JUDGMENT [ENTITY], J.
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13. So far as the claim regarding foreign tour expenses incurred by the assessee-company for Smt. [ENTITY] is concerned, Mr. [ENTITY], learned counsel for the Revenue, submitted that there is no evidence on the record to indicate that the visit by Smt. [ENTITY] was necessary in order to facilitate negotiations at top levels with foreign corporations and the fact that the Reserve Bank authorities had sanctioned the necessary foreign exchange, would not indicate that the expenditure incurred by the assessee-company on the foreign tour of Smt. [ENTITY] was wholly and exclusively for business purposes and, therefore, the Tribunal erred in law in allowing the said claim.
14. Mr. [ENTITY], learned counsel for the petitioner, on the other hand, submitted that the visit of Smt. [ENTITY] was necessary in order to facilitate negotiations at top levels with foreign corporations and the fact that the Reserve Bank authorities on reconsideration had sanctioned the requisite foreign exchange indicated that the tour was undertaken by her wholly and exclusively for business purposes and, therefore, the said claim was allowable in view of the provisions of [SECTION] of the Act.
15. Before rendering opinion on question No. 1 referred to us, it is to be noted that the assessee has advanced a claim for deduction of expenditure incurred by it on the wife of Shri [ENTITY] accompanying him on a foreign tour, under [SECTION] of the Act. It is well-settled that where an assessee seeks to deduct from his business profits certain items, the onus of proving that such deductions are permissible falls on him. The burden of proving losses in business or a claim to any allowance or deduction or to any exemption is on the assessee especially when the claims are based on facts which are within the special knowledge of the assessee.
Having noted the above position of law, on an analysis of [SECTION] of the Act, it becomes evident that the following conditions should concur in order that a particular item of expenditure may be deductible under the said provision :
(1) The expenditure should not be of the nature described in [SECTION] and [SECTION].
(2) It should have been incurred in the accounting year.
(3) It should be in respect of a business which was carried on by the assessee and the profits of which are to be computed and assessed and should be incurred after the business is set up.
(4) It should not be in the nature of personal expenses of the assessee.
(5) It should have been laid out or expended wholly and exclusively for the purpose of such business.
(6) It should not be in the nature of capital expenditure.
At this stage, we may note that the dispute between the parties is as to whether the expenditure incurred by the assessee-company on the foreign tour of Smt. [ENTITY] can be said to have been incurred wholly and exclusively for the purpose of the business of the assessee or not and it is not seriously disputed on behalf of the Revenue that the other tests enumerated hereinabove stand satisfied in the facts of the present case.
While some broad principles, by no means conclusive or free from inconsistencies, have been indicated in various judicial pronouncements in regard to what is capital expenditure, it is primarily a question of fact whether the expenditure is laid out wholly for the purpose of the business and in the nature of things, it is likely to be so. In order that an expenditure should qualify for deduction as contemplated by [SECTION], one of the requirements of the provision is that the expenditure must have been laid out wholly and exclusively for the purpose of the business. It cannot be disputed that before an assessee can become entitled to an allowance under that provision, he must satisfy the Department of the purpose for which the amount is spent. It is true that the taxing authorities are not entitled to go into the reasonableness of the expenses, but they are certainly entitled to be satisfied as to the commercial necessity of expending that amount. In most cases, the question will be as to the nature of the relation between the expenditure and the business, whether the benefit is remote or near, prospective or immediate, imaginary or real and so forth. The capacity in which the assessee spends will be relevant. The questions of law that arise, therefore, are chiefly whether the finding of fact is perverse or based on no material and whether the assessee-company has succeeded in satisfying as to the purpose for which the amount was spent and the commercial necessity of expending it.
