Gauhati H.C : The disallowance under the head of foreign travel expenses, as had been made by the Assessing Officer and upheld by the first appellate authority and whether the said decision is perverse

High Court Of Gauhati

CIT vs. Williamson Tea (Assam) Ltd.

Assessment Year : 2002-03

Section : 37(1)

I.A. Ansari And P. K. Musahary, JJ.

IT Appeal No. 2 Of 2012

May 22, 2013

JUDGMENT

I.A. Ansari, J. -This is an appeal, under section 260A of the Income-Act, 1961 (hereinafter referred to as “the Act”), filed by the Commissioner of Income-tax, Guwahati-II, putting to challenge the order, dated August 31, 2008, passed by the Income-tax Appellate Tribunal (Gauhati Bench), Guwahati, in I. T. A. No. 109 (Gau)/2006 and I. T. A. No. 129 (Gau)/2007, for the assessment year 2002-03.

2. The factual background, which led to the filing of the present appeal, may, in brief, be set out as under :

(i)  The respondent herein, namely, M/s. Williamson Tea (Assam) Ltd., is a company (hereinafter referred to as “the company”), registered under the Companies Act, 1956, and engaged in the business of growing, manufacturing and selling of tea. The respondent company is an assessee under the Income-tax Act, 1961 (hereinafter referred to as “the Act”), and falls within the jurisdiction of the appellant herein. During the year 2002-03, while filing the return of income, the respondent company claimed a sum of Rs. 53,97,556 as foreign travel expenses, in respect of the travel trips to foreign countries undertaken by its directors and executives in connection with the promotion of sale of their products. The respondent company also claimed a sum of Rs. 46,54,687 as 100 per cent. depreciation on the expenditure incurred in connection with the erection of fencing at their tea garden, another sum of Rs. 20,31,129 as expenditure incurred in connection with publicity, Rs. 1,00,000 as expenditure incurred on subscription made by the respondent company during Bihu and Puja, 100 per cent. depreciation on certain Vibro Fluid Bed Dryers, an amount of Rs. 3,01,94,000 as cess on green leaf. The respondent company had also claimed deduction under section 80HHC of the Act.

(ii) While assessing the tax payable by the respondent company, the Assessing Officer interfered with various claims of deduction, which the respondent company had made. The deductions, which were disallowed, and the reasons assigned, therefore, can be enumerated as under :

(a)  While dealing with the respondent company’s claim of Rs. 53,97,556, as foreign travel expenses, the Assessing Officer noted that the respondent herein had appointed its selling agent, in London, for sale of tea in overseas market and used to pay commission, brokerage, etc, to its selling agent, that three non-resident directors of the assessee company were permanently residing in the U. K. looking after the respondent company’s overseas business and since the three directors of the respondent company had been residing in London itself and they had been doing their job properly, there was no necessity to undertake foreign trips by the directors and senior officers of the respondent company for promotion of sale of their products. The Assessing Officer further noted that as no overseas conferences could be proved to have been held by the directors/executives of the respondent company, it was not clear whether the said trips were for business purposes or not and, above all, the respondent company had failed to submit any documentary evidence to establish any activities in connection with the promotion of sale, as had been claimed by the respondent company. On the grounds, as noted by him, an amount of Rs. 17,99,185, i.e., one-third of the travel expenses, claimed by the respondent company, was disallowed by the Assessing Officer holding the expenditure to be of non-trading in nature.

(b)The Assessing Officer disallowed an amount of Rs. 46,54,687, claimed by the respondent company to have been incurred in connection with fencing as 100 per cent. depreciation on the expenditure incurred. The Assessing Officer observed that the purpose of fencing was to protect the tea bushes from being transgressed upon by cattle or stray animals and that the respondent company had acquired assets (tea bushes) with lasting value and, therefore, the respondent company was not entitled to 100 per cent. depreciation but to normal depreciation.

(c) The Assessing Officer also disallowed a sum of Rs. 11,65,000, out of the sum of Rs. 20,31,129, claimed by the respondent company, on account of the publicity expenses, on the ground that the respondent company could not show any business connection with the business organizations to whom the said amount of Rs. 11,65,000 was shown to have been paid.

(d) As against the claim of 100 per cent. depreciation on vibro fluid bed dryer, the Assessing Officer disallowed 100 per cent. depreciation and held that the respondent company was entitled to only 25 per cent. depreciation.

