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1997 DIGILAW 664 (DEL)

INDEXPOORT v. COMMISSIONER OF INCOME TAX

1997-08-14

J.K.MEHRA, R.C.LAHOTI

body1997
R. C. LAHOHI ( 1 ) BY this reference under Section 256 of the Income Tax Act, 1961, made at the instance of the assessee, opinion of the High Court is sought for on the following questions of law (relevant to the assessment year 1974-75) :- 1. Whether, on the facts and in the circumstances of the case the Tribunal was correct in sustaining the disallowance of Rs. 9,894. 00 being expenditure on the boarding and lodging of the partners of the assessee firm incurred in the course of tours undertaken by them for the business of the assessee firm, as not an expenditure wholly and exclusively incurred for the purposes of the assessee s business in terms of Section 37 (1) of the Income Tax Act, 1961? 2. Whether, the Tribunal was correct in sustaining the consequential rejection of the assessee s claim for weighted deduction u/s. 35b of the Income Tax Act, 1961 as regards the expenditure of Rs. 9,894. 00 referred to above?" ( 2 ) THE assessee-firm carries on business as exporters of handicraft items and readymade garments. The assessee made a claim for expenditure on foreign travelling amounting to Rs. 73,687. 00 which included an amount of Rs. 29,681. 00 on account of hotel expenses and conveyance. The ITO disallowed Rs. 9,894. 00 i. e. 1 / 3rd of Rs. 29,681. 00 and allowed the rest of the claimed expenditure under Section 37 (1) of the Act. Appeals preferred by the assessee before the CIT and ITAT have both been rejected. The contention of the assessee was that the entire travelling abroad having been specifically for the purposes of business, no part of the expenditure on such travelling should be disallowed. It would be useful to extract and reproduce the following finding from the order of the Tribunal :- "after hearing the parties we find that the disallowance in question is unexceptionable. [shri Gupta had explained that two partners of the assessee firm had traveled abroad this year. These were Krishan Kumar and Jagdish M. Khera. Krishan Kumar toured U. K. , West Europe and U. S. A. and was abroad for about 30 days. Jagdish Khera first went abroad on a tour of U. K. , Europe and Australia and was away for a period of 15 days. These were Krishan Kumar and Jagdish M. Khera. Krishan Kumar toured U. K. , West Europe and U. S. A. and was abroad for about 30 days. Jagdish Khera first went abroad on a tour of U. K. , Europe and Australia and was away for a period of 15 days. He visited the U. S. A. also during the year and stayed there for about 10 days. It would appear that he made a third trip during the year visiting U. K. , Sweden, France, West Germany, Holland and Italy and stayed abroad for 30 days. ] It was held in Ram Kishan Sunder Lal Vs. CIT (19 ITR 324) that the money spent on boarding and lodging of the partners in the course of tour undertaken by them for business purposes cannot be said to be wholly and exclusively incurred for the purpose of business and is not, therefore, allowable. We find that there is no authority available expressing a contrary view, we are, therefore, bound to follow this ruling of the Allahabad High Court. Doing so, with respect, we sustain the disallowance in principle. As regards quantum also, looking to the details of the travelling abroad noted supra, we find nothing unreasonable in the action of the authorities below. The objection for the assessee, is therefore, rejected. " ( 3 ) THE learned counsel for the assessee has reiterated his submissions made before the Tribunal and placed reliance on the decisions of Delhi and Allahabad High Courts - CIT Central New Delhi Vs. Dr. P. N. Behl (1972) 84 ITR 125 and Security Printers of India VS. CIT (1970) 78 ITR 766. On the other hand, the learned counsel for the Department has supported the view taken by the Tribunal and relied on CIT, AP Vs. S. Krishna Rao (1970) 76 ITR 664 AP and CIT Mysore Vs. Dr. B. V. Raman, (1966) 59 ITR 20 and Ram Kishan Sunderlal Vs. CIT U. P. , (1951) 19 ITR 324. On the other hand, the learned counsel for the Department has supported the view taken by the Tribunal and relied on CIT, AP Vs. S. Krishna Rao (1970) 76 ITR 664 AP and CIT Mysore Vs. Dr. B. V. Raman, (1966) 59 ITR 20 and Ram Kishan Sunderlal Vs. CIT U. P. , (1951) 19 ITR 324. ( 4 ) SECTION 37 (1) of the Act provides that any expenditure (not being expenditure of the nature) described in Sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly or exclusively for the purposes of the business or profession shall allowed in computing the income chargeable under the head "profits and gains of business and profession". It is clear that to be entitled to a deduction under Section 37 (1), the expenditure should not be (i) of the nature