1. This is a reference under section 66(1) of the Indian Income-tax Act, 1922, to be hereinafter referred to as the 'Act'. The question of law referred to by the Income-tax Appellate Tribunal, Madras Bench, to this court for its opinion is : 'Whether on the facts and in the circumstances of the case the sum of Rs. 10,483.00 is an allowable expenditure under section 10 (2) (xv) of the Indian Income-tax Act, 1922.
[The learned judge set out the statement of case which ran as follows :]
2. The assessee is an astrologer by profession. He carries on business in the printing and publishing of books on astrology. He also runs an astrological magazine. In March, 1959, he was elected as the Second Vice President of the International Congress of Astro scientists. A session of the Congress was held in New York between 2nd and 10th October, 1959. The conference director wrote to the assessee :
'Your attendance at New York this coming October 2nd to 10th - at the World Congress of Astro scientists - is very important first as our executive 2nd Vice President and further as top ranking representative of India as a Nation with strong interest in co-operative understanding among the peoples of the world.'
As vice-president he had to attend this session. On his way to New York, he attended the 6th Congress of Scientific Integration at Italy. While the U. S. he delivered many lectures before the astrological associations and guilds. He also visited United Kingdom where also he gave lectures before such profession associations. The expenses within U. S. and U. K. were wholly or partly borne by the association and guilds. The total expenses incurred by the assessee amounted to Rs. 11,808 as under :
Rs.Payment to travel agents for booking passage ... 9,793Lodging, boarding and other expenses ... 1,690Watches and radio ... 325
The whole of the above was claimed as an expenditure under section 10(2) (xv) for the following reasons :
'(1) The assessee was interested in making the American audience interested in Hindu Astrology of which the assessee is a leading exponent;
(2) The assessee studied the system and methods adopted in U. S. A. of design, editing and methods and some of these have been introduced in the assessee's magazine to suit foreign tastes.
3. The Income-tax Officer considered that Rs. 1,000 out of Rs. 1,690 and Rs. 325 as expenditure of a personal nature. As to the balance of Rs. 10,483 he considered that it was not an expenditure laid out wholly and exclusively for the purpose of assessee's business. He observed that the necessity for the trip abroad arose on account of the assessee having been elected as an executive of the World Congress of Astro scientists. In this connection, he referred to the letter of the Conference Director, which we had quoted earlier. He also considered that the assessee's efforts in kindling abroad an abiding interest in Hindu Astrology and the magazine had created the 'American goodwill' which was a capital asset.
4. He rejected also another argument of the assessee's representative which was to the effect that as the exchange control regulations did not permit pleasure trips abroad, the expenditure claimed by the assessee should be deemed to be an expenditure on a business trip. The Income-tax Officer to the letter of the State Bank of India to Reserve Bank which recommended an allocation of foreign exchange to the assessee. The letter is dated June 5, 1959, and the relevant portion was as under :
'After attending the Congress Sri Raman proposes to visit the U. K. and the Continent of Europe on a lecture tour with a view to maintaining contact with the best exponents of the subject in those countries and to popularise our system. The mission is purely cultural and educational.'
The Income-tax Officer concluded from the above that the trip was not a business trip.
5. The assessee relied on the decision of the Madras High Court in Dr. P. Vadamalayan v. Commissioner of Income-tax. The Income-tax Officer distinguished the case as follows :
'Dr. Vadamalayan went abroad to learn while the assessee went abroad to give lectures. Dr. Vadamalayan's was a tour of hospitals for studying latest techniques. The assessee's was a mission for spreading Hindu culture.'
6. In the end, he disallowed the sum of Rs. 10,483. A copy of the order of the Income-tax Officer is annexure 'A' and forms part of the case.
7. There was an appeal to the Appellate Assistant Commissioner. After referring to the correspondence between the assessee and the executive director of the Congress, he pointed out that the visit abroad was required as an office bearer of the International Congress and the proposed lecture tour was more for explaining the general cultural background and present day problems of our country than with any specific reference to any particular problems in astrology.
