2004 (9) TMI 308 - AT - Income Tax

Business expenditure - Disallowed foreign study expenses incurred by a company for the daughter of a director and employee - disallowed loss on sale of assets of independent assets - HELD THAT - We do not agree with the view of the AO that the subject business administration does not have any connection with the business carried on by the assessee-company. If we accept the proposition made by the AO, the result would be that the expenditure on foreign study incurred by an assessee in respect of technical subjects alone would be allowed as deduction. It is not proper to say that management studies are not relevant for carrying on a business. Therefore, the distinction made by the AO on the basis of the subject studied abroad is without any conviction. But, for the difference in the subjects studied abroad, the facts of the case reported in Sakal Papers (P) Ltd. vs. CIT 1977 (11) TMI 36 - BOMBAY HIGH COURT are exactly similar to the facts involved in the present case. Miss Reshma Lalwani, being an employee of the assessee-company, the case of the assessee-company is on a better footing. In addition to this, the decision of the Tribunal in the case of D.M. Harish Co., lent support to the argument of the assessee. In the said case also it was the son of a partner of the assessee-firm, who went abroad for higher studies in law. Therefore, the relation of the student with the director or partner of the assessee need not weigh that much against the assessee. Furthermore, it is to be seen that the AO has allowed the same expenditure for the immediately succeeding asst. yr. 1998-99 in the case of Miss Reshma A. Lalwani herself. Therefore, we do not find any reason why the expenditure incurred for the same event should not be allowed in the impugned asst. yr. 1997-98. Therefore, we direct the AO to treat the amount as a business expenditure and allow the same as deduction in computing assessee's taxable income. The loss, if any, arising on sale of an asset will be automatically reflected in the value of the corresponding block of asset. It is the same case with profit also. Therefore, even if there is a loss on sale of an individual asset, the same cannot be independently considered for computing the income. On the other hand, the loss shall go to reduce the value of the connected block of asset, thereby resulting in a marginal reduction in the amount of depreciation to be claimed by the assessee. Therefore, the disallowance made by the AO is in order. The said ground is, therefore, dismissed. In the result, this appeal filed by the assessee is partly allowed. Ordered accordingly.

Summary

Issues Involved:
The appeal involves the deductibility of foreign study expenses incurred by a company for the daughter of a director and employee, sundry expenses disallowance, and loss on sale of assets.

Deductibility of Foreign Study Expenses:
The assessee, a manufacturing company, claimed Rs. 6,75,237 as deductible foreign study expenses for the director's daughter and employee. The AO disallowed the expenditure citing a previous court decision. The Tribunal found the case similar to a precedent where the daughter of a director was sent abroad for studies. The Tribunal disagreed with the AO's reasoning that the subject studied did not directly relate to the company's activities, emphasizing the relevance of management studies in business. The Tribunal directed the AO to treat the amount as a business expenditure and allow it as a deduction.

Sundry Expenses Disallowance:
The CIT(A) confirmed the disallowance of sundry expenses of Rs. 4,000, which the assessee did not press, leading to its dismissal.

Loss on Sale of Assets Disallowance:
The CIT(A) upheld the disallowance of a loss of Rs. 43,000 on the sale of assets, explaining that post the introduction of the "block of asset" concept, individual asset sale profits or losses are not independently considered. Such gains or losses automatically affect the block of assets, impacting depreciation claims. The Tribunal dismissed this ground, affirming the AO's decision.

In conclusion, the appeal was partly allowed, with the Tribunal directing the AO to allow the foreign study expenses as a deduction while dismissing the grounds related to sundry expenses disallowance and loss on sale of assets.