TMI Blog2013 (9) TMI 794X X X X Extracts X X X X X X X X Extracts X X X X ..... orities had, in any manner, decided the question as to whether the visit of spouses is wholly and exclusively for the purposes of business of the assessee - To look in to the issue of incurring of an expenditure "wholly and exclusively for the purposes of business" is outside the purview and powers of the RBI. Taxability or otherwise of an item of expenditure is the sole domain of the Assessing Officer. Assessing Officer and the first appellate authority were right in not allowing the claim advanced by the assessee under section 37 of the Act. On the facts and in the circumstances of the case, a sum of Rs. 13.38 lakhs incurred by the appellant-company on the foreign tours of spouses of the directors has rightly been disallowed – Decided against the Assessee. - - - - - Dated:- 21-11-2012 - Order The order of the Bench was delivered by Rajendra (Accountant Member).-The present appeal is directed against the order dated October 18, 2010 of the Commissioner of Income-tax (Appeals)-11, Mumbai. Following grounds of appeal have been raised by the appellant. (a) The learned Commissioner of Income-tax (Appeals) erred in confirming disallowance of Rs. 13,38,645 being foreign tou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. The assessee preferred an appeal before the first appellate authority (FAA), who called for a remand report from the Assessing Officer. After considering the submissions of the assessee and the remand report, he held that the issue of travelling expenses of the wives of the directors of the company has to be decided on the facts of the case, that in the case under consideration the appellant-company had not been able to establish that any business was conducted by the company, spouses of the directors during their foreign tours, that expenses incurred on the foreign tour by the company, spouses were personal expenses and not the business expenses. Finally, he held that expenses had not been incurred wholly and exclusively for the purpose of the business of the appellant-company. He upheld the addition made by the Assessing Officer. Before us, the authorised representative (AR) submitted that same issue was decided in favour of the assessee by the Income-tax Appellate Tribunal, vide its order dated March 30, 2007 for the assessment years 1991-92 to 1996-97, that appeals of the Department (assessment years 1997-98 to 2000-01 and 2003-04) were dismissed by the Tribunal in whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Ram Bahadur Thakur Ltd. v. CIT [2003] 261 ITR 390 (Ker)[FB], wherein the entire gamut of case law was reviewed and expenditure incurred on foreign travel was disallowed. The hon'ble High Court in that case took note of many a decisions delivered by various courts. The hon'ble Bombay High Court has discussed the issue in the cases of Alfa Laval (I.) Ltd. [2006] 282 ITR 445 (Bom) and Bhor Industries P. Ltd. [2006] 284 ITR 319 (Bom). The hon'ble Madras High Court in the cases of CIT v. T. S. Hajee Moosa Co. [1985] 153 ITR 422 (Mad) and D. B. Madan v. CIT [2003] 261 ITR 193 (Mad) have discussed the same issue. The hon'ble High Courts of Gujarat, Gauhati and Madhya Pradesh have also decided the question of allowability of expenditure incurred on the foreign visit of spouses of executives/partners of companies/firms. As per the well-settled principles of taxation jurisprudence where an assessee seeks to deduct from his business profits certain items, the onus of proving that such deductions are permissible falls on him. The burden of proving a claim to any allowance or deduction or to any exemption is on the assessee especially when the claims are based on facts which are with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company is concerned, it is open to the Assessing Officer 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. However wide the meaning of the expression "for the purpose of the business" may be, its limits are implicit in it. The courts are of the view that the purpose must be for the purposes of the business, that is to say, the expenditure incurred must be for the carrying on of the business and the assessee should incur it in his capacity as a person carrying on business. The first adverb wholly refers to the quantum of the expenditure and the term exclusively refers to the motive, objective and purpose of the expenditure and gives jurisdiction to the taxing authorities to examine these matters. The expression wholly and exclusively laid out for the purpose of business emphasizes the nexus between the trade and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred by the appellant for sending directors to attend meetings organised by International sugar organization can definitely be held an expenditure incurred wholly and exclusively for