MUMBAI H BENCH DEPUTY ANAND v. COMMISSIONER OF AUTOMOBILES INCOME TAX March 23, 2005 JUDGMENT K.P.T.Thangal, Vice President. - This appeal by assessee is for assessment year 1995-96. 2.The first ground of objection by assessee isdirected against order of CIT(A) in confirmingforeign travel expenses of Rs. 3,15,227. According to assessee,these expenses were incurred wholly and exclusively for purpose of existingbusiness carried on by assessee. 3.Facts leading to dispute, briefly, are as under:' Assessee filed return, declaring income at Rs. 45,13,210 on 31-10- 1995. Assessing Officer noticed, assessee had claimed Rs. 3,15,227being foreign travel expenses. Assessee was asked togive justification of that expenditure. Vide letter dated 6-8-1997, itwas submitted that assessee is in existence formore than 50 years. It has played important role in promoting many ventures,having financial and technical collaboration with world reputed companies. Atthat point of time, it was submitted, assessee wasexploring possibilities of further joint ventures, particularly in field ofautomotive ancillaries. Assessee is engaged in thebusiness of body building. It was also doing promotional activities of firmsand widened its operational activities. Assessee wasalways promoter having lot of other companies. During year underconsideration, Mr. Kuldip Anand,active partner visited various places like London, Geneva and Paris to explorethe possibilities of new joint ventures. visit to Europe was forcollaboration with joint lubricant manufacturer of France, viz.,Total Lubricants (I) Pvt. Ltd. assessee was alsotrying tie-up with Degremont Corporation, who was inthe field of anti- pollution equipments including water purifiers. Thus it wascontended that promotion being assessee's one of theactivity, foreign travel was closely connected with business activities ofthe assessee. 4.Assessing Officer, however, held that Mr. Kuldip Anand is not active partner of assesseefirm. It had four partners - two HUFs and two Private Limited Companies. Heheld that expenditure incurred on Mr. Kuldip Anand's travel to London, Geneva and Paris, therefore,cannot be allowed as business expenditure. He placed reliance on decisionof Hon'ble Madras High Court in case of CITv. T.S. Hajee Moosa& Co. [1985] . Hence, he disallowed claimof assessee. Aggrieved by above order, assessee approached first appellate authority. 5.Same contentions were reiterated before CIT(A).The CIT(A) held, vide Para 4 of his order that Assessing Officer'sconclusion that Mr. Kuldip Anandin no way linked with assessee's firm is incorrectas he was representing HUF partner in assesseefirm. However, CIT(A) noted that shareholding of Anand Automobiles in DegremontCorporation was on 0.02 per cent up to 31-3-1996. He further noted that assessee did not hold any shares of Total Lubricants (I)Pvt. Ltd. Therefore, he noted, Anand Automobiles, i.e.,the assessee, had no direct dealing with TotalLubricants (I) Pvt. Ltd., but was only having indirect hold by virtue of being99 per cent shareholder of Anand Pvt. Ltd., which had49 per cent shareholding in Total Lubricants (I) Pvt. Ltd. He further noted,when Mr. Kuldip Anandundertook trip, joint venture with DegremontCorporation was already in existence for manufacture of water treatment plant.Hence he noted, if business venture with DegremontCorporation was already in existence, it is not clear why Mr. Kuldip Anand undertaken tour fortie-up, which was already in existence. He further held,there is nothing to indicate what was meaning of submission 'revitalising', for which purpose Mr. KuldipAnand made visit. He held, no nexus thereforeestablished. He further held that according to assesseethe visit for purpose of tie-up with DegremontCorporation was primarily to launch new venture. He further held, caserelied by Assessing Officer in case of CIT v. Floor &Food Ltd. [1988] . Hence, he confirmed theaddition. Aggrieved by above order, assesseeis in appeal before Tribunal. 6.Mr. Khare, learned representative of assessee submitted, assessee isin fact promoter of 22 new companies and its main business is promoting andlaunching and he further submitted that entire income is taxed as businessincome in hands of assessee. assessee's representative relied on decision of Hon'ble Delhi High Court in case of J.K. SyntheticsLtd. v. CIT [1992] (MP), etc. are not at all relevant in lightof decision of Hon'ble Delhi High Court citedsupra . revenue is notdisputing, in fact, submission of assessee,which is recorded at Page 3 of assessment order that assessee incurred tour expenditure for initiation ofnew business. only reason given by revenue authorities to reject assessee's claim is that it was not for expansion of anexisting business but for establishing new business, which will go to thecapital account and not revenue expenditure. He further submitted,the finding of Assessing Officer that tour was also undertaken by assessee's Director's wife who accompanied her husband, isnowhere borne out of record and from where this fact has come to knowledgeof Assessing Officer. assessee'srepresentative brought our attention to Paper Book Pages 1 and 2, which is anote with regard to explanation of foreign travel expenditure. assessee's representative also brought our attention toPaper Book Pages 16 and 17, relevant portion of which is reproduced below:' "Thisexpenditure was incurred in respect of foreign travel undertaken by Mr. Kuldip Chand Anand,one of founder partners of firm. response to query raised duringthe course of assessment proceedings, note was provided to AssessingOfficer which please find at pages 20 & 21 of paper book. It wassubmitted before Assessing Officer that this trip covering London, Genevaand Paris was in context of exploring possibility of new joint ventures. Itwas stated that visit to Europe was for tying up with giant lubricantmanufacturer of France viz., Total Lubricant and for revitalizing thetie-up with Degremont, who were engaged in thebusiness of anti-pollution equipment. Itwas submitted before Assessing Officer that promoting ventures has been thebusiness of firm for last 30 years. Assessing Officer has chosen todisallow entire amount of expenditure for following reasons:' 1.Mr. KuldipChand Anand is not apartner of firm and he, therefore, has no locus standi. 