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Issues Involved:
1. Disallowance of 50% of foreign travel expenditure. 2. Deduction of expenditure for sending an employee abroad for higher studies. 3. Relevance of the employee's relationship with the President in determining the business expenditure. Summary: Issue 1: Disallowance of 50% of Foreign Travel Expenditure The High Court examined whether the Tribunal was justified in disallowing 50% of the total expenditure incurred on foreign travel by the President of the assessee and a trainee, who is the President's son. The Tribunal had allowed 50% of the foreign travel expenses as business expenditure but disallowed the remaining 50%, treating it as personal expenditure. The Court upheld the Tribunal's decision, stating that the expenditure incurred by the President for foreign travel could be considered business expenditure, but the trainee's travel expenses could not be justified as such since he was still learning the business. Issue 2: Deduction of Expenditure for Sending an Employee Abroad for Higher Studies The Court addressed whether the expenditure incurred for sending the trainee, who is the President's son, to the USA for higher studies could be considered a business expenditure u/s 37(1) of the Income-tax Act, 1961. The Tribunal had disallowed this expenditure, questioning the trainee's appointment and the necessity of his foreign education for the business. The High Court, however, found that the expenditure was justified as a business expense, noting that the trainee was appointed through a valid Board resolution and had agreed to serve the company for ten years after completing his studies. The Court cited precedents where similar expenditures were allowed as business expenses and directed the assessing officer to delete the disallowance of Rs. 14,27,531/- incurred on the trainee's higher education. Issue 3: Relevance of the Employee's Relationship with the President The Tribunal had questioned the propriety of appointing the President's son as a trainee and sending him abroad for studies, suggesting nepotism. The High Court rejected this view, emphasizing that the Board's resolutions appointing the trainee and deciding on his foreign education were unchallenged and valid. The Court stated that the relationship between the trainee and the President should not influence the assessment of the expenditure's business relevance. The Court concluded that the expenditure on the trainee's higher education was a legitimate business expense, given the trainee's subsequent contribution to the company. Conclusion: The High Court allowed the appeal partially, directing the deletion of the disallowance of Rs. 14,27,531/- for the trainee's higher education and 50% of Rs. 3,00,783/- for the President's foreign travel expenses. The Court upheld the disallowance of the remaining 50% of the trainee's travel expenses, affirming the Tribunal's decision that these were personal expenses. The appeal was thus allowed to the extent specified, with no order as to costs.
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