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Commissioner of Income-tax Vs. S. Krishna Rao - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred No. 47 of 1965
Judge
Reported in[1970]76ITR664(AP)
ActsIncome Tax Act, 1922 - Sections 10(2)
AppellantCommissioner of Income-tax
RespondentS. Krishna Rao
Appellant AdvocateT. Ananta Babu, Adv.
Respondent AdvocateJ.V. Srinivasa Rao, Adv.
Excerpt:
.....of foreign tour rightly exempted from taxable income - respondent went abroad to participate in business conference further extended tour for personal trip - authorities allowed proportionate exemption in respect of business expenditure and disallowed personal expenditures apportionetly - if expenditure incurred on foreign tour solely for business than fully allowed as per section 10 (2) - held, proportionate expenditure allowed by tribunal justified. - - it is no doubt true that the appellate assistant commissioner has observed that because of sri krishna rao's attending the conference as a delegate certain goodwill and prestige value which would be in the interest of his business must necessarily emerge because the conference pertains to the like business. at best, it may lead him..........then clause (xv) will be attracted.21. the short question therefore is whether the assessee, who incurred expenditure in attending an international conference of printers, can be said to have incurred expenses for the purpose of business; while arguing that he cannot be said to have incurred expenses for the purpose of business it was contended that by merely attending a conference the assessee cannot be said to have gained anything which he could profitably make use of for advancing his business. we do not find that the argument can be accepted. it assumes that by attending a conference no person can learn anything from the discussions which are usually held in such conferences. it would be incorrect to assume that a person is not educatable through the media of conference. no mirror.....
Judgment:

Gopal Rao Ekbote, J.

1. This is a reference made under Section 66(1) of the Income-tax Act, 1922, and the question which we are called upon to consider is:

'Whether the Appellate Tribunal was justified in holding that the sum of Rs. 5,160 which was incurred by the assessee on his foreign tour was an allowable expenditure under Section 10(2)(xv) of the Indan Income-tax Act ?'

2. The relevant facts are that the respondent is a Hindu undivided family of which Shri S. Krishna Rao is the manager. The joint Hindu family owns a printing press know as the 'Citizen Press' at Secunderabad. During the accounting year, which ended on the 30th of June, 1960 the assessee representing the Andhra Pradesh Printers' Association attended atAmsterdam the International Printers' Conference. Apart from attending the International Printers' Conference at Amsterdam, the assessee, Krishna Rao, at that place saw the connected exhibition of printing equipment and machinery and also sought acquaintance with the techniques of the use of this machinery. Besides what he did at Amsterdam, Sri Krishna Rao also visited the United Kingdom, Germany, Italy and Switzerland. In the United Kingdom, he stayed at London for 10 days, In Germany, Italy and Switzerland, he stayed for 5 days each.

3. He claimed the expenditure which he had incurred for this foreign tour of Rs 7,160 as an allowable deduction under Section 10(2)(xv) of the Income tax Act. He contended that the tour was actuated by business considerations and contended that the trip had helped him to get acquainted with various developments in printing equipment and techniques. At the exhibition, in fact, he ordered some machinery and also learnt the different types of printing jobs that could be done with Heidelberg machinery. In the United Kingdom, he visited certain mono and linotype factories as he was using a similar machinery in his business. He also examined some old printing machinery there. In the other countries also, which he visited, he spent the time in studying the various types of printing and machinery.

4. The Income-tax Officer, however, refused the deduction on the ground that the primary purpose of Sri Krishna Rao's visit was to attend as a delegate representing the Andhra Pradesh Printers' Association, and normally the Printers' Association, which sent him as their delegate, ougnt to have incurred the expenses. Although the Printers' Association was not willing to contribute the expenditure, yet if Sri Krihna Rao had chosen to go as their delegate, it was because he wanted to satisfy his curiosity of going abroad. Having thus made the trip, he might have naturally inspected machinery or ordered some machinery, but the benefit which he drew out of his trip was only incidental. The primary purpose was to attend the conference as a delegate. In that view of the matter, he disallowed the entire deduction claimed by the assessee.