2.The expenditure on foreigntravel is not connection with business of firm and in alternativeit is capital expenditure. 3.The trip was made for thepurposes other than business purpose and has no relevance to firm. TheAssessing Officer has placed reliance on decision of Madras High Courtin CIT v. T.S. Hajee Moosa& Co. [1985] . Itis respectfully submitted that Assessing Officer has not correctlyappreciated nature of business carried on by assesseeand vital link that foreign trip of Mr. KuldipChand Anand had with thebusiness of firm." Onthe other hand, learned Departmental Representative kly supported theorders of revenue authorities and submitted, except making generalstatement that Mr. Kuldip Anandhad undertaken foreign trip for purpose of business; assesseebeing promoter of companies, had not come with any concrete evidence as towhat was particular and specific purpose for which foreign trip wasundertaken. As such, there is no reason to take contrary view from that ofthe Assessing Officer or for that matter order of CIT(A). 8.Considering rival submissions we are of view that matter needsfresh adjudication. First of all, finding of Assessing Officer that theexpenditure was also incurred by firm for foreign tour of wife ofthe senior partner/Director in instant case, it is case of assessee that wife of partner had not undertaken anyforeign tour. Reading of assessment order also makes it clear that expenditureincurred on foreign tour undertaken for initiation of new business has notbeen rejected by revenue. relevant discussion is reproduced below:' "Inother case Honourable Gujarat High Court held thatexpenditure incurred'. have held that expenditure incurred on tour undertakenfor initiation of new business and not for expansion of business carried onby assessee and therefore same is not allowableas revenue expenditure. It means assesseeshould capitalise this expenditure but in this caseexpenses is not connection with business at all. There is no purpose to conductforeign trip. This simply trip made for other purpose and same was debited inprofit and loss account of firm and Shri Anand has no relevance of firm...." 9.It is to be seen that assessee had alwaysinsisted that assessee is promoter and trip wasundertaken for purpose of business either for expansion of existingbusiness or for starting new business. In any case it was for business purpose.But in assessment order there is clear finding by Assessing Officer,which is clear from above quoted portion that trip was not at all forbusiness purpose. Considering submission of learned DR that assessee has not given any evidence in regard to businessconnection of trip, we are of view; matter has to go back to thefile of Assessing Officer. It is always case of assesseethat assessee is promoter and it had discussionwith parties like Degremont Corporation etc. andthe trip was for that purpose only. Assessee has toestablish by producing material before Assessing Officer that trip wasbusiness trip. Mere stating that it was business trip without evidence in theform of correspondence or other way foreign party will not further assessee's case. With above observation, matter isremanded for consideration. While remanding matter it is also in our mindthat assessee claims that he is promoter ofcompanies. As such, we consider foreign trip becomes essential. Yet proof isrequired. Assessee has to prove it by evidence. Withabove observation, this ground is remanded to file of Assessing Officer. 10.The second ground by assessee is directed againstthe order of CIT(A) in confirming disallowanceof retrenchment compensation of Rs. 7,26,084. 11.Assessing Officer noticed, though assessee hasclosed its business, paid retrenchment compensation to extent of Rs. 7,26,084. Assessee was asked for justificationof payment. Assessee, in reply stated that assessee was engaged in business of manufacturingfilters, testing of filters and providing office facilities. During theaccounting year 1993-94, assessee discontinued one ofits activities, i.e., manufacturing of filters due to labour unrest. Settlement was arrived at with Union.But there was no total closure of business. Hence, it was submitted that thecompensation is allowable under section 37(1) of Act. It was furthersubmitted that all activities constitute one business. It hasinterdependence, commonality of management, funds, etc. In support of case,assessee relied on decisions of Hon'ble Supreme Court in case of CIT v. Prithvi Insurance Co. Ltd. [1967] . Accordingly, he disallowed claim. Assessee approached first appellate authority. 