2012 (3) TMI 331 - HC - Income Tax

Whether the expenditure incurred on education of one of the directors, who had undergone a course called Master of Science in Entrepreneurship at United Kingdom from University of Nottingham, was not expenditure wholly and exclusively incurred for the purpose of business - in the present case said director had not executed any bond that she would work for the appellant company after she completes the course and on failure shall return the money spent - The alleged board resolution has rightly not been relied upon as it was not relied and filed before the Assessing Officer. Considering the facts and circumstances of the case, the aforesaid expenditure, it has been held, cannot be regarded as wholly and exclusively incurred for the purpose of business - Appeal is dismissed

Summary

Issues:
1. Condonation of delay in filing and re-filing of appeal.
2. Deductibility of expenditure on education under Section 37 of the Income Tax Act, 1961.

Condonation of Delay:
The judgment addresses applications for condonation of delay in filing and re-filing the appeal. The senior standing counsel for the Revenue did not object to condoning the delay, leading to the approval of the same. The delay was condoned, and the applications were disposed of swiftly.

Deductibility of Expenditure on Education:
The appeal challenges the Income Tax Appellate Tribunal's order regarding the deductibility of expenditure on education for the assessment year 2006-07 under Section 260A of the Income Tax Act, 1961. The appellant contends that the expenditure on education of a director was wholly and exclusively incurred for business purposes. The High Court of Karnataka's decision was cited to support the argument. Section 37 of the Act allows deductions for expenses wholly and exclusively incurred for business purposes, with the burden of proof resting on the assessee.

The CIT(Appeals) found that the expenditure on education was personal, not business-related, as the director's higher education did not have a business connection. The Tribunal upheld these findings of fact. Notably, the director had not committed to working for the company post-education or returning the funds spent. The Tribunal concluded that the expenditure was not wholly and exclusively for business purposes, considering the circumstances. The findings were upheld, emphasizing the lack of business connection and the director's continuous pursuit of studies without a bond to return to the company post-education.

In conclusion, the judgment affirms that personal expenses cannot be claimed under Section 37 of the Act, and the expenditure on education in this case did not meet the criteria of being wholly and exclusively incurred for business purposes. The findings were upheld, emphasizing the factual nature of the decision and the absence of a business connection in the expenditure on education.

This detailed analysis covers the issues of condonation of delay in filing the appeal and the deductibility of expenditure on education, providing a comprehensive overview of the judgment's key aspects and legal considerations.