1969 (8) TMI 24 - HC - Income Tax

Sum incurred by the assessee on his foreign tour - allowable expenditure u/s. 10(2)(xv) of the IT Act, 1922

Issues Involved:
1. Whether the sum of Rs. 5,160 incurred by the assessee on his foreign tour was an allowable expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Detailed Analysis:

1. Nature of the Expenditure:
The primary issue was whether the expenditure incurred by the assessee on his foreign tour could be classified as an allowable expenditure under section 10(2)(xv) of the Income-tax Act, 1922. The section allows for the deduction of any expenditure laid out wholly and exclusively for the purpose of the business, provided it is not in the nature of capital expenditure or personal expenses.

The Income-tax Officer initially disallowed the entire deduction, arguing that the primary purpose of the visit was to attend an international conference as a delegate, which should have been funded by the Andhra Pradesh Printers' Association. The officer believed that the benefit derived from the trip was incidental and primarily served the assessee's personal curiosity.

2. Findings of the Appellate Assistant Commissioner:
The Appellate Assistant Commissioner disagreed with the Income-tax Officer's reasoning. He found that the visit to Amsterdam was indeed for business purposes, as the assessee got acquainted with new printing techniques and equipment. However, he disallowed Rs. 2,000 of the total expenditure, attributing it to personal expenses incurred in Germany, Italy, and Switzerland, where there was no evidence of business-related activities.

3. Tribunal's Decision:
The Tribunal upheld the Appellate Assistant Commissioner's decision, rejecting the department's contentions that the expenditure was capital in nature and not wholly and exclusively for business purposes. The Tribunal found that the expenditure was laid out wholly and exclusively for the purpose of the business, noting that the assessee's activities during the tour were aligned with business interests.

4. Arguments by the Department:
The department argued that the expenditure should be considered capital expenditure because attending the conference as a delegate conferred goodwill and prestige, which are enduring benefits. They also contended that the expenditure was not wholly and exclusively for business purposes, as the primary purpose of the visit was to attend the conference as a delegate.

5. Court's Analysis:
The court analyzed section 10(2)(xv) of the Income-tax Act, emphasizing that the expenditure should not be capital in nature, personal expenses, or fall under any other specific disallowances listed in clauses (i) to (xiv). The court found that the expenditure was not capital in nature, as it did not bring into existence any new asset but was aimed at increasing the profits of the business. The court cited several precedents, including P. Vadamalayan v. Commissioner of Income-tax, Tata Sons Ltd. v. Commissioner of Income-tax, and Seshasayee Brothers Ltd. v. Commissioner of Income-tax, to support its conclusion.

The court also addressed the argument that the expenditure was not for business purposes. It noted that the term "business" should be interpreted broadly and that attending an international conference could indeed benefit the business by keeping the assessee abreast of the latest techniques and developments in the industry. The court found that the assessee's assertions about the business benefits of the trip were substantially accepted by both the Appellate Assistant Commissioner and the Tribunal.

6. Representative Capacity Argument:
The department argued that the expenditure should be deemed to have been incurred for the association's purposes, not the assessee's business, because the assessee attended the conference as a delegate. The court rejected this argument, stating that the assessee's primary motive was to benefit his own business, and the incidental benefit to the association did not change the nature of the expenditure.

7. Wholly and Exclusively for Business:
The court reiterated that the test for whether an expenditure is wholly and exclusively for business purposes is whether the businessman acted reasonably in the interest of his business, uninfluenced by irrelevant or extraneous considerations. The court found that the major portion of the expenditure, including travel costs, was incurred wholly and exclusively for business purposes. The Tribunal's apportionment of the expenses was not seriously disputed, and the court found no flaw in their approach.

Conclusion:
The court concluded that the expenditure incurred by the assessee on his foreign tour was allowable under section 10(2)(xv) of the Income-tax Act, 1922. The Tribunal's decision to allow the deduction of Rs. 5,160 was upheld, and the court answered the reference in the affirmative, directing the Commissioner to pay the costs.

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