There is some bad news for the wives of the directors of companies.
The Delhi Bench of ITAT, in a recent order, has turned the tide and annoyed the wives of directors of companies who are fond of accompanying their husbands on foreign trips at the cost of the company by disallowing the companies to claim expenditure on wives' travelling as deduction while computing the income of the assessees.
In the case of Dabur India, it was found that in many trips the wives of firectors had accompanied them. The assessee had claimed the expenditure incurred on wives of directors as business expenditure.
The directors claimed to have undertaken trips for business purposes, including meeting of the suppliers/dealers; meeting of various collaborators and bankers and during such foreign trips the wives of directors had accompanied their husbands at the instance of the company for maintaining better relationship with business personalities, suppliers and dealers which was essential for the protection of business interest.
It was claimed that said meetings were held at social gathering and meeting in which spouses of directors also took part. Expenditure on the wives' travelling was claimed while computing the income of the company.
The assessing officer disallowed the expenditure stating that the wives of directors had no locus standi in the business affairs of the company.
He also rejected the plea that the board had passed resolution for permitting the wives to go with their husbands who were directors in the company.
It was held that resolution was self-serving and the same could not alter the situation and voluntarily give certain tax benefit to its director and gain advantage itself under the guise of its indoor management.
Commissioner of Income-Tax (Appeals) allowed the expenditure holding that it was connected with the business of the company as it is a matter of common knowledge that in the present days most of business is discussed at social get-together in which ladies also take part.
ITAT observed that the assessee cannot derive any benefit only on the basis of such resolution which is not specific in terms, particularly and more particularly in absence of any other supporting evidence to justify the claim.
There is no letter of invitation on record to show the details of visits of the wives along with their husbands/directors. Their is no business visa in the names of the wives.
If the object of the foreign tour by the assessee's wife was to assist the assessee and for his personal comforts, the expenditure would not qualify for deduction though the result of such expenditure may increase the efficiency of the assessee in attending to his business.
ITAT held that even if the expenses incurred on the visit of directors are allowed, merely on that basis expenditure on visit of wives of directors cannot be allowed because the claim and nexus between the expenses incurred on the wives on their foreign trips with their husband directors has to be separately and independently considered.
Therefore, the expenditure can qualify for deduction under section 37(1) only if the expenditure was incurred wholly and exclusively for the purpose of the business.
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