8. He then referred to the argument of the assessee's representative that the various lectures given by the assessee had a beneficial effect in the circulation of the assessee's magazine and held that the lectures were not the primary purpose of the assessee's visit and these had been arranged to reduce the cost of the visit and that the possible effect of these lectures was far too remote a factor to be considered as relevant.
9. He dismissed another argument of the assessee's representative as too frivolous. This argument was that the purpose of the visit was to improve the technique of magazine publication.
10. In the end, he held that the expenditure was not for the purpose of the profession of business and confirmed the Income-tax Officer's disallowance. A copy of the order of the Appellate Assistant Commissioner is annexure 'B' and forms part of the case.
11. There was an appeal to the Appellate Tribunal. The Tribunal observed :
'We consider that the assessee in exercising the profession or vocation of an astrologer and in conducting a magazine devoted to astrology and other allied subjects was also carrying on cultural and educational work. 'Culture' is a word of wide import to take in astrology and other subjects. No doubt the visit to the U. S. A. was necessitated by the fact that he was the executive vice-president of the Congress. But he had been elected as vice-president because he was exercising the profession of astrology and has made eminent contributions in the field. He did not become a vice-president all of a sudden. It was a result of the profession that he had been exercising throughout. During the visit abroad, he had carried on a lecture tour. Whether it was to cover the cost of the tour or not, he had been invited to give lectures because of his profession and his attainment therein. We are therefore unable to hold that these activities of the assessee were not in any way unconnected with his profession or vocation.
In this view, it may not be necessary to go into the question whether the expenditure is of a capital nature. But to make the order complete, we hold that the case is on a par with the case of Dr. P. Vadamalayan.'
[After setting out the statement of the case as above, HEGDE J. continued :]
The facts of the case are fully set out in the reference. The question for our decision is whether, on the facts found, it can be said that the expenditure incurred by the assessee be said to have been done wholly and exclusively for the purpose of his business, profession or vocation. Section 10(2) (xv) reads : 'any (expenditure not being an allowance of the nature described in any of the clause (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation.'
12. This provision is in 'pari material' with section 137 of the English Income Tax Act, 1952, though the latter provision is negatively worded. In Indian Molasses Co. (Private) Ltd. v. Commissioner of Income-tax, the Supreme Court observed :
'That section 10(2) (xv) of the Act, though it enacts affirmatively what is stated in the negative form in the English statute, is substantially in 'pari material' with the English enactment...'
The requirements of section 10(2) (xv) are that expenditure for which deduction is claimed :
(i) should not be an allowance of the nature described in clauses (i) to (xiv) of section 10.
(ii) it should not be in the nature of capital expenditure.
(iii) it should not be in the nature of personal expenses of the assessee.
(iv) it should have been laid out or expended wholly and exclusively for the purpose of such business, profession or vocation.
13. The last item covers both the laying out of money for the business, profession or vocation or expending of the same wholly and exclusively for the purpose of such business, profession or vocation. The word 'wholly' refers to the money expended and the expression 'exclusively' refers to the purpose for which it is expended.
14. In the instant case we are called upon to consider whether the expenditure incurred by the assessee during his foreign tour can be said to have been done wholly and exclusively for the purpose of his business, profession or vocation. On the facts of this case, it is not necessary for us to decide as to the nature of the work carried on by the assessee. In other words, it is not necessary to decide whether the work carried on by him can be considered as business or profession or vocation. All that we have to see is whether he expended the money in question for the exclusive purpose of his business, profession or vocation.
15. Strangely enough the Tribunal, instead of addressing itself to that question, seem to have examined the facts of the case to find out whether the expenditure in question was in any way unconnected with the profession or vocation of the assessee. The learned counsel for the assessee had to admit that this approach is wholly wrong and it does not accord with the requirements of section 10(2) (xv). Dealing with the question posed for decision, the Tribunal observed thus in its order (I. T. A. No. 3272/1962-63 on its file) (paragraph 13 of the order) :
'The issue before us as it emerges from the Appellate Assistant Commissioner is whether he was right in holding that the expenditure had nothing to do with the carrying on of the business or profession of the appellant...'
