TaxTMI 
TaxTMI 
1994 (2) TMI 132
X X X X Extracts X X X X
X X X X Extracts X X X X
....ars from 1-7-1981. The counsel for the assessee at the time of bearing stated that Shri Vijay continues to serve the assessee-firm even to-day. As per clause 4 of this agreement, he was entitled to a salary of Rs. 1,200 per month for the first year, then Rs. 2,000 per month for the next two years and Rs. 3,000 per month for the next four years. As is stated above, the Assessing Officer has not challenged the payment of Rs. 1,200 per month to Shri Vijay under section 40A(2) of the Act for the assessment year 1983-84. Under clause 5 of the agreement it was provided that Shri Vijay was to go on training courses abroad and could not be treated to be on leave and was to be paid monthly salary as stated in clause 3 and discussed supra. As per the said agreement, all expenses in connection with the educational facilities including examinations were to be met by the employer. On coming back, he was required to serve the firm for the minimum period as agreed at that relevant time. As stated above, there is no dispute that Shri Vijay Muthey continues to serve the firm till this day. It has also brought on record that Shri Vijay came back to India from United States of America in 1986. He sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ore, he disallowed the expenditure mentioned above for the years under consideration. 4. When the matter was taken in appeal to the CIT (Appeals), he agreed with the Assessing Officer that the only reason why the assessee-firm paid educational expenses and salary to Shri V.V. Muthey was that he was the son of a partner of the firm. He held that the assessee did not engage or employ any other person with similar qualification and did not send any other person abroad for any training. He held--- "that the so-called agreement with Shri Vijay Muthey was only a colourable device to justify the payment of his educational expenses and salary to him." It is further notable that it is not this ground which has been relied upon by the Assessing Officer for making the disallowance. The assessee is in appeal before us. 5. The counsel for the assessee invited our attention to the facts as stated above. He submitted that the agreement in question has not been challenged by the Assessing Officer. He submitted that according to the Assessing Officer, therefore, the agreement is bona fide. Regarding the comments by the CIT (Appeals) that the agreement was a colourable device. It was submitted t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d commensurate with his services ? (ii) Whether the expenditure incurred by the assessee was in the normal course of business and was wholly and exclusively incurred for the same ? In this connection we find that when Shri Vijay joined the assessee-firm he was a B. Com. and Diploma holder in Business Management. Therefore, the reason why he was employed by the assessee-firm was not that he was the son of a partner of the firm but was a duly qualified person. In the very first year the payment of salary of Rs. 1,200 per month has been treated as reasonable by the Assessing Officer. The assessment for the assessment year 1983-84 has been completed and no addition has been made on the said account. For the assessment year 1984-85 and later years, the disallowances have been made on the ground that the firm had no business to incur expenditure on the foreign training of Shri Vijay and the only reason why this expenditure was met by the firm was that he was the son of the partner of the assessee. In this connection the most important decision, in our view, is the decision of the Bombay High Court directly on this issue is Sakal Papers (P.) Ltd.'s case. In that case the assessee was a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....roves that the expenditure incurred by the assessee at the relevant time was an expenditure incurred after due thought on the future business needs of the assessee-company. What is required is not as to whether after the joining of a particular person the business of the firm further picks up or not. What is required is as to whether the qualifications and experience of the person gained during the educational tour to United States of America helps the firm in running its business in a proper manner. Therefore, the Sakal Papers (P.) Ltd.'s case squarely applies to the facts of this case and, as discussed above, the case of the assessee-firm is on a firmer footing. The another decision which has come to our notice is in the case of Hindustan Hosiery Industries v. First ITO [1983] 5 ITD 349 (Bom.). In that case the assessee had claimed as business expenditure the amount spent by it on sending one of its partners to the United States of America for training In business management. The ITO disallowed the claim on, the ground that the training had nothing to do with the business of manufacture and sale of hosiery goods carried on by the assessee. The CIT(A) having confirmed, the matter....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y and exclusively":--- (i) Sassoon J. David & Co. (P.) Ltd. v. CIT [1979] 118 ITR 261 (particular page 279). The Hon'ble Supreme Court held that the expression "wholly and exclusively" used in section 10(2)(xv) of the I.T. Act, 1922 corresponding to section 37 of the I.T. Act, 1961, does not mean "necessarily". Ordinarily it is for the assessee to decide whether an expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is, incurred for promoting the business and to earn profits, the assessee can claim deduction under section 10(2)(xv) of 1922 Act (37 of the I.T. Act, 1961), even though there was no compelling necessity to incur such an expenditure. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction if it satisfies otherwise the test laid down by the law. In another case, the Full Bench of the Hon'ble M.P. High Court in the case of Addl. CIT v. Kuber Singh Bhagwandas [1979] 118 ITR 379 (particular page 386) have commented upon the use of the word "necessarily". By the Income-ta....