1997 (3) TMI 134 - AT - Income Tax

A Partner A Partner Assessment Year Assessment Year Business Expenditure Partnership Firm Partnership Firm

Summary

Issues:
1. Deduction of medical expenses incurred for the treatment of the managing partner.
2. Disallowance of expenditure related to the payment of subscription to the Rotary Club.

Analysis:

Issue 1: Deduction of Medical Expenses
The appeal concerned the disallowance of a deduction claimed by a partnership firm for medical expenses incurred in connection with the treatment of the managing partner. The firm argued that the expenditure was necessary to protect and preserve the business interest as the managing partner was crucial to the firm's operations. The Commissioner (Appeals) upheld the disallowance, stating that the business necessity concept did not extend to covering the health and well-being of a partner. The firm contended that the expenditure was allowable under sections 40(b) or 37 of the IT Act. The Tribunal analyzed relevant case laws cited by the firm's counsel but found them not directly applicable to the case. It was observed that the expenditure primarily benefited the partner personally, aiming for a longer life, and did not meet the "wholly and exclusively" requirement under section 37(1) of the Act. Previous tribunal decisions highlighted that if an expenditure serves both personal and professional purposes, it cannot be allowed as a business deduction. Considering the substantial shareholding of the managing partner and the disproportionate impact of the medical expense on the firm's profits, the Tribunal confirmed the disallowance.

Issue 2: Disallowance of Rotary Club Subscription
The second ground of the appeal related to the disallowance of expenditure incurred for the payment of subscription to the Rotary Club. Both the Assessing Officer and the CIT(A) rejected the claim without providing reasons. The firm argued that membership in the club was necessary in the current socio-business environment and constituted allowable expenditure for business purposes. The Tribunal, after considering the arguments and a relevant case law cited by the firm's counsel, concluded that the payment of subscription to the Rotary Club qualified as revenue expenditure for the purpose of business. Consequently, the Assessing Officer was directed to allow the deduction.

In conclusion, the appeal filed by the assessee was partly allowed, with the deduction for the Rotary Club subscription being permitted while the disallowance of medical expenses for the managing partner's treatment was upheld.