Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessee-firm was carrying on business in manufacture, sale and export of leather - Goods manufactured by assessee bearing individual marks of assessee were exported through sister concern which was paid commission - Two partners of assessee went to UK, a major market for Indian leather, USA and Paris to attend International Leather Fair - Whether foreign tour expenses were allowable as deduction - Held, on facts, yes Facts The assessee-firm was carrying on business in the manufacture, sale and export of leather. However, it was exporting its goods through a sister concern 'C' by paying commission to the latter. The goods sent abroad bore the individual marks of the assessee. Two of the partners of the assessee-firm, along with another partner of the sister concern 'C' went to UK, USA and also attended the International Leather Trade Fair at Paris. The assessee claimed deduction of foreign tour expenses of two of its partners. The ITO disallowed the claim on the ground that the firm which exported those goods was the sister concern 'C', though the goods were that of the assessee and that, therefore, it could not be said that the assessee was in any way directly connected with the export business. In appeal, the Tribunal held (i) that the assessee was entitled to the deduction in respect of the foreign tour expenses because the object of the foreign tour was clearly to produce conditions or circumstances whereby the assessee would have had an increased income, (ii) that even though the assessee exported the goods through 'C' the goods were that of the assessee and in these circumstances it had to be considered direct exporters, (iii) it was with a view to increase the export and the business, that the partners wanted to attend the International Leather Trade Pair at Paris, and (iv) that UK was the major market for the sale of Indian leather. Accordingly, the Tribunal allowed the assessee's claim for the deduction of impugned foreign tour expenses. On reference: Held The Tribunal was right in holding that the object of the trip was to produce conditions or circumstances which…

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