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TMI Blog2009 (11) TMI 690X X X X Extracts X X X X X X X X Extracts X X X X ..... ducational expenses incurred on a partner holding that the said expenses are personal in nature. The above expenditure was incurred not only on tuition fees but also on personal expenditure involving the element of lodging and boarding. During the first appellate proceedings, the assessee made various submissions which are reflected in paragraph 2.1 of the impugned order and relied on various citations to advance its case and argued that the said expenditure incurred on partner is an allowable expenditure. The Commissioner of Income-tax (Appeals) also perused the judicial pronouncements relied upon by the assessee and held that the said judgments are distinguishable and are not applicable to the facts of the case. At the end of the first appellate proceedings, the Commissioner of Income-tax (Appeals) analysed the provisions of section 37(1) as well as the facts of the case and as per the discussion in paragraphs 2.4 to 2.7 of the impugned order, the Commissioner of Income-tax (Appeals) confirmed the addition made by the Assessing Officer. Aggrieved with the same, the assessee filed an appeal before us. During the proceedings before us, learned counsel for the assessee narrated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the firm from October, 1998 and he is a commerce graduate. He took up post graduation education in the U. K. and obtained B.A. in Business Study and M.A. in Strategic Marketing. For this, he had to stay in the U. K. from September 8, 2001 to March, 2002 (six months) and also from June, 2002 to June, 2003 (one year). The firm incurred an expenditure of Rs. 10,96,503 in this regard on Mr. Ashwin P. Gandhi. The human resource capabilities acquired by Mr. Gandhi by virtue of said foreign education are available to the firm and thus the expenditure is business in nature and therefore, allowable under section 37 of the Act. The expenditure includes tuition fee, boarding and loading charges. As per the assessee, the impugned expenditure is wholly and exclusively for the business purposes of the assessee and as per counsel, absence of immediate improvement in the business of the assessee in terms of enhanced turnover or profits is no indicator of the translation of his capabilities into better turnover and profits. Per contra, the case of the Revenue is that obtaining higher education is a part of a partner's life and the expenditure incurred on him is personal in nature. It is everybo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aphs 2.4 to 2.7 of the order detailed the provisions of section 37 of the Income-tax Act and analysed the assessee's facts in the light of the same. Paragraphs 2.5 to 2.7 read as follows : "2.5 On the facts, the expenditure on foreign education of Shri Ashwin Gandhi who is a partner is held to be personal expenditure of the partner. This is a case of the firm which is collective name of partners. This being so, the expenditure incurred on education of a partner is held to be personal expenditure of the assessee. The expenditure is also held to be not laid out and expended wholly and exclusively for the purposes of business or profession of the assessee. In fact, the expenditure is for increasing the qualification of partner and such partner is being paid salary. There is tremendous increase in salary of partner subsequent to foreign education expenditure which is being claimed as business expenditure by the appellant. This clearly shows that the education has increased personal qualification of the partner which is the reason for tremendous increase in salary. 2.6 The decisive test in a situation like this is to ask a question whether an assessee will incur expenditure of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about the same time when Vijaykumar was sent for higher studies to the U. S. A. as aforesaid. The age of Shri Vijaykumar was 21 at the material time, the assessee claimed that the expenditure amounting to Rs. 60,678 incurred by the assessee for the training of Shri Vijaykumar Kejriwal be allowed as business expenditure. The Income-tax Officer rejected the claim of the assessee on the ground that the expenditure incurred was of personal nature and not a business expenditure. The Commissioner of Income-tax (Appeals) and the Income-tax Officer rightly held that there was no nexus between the business of the assessee and expenditure incurred. However, the Tribunal accepted the claim of the assessee. Having regard to the facts of the case, it is not possible to agree with the view taken by the Tribunal. We have gone carefully through the orders of the Tribunal, the Commissioner of Income-tax (Appeals) and the Income-tax Officer. It is not possible to accept the submissions of learned counsel for the assessee that the expenditure in question was incurred in relation to the business of the assessee-firm. We have no hesitation in recording our conclusion to the fact that the expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partners in connection with the business of the firm. It was in substance, only a step taken by the father who is naturally interested in giving the best possible education to his son, and had sent him abroad to get a higher degree after he completed his B. Com and M.Com. in India. The agreement that was drawn up was merely one which was intended to give a colour of commercial expediency and was rightly not relied upon by the Tribunal. Counsel for the assessee invited our attention to the decision of the Madhya Pradesh High Court in the case of Kohinoor Paper Products [1997] 226 ITR 220 (MP) wherein the court upheld the deduction claimed by the firm, of the expenses incurred in educating one of the partners of the firm abroad for three years. Having perused that the judgment we are unable to, with great respect, to agree with what has been held therein. We find ourselves in agreement with the approach of the Bombay High Court in the case of Hindustan Hosiery Industries [1994] 209 ITR 383 (Bom) wherein the facts were somewhat similar, there also the son of the partner aged 21 was sent abroad to obtain a degree in business management and the expenditure on his education claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal requirement. One has got to take into consideration questions of commercial expediency and the principles of ordinary commercial necessity and to weigh the same with the provisions of the statute. While considering whether a given case falls within the scope of section 37(1), one of the tests to be applied is whether the expenditure is incurred by the assessee in his character as a common businessman or profession or whether it is incurred in some other capacity. In the present example, such type of expenditure was not generally incurred by medical professionals to provide education to any student unconnected with the family. It is not the general practice in this medical profession to nurture and engage medical students at the stage of medical study and to enrol them while in the medical colleges, definitely not a private practitioner. For eligibility of an allowance under section 37(1), there should be an existence of nexus between the expenditure and the purpose of the business. The nexus should be with the existing business needs and the same should not be between the persons. It was quite a far fetched proposition that after the completion of education the services of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases, the persons who are educated abroad attained skill, capabilities, experiences, exposures and other inputs and however, they are not considered adequate enough to qualify to fall in the ambit of section 37(1) of the Act in general and in the scope of the expression "wholly and exclusively" used therein for becoming eligible for claim of allowable deduction. In all those cases, the expenditure on foreign education of the partner-cum-son borne by the firms was attempted to be justified in name of business purposes of respective assessees and however, the same was rejected by the hon'ble High Courts in the absence of factor of commercial expediency. In the present case, from the submissions and arguments of counsel, the only crystallised event said to be achieved by Mr. Gandhi during the post 2002 period is about acquiring the additional lands and premises for expansion and the same in our opinion, cannot justify the expenditure of Rs. 10,96,503 on foreign education of Mr. Gandhi. This acquisition could have been done by any partner without foreign education. Further, in our opinion, the case of Mr. Gandhi, a commerce graduate is no different from the case of the partner Sri Vis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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