(e) The Assessing Officer disallowed the respondent company’s claim of Rs. 1,00,000, as subscription expenditure, on the ground that the expenses were non-trading in nature.

(f) As regards the respondent company’s claim of Rs. 3,01,94,000, as cess on green leaf, the Assessing Officer rejected the respondent company’s claim and observed that in view of the judgement of this High Court, in Jorehaut Group Ltd. v. Agricultural ITO [1997] 226 ITR 622 (Gau.) the amount of cess paid is to be deducted from 60 per cent. of the composite agricultural income.

(g) As regards the respondent company’s claim for deduction under section 80HHC of the Income-tax Act, the Assessing Officer observed that while claiming the amount of deduction, the respondent company had not deducted commission, brokerage, selling and other expenses, which was to the tune of Rs. 7,47,26,773, and rejected the claim of the respondent company for deduction under section 80HHC.

(iii) Aggrieved by the Assessing Officer’s refusal to approve the respondent company’s claims, as mentioned above, the respondent company filed an appeal before the Commissioner of Income-tax (Appeals)-II, Guwahati, which was registered as GWA 40/2005-06.

(iv) By order, dated September 1, 2006, the Commissioner of Income-tax (Appeals) disposed of the said GWA 40/2005-06, wherein it was observed and decided as follows :

(a) With regard to ground No. 1 of the appeal, which was against the disallowance of the respondent company’s claim of Rs. 17,99,185 under foreign travel expenses, the Commissioner not only upheld the Assessing Officer’s decision in disallowing the respondent company’s claim for a sum of Rs. 17,99,185 on the ground that the respondent company had furnished inaccurate particulars of income, but also directed the Assessing Officer to initiate penalty proceedings against the respondent company and to enhance the income of the respondent company by a further sum of Rs. 14,76,687.

(b) That regarding grounds Nos. 2, 3 and 4 of the appeal, which were in respect of the disallowance of fencing expenses amounting to Rs. 46,54,687, the Commissioner held that the respondent company was entitled to get the relief and directed the Assessing Officer to allow the claim of the respondent company.

(c) As regards ground No. 5 of the appeal, which was against the disallowance of 100 per cent. depreciation claimed by the respondent company on vibro fluid bed dryer, the Commissioner directed the Assessing Officer to allow the claim of the respondent company.

(d) As regards the respondent company’s claim of Rs. 11,65,000 on account of publicity expenses, an amount of Rs. 2,65,000 was allowed by the Commissioner. However, the Commissioner confirmed the disallowance of deduction by the Assessing Officer to the extent of Rs. 9,00,000.

(e) With regard to the respondent company’s claim of Rs. 1,00,000 on account of subscription towards bihu and puja, etc., the Commissioner observed that the expenses, incurred by the respondent company towards subscription, were not excessive or unreasonable and accordingly allowed the respondent company’s claim.

(f) As regard grounds Nos. 10 and 11 of the appeal, which were against the rejection of the respondent company’s claim of Rs. 3,01,94,000, as cess on green leaf, the Commissioner rejected the claim of the respondent company.

(g) That as regards the respondent company’s claim for deduction under section 80HHC of the Act, the Commissioner allowed the respondent company’s claim for deduction under section 80HHC.

3. Still dissatisfied by the order, dated September 1, 2006, passed by the Commissioner of Income-tax (Appeals), the respondent company preferred two appeals before the Income-tax Appellate Tribunal, Gauhati Bench (hereinafter referred to as “the Tribunal”), at Guwahati. The said two appeals came to be registered as I. T. A. No. 109 of 2006 and I. T. A. No. 129 of 2007.

4. By order, dated August 31, 2007, the learned Tribunal has partly allowed the two appeals. While considering the respondent company’s grievance against the rejection of their claim of Rs. 32,75,872 as foreign travel expenses, the learned Tribunal disagreed with the findings of the Commissioner of Income-tax (Appeals), whereby the entire foreign travel expenses of directors were disallowed, and held that, out of the said claimed amount of Rs. 32,75,872, only an amount of Rs. 3,85,217 was not incurred for the business purpose and, consequently, allowed the remaining amount of Rs. 28,90,655 incurred by the respondent company as their foreign travel expenses. While dealing with this ground of appeal, the learned Tribunal observed as under :