5. The assessee, therefore, carried the matter in appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner disagreed with the reasoning and conclusion of the Income-tax Officer. He was of the opinion that Sri Krishna Rao's visit to Amsterdam was for the purpose of his business. He was, however, of the opinion that the short stay of 5 days in Germany, Italy and Switzerland could not have enured to the advantage of the business of the assessee. There was also no evidence of his having spent any time with any printing establishments or printing machinery manufacturers in those countries. It was, however, found that during Sri Krisha Roa's visit to the United Kingdom he spent some time in visiting factories. The Appellate Assistant Commissioner a1so held that attendingan international conference as a delegate had a certain goodwill and prestige value which would be in the interest of business when the conference pertained to the business which he himself, was carrying on. He was also getting acquainted with new techniques and new equipment relating to his own business which had its own value. He ultimately held that the expenditure incurred purely on his personal visit should alone be disallowed. Though the trips to Germany, Italy and Switzerland had been purely for purposes which involved no extra expenditure on air fare, the entire personal expenditure by air, therefore, was allowed. Out of the balance, a portion of the expenses in the United Kingdom and the expenses in Germany, Italy and Switzerland were disallowed as personal expenditure. Thus on the whole Rs, 2,000 were disallowed and deduction to the extent of Rs. 5,160 was permitted.

6. Against the said decision of the Appellate Assistant Commissioner dated July 31, 1963, the department preferred an appeal to the Tribunal. Before the Tribunal, it must be noted that the findings which the Appellate Assistant Commissioner had given on facts were not challenged. Two contentions were raised before the Tribunal. It was firstly argued that the expenditure must be said to be in the nature of capital expenditure in view of the findings of the Appellate Assistant Commissioner that the prestige and goodwill of the assessee's business had acquired definite advantages on account of these visits; and, secondly, the expenditure was not wholly and exclusively laid out for the purposes of the assessee's business. It was, however, conceded before the Tribunal that if the association which sent Sri Krishna Rao as their representative had incurred the expenditure, the association could have claimed that deduction as a proper one. It was, however, contended that Sri Krishna Rao cannot claim such deduction.

7. The Appellate Tribunal rejected both these contentions. The Tribunal found that the expenditure incurred on foreign tour cannot be said to be capital in its character. It was further held that the Income-tax Officer was wrong in holding that the assessee merely went to satisfy his curiosity. It finally found that the expenditure must be said to have been laid out wholly and exclusively for the purposes of the business. The apportionment made by the Appellate Assistant Commissioner therefore was upheld and the appeal was rejected.

On a request made by the department, the abovesaid question was referred to this court.

8. It was firstly argued by Mr. T. Anantha Babu, the learned counsel for the department, that in view of the finding given by the Appellate Assistant Commissioner that by attending the international conference as a delegate Sri Krishna Rao acquired certain goodwill and prestige value which would be in the interest of his business when the conference related to his ownbusiness, we should hold that the expenditure incurred by the assessee was a capital expenditure and ought not to have been allowed under Section 10(2)(xv) of the Income-tax Act.

9. Now, in order to understand the implications of this contention, it is necessary to read Section 10(1) and (2)(xv).

'10. (1) The tax shall be payable by an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him.

(2) Such profits or gains shall be computed after making the following allowances, namely:--......

(xv) any expenditure (not being an allowance of the nature described in any of the Clauses (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.'

10. It cannot now be in doubt that whoever claims a deduction has to satisfactorily prove that his case falls within the four corners of the clause relating to such deduction. Such clauses are usually construed strictly and no attempt is made to bring a case within its fold unless it squarely comes within it.

11. A careful and analytical reading of this clause would disclose that in order to successfully claim a deduction under Section 10(2)(xv) the expenditure, firstly, should not be an allowance of the nature described in Clauses (i) to (xiv) of Section 10(2); secondly, it should not be in the nature of capital expenditure; and, thirdly, it should not be in the nature of personal expenses of the assessee. Apart from these three negative injunctions, the fourth positive requirement of the section is that the expenditure should have been laid out or expended wholly and exclusively for the purpose of the assessee's business, profession or vocation.

