Financial transactions concerning the spouse are generally circumspect under the IT dispensation. Section 64(1)(iv) provides for clubbing of spouses income arising from the assets transferred directly or indirectly by one spouse to the other. Clause (ii) of Section 64(1), provides for including in spouses total income, the income arising from salary, commission or fees etc, or arising from a concern in which the individual has a substantial interest, unless such incomes are derived because of technical or professional qualifications.
Likewise, while allowing exp-enditure, enquiries are made regarding thse expenses which relate to the wife/husband. The underlying principle being, to co-mpute tax on incomes after ded-ucting the expenses incurred on earning the same. While arriving at the profits figures, business expenditure of various kinds, whether specifically provided for or not, could be deductible under Section 28(1).
Section 37 permits deduction of expenditure while computing income liable to tax, which is not in the nature of capital expenditure. The two important conditions which must be fulfilled so that Section 37(1) can be invoked are, that it should not be in the nature of personal expenditure of the assessee and that it must be expanded or laid out wholly and exclusively for the purpose of business/profession. Personal expenses which do not qualify for deduction are those which relate to the person of the taxpayer or his family members to satisfy the personal needs and does not concern the business for which deduction is claimed. However, the Supreme Court has ruled that every expense to discharge a personal obligation does not become a personal expenditure (State of Madras vs G J Coelho(1964) 53 ITR 186).
The phrase wholly and exclusively for the purpose of such business has been substituted for the earlier phrase incurred solely for the purpose of earning profit in Section 37(1). Thus the present Section 37(1) has a wider coverage. The expression wholly and exclusively in this section does not mean that the expenditure must have been incurred necessarily. The court has held that ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of business. In Ford and Macdonald Ltd it has been said that an expenditure to which one cannot apply an empirical or subjective standard must be judged from the point of view of a businessman and how he treats a particular item of expenditure, i.e as a revenue expenditure or as a capital expenditure. In JK Commercial Corporation Ltd vs CIT (1969) 72 ITR 296, the Allahabad HC ruled that the test is not what a prudent man would do in similar circumstances. Though an assessee may be an imprudent businessman, yet if he incurs an expenditure voluntarily for the purpose of his own business, it would be allowed as a proper deduction.
Controversies regarding claims for deduction on the travelling expenses of wives of assessees/directors of companies have been many. While taxpayers claim that such expenditure should not be considered personal expenditure as they are incurred in the interest of business. The Revenue thinks otherwise and have disallowed such claims. In appellate/reference forums, the decisions have been both ways, in some cases, tax payers claims have been validated while and in others the Revenues point of view were accepted. In most cases decisions have been influenced by the facts.
Thus in Modi Industries Ltd vs CIT (1977) 110 ITR 855 (All), it was decided that travelling expenses for the chairmans wife who accompanied him on a business tour, cannot be allowed because there was no proof that she had rendered any service in connection with the business.
In CIT vs T S Hajee Moosa & Co (1985) 153 ITR 422 (Mad) and Bombay Mineral Supply Co (P) Ltd vs CIT (1985) 153 ITR 437 (Guj), the court decided that the state of an individuals health has no relevance to the business activities carried on by him. A good businessman could easily keep bad health and vice versa. If a businessman, not in good health, desires to secure the help and assistance of an attendant, then, it is purely to satisfy his personal needs. Such a need is not different from his need for food or clothes. Thus the expenses incurred for availing these services would be only to satisfy or meet the personal needs and that, it is immaterial whether the person avails the services of his wife or that of a stranger.
But in Ved Prakash Agrawal vs IAC (1986) 26 ITJ 550, the Chandigarh bench of the ITAT decided that the travel expenses for the assessees wife who accompanied him on a foreign trip and who was also a qualified nurse was admissible as deduction because the assessee was suffering from heart ailments.
In Orient Paper & Industries Ltd vs ITO (1988) 40 Taxman 37 (Cal), the facts indicated that the chairman and the president of the company alongwith their wives went abroad to attend the inauguration function of the expansion programme of their associate company. No material was available on record to show that the visits of these two ladies were sanctioned by the board of directors, that the forex for the ladies was released by the RBI for the purposes of assessees business, or that they were also invited to attend the ceremony. Thus the expenditure incurred on their travel could not be allowed as a business expenditure.
However, if the wife accompanies the husband on a foreign tour in her own right as a director or as an expert, expenditure on her travelling cannot be disallowed, (CIT vs Indian Products Ltd (1994) 73 Taxman 245 (Cal).
Thus for the moment the legal position remains that the claim regarding allowing expenses will depend on the facts of the case. Unless it is established that the business demands the spouses travel, the IT department would be well within its right to negate all such claims.
