In a significant ruling, the Mumbai ITAT held that sponsoring foreign trips of doctors for business promotion is allowable as expenditure under the provisions of Income Tax Act.
Assessee, India Medtronic Pvt Ltd (IMPL), is engaged in the business of distributing medical devices in India. Assessee deals in cost effective therapies for various chronic diseases. It concentrates on segments of Cardiac rhythm disease management, Neuromodulation, Ear, Nose and Throat and neurologic technologies, Cardio vascular, Diabetes and Spinal and Biologics.
Assessee was aggrieved by the order of the Assessing Officer disallowing expenditure incurred for sponsoring the foreign trips of doctors. Assessee maintained that the expenses were incurred wholly and exclusively for the purpose of business as the assessee since such education imparted by it abroad to the medical professionals would culminate in assured business from these professionals upon their return. However, AO rejected the claim on ground of non-production of any evidence on record to support the claim.
While giving a partial relief to the assessee on first appeal, the CIT(A) held that while the assessee has failed to justify the real intended purpose behind such expenditure, it is also true that such expenses on foreign trips of professionals generate goodwill for the company and lead to future business growth.
When the matter was brought before the Tribunal, the division bench found that expenditure were incurred wholly and exclusively for the purpose of business. “A company being an artificial juridical person cannot have personal expenses. All the expenses incurred by the company has to be for the purpose of the business of the company. Accordingly no adhoc disallowance can be made, for which reliance can be placed on Johnson & Johnson Ltd., (39 CCH 58), Johnson & Johnson Ltd., (35 CCH 275) and Sayaji Iron and Engg. Co., (172 CTR 339). We accordingly direct the AO to delete the disallowance of expenditure incurred on foreign trips of doctors.”
Read the full text of the Order below.
