2022 (11) TMI 445 - AT - Income Tax

Nature of expenditure - Allowable business expenditure or personal expenditure - claim of education expenses of the daughter of the assessee which was denied by the authorities below holding the same to be personal in nature, and alternatively capital in nature - assessee submitted assessee s daughter was a highly qualified architect working in the assessee s firm and wanted to pursue higher education; that she had studied in various prominent institutions , interned with globally acclaimed architects and had a huge repertoire of knowledge and expertise and had agreed to work with the assessee for five years after completing her education - HELD THAT - The contract mentions the agreement being entered to pay back the expenses incurred on her education by her father, as she was contracted to work on minimum wages and not actual salary. This is definitely not a normal contract which any father would enter with his daughter and the purpose appears to be to receive back in terms of her services what was paid by her father, the assessee, for her education. This in itself shows that education expenses were not incurred with the intention of furthering the business of the assessee but out of moral obligation as a father and the purpose of contracting her services for five years was strangely enough only to receive back what was paid for her education in terms of services rendered by her at lesser than normal rates. The contract is just an after-thought which not even binds the daughter for a reasonable period to contribute substantially to the assesses practice. Whether the assessee had ever incurred such expenditure on the education of any other employee in this firm, either in the past or in the future, has not been brought to our notice, so as to give weightage to the contention that such education expenses were incurred primarily with the intention of promoting its business or profession. As merely because these expenses were in relation to the daughter of the assessee that they were incurred by the assessee, and not dominantly because they were for the purpose of business of the assessee firm. Even if the daughter of the assessee was pursuing any other course, the father was morally bound to spend on the education of his daughter. Therefore, the fact that the daughter pursued the very same profession in which the father was , was not a material fact for incurring the expenditure. As also stated above by us, that the business of the assessee remained in the family alone, was also a major contributing factor for the father to incur this expenditure. Therefore, the primary and dominant purpose for incurring this expenditure was personal consideration and not professional consideration. With the logic advanced by assessee, every professional firm or business, incurring educational expenses for their progeny/ children would all claim the same as if for furtherance of their business, but it is not the case. The primary motive for incurring the expenses is to continue to carry the legacy of business and profession in the family and is purely personal in nature. We have no iota of doubt in holding the impugned expenditure as personal and not allowable therefore as business expenditure. Appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Whether the expenditure incurred by the assessee on the education of his daughter could be claimed as expenditure incurred for the purpose of the assessee's business.

Detailed Analysis:

Issue 1: Allowability of Education Expenses as Business Expenditure
Facts and Contentions:
- The assessee, an architect and interior designer, claimed education expenses for his daughter, who is an employee in his firm, amounting to Rs. 23,52,809 for her advanced studies in architecture.
- The assessee argued that these expenses were incurred wholly and exclusively for business purposes, emphasizing his daughter's qualifications, experience, and her agreement to work with the firm for five years post-education.

Arguments by Assessee:
- The daughter, a highly qualified architect, had studied at prominent institutions and interned with globally acclaimed architects.
- The knowledge and expertise gained by the daughter were substantially contributing to the business of the assessee's firm.
- The expenses were incurred solely for business purposes, not for personal reasons.
- The assessee cited various judicial precedents where similar expenses were allowed as business expenditures.

Arguments by Revenue:
- The primary purpose for incurring the expenditure was the personal relationship between the assessee and his daughter, making it a personal expenditure.
- The agreement between the father and daughter lacked authenticity and appeared to be an afterthought.
- The expenses were considered an appropriation of income and not necessary for earning income for the assessment year in question.
- Even if the expenses were for business progress, they would be considered capital expenditure, not revenue expenditure.

Tribunal's Findings:
- The Tribunal noted the relationship between the assessee and his daughter, emphasizing the moral obligation of parents in Indian society to support their children's education.
- The Tribunal found that the primary purpose of the expenditure was personal, to maintain the family business legacy, and not for business advancement.
- The contract between the assessee and his daughter was not deemed credible and appeared to be created to justify the expenditure.
- The Tribunal observed that the assessee had not incurred such education expenses for any other employee, indicating that the expenses were not for business purposes.
- The Tribunal concluded that the primary and dominant purpose for incurring the expenditure was personal, not professional.

Judicial Precedents:
- The Tribunal distinguished the cited cases, noting that they involved corporate assessees and different factual scenarios where the expenses were directly contributing to the business.

Conclusion:
- The Tribunal upheld the disallowance of the education expenses as personal expenditure, not allowable as business expenditure.
- The appeal of the assessee was dismissed.

Order:
- The Tribunal pronounced the order on 15th September 2022, dismissing the appeal and upholding the disallowance of the education expenses claimed by the assessee.