Full Judgment
2. The appellant is a public limited company engaged in the business of leasing, hire-purchase, merchant banking investments /dealing in shares, inter-corporate loans and other financial and management services. During the relevant year the appellant declared total income of Rs. 8,79,340. The appellant incurred an expenditure of Rs. 24,27,861 on the foreign travelling of its President Mrs. Veena Modi. When asked to furnish details and justification to hold that the expenses are incurred wholly and exclusively for the purpose of business, the assessee stated that Mrs. Veena Modi visited following places: 4. Delhi-London-Paris-Zurich-London-New York-London-Delhi (9th June to open) 5. Delhi-Hongkong-Sydney-Hongkong-Bombay-Delhi (13th September to 19th September) 7. Delhi-London-New York-London-Delhi (12th November to 19th November) 8. Delhi-London-Brussels-London-Delhi (12th December to 22nd December) The assessee also stated that Mrs. Veena Modi had been visiting these countries to have meetings in connection with exploring the certain business activities of the assessee-company. The assessing officer con- eluded that the assessee-company has shown income from profit and gains of business of Rs. 8,79,338 during the assessment year 1998-99. The assessee has shown income from the following source during the relevant financial year: However, the assessee has also stated that no business resulted from such visits from such foreign trips even in the subsequent years. Mrs.
Veena Modi had gone out of the country nine times during the relevant previous year. The assessee-company has filed letters from four companies stating that Mrs. Veena Modi had visited them to "discuss business" of TFCCL. The assessee-company vide its letter dated 1-2-2001 has stated a list of business activities to discuss which she had gone to take nine trips abroad. On verification of the details, the assessing officer held that for allowability of any expenses under Section 37(1), it is essential that such expenditure should be wholly and exclusively for the purpose of business. Though it is claimed that the expenditure were incurred for "exploring new business opportunity", nothing of that sort is available on record. The nature of any expenditure must be adjudged in the light of accepted commercial practice and trading principals. The expenditure must be incidental to business and must also be justified by commercial expediency, it must be directly and intimately connected with the business of the assessee-company. He accordingly disallowed the sum of Rs. 24,27,861.
Before learned Commissioner (Appeals) it was contended that Mrs. Veena Modi visited foreign countries to have meetings in connection with the following: (a) To explore new opportunities in the business of merchant bankingincluding underwriting, advising and rendering assistance in capitalstructuring, arranging loan, working capital limits, render investmentadvisory services.
(b) To understand the financial arrangements in the international moneymarket.
(c) To discuss financing and leasing of plant and machinery/equipmentetc.
(d) To discuss strategies for making investment in Overseas Corporatebodies.
(e) To hold discussions with the parties for providing financial andmanagement consultancy.
(f) To discuss business of participating in and providing venture capital funds or any other funds for seed capital, risk capital foundation.
(g) to discuss modalities of acting as franchisee for rendering stock broking services in India.
All these activities are incidental to the assessee's business of merchant banking, financing etc. The foreign trips were made with the purpose of exploring and finding new/better avenues for carrying on of business activities of the appellant for the furtherance of the business interest of the appellant to meet potential customers, to from strategic alliances and to learn about new instruments/concepts in the overseas capital market. Learned Commissioner (Appeals), after considering the submissions and the evidence placed before him concluded thus: I have gone through the contents of the assessment order carefully and considered the submissions of the Learned AR of the appellant.
In the case of CIT v. Panipat Woollen & General Mills Co. Ltd. (supra) Supreme Court has decided two propositions for allowability of deduction under Section 37(1) of the Act ie., the expenditure should be laid out or expended wholly and exclusively for the purpose of business, in the instant case, the assessee has not given any evidence as to what was discussed with the foreign parties for the furtherance of the business activities of the assessee. From the letters filed, nothing can be made out that Mrs. Veena Modi actually discussed the issues mentioned in Para 3.2(ii). The assessee has also noted filed the copy of business agenda which was discussed with the foreign parties. No letter/correspondence has been filed which took place prior to commencement of foreign visit. The copies of confirmations neither indicate the date on which discussion took place nor the subject-matter. There is no evidence for visits to New York, Tokyo, Paris, Zurich, Sydney, Brussels and Hanover. The general confirmations from parties like chartered accountant firm UK, concern dealing in industrial supplies of Dubai cannot be held to be conclusive evidence for promoting the business activities of the appellant. The absence of such material /evidence implies that such visits were not conducted wholly and exclusively for the purpose of business. If this condition is not satisfied, there is no need for examining the second condition of reasonability of the expenditure. The assessing officer has also observed that no benefit has resulted to the assessee-company. It is impossible to believe that out of 9 visits, not a single visit will materialize the purpose for which such journeys were undertaking. Confirmation from foreign parties without having any details with reference to the business conducted during such visits cannot be said that such foreign trips were held for the purpose of business activities. As the expenditure incurred on foreign trips is not directly intimately related to the business of the company, such expenditure cannot be said to have been incurred wholly and exclusively for the purpose of business. Further, the submission of the appellant that the foreign visits were conducted for the furtherance of business interest of the appellant to meet potential customers, to form strategic alliances and to learn about new instruments/concepts in the overseas capital market, are not reflected at all from the copies of confirmations filed by the assessee. The assessee has also not furnished any other evidence to prove that the foreign visits were conducted for the purpose of business. On careful consideration of the facts and circumstances of the case I am of the opinion that foreign visits by Mrs. Veena Modi were not for the purposes of the business and amount was not expended wholly and exclusively for the purposes of business and therefore, it is not allowable as deduction under Section 37(1) of the Act. The addition made by the assessing officer is confirmed.
