2013 (8) TMI 242 - HC - Income Tax

Disallowance of Foreign Travel Expenses - CIT upheld disallowance of Foreign Travel Expenses - Tribunal deleted disallowance - Held that - when an expenditure is claimed to have been incurred by an assessee for promotion of his business there is no legal obligation imposed on the assessee to prove that the expenditure was necessary for promotion of his business. So long as the expenditure is incurred by an assessee for promotion of sale of product the assessee is entitled under Section 37(1) of the Act to claim exemption from tax on such amount of expenditure - For the allowability of an expenditure under Section 37 of the Act it is not relevant as to whether the benefit expected to be accrued out of an expenditure incurred is to accrue immediately or after a lapse of time whether directly or indirectly - since it is customary in the European countries for the wives to accompany their husbands the travelling of the wives along with their husbands cannot be said to be personal visits of the wives but such a visit has to be regarded as having been undertaken for the purpose of business of the respondent company - expenditure on the visits by the representative of the company abroad and expenditure as well as the visits to India by the London based officials of the respondent company in view of the respondent company s substantial exposure to overseas trade and large holdings of the respondent company with foreign promoters were business expenditures - No substantial question of law arises - Following decision of Eastern Investments Ltd. vs. CIT 1951 (5) TMI 1 - SUPREME Court - Decided against Revenue. Disallowance under head publicity expenses - Held that - If the management paid some amount for the upliftment/ running of the club in question then it must be held that the payment was made in the interest of the company so that its employees remain happy and consequently the work of the company was not hampered in any way due to dissatisfaction on the part of its employees - while dealing with donation made voluntarily by an assessee with the object of obtaining permits of business so as to enable the assessee to earn profits by export and selling of gram in the neighboring states - it is for the assessee to decide where and in what manner publicity of its business is to be done and what benefit it will derive for its business by making such publicity - Following decisions of Assam Brooke Ltd. vs. CIT 2004 (1) TMI 46 - CALCUTTA High Court and Additional Commissioner of Income Tax vs. Kuber Singh Bhagwandas 1978 (10) TMI 134 - MADHYA PRADESH High Court - Decided against Revenue.

Summary

Issues Involved:
1. Deletion of disallowance of Rs. 28,90,655/- under Foreign Travel Expenses.
2. Deletion of disallowance of Rs. 9,00,000/- under Publicity Expenses.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Rs. 28,90,655/- under Foreign Travel Expenses:
The primary issue was whether the Tribunal was justified in deleting the disallowance of Rs. 28,90,655/- under Foreign Travel Expenses. The Assessing Officer had disallowed one-third of the travel expenses claimed by the respondent company, reasoning that the presence of three non-resident directors in London negated the necessity for additional foreign trips by other directors and executives. The Commissioner of Income Tax (Appeals) upheld this disallowance and further enhanced it. However, the Tribunal disagreed, noting that the respondent company had provided bills and vouchers supporting the foreign travel expenses. The Tribunal observed that the company's export turnover exceeded Rs. 100 crores, and foreign travel by senior executives was essential for promoting exports. The Tribunal found that visits to the UK and Kenya were necessary for studying competitors and interacting with foreign customers, thereby facilitating export promotion. The Tribunal concluded that the expenditure was wholly and exclusively for business purposes and deleted the disallowance.

The High Court upheld the Tribunal's decision, emphasizing that the expenditure need not be necessary but should be incurred on grounds of commercial expediency to facilitate the carrying on of business. The Court noted that the company's substantial export activities and the necessity of foreign visits for business promotion justified the expenditure. The Court also considered the customary practice of spouses accompanying executives on foreign trips as part of business expenses. Consequently, the deletion of the disallowance of Rs. 28,90,655/- was affirmed.

2. Deletion of Disallowance of Rs. 9,00,000/- under Publicity Expenses:
The second issue was whether the Tribunal was correct in deleting the disallowance of Rs. 9,00,000/- under Publicity Expenses. The Assessing Officer had disallowed this amount, considering it non-business expenditure. The Commissioner of Income Tax (Appeals) partially allowed the respondent company's claim but disallowed Rs. 9,00,000/-. The Tribunal, however, allowed the full amount, noting that the expenses were incurred for sponsoring events and programs, which provided publicity and business promotion for the company. The Tribunal relied on the Calcutta High Court's decision in Assam Brooke Ltd. vs. CIT, where similar expenses were considered business expenditure.

The High Court upheld the Tribunal's decision, stating that the expenditure on sponsoring events like the Centenary Celebrations of Cotton College and the State Level National Children Science Congress was for business promotion. The Court emphasized that it is the assessee's prerogative to decide how to publicize its business and derive benefits from such publicity. The Court concluded that the expenses were incurred wholly and exclusively for business purposes and affirmed the deletion of the disallowance of Rs. 9,00,000/-.

Conclusion:
The High Court dismissed the appeal, affirming the Tribunal's decisions on both issues. The Court found that the Tribunal's findings were based on facts and commercial expediency, and there was no legal infirmity in allowing the foreign travel and publicity expenses as business expenditures. The appeal was dismissed with no order as to costs.