12. Section 10(2)(xv), therefore, does not permit deduction of an expenditure, if it is found that the expenditure is in the nature of a capital expenditure. It is no doubt true that the Appellate Assistant Commissioner has observed that because of Sri Krishna Rao's attending the conference as a delegate certain goodwill and prestige value which would be in the interest of his business must necessarily emerge because the conference pertains to the like business. We do not, however, think that because of any such observation made by the Appellate Assistant Commissioner, the expenditure incurred on the foreign tour can be characterised as a capital expenditure. By attending the conference, he might have raised himself in the eyes of the members of his business community. He might have gathered some prestige also but that is not certainly a capital expenditure which yielded him some gains or profits. At best, it may lead him to gathermore business and thereby make more money in future, but that, by itself, cannot be said to be capital expenditure. Any expenditure incurred by a businessman in keeping himself abreast of the latest technique of his business is not a capital expenditure. Although incidentally by his attending the conference, his individual prestige, because of the representative character, may go high in the eyes of the concerned business community, we fail to see how it can be said that the expenditure incurred essentially and mainly for the purpose of business can, because of this incidental feature, be said to be an expenditure of a capital nature.

13. We are supported in our conclusion by the following decision:

In P. Vadamalayan v. Commissioner of Income-tax, [1960] 40 I.T.R. 501 Rajagopalan J, who spoke for the Bench, was concerned with a case where a reputed surgeon of Madurai had incurred certain expenditure on his visit abroad. The finding of fact was that the assessee had undertaken the study tour to bring the expert knowledge, which he already had in line with modern developments in his branch of surgery. Based on that finding of fact, it was held by the High Court that any expenditure incurred to keep oneself abreast of latest techniques of the profession is not an expenditure of a capital nature. The learned judge observed that 'distinction between expenditure incurred in launching on a profession or adding to it, and expenditure incurred on gaining income from an existing professional practice should be borne in mind', and said that 'the latter is not an expenditure, capital in nature and the doctrine of enduring benefit cannot apply to such an expenditure. '

14. To the same effect is the decision in Tata Sons Ltd, v. Commissioner of Income-tax, [1950J 18 I.T.R. 460 and Seshasayee Brothers Ltd. v. Commissioner of Income-tax, [1961] 42 I.T.R. 568, 573. In the latter case, the learned judge observed :

'...the Tribunal was, in our opinion, not correct when it observed that the experience, if any, gained by Mr. Raman by his tour abroad was a benefit of an enduring nature, and that the expenditure incurred should be one of a capital nature.'

15. The same result is brought out in an unreported decision of the Bombay High Court in R. C. No. 14 of 1951, dated August 31, 1951, where Chagla C.J., who wrote the opinion, said :

'The result of the expenditure is not the bringing into existence of a new asset, but the expenditure is calculated to increase the profits of the company. And everything that is calculated to increase the profits of a business is not necessarily capital expenditure.'

16. We are, therefore, clearly of the view that merely because of the above-said observation made by the Appellate Assistant Commissioner, theexpenditure incurred by Sri Krishna Rao on his foreign tour cannot be said to be an expenditure of a capital character and does not therefore come within the negative aspect of Clause (xv) of Section 10(2) of the Income-tax Act.

17. It was then contended by Sri Anaritha Babu that the expenditure incurred cannot be said to have been incurred for the assessee's business. Merely because he attended the conference, it cannot be said that the expenditure incurred is on business.

18. Now the term 'business' is capable of both narrow as well as wide interpretation. The courts, however, have always been inclined to construe this word not in its narrow sense. It is true that Chief Justice Chagla, as he then was, in R. C. No. 14/51, an unreported decision of 31st August, 1951, and in Tata Sons Ltd. v. Commissioner of Income-tax, applied the test of profit motive in order to find out whether the expenditure is incurred on business. That may, however, be one of the several tests to find out whether the expenditure has been incurred on business. But that cannot be acclaimed as the only and exclusive test to determine that question.

19. Subba Rao J., as he then was, on the other hand, in Commissioner of Income-tax v. Malayalam Plantations Ltd., : [1964]53ITR140(SC) summarised the decisions in the following manner:

'The expression 'for the purpose of the business' is wider in scope than the expression 'for the purpose of earning profits'. Its range is wide : it may take in not only the day-to-day running of a business but also the rationalisation of its administration and modernisation of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for the carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business. '

20. It will thus be seen that in spite of giving a fairly exhaustive list of the various aspects of the business on which expenditure if incurred can be said to have been incurred on business, the learned judge pointed out that there are many other acts which are incidental to the carrying on of business on which, such an expenditure can be incurred. It would not be proper or even advisable to give a detailed list of the various aspects of a business on which, for the purpose of Section 10(2)(xv), expenditure can or cannot be incurred. Each case has to be considered in the light of its own facts and circumstances. Speaking broadly, however, it can be said that if the expenditure is incurred for the purpose of the business of the assessee then Clause (xv) will be attracted.