16. Quite clearly this is a wholly wrong approach. What the Tribunal had to decide was not whether the expenditure had nothing to do with the assessee's business, profession or vocation, but whether it was incurred wholly and exclusively for the purpose of the assessee's business, profession or vocation. In view of this wrong approach, Mr. V. Krishna Murthy, the learned counsel for the assessee, asked us to call for fresh finding from the Tribunal. But we have not though it necessary to do so because the facts of the case are admitted and all that we have to decide is whether, of the admitted facts, the expenditure incurred can be said to have been incurred wholly and exclusively for the purpose of the assessee's business, profession or vocation.
17.As seen from the statement of case, the assessee primarily went to America to attend the Congress of Astrologers. He was the executive 2nd vice-president of the Congress. The conference director invited him to go over to New York for the purpose of attending that conference. The letter written by the director says :
'Your attendance at New York this coming October 2nd to 10th at the World Congress if Astro scientists is very important first as our executive 2nd vice-president and further as top ranking representative of India as a Nation with strong interest in the co-operative understanding among the peoples of the world.'
18. It is not the case of the assessee that he attended the conference either for the purpose of gaining additional knowledge in astrology or for propagating his knowledge on the subject or even to improve the prospects of the magazine published by him. He primarily went to the U. S. A. for the purpose of attending the congress. After going there, he took advantage of his stay in the U. S. A. and delivered certain lectures on astrology. It may also be that during his stay in the U. S. A. and in other countries, through which he travelled, he took the opportunity to know the advances made by astrology in those countries. But that is not the same thing as saying that his purpose in going to the U. S. A. was for advancing his knowledge on astrology or in connection with the publication of his magazine. What section 10(2) (xv) requires is that the expenditure, the deduction of which is claimed, should have been wholly and exclusively expended for the purpose of business, profession or vocation. The purpose in expending the amount in question must have been to advance the cause of his business, profession or vocation. Incidental advantages gained are not taken note of by section 10(2) (xv). As can be gathered from the case put forward on behalf of the assessee, it is clear that the advantages gained for his business, profession or vocation were secondary, if not accidental. It cannot be said that the expenditure was incurred for the exclusive purpose of advancing the cause of his business, profession or vocation.
19. Interpreting the corresponding provision in the English Income Tax Act, Romer L. J. In Bentleys, Stokes and Lowless v. Beeson (Inspector of Taxes) observed as follows :
'The relevant words of rule 3(a) of the rules applicable to Cases I and II, - 'wholly and exclusively laid out or expended for the purpose of the... profession' - appear straightforward enough. It is conceded that the first adverb - 'wholly' - is in reference to the quantum of the money expended and has no relevance to the present case. The sole question is whether the expenditure in question was 'exclusively' laid out for business purposes, that is :
What was the motive or subject in the mind of the two individuals responsible for the activities in question It is well established that the question is one of fact : and again, therefore, the problem seems simple enough. The difficulty, however, arises, as we think, from the nature of the activity in question. Entertaining involves inevitably the characteristic of hospitality : giving to charity or subscribing to a staff pension fund involves inevitably the object of benefaction : an undertaking to guarantee to a limited amount a national exhibition involves inevitably supporting that exhibition and the purposes for which it has been organised. But the question in all such cases is : Was the entertaining, the charitable subscription, the guarantee, undertaken solely for the purpose of business, that is, solely with the object of promoting the business or its profit-earning capacity It is, as we have said, a question of fact. And it is quite clear that the purpose must be the sole purpose. The paragraph says so in clear terms. If the activity be undertaken with the object both of promoting business and also with some other purpose, for example, with the object of indulging an independent wish of entertaining a friend or stranger or of supporting a charitable or benevolent object, then the paragraph is not satisfied though in the mind of the actor the business motive may predominate. For the statute so prescribes. Per contra, if, in truth, the sole object is business activity necessarily involves some other result, or the attainment or furtherance of some other objective, since the latter result or objective is necessarily inherent in the act.'
