1. A recurring question regarding the allow ability of the expenditure incurred on the foreign tour of the wife of a Director of a company in the computation of income under the head "profit and gains of business" under S.37(1) of the Income Tax Act, 1961 (for short 'the Act') arises in this reference.

2. A Division Bench consisting of one of us (Sivarajan, J.) & C.N.Ramachandran Nair, J. has referred this case to a larger Bench stating that there is a conflict between the decision in I.T.R. No. 9/98 on the one hand and in Commissioner of Income Tax v. Aspinwall and Co. Ltd. (Ker.) ((1999) 235 ITR 106) and Commissioner of Income Tax v. Appollo Tyres Ltd. ((1999) 237 ITR 706) on the other on this question.

3. The Income Tax Appellate Tribunal, Cochin Bench, at the instance of the assessee, has referred the following question of law for the decision of this Court:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure incurred on the foreign tour of the wife of a Director of the Company is not an allowable deduction under the Income Tax Act, 1961?

4. The brief facts are as follows:- The assessee is a public limited company, mainly engaged in the business of growing tea. In the assessment for the year 1990-91 the assessee, inter alia, claimed deduction of an amount of Rs. 5,80,5707- being expenditure incurred on the foreign travel of a Director and his wife. The assessing authority took the view that the expenditure incurred in relation to the wife of the Director cannot be considered to be wholly and exclusively for the purpose of business. He accordingly disallowed a sum of Rs. 2,90,285/- being one half of the said expenditure. The first appellate authority, in appeal by the assessee, had allowed the said claim relying on the decision of the CIT (Appeals) and the Tribunal in the case of the assessee itself for an earlier year. However, the Income Tax Appellate Tribunal, on appeal by the Department, relying on its earlier order in the case of the assessee for the Year 1987-88 which had upheld the disallowance, cancelled the order of the CIT (Appeals) and restored the order of the assessing authority. The Tribunal, on application by the assessee under S.256(1) of the Act has referred the question set out in para 3 above for the decision of this Court.

5. Here, it must be noted that the decision of the Tribunal in the case of the. assessee for the assessment year 1987-88 relied on by the Tribunal for deciding this case was upheld by this Court in the judgment dated 5.6.2002 in I.T.R. No. 9 of 1998 (Ram Bahadur Thakur Ltd. v. CIT ((2002) 257 ITR 289). It is also relevant to note in.this context that this court by judgment dated 26.9.2002 in ITR No. 197 of 1996 filed by the revenue against the order of the Tribunal in the case of the assessee for the year 1985-86 set aside the appellate order of the Tribunal and remitted the case for fresh consideration as the Tribunal had not given any reason for allowing the claim. It is observed in the said judgment that the assessee has to prove that it is not to be treated as personal expenditure. The decision of this Court in ITR No. 9 of 1998 was, however, not noticed.

6. Learned counsel appearing for the assessee submitted that Mrs. Sarma, wife of one of the Directors of the assessee company accompanied her husband on a business tour to U.S.A. The Assessing Officer had allowed deduction of the expenses incurred by the Director for the foreign tour which would clearly show that the travel was undertaken by the said Director for the business of the assessee and that the assessing authority had disallowed the expenses incurred for the travel of the wife of the Director accompanying him without assigning any reason at all. The counsel also submitted that the assessee company by its resolution had permitted the Director to take his wife also for the foreign tour solely for the purpose of promoting the business of the assessee and