“During the relevant year, the assessee’s export turnover was over Rs. 100 crores. If, for promoting export, senior executives of the company undertook foreign travel then the expenditure could not be considered for non-business purposes. It was not correct on the part of the Commissioner of Income-tax (Appeals) to expect that the assessee should depend solely on the directors and executives were not involved in export promotion. The visits to the UK and Kenya were undertaken by garden managers who were actively associated with growing and manufacture of tea and were competent to study the methods of competitors and effectively interact with the foreign customers for export promotion. Having regard to the facts, therefore, we do not find any merit in the Commissioner of Income-tax (Appeals)’s action of fully disallowing the foreign travel expenditure of garden managers. We also do not find merit in the Commissioner of Income-tax (Appeals)’s order in disallowing the entire expenditure on visits to India by the representatives of the London office because having regard to the assessee’s substantial exposure to overseas trade and large holding of the assessee being with foreign promoters ; visits to India for monitoring business operations was business necessity. Such expenditure was incurred by the assessee in the earlier year also which was allowed in the past assessments. We, therefore, see no reason for the Commissioner of Income-tax (Appeals) to disallow the entire expenditure on visits of representatives of the London office.”

5. The learned Tribunal dismissed the respondent company’s grievance against the initiation of penalty proceeding under section 271(1)(c) of the Act on the ground that no right of appeal was provided in the Act against initiation of penalty.

6. As against the respondent company’s claim of Rs. 11,65,000 on account of publicity expenses vis-a-vis the Commissioner’s order allowing an amount of Rs. 2,65,000 to the respondent company and disallowing the claim to the extent of Rs. 9,00,000, the learned Tribunal disagreed with the view of the Commissioner and held that the expenditure of Rs. 11,65,000, as claimed by the respondent company, was fully allowable inasmuch as the expenditure had been incurred for business purposes. While coming to this conclusion, the learned Tribunal has relied upon the case of Assam Brook Ltd. v. CIT [2004] 267 ITR 121/139 Taxman 229 (Cal), wherein the assessee had paid Rs. 5,00,000 towards renovation of a building of the club of which the employees of the assessee were members and the Calcutta High Court held the amount to be a business expenditure.

7. While dealing with the respondent company’s grievance against the Assessing Officer as well as the Commissioner of Income-tax (Appeals) rejecting the respondent company’s claim of Rs. 3,01,94,000, as cess on green leaf, the learned Tribunal decided the issue in favour of the respondent company and allowed the deduction for cess paid on green leaf in computing the income from growing and manufacturing of tea before applying rule 8 of the Income-tax Rules, 1962. While coming to this conclusion, the learned Tribunal relied upon the decision of the Gauhati High Court in Assam Co. Ltd. v. Union of India [2005] 275 ITR 609/[2006] 150 Taxman 571 and Jorehaut Group Ltd. v. Asstt. CIT [2007] 289 ITR 422 (Gauhati).

8. Being aggrieved by the order of the learned Tribunal, particularly, the learned Tribunal’s deletion of the disallowance of Rs. 28,90,655, on account of foreign travel expenses, as had been disallowed by the Assessing Officer and upheld by the Commissioner of Income-tax (Appeals), and the order of the learned Tribunal deleting the disallowance of Rs. 9,00,000, as had been disallowed by the Assessing Officer, under the head publicity expenses, and as confirmed by the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax has preferred the present appeal, as indicated above, under section 260A of the Act.

9. We have heard Mr. G. K. Joshi, learned senior counsel, appearing on behalf of the appellant, and Ms. Nitu Hawelia, learned counsel, appearing for the respondent company.

10. While considering the present appeal, we note that the following two questions have, primarily, arisen for determination :

“(i) Whether, in the facts and in the circumstances of the present case, the learned Tribunal was justified and correct in deleting the disallowance of Rs. 28,90,655, under the head of foreign travel expenses, as had been made by the Assessing Officer and upheld by the first appellate authority and whether the said decision is perverse ?

(ii) Whether, in the facts and in the circumstances of the present case, the learned Tribunal was justified and correct in law in deleting the disallowance of Rs. 9,00,000, as had been made by the Assessing Officer, under head publicity expenses, and as confirmed by the first appellate authority and whether the said decision is perverse ?”