20. Therefore, in deciding whether a given expenditure was incurred exclusively for a business, professional or vocational purpose, we have to see the object with which that expenditure was incurred. So viewed, there can be hardly any doubt that in this case the expenditure was primarily incurred for the purpose of going over to the U. S. A. for attending the conference. The prospect of business benefit, if any, could not have been in the mind of the assessee at the time the expenditure was incurred.
21. The decision of the Chancery Division in Bowden (Inspector of Taxes) v. Russell and Russell is of some assistance to us. Facts of that case are : Under arrangements made by the Law Society in London, a practicing solicitor visited America and Canada for approximately six weeks in the late summer of 1960 to attend the annual meeting of the American Bar Association in Washington and Commonwealth and Empire Law Conference in Ottawa.
22. The finding of fact in that case was that the solicitor's purpose in attending the conference was to maintain his status as a solicitor, to improve his reputation in the U. K. and to increase his clientele. He was accompanied by his wife; he visited several places with her and stayed with solicitors and studied their methods. It was his intention to have also a holiday with his wife. His firm sough deduction of his expenses of attending the conference as an expense in computing the firm's profits for the purposes of Case II Schedule D, section 123 of the Income Tax Act, 1952. The Chancery Division came to the conclusion that the expenditure was not incurred wholly or exclusively for the purpose of the business or profession of the solicitor. It came to the conclusion that the solicitor had dual purposes : Firstly, to improve his business, profession or vocation and, secondly, to have a holiday with his wife. On that ground, the deduction claimed was disallowed. The court did not go into the question in that case whether the advantage gained for the profession of the solicitor was a remote one or not. That question was left undecided. In the present case, we are inclined to hold that the professional advantage gained, if any, is a remote consequence. It was not for that purpose the expenditure was incurred. By saying that, we do not mean to say that whenever a business man or person practising any profession or having a vocation attends a conference of his co-business men or persons having the same profession or vocation, the expenditure incurred in that connection cannot be considered as expenditure within section 10(2) (xv). If an assessee attends a conference with the said purpose of advancing his business, profession or vocation and if the expenditure, the deduction of which is claimed, was incurred for that purpose, then certainly he is within section 10(2) (xv).
23. In support of his contention that the claim in question does not fall within section 10(2) (xv), the learned counsel for the revenue invited our attention to two decisions. The first decision read to us by him was that of Maclean (Inspector of Taxes) v. Trembath. Therein the court disallowed the expenditure incurred by the wife of the director of a company who had accompanied her husband who had visited Australia for the purpose of acquiring knowledge in connection with his business. The ratio of that decision does not bear on the point under consideration.
24. We do not also think that the rule laid down by the Supreme Court in Commissioner of Income-tax v. Malayalam Plantations Ltd. read to us by the learned counsel for the revenue has any application to the facts of the present case. Therein the court was considering the true scope of the expression 'for the purpose of the business'. It held that that expression is wider in scope than the expression 'for the purpose of earning profits'.
25. Mr. V. Krishna Murthy, the learned counsel for the assessee, relied on several decisions in support of his contention that the present case falls within the scope of section 10(2) (xv). We shall now proceed to consider those decisions.
26. The first decision cited by Mr. Krishna Murthy is Seshasayee Brothers Ltd. v. Commissioner of Income-tax. Therein a director of the assessee company was deputed by the company managed by it to attend a conference of medical manufacturers at London. The managed company bore his express to the extent of Rs. 9,995. The assessee claimed that advantage was taken of this opportunity to depute the director to visit other countries to acquaint himself with the manufacturing conditions and it had spend Rs. 14,625 for the director's tour. But the assessee failed to furnish details of the places visited by the director so that the department and the Appellate Tribunal were not able to decide what was the object of his visit. The court held, on the facts, that although the Tribunal was not right in holding that the experience, if any, gained by the director was a benefit of an enduring nature and the expenditure was capital in nature, yet the Tribunal was justified in coming to the conclusion that the assessee failed to establish that the sum of Rs. 14,625 was expenditure laid out wholly and exclusively for the purpose of its business. The amount was not, therefore, an allowable deduction. It may be seen that the primary question that arose for decision in that case was whether the expenditure falling within section 10(2) (xv). The court held that it is not a capital expenditure, but yet rejected the claim of the assessee on the ground that it was not proved that the expenditure in question had been incurred for the purpose mentioned in section 10(2) (xv). We are unable to get any assistance from this decision for deciding the point in controversy in the present case.
