This point came up before the Kerala High Court in CIT vs Apollo Tyres (237 ITR 706). The facts in this case were that the assessee was a public limited company, engaged in the business of manufacture and sale of tyres and tubes.The assessee claimed deduction in the assessment year 1988-89 of a sum of Rs 1,38,561, beingthe foreign travel expenses of G, wife of the chairman-cum- managing director of the assessee-company, in the computation of its total income. The assessing officer disallowed the same but the tribunal allowed it.

On a reference, the high court agreed with the view of the tribunal that the facts did not show that the managing director's spouse travelled with her husband for private or personal purposes. The assessing officer had merely held that the expenditure was not for the purposes of the business without giving any reasons for the same.

The high court referred to the case relied on by the tax department in CIT v TS Hajee Moosa and Co (153 ITR 422). In that case, the assessee claimed deduction of the expenses incurred on the wife of the senior partner of the assessee-firm accompanying him on a foreign tour. Admittedly, the senior partner was a diabetic patient and the wife accompanied him for the purpose of attending to him.

While considering the said claim, the Madras high court observed that inorder to qualify for the allowance under section 37(1) of the act, the whole of the expenditure should have been solely and exclusively incurred for business purposes and that if there was a dual purpose, then it was obvious that the expenditure would not qualify for allowance, for, it would cease to be wholly and exclusively laid out for business purposes.

It further observed that, in that case, the partner of the assessee was a diabetic and was required to be looked after and that the expenditure incurred was thus laid out in part for the advantage, benefit and well-being of the partner of the assessee and it was was distinct and different from the amount expended for purposes of business or trade.

It was further observed that the attention given by the wife of the partner of the assessee, while on tour, ensured to his benefit and advantage, not only when he was engaged in his business activities, but even otherwise as a human being. Therefore, at least in part, the expenditure incurred had been laidout for the advantage and benefit of the partner.

Accordingly, it was held that in the absence of materials with reference to the securing of advantages, it could not be presumed that such advantages resulted to the assessee in its business activities as a result of the foreign tour undertaken by the wife of the partner of the assessee which alone would justify the allowance of the expenditure as one appropriately falling under section 37(1) of the act.

For taking the said view, the Madras high court relied on the decision of the Gujarat high court in Bombay Mineral Supply Co Pvt Ltd vs CIT (153 ITR 437). That was also a case where the director of a company keeping indifferent health while undertaking a foreign tour, was accompanied by his wife on the tour. The question arose as to whether the expenditure incurred on the foreign tour of the wife of the director was for purposes of business.

The Gujarat high court observed that : "...tax collectors do not want to discourage business executives andmanaging directors from undertaking foreign tours for business purposes nor to deprive them of the company of their wives on such tours, but, for that we do not think that in law, it would be permissible for the income-tax officer to allow the expenses incurred by such company, however necessary and enjoyable it may be from the point of view of personal needs of those executives."

Relying on the decision of the Supreme Court in State of Madras vs GJ Coelho (53 ITR 186), it was held that these were personal expenses and the assessee-company was not entitled to claim the same as business expenses.However, the appellate tribunal relied on the decision of the special bench of the tribunal in the case of Glaxo Laboratories (India) Ltd vs Second ITO (18 ITD 226), which distinguished the two decisions referred to above. It was the case of the assessee-company that the wife of the chairman-cum- managing director of the company accompanied him on his business tour and that the accompaniment was for the purpose ofenabling him to discharge his social-cum-business obligations in an effective manner.

The special bench observed that in the modern age, and more so in the western countries, the senior executives were, as a matter of social custom, accompanied by their wives when their visit, though for business purposes, had necessarily some social aspects also.

Neither the assessing authority nor the appellate authority had got a case that the foreign tour made by the chairman-cum-managing director was not for any business purposes or that the accompaniment of the wife was not for the purpose of fulfiling the social aspects aforementioned. The authorities below also did not have a case that the accompaniment of the wife of the chairman-cum-managing director did not result in any advantage to the assessee. In fact, the board of directors of the company, by resolution, had permitted the same.

The court had occasion to consider an almost similar situation in ITR No39 of 1995 (CIT vs Aspinwall and Co Ltd (235 ITR 106)).It had noted that the tribunal in that case took the view that the wife of the chief executive accompanied him on a business tour and that there was no material to show that her travel was for any purpose other than business and that the tribunal had taken note of the modern trend in which the senior executives were accompanied by their wives on visits for business purposes.Hence, in the case of Apollo Tyres, the court concluded that the entire expenditure was to be allowed as revenue business expenditure to the company.Needless to add, the aforesaid decision of the Kerala high court allowed expenditure as a deduction on the ground that it was authorised by the board of directors having regard to social-cum-business obligations which the spouse had to fulfil with her husband. Such fact is important to be established and, in the absence thereof, not only would the expenditure be disallowed to the company incurring it, but the amount may also be treated as a perquisite taxable in the hands of the executive.

The author is a Supreme Court advocate