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TMI Blog2014 (2) TMI 1072X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal fall into error of law in holding that the appellant's claim that the amount has been spent during the Assessment Year 2006-07, for the higher education of Sh. Dushyant Poddar, a son of its Director, was not liable as "business expenditure" under Section 37 of the Income Tax Act?" 2. For the year under consideration, the appellant company (hereinafter referred to as assessee) filed its return declaring loss at Rs. 2,08,72,440/- under the normal provisions and book profit at Rs. 1,35,42,270/- under Section 115JB of the Income Tax Act, 1961 ("the Act"), on 24.11.2006. In the Profit and Loss Account annexed to the return of income, assessee had claimed a sum of Rs. 23,16,942/- as expenses incurred under the head "Education & Training ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the studies, Dushyant Poddar will serve the assessee company at least for 5 years on a remuneration as mutually agreed with the Board of Directors subject to minimum of Rs. 10,000/- and maximum of Rs. 25,000/- p.m. The assessee relied on a resolution of the Board of Directors to say that in the event of breach of bond, suitable action for recovery of the amount would be taken against Dushyant Poddar. He also furnished the bond, as required. Eventually, Dushyant Poddar was sent to U.K. for further study. The assessee incurred an expenditure of Rs. 23,16,942/- during the year under consideration. 5. The AO in his order refused to accept the assessee's contentions and rejected the argument that the sum of Rs. 23,16,942/- could be claimed as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course opted for by the employee - daughter of a Director - had no relation with the assessee's business. She, unlike Dushyant Poddar, had not taken-up employment with the assessee company and had chosen to apply for higher educational studies directly from the University. It was in the context of such facts that the decision in Natco Exports (supra) was rendered. Learned counsel relied upon a judgment of the Bombay High Court in Sakal Papers Private Limited v. Commissioner of Income Tax, 1978 (114) ITR 256 for the proposition that even in the absence of commitment or contract or bond, an expenditure which is otherwise proper cannot be disallowed to the company, especially when it can result in the trainee securing a degree that would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness expenditure. The question is whether these twin requirements are said to have been satisfied in the circumstances of this case. The first is what are the materials on record? The assessee furnished its resolution authorizing disbursement of the expenses to fund Dushyant Poddar's MBA. It secured a bond from him, by which he undertook to work for five years after return within a salary band and he had in fact worked after graduating from the University for about a year before starting his MBA course. In Natco Exports (supra), the student had applied directly when she was pursuing her graduation. There was a seamless transition as it were between the chosen subject of her undergraduate course and that which she chose to pursue abroad. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Court cannot ignore. It would be unwise for the Court to require all assessees and business concerns to frame a policy with respect to how educational funding of its employees generally and a class thereof, i.e. children of its management or Directors would be done. Nor would it be wise to universalize or rationalize that in the absence of such a policy, funding of employees of one class - unrelated to the management - would qualify for deduction under Section 37(1). We do not see any such intent in the statute which prescribes that only expenditure strictly for business can be considered for deduction. Necessarily, the decision to deduct is to be case-dependent. 10. In view of the above discussion, having regard to the circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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