27. We are also unable to see how the decision in Tata Sons Ltd. v. Commissioner of Income-tax, relied on by Mr. Krishna Murthy, has any bearing on the point under consideration. Therein the assessee-company held the managing agency of the company. The commission payable to the assessee-company was entirely dependent upon the profits earned by the managed company. The assessee-company shared half of the bonus paid by the managed company to some of its superior executive officers. The court held that looking from the point of view of commercial principles what the assessee-company had done was something which had as its object increasing the profits of the managed company and thereby increasing its own share of commission. Hence, the amount expended was wholly and exclusively depended for the purposes of the business within the meaning of section 10(2) (xv).
28. The next decision to which reference was made is Commissioner of Income-tax v. Royal Calcutta Turf Club. The facts of that case were these :
The Royal Calcutta Turf Club was an association of persons whose business it was to hold race meetings on a commercial basis. The turf club itself did not own any horse or employ jockeys. As it was of option that there was a risk of jockeys becoming unavailable and that such unavailability would seriously affect its business, the turf club established in 1948 a school for the training of Indian boys as jockeys. During the year ended March 31, 1949, the turf club spent a sum of Rs. 62,818 on the running of the school and claimed that amount as a deduction under section 10(2) (xv) of the Income-tax Act. The court held that the amount spend by the turf club was not in the nature of capital expenses because no asset of an enduring nature was created thereby. If further held that as the amount was spent for the preservation of its business it was laid out wholly and exclusively for the purpose of the business of the turf club and was an allowable deduction under section 10(2) (xv) of the Income-tax Act.
29. In so deciding, it came to the conclusion as was done in Commissioner of Income-tax v. Malayalam Plantations Ltd., that the expression 'for the purpose of the business' is wider in scope than the expression 'for the purpose of earning profits'. The purpose must be 'for the purpose of the business'. That is to say, the expenditure incurred should be for carrying on the business and not necessarily for the purpose of earning profits our of that business.
30. We are also unable to agree with Mr. V. Krishna Murthy that the decision of the Bombay High Court in Commissioner of Income-tax v. Ciba Pharma Private Ltd. bears on the point under consideration. It decided a wholly different principle of law.
31. The only other decision read to us by Mr. V. Krishna Murthy which requires consideration is Dr. P. Vadamalayan v. Commissioner of Income-tax. The facts of that case were :
The assessee was a leading surgeon who had lucrative practice, spent the sum of Rs. 19,538 towards a tour abroad, in the course of which he visited a number of hospitals and clinics in the U. K. and the U. S. A. to study the latest technique in surgery; and treatment. The Appellate Assistant Commissioner allowed deduction of only the sum of Rs. 9,769, which was found to be wholly and exclusively incurred for the purpose of the assessee's profession under section 10(2) (xv) of the Income-tax Act, the balance being treated as the assessee's personal expenses. The Tribunal, on appeal, held that the sum of Rs. 9,769 was capital expenditure but did not disturb the finding that it was incurred wholly and exclusively for the purpose of the assessee's profession.
32. On a reference, the point that arose for decision by the Madras High Court was whether the expenditure incurred was a capital expenditure. It was not disputed that it had been incurred wholly and exclusively for the purpose of the assessee's profession. The High Court, differing from the Tribunal, came to the conclusion that the expenditure in question was not an expenditure of a capital nature. Therefore, in our opinion, this decision has no bearing on the point under consideration.
33. For the reasons mentioned above, we are unable to agree with the Tribunal that the expenditure with which we are concerned in this case was incurred wholly and exclusively for the purpose of the assessee's business, profession or vocation.
34. Our answer to the question of law referred to us is that, on the facts and in the circumstances of the case, the sum of Rs. 10,483 is not an allowable expenditure under section 10(2) (xv) of the Act. The assessee to pay the costs of this reference. Advocate's fee Rs. 250.