2001 (11) TMI 20 - HC - Income Tax

The Tribunal has accepted the assessee s case that the expenditure incurred on the education of the son of the director abroad should be treated as business expenditure, reversing the view of the Commissioner and the assessing authority. - The question referred to us as to whether on the facts and circumstances of the case, the expenditure on foreign travel amounting to Rs. 64,922 of Rajiv Rai, son of the director of the company can be said to have been incurred for the purpose of the business and was admissible deduction, is answered in favour of the Revenue and against the assessee.

Summary

Issues:
1. Whether the expenditure incurred on the education of the director's son abroad should be treated as business expenditure.
2. Whether the expenditure connected with the education of the director's son can be claimed as deductible business expenditure.
3. Whether the expenditure on foreign travel of the director's son can be considered to have been incurred for the purpose of the business and qualify for deduction.

Issue 1:
The Tribunal accepted the assessee's claim that the expenditure on the education of the director's son abroad should be considered as business expenditure, contrary to the views of the Commissioner and the assessing authority. The assessee argued that the son later joined the company and became a director, but there was no prior agreement or requirement for him to do so. The Tribunal was of the view that all expenditure incurred in bringing up children who may later play a role in the business could be claimed as business expenditure. However, the court emphasized that business expenditure must be wholly and exclusively laid out for business purposes. The court cited a previous case where similar expenses were disallowed, stating that expenses incurred before joining the business are not deductible.

Issue 2:
The court examined whether the expenditure connected with the education of the director's son could be claimed as deductible business expenditure. It was argued that the son's education benefited the company as he later became a director. However, the court clarified that the mere fact that the son eventually joined the business does not automatically make the education expenses a business expenditure. The court highlighted that there was no scheme in place for training individuals abroad with the condition of working for the company afterward. It was concluded that the expenditure on the son's education, debited to the company's accounts by the director, did not qualify as business expenditure.

Issue 3:
Regarding the expenditure on foreign travel of the director's son, the court was asked to determine if it was incurred for the purpose of the business and eligible for deduction. The court noted that there was no evidence of a formal arrangement requiring the son to work for the company after his education. It was observed that the director had chosen to charge the travel expenses to the company's accounts. The court held that such expenses do not automatically become business expenditure solely because they were debited to the business accounts. Ultimately, the court ruled in favor of the Revenue, stating that the expenditure on the son's foreign travel was not incurred for the business and hence not deductible.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the court's reasoning behind its decision.