The assessee, in this case, has failed to lead any evidence to show as to how the visit by Smt. [ENTITY] was necessary in order to facilitate negotiations at the top level with foreign corporations. The assessee has not produced any evidence as to the qualifications of Smt. [ENTITY] or her business experience which would have facilitated negotiations at the top level with foreign corporations. The assessee has not produced any evidence regarding the nature of negotiations that allegedly took place at the top level with foreign corporations with which the assessee-company had business relations. Admittedly, Smt. [ENTITY] was not one of the directors or executives of the assessee-company nor is it brought on the record of the case that she had special aptitude for the business of the assessee. The assessee-company had even failed to produce the tour programme of Smt. [ENTITY] in order to substantiate its claim that her presence was necessary in the U.S.A. at the time of negotiations which took place at the top level with foreign corporations. In the circumstances, we find that this is a case of no evidence and in the absence of evidence the Tribunal was hardly justified in concluding that the visit of Smt. [ENTITY] to the U.S.A. was necessary in order to facilitate negotiations at the top level with foreign corporations. The expenditure to be allowable under [SECTION] of the Act must not be capital expenditure in nature or personal expenses of the assessee and must have been laid out or expended wholly and exclusively for the purpose of the business. However wide the meaning of the expression "for the purpose of the business" may be, its limits are implicit in it. The purpose must be for the purposes of the business, that is to say, the expenditure incurred must be for the carrying on of the business and the assessee should incur it in his capacity as a person carrying on the business. The first adverb "wholly" refers to the quantum of the expenditure and the term "exclusively" refers to the motive, objective and purpose of the expenditure and gives jurisdiction to the taxing authorities to examine these matters. The expression "wholly and exclusively laid out for the purpose of business" emphasises the nexus between the trade and the expenditure. The true test of an expenditure laid out wholly and exclusively for the purposes of trade or business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and of making it pay and not in any other capacity than that of a trader. The manner to apply the test is to ask the question : "Has the expense been incurred with the sole object of furthering the trade or business interest of the assessee unalloyed or unmixed with any other consideration ?" If the expense is found to bear an element other than the trade or business interest of the assessee the expenditure is not an allowable one. To arrive at the conclusion that the expenditure was dictated solely by business consideration one has to consider the nature of the business, the way in which it is conducted and any likelihood of the business being adversely affected or its interest being promoted by the refusal or the incurring of the expenditure as the case may be. When the assessee places all the facts and circumstances before the Revenue authorities, the latter must examine the same and must make up its mind as to whether the expenditure was necessitated or justified by commercial expediency. In the case of [PRECEDENT], the Supreme Court interpreted the expression "for the purpose of business" and has held as under (at page 150) :
"The aforesaid discussion leads to the following result : The expression 'for the purpose of the business' is wider in scope than the expression 'for the purpose of earning profits'. Its range is wide : it may take in not only the day to day running of a business but also the rationalisation of its administration and modernisation of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business."
16. In the case of [PRECEDENT], the assessee which was a firm had advanced a claim for deduction of expenditure incurred by it on the wife of the senior partner accompanying him on a foreign tour for the purpose of attending on him as he was a diabetic. The said claim was negatived by the Income-tax Officer but upheld by the Appellate Assistant Commissioner and the Tribunal. On a reference, the Madras High Court has held that the expenditure was in the nature of personal expenses. It has been further held that even assuming that the expenditure related to business purposes, the expenditure had a dual or twin purpose and served not only purposes of business but also a personal or private purpose and as the expenditure did not exclusively serve the business, it did not qualify for deduction under [SECTION] of the Act.
17. Again, in the case of [PRECEDENT], the managing director of the assessee-company had undertaken a tour of Japan for business purposes but since he was keeping indifferent health, his wife had accompanied him. The claim for deduction regarding expenditure incurred by the assessee-company on the foreign tour of the wife of the managing director was negatived by the Income-tax Officer, but allowed by the Appellate Assistant Commissioner. The Tribunal reversed the order of the Appellate Assistant Commissioner on the point. At the instance of the assessee, the question referred to this court for opinion was whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in disallowing the foreign tour expenditure of Rs. 9,579 incurred for Smt. [ENTITY] as being inadmissible in law. While answering to the question referred to the court in the affirmative and against the assessee, this court has held as under (at page 439) :
"We are sure that tax collectors do not want to discourage business executives and managing directors from undertaking foreign tours for business purposes nor to deprive them of the company of their wives in 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 for rendering such company, however necessary and enjoyable it may be from the point of view of the personal needs of those executives."