described in Sections 30 to 36, (ii) capital expenditure, or (iii) personal expenditure of the assessee. At the same time, the expenditure must have been wholly and exclusively for the purposes of the business or profession. ( 5 ) THE High Court of Mysore has in Dr. B. V. Raman s case (supra) held that the object with which that expenditure was incurred shall have to be viewed. The provision has been analysed and beautifully summed up by stating that the word "wholly" refers to the money expended and the expression "exclusively" refers to the purpose for which it is expended. We find ourselves in entire agreement with the view so taken. We may paraphrase the provision. To be entitled to the benefit of Section 37 (1), twin requirements have to be satisfied : (i) the expenditure must have been wholly, and (ii) exclusively for the purpose of the business or profession. ( 6 ) WHEN a businessman or professional goes on travel and claims deduction for expenditure incurred on travelling, the purpose of travelling may raise a mixed question of law and fact - whether it was exclusively for the purpose of the business or profession? This aspect having been determined, the quantification of the expenses, whether they were incurred wholly for the purpose of business or profession would be a question of fact. ( 7 ) A person who proceeds on travel, may incur several expenses while performing the journey and staying at places. This aspect having been determined, the quantification of the expenses, whether they were incurred wholly for the purpose of business or profession would be a question of fact. ( 7 ) A person who proceeds on travel, may incur several expenses while performing the journey and staying at places. However, not all expenses incurred would necessarily be wholly for the purpose of business or profession. For example, he may purchase gift items for his family or though travelling exclusively for the purpose of business, may yet find time spending on entertainment. Such expenses would have nothing to do with the business. He may be required to stay in the hotel which expenses he might not have incurred except for travelling for business. However, if he spends on his food, the same may not necessarily be for business; for even if he had not gone on business trip, he would have spent on his food. Thus it will have to be seen in each individual case how much out of the expenditure he is incurring can legitimately be attributed wholly for the purposes of business or profession and how much can be attributed to his personal self. In some cases the segregation may not be difficult. In some cases the expenses may be so intermingled that the segregation may not be meticulously correct. A working formula of apportionment or division shall have to be adopted and accepted. ( 8 ) IN the case at hand the assessing officer has found that out of the amount of all the expenses incurred as "hotel expenses and Conveyance", 1/3rd could be deemed to be personal expenses. That fraction was disallowed. This finding as to quantification has been upheld in appeals. ( 9 ) RELIANCE on Delhi Division Bench decision in Dr. P. N. Behl s case (supra) as also on Allahabad Division Bench decision in Security Printers of India s case (supra) by the learned counsel for the petitioner is entirely misconceived. In both the cases the question was whether the expenditure was of a capital nature or was a revenue expenditure. The question as is arising for decision in the case at hand did not arise for decision in those cases. ( 10 ) THE Tribunal had rightly relied on the decision in Ramkishan Sunderlal s case (supra ). Therein an amounting of Rs. 500. The question as is arising for decision in the case at hand did not arise for decision in those cases. ( 10 ) THE Tribunal had rightly relied on the decision in Ramkishan Sunderlal s case (supra ). Therein an amounting of Rs. 500. 00 was spent on boarding and lodging of partners in the course of tours undertaken by them for business purposes. It was held :- "it is difficult to see how the boarding and lodging expenses of a partner can be said to be "wholly and exclusively" for the purpose of such business. It is true that a partner going outstation in the interest of the business of the firm might have to spend more on his boarding, but he would have to spend something even if he remains at the head quarters. Such expenditure has to be incurred to preserve life, and it is difficult to see how it can be said that the money was spent wholly and exclusively for the purpose of the business. " ( 11 ) FOR the foregoing reasons, we are of the opinion that the questions referred to are pure questions of fact and do not arise as questions of law from the order of the Tribunal. The questions are, therefore, refused to be answered. No order as to the costs.