11. Mr. G. K. Joshi, learned senior counsel, submits that the learned Tribunal cannot be held to be justified in deleting the disallowances, particularly, when there is no finding on the observations made by the Assessing Officer as well as the observations of the Commissioner of Income-tax (Appeals). The learned senior counsel further submits that as per section 37 of the Act, expenditure incurred wholly for business purposes is only allowable and it was, therefore, incumbent, on the part of the respondent company, to prove, by submitting materials, that the expenses, so incurred, were laid out wholly and exclusively for business purpose. The learned senior counsel also submits that each and every expense, incurred in course of business, is not allowable under section 37 of the Act and, in order to enjoy the benefit of exemption under the Act, the expenditure must be proved, by adducing substantial evidence, that it was laid out wholly and exclusively for business. In the instant case, contends Mr. Joshi, the respondent company had not produced evidence in support of its claim that the expenditure, claimed on account of foreign trips, was wholly and exclusively for business purpose, though it was incumbent, on the part of the respondent company, to give details as to what the representatives of the company did in the foreign countries for the business of the respondent company.

12. In support of his contention, Mr. Joshi has relied upon the decision of the Supreme Court in Bengal Enamel Works Ltd. v. CIT [1970] 77 ITR 119, wherein the Supreme Court has held that the taxing authorities may disallow an expenditure claimed on the ground that the payment was not made or was not incurred by the assessee for its business or it was not laid out wholly and exclusively in the business for the assessee. The Supreme Court has further held that, in doing so, the authority does not substitute its own view of how an assessee’s business affairs should be maintained and proceed to disallow the expenditure if the condition of its admissibility is absent.

13. Ms. Nitu Hawelia, learned counsel, appearing for the respondent company, contends that the respondent company, having furnished all the details of expenses incurred by the respondent company, cannot be accused of not submitting the necessary documents and evidence in support of the expenditure incurred by it. Ms. Hawelia also contends that it is for an assessee, such as, the respondent company, to decide, in the interest of promoting its business, whether any expenditure is to be incurred, in the course of business, and whether such expenses are to be incurred voluntarily. The learned counsel for the respondent company submits that the respondent company can incur certain expenditure and claim deductions of the same under section 37 even though there was no necessity to incur such expenditure. Ms. Hawelia further contends that in order to make an expenditure deductible under section 37 of the Act, it is not necessary that the primary motive to incur the expenditure has to be directly earn income thereby. According to the learned counsel for the respondent company, the expenditure incurred, though may not be with a view to obtain direct and immediate benefit, but for the purpose of commercial expediency as well as to indirectly facilitate carrying on of business, yet such an expenditure would be regarded as having been incurred, wholly and exclusively, for the purpose of business. The learned counsel for the respondent company further submits that while considering whether a given case falls within the scope of section 37 or not, one of the tests to be applied is whether the expenditure is incurred by the assessee as a trader or in some other capacity. If the expenditure is incurred by an assessee (respondent company in the present case) in his/her capacity as a trader, then, it would come within the scope of section 37 and shall be deductible as an expenditure incurred for the purpose of business.

14. In support of her contention that, while applying the test of commercial expediency for determining as to whether an expenditure is wholly and exclusively laid out for the purpose of business, the reasonableness of the expenditure has to be judged from the point of view of businessman and not of the Income-tax Department, Ms. Hawelia has relied on a decision of the Supreme Court in J. K. Woollen Mfg. v. CIT [1969] 72 ITR 612. Ms. Hawelia categorically submits that the similar expenses, in connection with foreign travel, had been incurred by the company in the earlier years, which were allowed by the Commissioner of Income-tax (Appeals), and the same were accepted by the Department concerned. Since, in the previous years, similar expenses were allowed, the Department cannot, submits Ms. Hawelia, take a different view of the matter, on the same issue, at a latter stage.

15. As regards the disallowance on account of publicity expenses, Ms. Hawelia, learned counsel for the respondent company, submits that so long as the expenditure incurred is not for oblique purposes, outside the course of business, or for some improper motives, the authorities should shun a bureaucratic approach and should examine the issue from the point of view of businessman and not from the point of view of the Revenue. In support of her contention, learned counsel for the respondent company has relied on a decision of this Court in Indian Trading Corpn. v. CIT [1995] 216 ITR 751/[1996] 85 Taxman 580 (Gauhati); Ms. Hawelia has further relied on a decision of the Calcutta High Court in Assam Brook Ltd. case (supra), wherein the payment made to a club for renovation of the club was held to be in the interest of the company and the same was held to be expenditure for the purpose of business allowable under section 37 of the Act. It is the further contention of Ms. Hawelia that the learned Tribunal, as a final fact finding authority, having come to a conclusion that the publicity expenses, incurred by the company, were for the purposes of business, the same is a finding of fact and no substantial question of law arises out of such an order. In support of her contention, learned counsel for the respondent company has relied on a decision of the Madras High Court in CIT v. Balaji Enterprises [1999] 236 ITR 589, wherein the learned Tribunal had held the payment made to the Karnataka Lawn Tennis Association to be expenses for the assessee’s business and allowable under the Act. The High Court held that no question of law arose from the order of the Tribunal. The decision of the Calcutta High Court, in Sarda Plywood Industries Ltd. v. CIT [1999] 238 ITR 354, has also been relied upon by Ms. Hawelia, in support of her submission that once it is found that the expenditure had, as a matter fact, been incurred by the assessee for the purpose of publicity and advertisement, it is not for the Department to consider whether commercial expediency justified the said expenditure or not.