21. The short question therefore is whether the assessee, who incurred expenditure in attending an international conference of printers, can be said to have incurred expenses for the purpose of business; while arguing that he cannot be said to have incurred expenses for the purpose of business it was contended that by merely attending a conference the assessee cannot be said to have gained anything which he could profitably make use of for advancing his business. We do not find that the argument can be accepted. It assumes that by attending a conference no person can learn anything from the discussions which are usually held in such conferences. It would be incorrect to assume that a person is not educatable through the media of conference. No mirror is dull or rusty that it cannot reflect nor there is any stone out of which a statue cannot be carved. Likewise, there is hardly any person who, by attending the conference in his own subject, cannot be said to have been benefited.

22. In conferences of this character, particularly in the international conferences, usually, the delegates not only see the things for themselves but compare notes and hear the research papers read out in such conferences. In such circumstances, how could it be argued that Sri Krishna Rao, who is the karta of a joint family and who has been managing the printing business since quite a time, may not have got anything as a result of attending the international conference or seeing the exhibitions attendant to that conference which experience he can utilise in furtherance of his business.

23. On the one hand, it was argued that since Krishna Rao by attending the conference has accumulated wisdom, stature and status which is a capital gain for him, it should be excluded from the operation of Clause (xv), But, on the other hand, it is said that by merely attending conferences it cannot be said that he got anything which he could usefully employ for the purpose of augmenting his own business,

24. By attending the conference the assessee himself has said that it has helped him to get acquainted with various developments in printing equipment and techniques. At the exhibition, he had ordered for some machinery and also learned the different types of printing jobs that could be done with Heidelberg machinery. He also witnessed many linotype factories which enriched his experience, as he himself was using similar types of machinery in his business. He had clearly stated that his trip was actuated by business considerations. These assertions made by the assessee, although rejected by the Income-tax Officer, were substantially accepted not only by the Appellate Assistant Commissioner but also by the Tribunal. The Tribunl has categorically found that the expenditure must be said to have been laid out wholly and exclusively for the purpose of business. It is pertinent in this connection to note that Sri Ranganathan, Judicial Member, in his order dated September 26, 1964, observed:

'The transactions in this case can, perhaps, be viewed through two hypothetical stages. The Andhra Pradesh Printers' Association is called upon to send a delegate abroad to represent it on the international conference. But not having funds therefor or for other reasons, the association does not foot the bill itself ; instead it announced to its members that if any of them thought it worthwhile for the purpose of his business to spend the money himself it would have no objection to sponsor him as a delegate.'

25. This observation, coupled with the finding of both the Appellate Assistant Commissioner as well as the Tribunal, can leave no one in doubt that the assessee preferred to go to Amsterdam essentially with a view to improve his business opportunities but he thought that if he goes there as a delegate of the Andhra Pradesh Printers' Association it will increase the opportunities of achieving his main object. In view of this finding we are not prepared to accept the contention that the amount which the assessee spent on his foreign tour was not actually spent on business in which he is interested. We do not, therefore, experience any difficulty in rejecting this contention.

26. It was then argued that the assesssee did not go to Amsterdam to attend the conference in his individual capacity but went there as a representative of the printers' association and therefore any expenditure incurred by him would be deemed to have been incurred for the purpose of the association and not for his business. In support of this contention, reliance was placed on the following observations of Subba Rao J. in Commissioner of Income-tax v. Malayalam Plantations Ltd.:

'The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business. It cannot include sums spent by the assessee as agent of a third party, whether the origin of the agency is voluntary or statutory ; in that event, he pays the amount on behalf of another and a purpose unconnected with the business.'