the purpose business. But, with regard to foreign tours of wives of the directors there is no material on the file to prove that their trips had any relation with the business of the company. In these circumstances, we do not want to disturb the order passed by the Assessing Officer and confirmed by the first appellate authority. In our opinion, order of the first appellate authority does not suffer from any legal or factual infirmity. As the facts and circumstances of the case under consideration are different from the facts of the earlier assessment years, so, in our opinion cases of earlier years are of no help to the assessee. It is a well settled principle of taxation law that res judicata does not apply in tax matters-especially when the facts of two assessment years are not similar. In the earlier years in absence of scrutiny and recording of statements of spouses of the directors, if a particular conclusion was drawn then it would not mean that same would be applicable in different set of facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38 (Bom) the hon'ble Bombay High Court found that the company had incurred expenditure on foreign tour of the wife of the vice-chairman of the company. The Assessing Officer called upon the assessee-company to explain and furnish evidence as to how the foreign travel expenses were incurred wholly and exclusively for the business of the company. The assessee did not file any explanation or evidence in response to the said letter. As no evidence was adduced before him, so the Assessing Officer rejected the claim for foreign travel expenses and the finding was confirmed by the first appellate authority. The Tribunal set aside the findings of the Assessing Officer and the first appellate authority. In paragraph 42 of its order, the Tribunal observed that the mere fact that no tangible business came out of the foreign visits was not a ground for disallowing the foreign travel expenditure, because it is possible that in the first meeting only business discussions would take place and nothing tangible might come out. The hon'ble High Court held that the said reasoning was "correct". With regard to the specific contention was raised before the Tribunal ; that the foreign travel expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Glaxo. Secondly, the decision of Bhor Industries P. Ltd. [2006] 284 ITR 319 (Bom) was not available at the time of decision of Glaxo. Even in the case of Zuari Finance Ltd. [2004] 271 ITR 538 (Bom) the hon'ble jurisdictional High Court has held that "per se, the expenses incurred by the assessee on the foreign trip of the wife may not always be allowable as deduction in computing the profits and gains of the business unless it is connected with the business of the assessee". Primary condition for allowing the expenditure under section 37 of the Act on foreign tours of spouse of a director is its "connection with the business" of the assessee-company. Until and unless the same is proved by the assessee with some proof same is not allowable in light of recent judgments of the hon'ble Bombay High Court. In the case under consideration the assessee has not produced any evidence with regard to business of the assessee and the expenditure incurred on foreign tours of wives of the directors. Neither before the Assessing Officer and first appellate authority nor before us the assessee-company has discharged his burden of proof. In the case of Bhor Industries P. Ltd. [2006] 284 ITR 319 (B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT [2003] 261 ITR 193 (Mad) and CIT v. T. S. Hajee Moosa Co. [1985] 153 ITR 422 (Mad), Shahibag Entrepreneurs P. Ltd. v. CIT [1995] 215 ITR 810 (Guj), Bombay Mineral Supply Co. P. Ltd. v. CIT [1985] 153 ITR 437 (Guj) to arrive at a logical conclusion about allowability of expenditure of foreign tours of spouses/relatives of directors/partners of the companies/firms. But, for deciding the present appeal we are considering the facts of the case under consideration only. Because, as stated earlier, we are of the opinion that whether the expenditure is allowable or not depends upon the facts of each case. But, basic principle remains the same, i.e., it is only after satisfying the condition that the foreign tour is undertaken not for personal purpose, but wholly and exclusively for the purpose of the business, the expenditure can be allowed. In other words whenever spouse/son of a director/partner undertakes a foreign tour along with the director/father, it cannot be presumed that the expenditure on the spouse/son of the director/ partner is incurred wholly and exclusively for the purpose of the business. Here, it would be appropriate to reproduce a paragraph from the decision delive ..... X X X X Extracts X X X X X X X X Extracts X X X X
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