16. Before deciding the issues, in question, we deem it apposite to have a look at the scope of section 37 of the Act. Section 37 of the Act provides that an expenditure to be covered by the ambit of section 37 of the Act, the expenditure should be wholly and exclusively for the purpose of business. The true test for an expenditure, laid out wholly and exclusively for the purpose of business, is that it is incurred by the assessee as incidental to its trade for the purpose of keeping its trade going on and that the expenditure must be incurred by the assessee as a trader and not in any other capacity. The word “wholly” refers to the quantum of expenditure and the word “exclusively” refers to the motive, objective and purpose of the expenditure. The expression “wholly and exclusively”, appearing in section 37, does not mean necessarily. It is important to note, in this regard, that the word, “necessarily”, found place in the Income-tax Bill, 1961, but it was dropped at the legislative anvil. It may be noted here that Viscount Cave L.C., in Atherton (H. M. Inspector of Taxes) v. British Insulated and Helsby Cables, Ltd. [1925] 10 TC 155, 191 (HL), observed ” . . . a sum of money expended, not of necessity and with a view to direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purpose of trade”. The same test was applied in Cooke (H. M. Inspector of Taxes) v. Quick Shoe Repair Service [1949] 30 TC 460 (KB).

17. What necessarily follows from the above discussion is that when an expenditure is claimed to have been incurred by an assessee for promotion of his business, there is no legal obligation imposed on the assessee to prove that the expenditure was necessary for promotion of his business. So long as the expenditure is incurred by an assessee for promotion of sale of product, the assessee is entitled, under section 37(1) of the Act, to claim exemption from tax on such amount of expenditure.

18. The tests, referred to above, were quoted in Eastern Investments Ltd. v. CIT [1951] 20 ITR 1 (SC), wherein the following principles were laid down (page 4) :

“(a) though the question must be decided on the facts of each case, the final conclusion is one of law ;

(b) it is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned ;

(c) it is enough to show that the money was expended ‘not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency, and in order indirectly to facilitate the carrying on of the business’;

(d) beyond that, no hard and fast rule can be laid down to explain what is meant by the word ‘solely’.”

19. In CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC), the Supreme Court held that business expediency may not require that all the expenses be incurred for earning immediate profits. The Supreme Court also held that such expediency may also require that the expenses be incurred to save business from coercive process and unlawful expropriation so that the business may remain on sound footing and may earn better profits in future. An expenditure to which one cannot apply an empirical or subjective standard is to be judged from the point of view of a businessman and it is relevant to consider how a businessman himself treats a particular item of expenditure, whether as revenue expenditure or as capital expenditure. It is by now well settled that while allowing the expenditure for the purpose of deduction under section 37 of the Act, the test is not what a prudent man would do in similar circumstances. Though an assessee may be an imprudent businessman, yet if he incurs expenditure voluntarily, for the purpose of his own business, it would be allowable as a proper deduction. In Eastern Investments Ltd. case (supra), the Supreme Court held that in order that deduction, under section 37(1) of the Act, is allowed in respect of an expenditure, it need not have been incurred with the object of gaining a direct and immediate benefit ; it would be, rather, sufficient even if it was incurred in order to indirectly facilitate the carrying on of the business. An expenditure, in order to be allowable under section 37 of the Income-tax Act, must be incurred for commercial expediency. In CIT v. Motor Industries Co. Ltd. sic. Sri Venkata Satyanarayana Rice Mill Contractors Co. v. CIT [1997] 223 ITR 101/[1996] 89 Taxman 92, the Supreme Court held that what is to be seen is not whether it was or was not compulsory for the assessee to make the payment, but the correct test is that of commercial expediency. As long as the payment, which is made for the purposes of the business and not by way of penalty for infraction of any law, the same would be allowable as deduction. The commercial expediency of a businessman’s decision to incur an expenditure cannot be tested on the touchstone of strict legal liability to incur such an expenditure. Such decisions have to be taken from a businessman’s point of view and have to be respected by the authorities even if it appears to the latter that the expenditure incurred was unnecessary and avoidable. As such, a businessman is the best judge to determine the business expediency and the fact as to whether a particular expenditure is a revenue expenditure, incurred for the purpose of business, must be determined on consideration of all facts and circumstances as well as by application of the principles of commercial trading. The correct approach would be to see whether the payment, under consideration, was made on grounds of commercial expediency for ultimate benefit of business or not.

