclusionof law and his findings of fact." 17. We are of the view that if the object of the foreign tourby the assessee's wife was to attend on the assessee and for his personalcomforts, the expenditure would not qualify for deduction though the result ofsuch expenditure may increase the efficiency of the assessee in attending tohis business. However, where the object of the foreign tour undertaken by theassessee's wife was for the purpose of business of the assessee andincidentally she attended her husband who was a cardiac patient, then theexpenditure would be allowable as business expenditure. Similarly, if theobject of the expenditure is two fold, viz., for the purpose of business andto attend the personal comforts of her husband, then the expenditure would notqualify for allowance as the object of the expenditure would be dual in natureand the expenditure would not qualify for deduction as it was not incurredwholly and exclusively for the purpose of business.18. On the facts of the case, it was found by the AppellateTribunal that the expenditure incurred by the assessee on the foreign trips ofhis wife was not for the purpose of the business of the assessee andtherefore, the decision of this Court in Hajee Moosa's case (153 ITR 422)would apply to the facts of the case and following the said decision, we holdthat the Appellate Tribunal has correctly come to the conclusion that theexpenditure is not a business expenditure for allowance in the computation ofthe business income of the assessee. Accordingly, we answer the question oflaw referred to us in the affirmative, against the assessee and in favour ofthe Revenue. No costs. Index: YesWebsite: Yesna.(V.S.S.,J.)(N.V.B.,J.)18-9-2002To1.The Asst. Registrar,Income-tax Appellate Tribunal,Rajaji Bhavan, III Floor,Besant Nagar, Chennai (5 copies). 2.The Secretary, Central Board of Revenue,New Delhi (3 copies).3.The Commissioner of Income-tax (Appeals) I, Madras-34.4.The Commissioner of Income-tax, Madras.5.The Income-tax Officer, City Circle I, Madras.