1986-VIL-77-ITAT-

Equivalent Citation: TTJ 027, 090,

Income Tax Appellate Tribunal BOMBAY

Date: 09.04.1986

INCOME TAX OFFICER.

Vs

AF FERGUSON & CO.

BENCH

Member(s)  : A. KRISHNAMURTHY., RAVI MEHTA.

JUDGMENT

This is a departmental appeal wherein the following two main grounds of appeal have been urged:

"1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that the expenditure of Rs. 25,090 incurred by Mrs Khanna, wife of the senior partner of the assessee firm on foreign travel constitutes an admissible deduction in the computation of the assessee's total income.

2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the ITO to allow the assessee's claim for weighted deduction under s. 35B on the expenditure of Rs. 25,090 incurred by Mrs Khanna, wife of the senior partner of the assessee firm on foreign travel."

2. The respondent in this case is a reputed firm of Chartered Accountants having offices at Bombay, Calcutta, Madras, and New Delhi. The firm also represents in India an internationally renowned accounting firm, viz., M/s Peat marwick Mitchell & Co. The aforesaid international accounting firm has associates in countries all over the world. As a result of its association with M/s Peat Marwick Mitchell & Co. the respondent receives substantial amount of professional work in the form of clients, educational facilities, literature and training of their staff from this foreign firm.

3. The senior partner of the respondent firm have been invited from time to time to attend meetings alongwith Chartered Accountants from other parts of the world. During the year under appeal a meeting of the associates was organised in U.K. and attended by senior partner of the firm Mr. R.C. Khanna alongwith his wife.

4. The ITO duly allowed the claim for deduction in respect of expenses of Mr. R.C. Khanna and also the claim under s. 35B. He, however, treated a sum of Rs. 25,090 incurred on the travelling expenses of Mrs. Khanna as a personal expenditure and disallowed the same. According to the ITO the claim for deduction was not allowable on the following grounds:

"(i) That the invitation was addressed to the senior partner only in respect of partners' conference to be held in London and Birmingham. It was only as a matter of courtesy that the invitation was extended to his wife, and

(ii) In the application for foreign exchange to the Reserve Bank of India the respondent firm stated that "the primary purpose of the visit of Mr. Khanna is to attend the meeting of the associate firm Peat Marwick Mitchell & Co. at which partners and their wives from different countries are likely to be present. Opportunity is also being taken to combine with this trip the visit to numerous clients in U.K. & Europe."

The ITO ultimately came to the conclusion, that as no intimate connection had been established between the expenditure incurred on the wife of the senior partner and the business of the firm, the expenditure could not be allowed. He also held that nexus between the expenditure for the partner's wife to attend a highly specialised Chartered Accountant's conference and further travel to Europe to meet the clients of the firm in which her husband was a partner, had not been established.

5. The matter went up in appeal before the CIT(A) and it was urged on behalf of the respondent firm as under:

(i) That senior partners of this firm had been invited from time to time in the meetings outside India of the various associates of the international firm whom they represented in in India.

(ii) The presence of the wives makes the social contracts easier and this leads to a lot of advantage in the business of the firm, and

(iii) that in the application to the Reserve Bank of India for foreign exchange it was mentioned that the primary purpose of the visit of Mr. & Mrs Khanna was to attend the meeting of the associated firm M/s Peat Marwick Mitchell & Co., in the U.K. at which partners and their wives from different countries are likely to be present.  The ld. CIT(A) allowed the expenditure as a business expense as well as the claim under s. 35B, as according to him "the presence of wives in business conferences does help in establishing easier social contracts lending to ultimate advantage to the business."

6. Before us the ld. Departmental Representative urged that the claim was not allowable inasmuch as the wife of the senior partner had no connection with the business of the assessee which is a firm of Chartered accountants doing purely technical work. He also urged that only social contacts can be established by the wives in such conferences and these do not enhance the professional prestige and standing of the firm. He, accordingly, argued that as the expense in question was a personal one, it should be disallowed as had been done by the ld. ITO.

7. The ld. counsel for the assessee, on the other hand, urged that their's was a reputed firm of Chartered Accountants and represented in India one of the internationally-renowned accounting firm, viz., M/s Peat Marwick Mitchell & Co. It was further stated that periodical meetings of the world wide associates of the above firm were held from time to time and it was customary that the wives of the partners should also accompany them. He further drew our attention to the fact that a similar trip was undertaken by the senior partner Mr. R.C. Khanna and his wife in May, 1979, and the aforesaid expenditure was allowed as a deduction by the Department. This statement at the bar was not challenged by the Departmental Representative.  The ld. counsel further submitted that the firm is earning substantial amount by way of foreign exchange as a result of its association with the internationally acclaimed accounting firm. According to him, it is common practice in foreign countries to invite wives to business conference where substantial amount of socialising is done by way of lunches and dinners and in which wives of the participants also take active part. According to him several discussions relating to the profession do take place even at such informal gatherings where wives are also present. This no doubt enhances the personal relationship between the persons connected with each other professionally but would also lead to better and increased professional relationship which would ultimately result in substantial work being obtained. This according to the counsel of the respondent is exactly what has happened.  The ld. counsel cited two decisions of the Tribunal in support of his contentions. The first in ITA Nos. 2488 & 2489/Bom/82 in the case of XYZ & Co. India Ltd., Bombay vs. ITO reported in Taxes & Planning of 15th July, 1984 and also a decision of the Hyderabad Bench of the Tribunal dt. 30th March, 1981 in the case of Bakelite Hylam Ltd. In these appeals the Tribunal was considering the allowance of the expenditure incurred by the wives accompany their husbands on official trips outside India.

8. We have considered the arguments advanced on both sides and have also perused the various documents filed in the course of the hearing. There is no doubt that the respondent firm, as a representative of a reputed international accounting firm has been able to derive substantial fees. In keeping with the practice abroad they have sent their senior partner along with his wife to attend the conference which had also been attended by associates from other parts of the world along with their wives. The technical meetings at the aforesaid conferences have also been followed by social gatherings where the wives of the various participants have also joined in. At such social gatherings personal contacts built up earlier have been further strengthened leading to a further cementing of professional relationships.

9. In order to claim a deduction it is enough to show that the money is expended not of necessity and with a view to direct and immediate benefit but voluntarily and on grounds of commercial expediency and in order to indirectly facilitate carrying on of the business. In considering whether an item is deductible the matter has to be looked at from the point of view of the payer.

10. The totality of the circumstances have also to be looked into and in the present case the respondent firm has been assessed at an income of Rs. 35,65,020 and the claim of Rs. 25,090 forms a very negligible proportion thereto. Further the respondent firm has earned a substantial amount of fees as a result of its association with the internationally known accounting firm. The expenditure on the travelling expenses of the wife of the senior partner have been necessitated by commercial expediency. We, accordingly, hold that it is an admissible deduction and confirm the order of the CIT(A) on this point.

11. As regards the claim under s. 35B on the aforesaid expenditure of Rs. 25,090 the ld. Departmental Representative did not challenge the same and the order of the CIT(A) on this point is confirmed as well.

12. In view of the above, the appeal of the Department is dismissed.

 

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