The Hindu Business Line : Wives unwelcome on business trips

Often, some or most of the expenses of the wives are borne by the company. The issue has naturally to be examined from different angles, notably the Income-tax Act, 1961.

First, can the company bear the travel expenses of the spouse accompanying the husband on tours and claim the same as business expenditure? Second, will such reimbursement be treated as a benefit or perquisite enjoyed by the wife and taxable in her hands?

While the first issue has been decided by several case laws for and against the companies, the latter issue came up before the Madras High Court in CIT vs Smt. Surekha P. Kothari (2004 267 ITR 406).

Facts

The assessee, Surekha Kothari, accompanied her husband, Mr P. V. Kothari, who was the managing director of Kothari Industrial Corporation Ltd, to Europe and the US between April 27, 1984, and June 7, 1984.

The expenditure incurred on her travel was paid by the company. The assessee herself had no official connection with the company except that she was the wife of the managing director.

The Commissioner, exercising his revisional powers under Section 263 of the Act, directed the assessing officer (AO), who had failed to assess this amount in the hands of the assessee, to assess the amount of the benefit that the assessee had so received from the company under Section 2(24)(iv) of the Act.

The Commissioner made that order after holding that the company could not produce any material to substantiate that the business affairs of the company were served in any manner by the assessee accompanying her husband on the foreign tour.

The Tribunal, to whom the assessee carried the matter in appeal, accepted the assessee's plea that it was customary in corporate circles for directors and senior executives to take their spouses along with them when they undertook foreign travel, but since no proof of such custom was produced the Tribunal upheld the addition and the matter reached the High Court.

Court decision

The Madras High Court held that the amount spent by the company for the travel expenses of the spouse had to be treated as income in her hands in accordance with Section 2(24) (iv) of the Act.

Contrary ruling

Interestingly the Gujarat High Court considered the question of taxability of travel expenses in the hands of the spouse as income in CIT vs Kamalini Gautham Sarabhai (1994 208 ITR139) and came to the conclusion that since the assessee had not approached the company directly or through anyone else for obtaining any benefit, it cannot be included as a perquisite in her hands.

It cannot also be said that but for the company meeting the expenses, the director would have been under an obligation to incur the said costs. In short, there are decisions on both sides on the matter.

In today's context a pragmatic view has to be taken on matters relating to travel expenses. Business deals are struck in social gatherings which have become part and parcel of such tours.

By and large, the allowability of travel expense of wives in the hands of the company are in favour of the assessee and in this context one may note the observation of the Madras High Court in CIT vs Sundaram Clayton Ltd, (1999 240 ITR 271).

Whereas a new dimension has been created by way of taxing the said expenses as income in the hands of the wife.

As reasoned by the Gujarat High Court, in most cases, the wives are forced to accompany the husbands due to business exigencies and they on their own do not approach the company for the benefit or reimbursement.

Strangely, the Gujarat HC decision was not cited before the Madras HC in the Surekha case.

A liberal view needs to be taken on such issues what with international travel in some sectors being cheaper than domestic travel.

(The author is a Chennai-based chartered accountant.)