COMMISSIONER OF INCOME TAX Vs. SUNDARAM CLAYTON LIMITED

JUDGEMENT

(1.) THE question referred to us at the instance of the Revenue arising out of the assessment of the respondent's income for the assessment year 1976-77, is as to whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the travelling expenses of the wives of the chairman and the managing director of the foreign company should be allowed as a deduction in computing the income of the assessee.

(2.) THE chairman and the managing director referred to in the order of reference are the chairman and the managing director of Clayton Dewandre Holding Limited, collaborators of the assessee-company, Sundaram Clayton Limited. THEy had been invited to India by the assessee-company in connection with its business for the purpose of discussing with the assessee-company their manufacturing and marketing programmes, future plans and other activities and also to visit the assessee's factory to get acquainted with the day-to-day working. THEy had been invited to come to India with their wives as it was useful besides being graceful to invite them in that way as, that would further strengthen the cordial relations between the assessee-company and the English company and maintain a high level of goodwill between the two companies.

(3.) AS to whether the expenditure incurred on the spouse of a director can be regarded as a legitimate business expenditure, will depend upon the circumstances in which such expenditure was incurred. An assessee cannot claim the expenses if any incurred on the travel of a spouse of its director on his/her business travel abroad, unless the spouse contributes to the business of the assessee, as the income of an assessee is not meant to be frittered away for promoting the pleasure of those who manage it, and such expenditure cannot be regarded as commercially expedient. However, in the matters of business, too narrow a view cannot be adopted. It is the realities of the commercial world that should determine the kind of expenditure reasonably required to be incurred, and it is necessary to constantly update the interpretation of the Act with a view to accommodate all such expenditure. The language employed in the relevant section is flexible enough to permit such wider interpretation whenever circumstances warrant.