Law: Income Tax Act, 1922

Section:

Income-tax--Business expenditure---Expenditure incurred on spouse of a Director--­General principles---Travelling expenses of wives of Chairman and Managing Director of foreign company who were collaborators of assessee­ company-On facts, allowable expenditure. The question whether the expenditure incurred on the spouse of a director can be regarded as a legitimate business expenditure of the assessee ­company, will depend upon the circumstances in which such expenditure was incurred. An assessee cannot claim the expenses if any incurred on the travel of a spouse of its director on his/her business travel abroad, unless the spouse contributes to the business of the assessee. However, in matters of business, too narrow a view cannot be adopted. It is the realities of the commercial world that should determine the kind of expenditure reasonably required to be incurred, and it is necessary to constantly update the interpretation of the Act with a view to accommodate all such expenditure. The language employed in the relevant section is flexible enough to permit such wider interpretation whenever circumstances warrant: Held, that it was not in dispute that the visit of the Chairman and the Managing Director of the foreign company was in the interest of the Indian company and was deductible as business expenditure. Having regard to the position they occupied in the foreign company and the importance of that company in furthering the business interest of the assessee-company, the expenditure incurred by the assessee on the spouses of the Chairman and the Managing Director was an expenditure which was commercially expedient for the assessee to incur for enhancing the goodwill between the two companies. The Tribunal had rightly allowed that expenditure. CIT v. T.S. Hajee Moosa & Co. (1985) 153 ITR 422 (Mad.); Bombay Mineral Supply Co. (P.) Ltd. v. CIT (1985) 153 ITR 437 (Guj.) (Appex.) and Modi Industries Ltd. v. CIT (1977) 110 ITR 855 (All.) distinguished. CIT v. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC) ref. JUDGMENT R. JAYASIMHA BABU, J.---The question referred to us at the instance of the Revenue arising out of the assessment of the respondent's income…

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