20. For the allowability of an expenditure under section 37 of the Act, it is not relevant as to whether the benefit, expected to be accrued out of an expenditure incurred, is to accrue immediately or after a lapse of time, whether directly or indirectly. In CIT v. Dhanrajgirji Raja Narasingirji [1973] 91 ITR 544 (SC) the Supreme Court held that it is not open to the Department to prescribe what expenditure an assessee should incur and in what circumstances he should incur the expenditure. Every businessman knows his business best. Section 37, nowhere, casts a duty on the assessee to give evidence as regards the exact making of the expenditure, which is a decision to be taken by the assessee. Evidence, which is required to be produced by the assessee, is as regards the incurring of expenditures. The Assessing Officer must be satisfied that the expenditure claimed by the assessee was, in fact, incurred by the assessee and the same was for the purpose of business and, for that purpose, the Assessing Officer may direct the assessee to produce evidence in support of the same. However, to direct the assessee to adduce evidence in support of the purpose of expenditure or to give direct evidence as to how such expenditure was incurred and/or to adduce evidence about the benefit accruing/to be accrued from such expenditure would amount to interfering in the business decision of the assessee, which is, in our considered view, not contemplated by section 37 of the Income-tax Act.

21. Keeping in view the aforesaid legal principles, when we examine the facts of the present case, we find that the learned Tribunal has given a specific finding that the respondent company (assessee) has submitted bills and vouchers in support of the foreign travel expenditure. It is also an admitted fact that the respondent company is engaged in the business of export of tea and, in fact, during the relevant year, the export turnover of the respondent company was more than Rs. 100 crores. It is also an admitted fact that 70 per cent. of the company’s shares were held by the foreign residents and the respondent company regularly exported tea to European countries. The foreign directors of the respondent company visited India in order to attend the board meetings and monitoring business operations. Besides representatives and consultants of the respondent company, the representatives of the holding company from the U. K. also visited India for co-ordinating exports and monitoring functioning of the tea gardens. The garden managers visited the U. K. and Kenya for business purposes. Visits to the U. K. were necessary as the respondent company exported its tea to London for sale in the European market. The garden managers visited the U. K. also to meet foreign customers and selling agents to promote the respondent company’s exports. Visits to Kenya by the directors/executives/managers were necessary, because the said country is the largest exporter of tea in the world. The respondent company had sent its senior garden manager for conducting study on the Kenyan tea manufacturers so that the respondent company survives in the international competition in the tea export. Under such circumstances, the finding of the learned Income-tax Appellate Tribunal that the expenditure, on the visits by the garden managers, was wholly and exclusively for business purposes cannot be said to be suffering from any illegality and infirmity.

22. Keeping in mind the rival submissions made before us, let us, now, revert to the fact that the Commissioner of Income-tax (Appeals) enhanced the disallowance on the ground that the visits of the tea estate managers to foreign countries cannot be said to be for the purpose of business as the tea estate managers cannot be said to be responsible for exports. Moreover, the expenses, incurred in connection with the foreign travels of the spouses of tea estate managers, were also held to be not for the purposes of business. The Commissioner of Income-tax (Appeals) held that the respondent company failed to prove the necessity of the wives of the tea estate managers travelling with their spouses and the expenditure incurred in connection therewith. Our attention is drawn, at this stage, to the contention of the learned counsel for the respondent company that the necessity of the expenditure is not a subject matter of examination by the Assessing Officer. As regards the question on the expenditure incurred in connection with the travels of the wives of the tea estate managers, we find force in the submission of Ms. Hawelia, learned counsel for the respondent company, that since it is customary in the European countries for the wives to accompany their husbands, the travelling of the wives along with their husbands cannot be said to be personal visits of the wives, but such a visit has to be regarded as having been undertaken for the purpose of business of the respondent company. The Tribunal, as a fact finding authority, having come to the finding that the expenditure, on the visits by the representative of the company abroad and expenditure as well as the visits to India by the London based officials of the respondent company, in view of the respondent company’s substantial exposure to overseas trade and large holdings of the respondent company with foreign promoters, were business expenditures, is a finding of fact and the same cannot be interfered with in an appeal under section 260A of the Act.