27. This observation, however, has to be understood in the context in which it is made. From the facts of that case, it would be clear that the company, as a statutory agent of the deceased owners of the shares, paid the sums payable by the legal representatives of the deceased shareholders. The payments were found to have nothing to do with the conduct of the business or it was found as a fact that the expenditure was not an expenditure incurred for the conduct of the business. The amounts were paid by the assessee as a statutory agent to discharge a statutory duty unconnected with the business though the occasion for the imposition arose because of theterritorial nexus afforded by the accident of its doing business in India. That case, therefore, is clearly far removed from the facts of the present case. In this case the assessee was mainly actuated by a motive to attend the conference more in his business interest and incidentally in the interests of the association. It is irrelevant in this connection to enquire as to whether he did benefit the other members of the association by submitting any report to the association or by communicating the experience which he had gained by attending the conference. What is necessary is that, if he, as an assessee, has incurred expenditure in order to keep himself, abreast of the modern developments made in printing machinery and to gain experience in that field with a view to improve his own business, he would he deemed to have incurred the expenditure for the purpose of his own business although incidentally because of the representative character which he had obtained from the association He benefits the other members of the association also. We are, therefore, satisfied that the expenditure which the assessee had incurred was incurred substantially for his own business.

28. It was finally argued that the expenditure so incurred by the assessee cannot be said to have been wholly and exclusively incurred for the purpose of business in which he was engaged.

29. Now the test to find out whether a particular expenditure is wholly or partly justified or exclusively incurred for the purpose of business is not to see whether it was necessary nor it would be proper to see whether any other person similarly situated would have thought it reasonable to incur expenditure to that extent. The true test in our view is to find out whether the businessman, when he expended the money, was acting reasonably in the interests of his own business uninfluenced by any irrelevant or extraneous considerations. Therefore, in deciding whether a given expenditure was incurred wholly and exclusively for business, what has to be seen is with what object the assessee had incurred that expenditure. If essentially or substantially he was actuated by a motive in attending the conference to improve the condition of his business, but incidentally intended to serve the association, then it can safely be held that the assessee had incurred the expenditure wholly and exclusively for his business. After going abroad if he had incurred some expenditure on his person or for the purpose of sight-seeing, that expenditure, assuming that it cannot be computed towards the expenditure incurred on business even then the expenditure which the assessee has inqurred in going from India to Amsterdam and returning from that place to India and which forms the major portion of the deductions claimed cannot be said not to have been incurred wholly and exclusively for the purpose of the business, The tribunals have already disallowed the claim of the assessee in regard to a portion of the deduction. After having rejected that claim and having apportionedthe amount which legitimately falls within the purview of Clause (xv) of Section 10(2) we are unable to see how, even now, it can be contended that the expenditure incurred was not wholly and exclusively for the purpose of the business. It should be remembered in this connection that the words 'wholly and exclusively' both referred to the expenses incurred by the assessee for the purpose of his business. While determining as to whether the deduction claimed has been wholly and exclusively spent on such business, it is permissible to find out whether the amount has really gone for the purpose of business or not. That is what has been done by the Tribunals in this case. We do not find any flaw in their approach. The apportionment made, in fairness to the learned advocate for the department, it must be said, was not seriously disputed before us. We are, therefore, of the opinion that the amount allowed to be deducted by the Tribunals was wholly and exclusively spent for the purpose of his business. That is the view which the Tribunal has taken and we do not find any valid reason to take a different view. We are fortified in our conclusions by the following decisions : Raman and Raman Ltd. v. Commissioner of Income-tax, [1962] 46 I.T.R. 400, 407, 408 and Newtone Studios Ltd. v. Commissioner o] Income-tax, [1955] 23 I.T.R. 378, 385..

30. We do not consider that the decision in Commissioner of Income-tax v. Dr. B. V. Ramam, [1966] 59 I.T.R. 20.lays down anything contrary to what we have said. The law is the same. While applying that law to the facts of the case, their Lordships on the material before them reached a conclusion that the amount spent in that case was not spent for the purpose of business. But because of that finding, it cannot be said that the amount which the assessee has spent in this case should also be held to have not been spent for the purpose of his business.

31. Moreover, whether the amount was actually spent for the business or not is a question of fact and it is for the Tribunal to decide that. That is what is held in Atherton v. British Insulated and Helsby Cables Lid., [1925] 10 T.C. 155 (H.L.).a decision which has been followed in Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax. : [1955]27ITR34(SC) .The finding of fact by the Tribunal therefore is binding upon us. In fact the correctness of that finding has not been disputed before us. The necessary result of the finding is that the amount which the assessee spent and which has been permitted to be deducted by the Tribunal has been properly held to have been expended wholly and exclusively on his business.

32. Since no other contention was raised, our answer is in the affirmative. The Commissioner will pay the costs. Advocate's fee Rs. 250.


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