M/S.HARRISONS MALAYALAM LTD., vs. THE COMMISSIONER OF INCOME TAX,COCHIN
What did the High Court hold?
The High Court held that the expenditure incurred on the foreign tour of the wife of a Senior Executive, accompanying him for medical treatment abroad, is not an allowable business expenditure. The Court reasoned that while the wife's presence might have been imperative for the Senior Executive's well-being during his heart surgery, her travel itself did not serve a business purpose. The Court distinguished this situation from cases where a spouse's travel is for business purposes or to fulfill social obligations related to business. The Full Bench in Ram Bahadur Thakur Ltd. v. C.I.T., [2003] 261 ITR 390 was cited, emphasizing that allowance of business expenditure depends on the facts of each case and requires a nexus between the expenditure and the business purpose. In this case, the primary purpose of the travel was medical treatment, not business. Therefore, the expenditure for the wife's travel was not considered a business expenditure. The IT Revision was dismissed. The Court noted that reimbursement of the Senior Executive's medical expenses would be permissible, but the dispute was specifically about the wife's travel expenses.
What were the facts?
The assessee, M/s. Harrisons Malayalam Ltd., claimed expenses incurred for the foreign travel of the wife of a Senior Executive as business expenditure. The Senior Executive had to travel abroad for heart surgery. The Assessing Officer disallowed this expenditure. The assessee relied on decisions in C.I.T. v. Aspinwall & Co.Ltd. and C.I.T. v. Appollo Tyres Ltd. The matter reached the High Court of Kerala at Ernakulam as an Income Tax Revision Petition (ITR) No. 1 of 2003, challenging the order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench, which had upheld the disallowance. The dispute concerns the assessment year(s) not explicitly stated but implied to be prior to the ITAT order in ITA 850/1991.
What were the issues?
1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure incurred on the foreign tour of the wife of a Senior Executive of the company, in connection with the medical treatment of the said Executive, is not an allowable deduction under the Income Tax Act, 1961, on the ground that she has no locus standi with the Company? (Question of law and fact, concerning allowability of expenditure under the Income Tax Act, 1961). Assessee's Contention: The assessee relied on the decisions in C.I.T. v. Aspinwall & Co.Ltd., [1999] 235 ITR 106 (Ker) and C.I.T. v. Appollo Tyres Ltd., [1999] 237 ITR 706 (Ker) to support the claim for business expenditure. Revenue's Contention: The judgment does not explicitly record the revenue's arguments but implies their stance through the disallowance by the Assessing Officer and the eventual dismissal of the revision petition in their favour.
Which sections of the Income-tax Act were involved?
Income Tax Act, 1961
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
O R D E R Vinod Chandran, J. The only question arising in the above Revision is as follows: “Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure incurred on the foreign tour of the wife of a Senior Executive of the company, in connection with the medical treatment of the said Executive is not an allowable deduction under the Income Tax Act, 1961, on the ground that she has no locus standi with the Company ?”
The assessee had claimed the expenses incurred for the foreign travel of the wife of the Senior Executive as business expenditure. We see from the order of the Tribunal that on a discussion of the facts it was found that the Senior Executive of the Company had to go abroad for heart surgery and considering his long service in the company, it was decided to meet his expenditure, including the expense of his wife in connection with the medical treatment in the foreign Country. The expenditure on travel of the wife was disallowed by the Assessing Officer. The learned Counsel appearing for the assessee would rely on the decisions in C.I.T. v. Aspinwall & Co.Ltd., [1999] 235 ITR 106 (Ker) and C.I.T. v. Appollo Tyres Ltd., [1999] 237 ITR 706 (Ker).
A Full Bench in Ram Bahadur Thakur Ltd. v. C.I.T., [2003] 261 ITR 390 (Ram Bahadur Thakur Ltd.-II case) considered the issue on the basis of a reference made by the Division Bench finding a conflict between the aforesaid two decisions and Ram Bahadur Thakur Ltd. v. C.I.T., [2002] 257 ITR 289 (Ram Bahadur Thakur Ltd.-I case).
In all these cases, the dispute was as to the business expenditure claimed of the expenses incurred for the wife's travel abroad. The wife's travel was on account of the wife accompanying the husband, an employee or a Director of the company, who was traveling abroad for business purposes. In Ram Bahadur Thakur-I case, the Division Bench found that the concurrent findings of fact arrived at by the lower authorities was that there was no material to establish that the expenditure incurred on the foreign tour of the wife of the Director was for business purpose. However, in Aspinwall & Co.Ltd. and Appollo Tyres Ltd., the expenses were permitted to be claimed as business expenditure.
In Aspinwall & Co.Ltd., a Chief Executive of the Company was traveling abroad, who was accompanied by his wife. There, it was found that since the person traveling abroad on business tour, was an employee and not a Director, the expenditure was allowable. In Appollo Tyres Ltd., the Division Bench noticed that the accompaniment of the wife of the Chairman is for the purpose of fulfilling social obligations and hence it is allowable. The Full Bench in Ram Bahadur Thakur-II did not find any conflict with the above cited decisions. However, it was held that the allowance of business expenditure in each instance would depend on the facts of that case. It was categorically held that there must be nexus found between the expenditure and the business purpose.
In the present case, there was no business purpose at all and the Senior Executive was traveling abroad for the purpose of a heart surgery. We are not sure as to whether the expenditure incurred by the Senior Executive was reimbursed and claimed as a deduction. That would definitely be permissible as a medical reimbursement. The dispute, as of now, is only the disallowance of the expenditure incurred for the wife's travel. The wife had accompanied the Senior Executive, when such Senior Executive had traveled abroad for a heart surgery. The wife's presence though imperative, we are unable to find it to be a business expenditure. We do not think that the same can be called a business expenditure and the travel itself is not for a business purpose. In such circumstances, we answer the question in favour of the Revenue and against the assessee. The I.T.Revision is dismissed. No costs. A copy of this order under the seal of this Court and the signature of the Registrar shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench. K.VINOD CHANDRAN JUDGE ASHOK MENON dkr JUDGE
Appendix — schedule of exhibits
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