23. In view of the above, we do not find any infirmity in the order of the Income-tax Appellate Tribunal in deleting the disallowance of Rs. 28,90,655 on account of foreign travel expenses.

24. In so far as the deletion of disallowance of Rs. 9,00,000 on account of publicity expenses is concerned, the learned Tribunal, in its order, noted that the respondent company had paid Rs. 5,00,000 to Bengal Club Ltd. for sponsoring programmes and to fund infrastructural additions to celebrate the 175th year of the club. The respondent company further paid Rs. 3,00,000 to Anand Bazar Patrika Ltd. for sponsoring the Centenary Celebrations of Cotton College at Guwahati. The respondent company paid Rs. 2,00,000 for sponsoring the State Level National Children Science Congress in Assam. The disallowance of Rs. 9,00,000 was on the ground that the abovementioned expenditures were for non-business purposes and it was, rather, in the nature of donation.

25. While considering the above aspect of the appeal, it needs to be borne in mind that it was submitted, before the learned Tribunal, that the managing director of the respondent company was a member of the Bengal Club and he had spent Rs. 5,00,000 for sponsoring the programmes of the club. Sponsoring of a programme of the nature aforesaid, obviously, leads to advertisement and wider acknowledgment of the respondent company and its products. Such an expenditure cannot but be regarded as having been incurred for the purpose of augmentation of income of the respondent company. In short, the said sum of Rs. 5,00,000 ought to have been allowed as an expenditure incurred in the interest of the business of the respondent company. The expenditure, incurred in connection with sponsoring of the Centenary celebrations of Cotton College, at Guwahati, by Anand Bazar Patrika Ltd. and the sponsoring the State Level National Children Congress in Assam, were also allowable, because the respondent company’s banners, as sponsors of the events, were displayed at the said functions. Therefore, the said expenditure were held by the Tribunal to be wholly and exclusively incurred in connection with the business. While allowing the respondent company’s claim, the learned Tribunal relied on a decision of the Calcutta High Court, in Assam Brook Ltd. case (supra), wherein a sum of Rs. 5,00,000 was paid by the assessee to a club. The relevant portion of the observations, made by the Calcutta High Court, read as under (headnote) :

“If the management paid some amount for the upliftment/running of the club in question, then it must be held that the payment was made in the interest of the company so that its employees remain happy and consequently the work of the company was not hampered in any way due to dissatisfaction on the part of its employees. As this payment of Rs. 5,00,000 – was made by the company to the club keeping its business interest in mind, the payment must be held to be business expenditure and accordingly as per section 37 of the Income-tax Act, the assessee-company was entitled to get deduction, in respect of it.” (Emphasis supplied)

26. In Addl. CIT v. Kuber Singh Bhagwandas [1979] 118 ITR 379 (MP) [FB], while dealing with donation made voluntarily by an assessee with the object of obtaining permits of business, so as to enable the assessee to earn profits by export and selling of gram in the neighbouring States, the Full Bench held that such donation were allowable under section 37(1) of the Act as the expenditure had been incurred wholly and exclusively for the purpose of the assessee’s business. In Indian Trading Corpn. case (supra), this court has held that the payments, made to the Delhi Flying Club Ltd., Delhi, and the AICC Souvenir Committee, on account of advertisement expenses were for the purposes of business.

27. In view of the above propositions of law, we are of the considered view that it is for the assessee (respondent company in the present case) to decide where and in what manner publicity of its business is to be done and what benefit it will derive for its business by making such publicity. Consequently, we do not find any infirmity in the order of the Income-tax Appellate Tribunal, while deleting the disallowance on account of publicity expenses.

28. In the result and for the reasons discussed above, we do not find any merit in the present appeal. This appeal is, therefore, dismissed.

29. No order as to costs.

[Citation : 355 ITR 323]

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