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Issues involved: Whether the travelling expenses of the wives of the chairman and managing director of a foreign company should be allowed as a deduction in computing the income of the assessee for the assessment year 1976-77.
Summary: The High Court of Madras considered the question of allowing the travelling expenses of the wives of the chairman and managing director of a foreign company as a deduction in the assessment of the assessee's income for the year 1976-77. The assessee, a company collaborating with the foreign company, invited the chairman and managing director along with their wives to India for business discussions and factory visits. The Income-tax Officer initially disallowed the expenses, but the Appellate Assistant Commissioner allowed them, citing commercial expediency. The Appellate Tribunal upheld this decision, emphasizing that the expenditure was incurred to facilitate business activities and strengthen relations between the companies, in line with the Supreme Court's precedent in CIT v. Malayalam Plantations Ltd. The Revenue challenged this decision, citing previous cases where expenses on directors' wives were not allowed as business deductions. The court distinguished this case from previous decisions, noting that the expenditure here was on invitees crucial for the business interest of the assessee, rather than directors' spouses on personal travel. Given the importance of maintaining relations with the collaborating foreign company, the court found the expenses commercially expedient and deductible. It emphasized that business expenditure eligibility depends on commercial expediency, not rigid standards, and the opinion of the Income-tax Officer cannot replace that of the assessee if supported by relevant circumstances. The court affirmed that the expenses on the chairman and managing director's spouses were justified for enhancing goodwill between the companies. Regarding the broader question of expenses on directors' spouses, the court highlighted the need to assess each case's circumstances. While expenses solely for personal pleasure are not deductible, a broader interpretation is warranted in the commercial context to accommodate necessary expenditures. The court concluded in favor of the assessee, directing each party to bear their costs.
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