2.1 Learned Counsel for assessee Shri Ajay Vohra submitted that AMrs.
Veena Modi is an employee of appellant company discharging the function as Chairman. The remuneration payable to her has been held to be allowable. The local travelling expenses incurred in connection with her travel are also allowed. This proves that Mrs. Modi is required to travel extensively in connection with existing or prospective business of the appellant company. She is also one of the renowned entrepreneur who was awarded Udyog Ratan Award, Mahila Shiromani Award, Woman of year 2000 Award by Government organizations. The visit of Mrs.Veena Modi for the purpose of business is established by confirmation letter from following persons: 5. Rosedeep Financial Services Ltd., Triumph House, 1096, Uxbridge Road, Hayes, Middlesex, UK Since it is specifically mentioned that she discussed business related issue, no further evidence need to be filed to justify that the expenses are incurred wholly and exclusively for the purpose of business. The expenses should be viewed from the angle of a businessman and not from the revenue's point of view. He accordingly pleaded that the expenses should be allowed as claimed.
2.2 Learned DR, on the other hand, strongly supported the appellate order. He submitted that the remuneration and local travel expenses are allowed on the strength that the same are incurred wholly and exclusively for the purpose of business. However, this fact do not prove that the expenses on foreign travel were also incurred for the purpose of business. Similarly receiving various awards do not justify that the expenses are allowable as such. Though the assessee has pleaded that the visit was to explore new opportunities and to discuss strategies etc., nothing of that sort is proved. Merely by making bald statement that the visit was to explore new opportunities or discuss business strategies, the fact is not proved that the expenses are incurred wholly and exclusively for the purpose of business. Some concrete evidence should be furnished which justifies that the expenses were for the purpose of business and incurred in the course of such business. The present main business of assessee is leasing of assets within India and earning interest on the various fixed deposits. Though nominal sums is spent by way of consultation etc., there is nothing on record to hold that any such business, as cont ended before learned Commissioner (Appeals),was ever thought or actually conducted. The expenses can be proved on the actual facts and not merely flowery language used to describe' the purpose of visit. Since the assessee failed to prove that the expenses were "wholly and exclusively for the purpose of business", the same cannot be allowed under Section 37(1) of the Act.
2.3 In reply, learned Counsel for assessee submitted that the assessee needs to incur the expenses and even if it do not give result by converting the meeting in the business, the expenses cannot be disallowed solely on such ground.
3. We have heard rival submission. Hon'ble Supreme Court in the case of CIT v. Panipat Woollen & General Mills Co. Ltd (1976) 103ITR 66 held that in order to fall within Section 10(2)(xv) of Indian Income Tax Act, 1922 (analogous to the provisions of Section 37(1) of the Income Tax Act, 1961) the deduction claimed must be expenditure which was laid out or expended wholly and exclusively for the purpose of business.
This will naturally depend upon the facts of each case. Hon'ble Delhi High Court in the case of Siddho Mal & Sons v. ITO (1980) 122 ITR 839 held that the word "wholly" refers to the motive, object and purpose of the expenditure and gives jurisdiction to the taxing authorities to examine these matters. Ordinarily, it is for assessee to decide whether any expenditure should be incurred in the course of its business. Such expenditure may be incurred voluntarily and without any necessity and if it has incurred for promoting the business to earn profits, the same can be claimed as deductible under Section 37(1) of the Act. Hon'ble Supreme Court in the case of CIT v. Delhi Safe Deposit Co. Ltd. (1982) 133 ITR 756 held that the true test of an expenditure laid out wholly and exclusively for the purpose of business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going. The manner to apply the test is to ask the question i.e.
"Has expense been incurred with the sole object of furthering the trade or business interest of the assessee unmixed with any consideration?" If the expense found to bear an element other than trade or business, the expense is not allowable one. To arrive at the conclusion that the expenditure was dictated solely by business consideration, one has to consider the nature of business, the way it is conducted and any likelihood of the business being adversely affected or its interest being promoted by the refusal or the incurring of the expenditure. In light of the above discussion in the present case, we find that except filing the details of expenses and a bald statement that the expenses were incurred to explore new opportunities or to discuss business strategies, no relevant material is placed before us which suggest or justifies such aversion made. The expenses are not proved by making bald statement but it is for the assessee to prove that the expenses were incurred as such for the purpose of business. The letters of various persons as filed before assessing officer and as now made available to us do not mention anything about what type of business was discussed or for what purpose the meeting was organized. It is for the assessee to justify that the expenses were incurred wholly and exclusively for the purpose of business. Thus, merely by making oral submissions that the expenses were incurred for the purpose of business, the same cannot be held to be so in absence of something more to justify such statement made. We accordingly do not find any further material to hold that there is any error in the order of Commissioner (Appeals).