Expenditure on boarding and lodging of partners during business tours is not wholly and exclusively for the purpose of the business and is therefore not allowable as a deduction under Section 37(1) of the Income Tax Act, 1961.

( 1 ) BY this reference under Section 256 of the Income Tax Act, 1961, made at the instance of the assessee, opinion of the High Court is sought for on the following questions of law (relevant to the assessment year 1974-75) :-

1. Whether, on the facts and in the circumstances of the case the Tribunal was correct in sustaining the disallowance of Rs. 9,894. 00 being expenditure on the boarding and lodging of the partners of the assessee firm incurred in the course of tours undertaken by them for the business of the assessee firm, as not an expenditure wholly and exclusively incurred for the purposes of the assessee s business in terms of Section 37 (1) of the Income Tax Act, 1961? 2. Whether, the Tribunal was correct in sustaining the consequential rejection of the assessee s claim for weighted deduction u/s. 35b of the Income Tax Act, 1961 as regards the expenditure of Rs. 9,894. 00 referred to above?"

( 2 ) THE assessee-firm carries on business as exporters of handicraft items and readymade garments. The assessee made a claim for expenditure on foreign travelling amounting to Rs. 73,687. 00 which included an amount of Rs. 29,681. 00 on account of hotel expenses and conveyance. The ITO disallowed Rs. 9,894. 00 i. e. 1 / 3rd of Rs. 29,681. 00 and allowed the rest of the claimed expenditure under Section 37 (1) of the Act. Appeals preferred by the assessee before the CIT and ITAT have both been rejected. The contention of the assessee was that the entire travelling abroad having been specifically for the purposes of business, no part of the expenditure on such travelling should be disallowed. It would be useful to extract and reproduce the following finding from the order of the Tribunal :-

"after hearing the parties we find that the disallowance in question is unexceptionable. [shri Gupta had explained that two partners of the assessee firm had traveled abroad this year. These were Krishan Kumar and Jagdish M. Khera. Krishan Kumar toured U. K. , West Europe and U. S. A. and was abroad for about 30 days. Jagdish Khera first went abroad on a tour of U. K. , Europe and Australia and was away for a period of 15 days. He visited the U. S. A. also during the year and stayed there for about 10 days. It would appear that he made a third trip during the year visiting U. K. , Sweden, France, West Germany, Holland and Italy and stayed abroad for 30 days. ] It was held in Ram Kishan Sunder Lal Vs. CIT (19 ITR 324) that the money spent on boarding and lodging of the partners in the course of tour undertaken by them for business purposes cannot be said to be wholly and exclusively incurred for the purpose of business and is not, therefore, allowable. We find that there is no authority available expressing a contrary view, we are, therefore, bound to follow this ruling of the Allahabad High Court. Doing so, with respect, we sustain the disallowance in principle. As regards quantum also, looking to the details of the travelling abroad noted supra, we find nothing unreasonable in the action of the authorities below. The objection for the assessee, is therefore, rejected. "

( 3 ) THE learned counsel for the assessee has reiterated his submissions made before the Tribunal and placed reliance on the decisions of Delhi and Allahabad High Courts - CIT Central New Delhi Vs. Dr. P. N. Behl (1972) 84 ITR 125 and Security Printers of India VS. CIT (1970) 78 ITR 766. On the other hand, the learned counsel for the Department has supported the view taken by the Tribunal and relied on CIT, AP Vs. S. Krishna Rao (1970) 76 ITR 664 AP and CIT Mysore Vs. Dr. B. V. Raman, (1966) 59 ITR 20 and Ram Kishan Sunderlal Vs. CIT U. P. , (1951) 19 ITR 324.

( 4 ) SECTION 37 (1) of the Act provides that any expenditure (not being expenditure of the nature) described in Sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly or exclusively for the purposes of the business or profession s