12.It was case before CIT(A) that due to labour unrest manufacturing unit at Gurgaonwas closed. Workers refused to accept closure and matter was referredto Industrial Court. Settlement was reached on 16-6-1994 and compensationin full and final settlement was paid to workers. Assesseedistinguished case relied on by Assessing Officer on ground that inthat case retrenchment compensation was paid after closer of business. Whereas in instant case of assesseeit was only one of several activities and assesseehad stopped only one activity. Assessee hadtotal control of management, administration and supervision. Assessee relied on decision of Hon'bleSupreme Court in case of PrithviInsurance Co. Ltd. (supra) in support of assessee'sclaim of unity of control, management, supervision, administration, finance,etc. to show that business of assessee wascontinuing. 13.The claim of assessee was disallowed by CIT(A), holding that though entire business activitiesare reflected in same account there are reasons to believe that thisparticular activity of manufacturing constitutes business different fromother business undertaken by assessee and theretrenchment compensation was paid for closure of this business alone. Ithas no direct link with other units of assesseefirm. Merely because there was common management, funds, etc., CIT(A) held, will not help assessee.He further held, payment is isolated paymentnot related to business activities of assessee.This was paid under statutory obligation after closure of unit. It assumesthe colour of capital expenditure. He held that thisis not expended for business of assessee. Therunning of business and payment of retrenchment compensation has no directnexus. CIT(A) held, this is enduring benefitand, therefore, is capital expenditure. Thus, relying uponthe decision of Hon'ble Madras High Court in thecase of India Mfrs. (Madras) (P.) Ltd. v. CIT [1985] , he held that these are two independent business andcompensation paid as result of closure of one business is not allowable againstthe existing business. He held, payment was madewith reference to manufacturing unit, whereas basically assessee'sbusiness is promotion of ventures in automobile sector. Hence, there is nodirect link between two activities. He held, premiseavailable was not used at all after stoppage of business activities. Hence,he disallowed claim of assessee. Assessee is in appeal before Tribunal. 14.The learned representative for assesseedistinguished decisions relied by revenue authorities and submittedthat in that case firm actually came to end by death of one of thepartners and it ceased to exist that way. Not so in case of assessee. Assessee's mainactivity is promoting companies, but assessee hasalso other business like manufacturing. Due to labourunrest this activity was stopped. Even according to revenue authorities theassessee is keeping common books of account, commonfund and Directors in common. As such, assessee'srepresentative submitted, it was stoppage of business of one section and notstoppage of entire business. What assessee closed wasone of manufacturing units. Assessee relied onthe decisions of Hon'ble Supreme Court in thecases of Prithvi Insurance Co. Ltd. (supra),Produce Exchange Corpn. Ltd. (supra), B.R.Ltd. (supra ) and Veecumsees (supra), for proposition thatin event of unity of control, management, supervision, administration,finance, etc. different activities per se would not constitute independentbusiness. They are one and same. In support of claim assessee, before CIT(A) aswell as before us, relied on decision of Hon'blePatna High Court in case of ChhabiraniAgro Industrial Enterprises Ltd. v. CIT [1991] . 15.The learned Departmental Representative supported orders of revenueauthorities. 16.Considering rival submissions and facts brought on record, we are ofthe view that claim of assessee is liable tobe allowed. Assessee is maintaining common books ofaccount for both business. Management and funds are same. Due to labour unrest; on basis of settlement arrived at; assessee paid compensation. It is natural; this paymentwas made for business purpose. Merely because assesseeis in business of promotion of companies is not sufficient to hold that thepayment made by assessee is not for businesspurpose. Hence, this ground of assessee isallowed. 17.The next ground (Ground No. 3) by assessee isdirected against order of CIT(A) in confirmingthe disallowance of Rs. 16,370 out of depreciation. 18.Assessing Officer recorded that during year assesseehas received rental income (compensation) and dividend income; but there was nobusiness activities at all. issue has been dealt with by CIT(A) at Paras 20 to 22 of hisorder, on following lines:' "20.The last ground of appeal relates to disallowance of depreciation of Rs.16,370. Appellants had claimed depreciation though Assessing Officer hadpointed out that there was no business during year and accordingly depreciationon furniture, fixtures and vehicles was disallowed. 21.Appellants in this connection argued that firm was exploiting itscommercial property for setting up business centre and as such they areentitled to claim depreciation on assets forming part of that location. 22.I am afraid; contention of appellants cannot be entertained. assetsin use were not utilised for purpose of businessand as such depreciation cannot be allowed. Contemplated business and carryingon business are two different issues. Depreciation is not allowed onanticipated business. assets in question were not used during relevantassessment year. Accordingly disallowance of depreciation is beingupheld." 19.Considering rival submissions we are of view that there is no reason todisturb order of first appellate authority. Assesseehas received only rent and there was no business activity. In thesecircumstances appeal by assessee on thisground fails and it is dismissed. 20.In result, appeal of assessee stands allowedin part. *** Anand Automobiles v. Deputy Commissioner of Income-tax