In the abovequoted decision, it is ruled by this court that it would not be permissible for the Income-tax Officer to allow the expenses incurred for rendering such company, however, necessary and enjoyable it may be from the point of view of the personal needs of the executives.
18. Coming to the facts of the present case, we find that the assessee has not led any evidence as to in which manner the visit by Smt. [ENTITY] was necessary for facilitating negotiations at the top level with foreign Corporations. Applying the relevant tests to the facts of the present case, we find that the expense in question has not been incurred with the sole object of furthering the trade or business of the assessee-company, unalloyed or unmixed with any other consideration. Considering the nature of the business of the assessee-company and the manner in which it is conducted, it is difficult to hold that the visit of Smt. [ENTITY] to the U.S.A. was necessary in order to facilitate negotiations at the top level with foreign corporations more particularly when the assessee has failed to place all the facts and circumstances before the Revenue authorities. In the facts of the case, we are of the view that the expenses incurred by the assessee on the foreign tour of Smt. [ENTITY] was wholly gratuitous and for a purpose outside the course of its business. It having been incurred for extra-commercial reasons, it is not deductible under [SECTION] of the Act. The fact that the Reserve Bank authorities, on reconsideration, had sanctioned foreign exchange is of no help to the assessee. As rightly contended by Mr. [ENTITY], at best the said fact may indicate that the company had made out a case before the Reserve Bank authorities for sanctioning the requisite exchange for the foreign tour of Smt. [ENTITY]. However, that would not indicate that the Reserve Bank authorities had, in any manner, decided the question as to whether the visit of Smt. [ENTITY] was wholly and exclusively for the purposes of business of the assessee. There is nothing on the record to indicate that the expenditure in question was incurred by the assessee-company in order to facilitate the carrying on of the business directly or indirectly and, therefore, in our opinion, the Tribunal was not right in allowing the claim advanced by the assessee under [SECTION] of the Act. On the facts and in the circumstance of the case, a sum of Rs. 39,753 incurred by the assessee on the foreign tour of Smt. [ENTITY] could not have been allowed as revenue expenses.
19. Mr. [ENTITY], learned counsel for the assessee, drew our attention to the decision of this court rendered in the case of CIT v. Smt. [ENTITY] [ENTITY] [1994] 208 ITR 139 and submitted that while examining the question whether the expenditure of Rs. 39,753 incurred by the assessee-company on the foreign tour of Smt. [ENTITY] was not includible as income under [SECTION] of the [ACT], in the computation of the total income of Smt. [ENTITY], this court after referring to the application submitted by the assessee-company to the Reserve Bank of India for release of foreign exchange in favour of Smt. [ENTITY], has held that there was no material to show that it was a pleasure tour arranged by the company for the assessee and it can be said that she had undertaken the tour at the instance of the company and for the purpose of the business of the company and, therefore, in view of the conclusion reached in the case of Smt. [ENTITY] in that case, the expenditure incurred by the assessee-company on the foreign tour of Smt. [ENTITY] was allowable under [SECTION] of the Act. So far as this submission is concerned, we note that the said decision has no application to the question referred to this court. Even if it is assumed that Smt. [ENTITY] had undertaken the tour at the instance of the company, that would not indict to that the expenditure was incurred by the assessee-company. The question whether the assessee-company had incurred expenditure on the foreign tour of Smt. [ENTITY] woolly and exclusively for the purpose of the business of the assessee never fell for consideration of the court in the said decision and in fact that question is not decided by the said decision. As noted earlier, nothing has been produced on the record of the case by the assessee-company to indicate that the foreign tour of Smt. [ENTITY] was wholly and exclusively for the purpose of the assessee-company. In the circumstances, the finding recorded in the said decision is of no avail to the assessee and it does not help the assessee in any manner.
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