1997 (10) TMI 38 - HC - Income Tax

High Court allows partial deduction for foreign travel expenses incl. CEO's wife for AY 1985-86

The High Court ruled in favor of the assessee, allowing 50% of the foreign travel expenditure claimed by the company for the assessment year 1985-86, ... Business Expenditure, Curing Of Coffee, Expenditure On Foreign Travel, Wives Issues involved: The judgment involves the following issues: 1. Whether the Tribunal was correct in allowing the foreign travel expenditure of the wife of the executive of the companyRs. 2. Whether the Tribunal was justified in presuming business interest in the foreign trip of the wife of the executive based on the company's approvalRs.Summary:Issue 1: Foreign Travel ExpenditureThe assessee-company claimed an expenditure on foreign travel for the assessment year 1985-86, which included expenses for the chief executive's wife. The Assessing Officer disallowed a portion of the expenditure, considering it non-business related. The Tribunal, however, limited the disallowance to 50%. The Revenue contended that the expenditure did not qualify for deduction under section 37(1) of the Income-tax Act, as it was deemed personal expenses. The Tribunal found that the wife accompanied the chief executive on a business trip, noting the modern trend of spouses joining such visits. It held that while there may be social aspects to the trip, not the entire amount could be allowed, hence the 50% disallowance.Issue 2: Business Interest PresumptionThe Revenue argued that the Tribunal erred in not following precedents from the Madras and Gujarat High Courts, which disallowed similar expenses. In those cases, the courts found the expenses to be personal in nature due to dual purposes served. However, the Tribunal in this case found that the wife's travel was solely for business purposes based on factual evidence. It noted that the company had permitted the travel, indicating a business purpose. Therefore, the Tribunal's decision was upheld, and the Revenue's contention was dismissed.In conclusion, the High Court answered the first question affirmatively in favor of the assessee and against the Revenue. As a result, it declined to answer the second question in light of its response to the first question. The judgment will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench for further action.