2002 (9) TMI 32 - HC - Income Tax

Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the expenditure on the air travel of the assessee s wife was not incurred wholly and exclusively for the purpose of the business of the assessee and that the benefit derived by the wife would detract from the exclusiveness of the outlay, so as to render it ineligible as a deductible expenditure? - we answer the question of law referred to us in the affirmative, against the assessee and in favour of the Revenue.

Issues Involved:
1. Whether the expenditure on the air travel of the assessee's wife was incurred wholly and exclusively for the purpose of the business of the assessee.
2. Whether the benefit derived by the wife detracts from the exclusiveness of the outlay, rendering it ineligible as a deductible expenditure.

Issue-Wise Detailed Analysis:

1. Expenditure on Air Travel of Assessee's Wife:
The primary issue revolves around whether the expenditure on the air travel of the assessee's wife can be considered as incurred wholly and exclusively for the purpose of the business. The assessee, a clearing and forwarding agent, claimed a deduction for his wife's travel expenses during foreign trips. The Income-tax Officer disallowed this expenditure, considering it personal. However, the Commissioner of Income-tax (Appeals) allowed the deduction, reasoning that the assessee, being a cardiac patient, required his wife's assistance during travel.

The Income-tax Appellate Tribunal overturned the Commissioner's decision, stating that the wife's travel expenses were not for business purposes. The Tribunal's decision was based on the precedent set in CIT v. T.S. Hajee Moosa and Co. [1985] 153 ITR 422, which held that expenses incurred for personal needs, even if beneficial to business, do not qualify as business expenditures under section 37 of the Income-tax Act, 1961.

2. Exclusiveness of the Outlay:
The court examined whether the benefit derived by the wife detracts from the exclusiveness of the outlay. In T.S. Hajee Moosa and Co.'s case, the court held that the expenditure was for a dual purpose: personal need and business. The court emphasized that personal needs, such as health-related assistance, do not relate to business activities. Thus, any expenditure serving a dual purpose (personal and business) does not qualify as wholly and exclusively for business purposes.

The court also considered various judgments from other High Courts. In CIT v. Sundaram Clayton Ltd. [1999] 240 ITR 271, the expenditure was allowed because it was incurred for individuals beneficial to the business, not for a spouse. Similarly, in CIT v. Aspinwall and Co. Ltd. [1999] 235 ITR 106 and CIT v. Appollo Tyres Ltd. [1999] 237 ITR 706, the Kerala High Court allowed travel expenses of the wife of a chief executive only when it was proven to be for business purposes.

However, in Ram Bahadur Thakur Ltd. v. CIT [2002] 257 ITR 289, the Kerala High Court clarified that such expenditures must be evaluated on a case-by-case basis, emphasizing that personal purposes must not be a factor. The Gauhati High Court in CIT v. George Williamson (Assam) Ltd. [1998] 234 ITR 130 and the Madhya Pradesh High Court in CIT v. Steel Ingots P. Ltd. [1996] 220 ITR 552 also allowed such expenditures based on specific facts demonstrating business purposes.

Conclusion:
The High Court concluded that the Appellate Tribunal rightly disallowed the expenditure, as it was not incurred wholly and exclusively for business purposes. The court emphasized that if the primary object of the wife's travel was personal care for the assessee, the expenditure cannot be allowed as a business deduction, even if it incidentally benefits the business. The court upheld the Tribunal's decision, affirming that the expenditure was not a deductible business expense and answered the question of law in the affirmative, against the assessee and in favor of the Revenue.

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