High Court Of Madras
CIT vs. R.K.K.R. Steels (P) Ltd.
Asst. Year 1977-78
R. Jayasimha Babu & C. Nagappan, JJ.
Tax Case No. 217 of 1988
26th November, 2001
Mrs. Chitra Venkataraman, for the Applicant : None, for the Respondent
R. Jayasimha Babu, J. :
The Tribunal has accepted the assesseeâs case that the expenditure incurred on the education of the son of the director abroad should be treated as business expenditure, reversing the view of the CIT(A) and the assessing authority. The assessment year is 1977-78. The assessee which is engaged in re-rolling and manufacturing of steel had claimed that the sum of Rs. 64,922 expended on meeting the cost of travel to USA and the expenditure connected with the education of the son of Balwant Rai who was the director of the company, is deductible as business expenditure as the said Rajiv Rai had acquired a M.B.A. degree and had later on joined the company. There was no agreement between Rajiv Rai and the company before he was sent to abroad. There was no requirement that he should join the company after completing his education. Being the son of the director of a private limited company which was apparently family owned he became a director of the company within a year after his return from U.S.A.
It was canvassed for the assessee before the Tribunal that the fact that Rajiv Rai was the son of the director of the company should not be held against him and the expenditure incurred on his training was in fact, an expenditure which was to the benefit of the company as he subsequently became a director. If this logic were to be accepted, in every family owned business, all the expenditure incurred in bringing up the children who may later on be given a role in the business as partners or directors could be claimed as business expenditure incurred in training the prospective employees and directors of the business. The expenditure permissible for deduction is expenditure that is wholly and exclusively laid out for the purposes of business. The expenditure which a father incurs out of his natural love and affection for his children in meeting the cost of their education cannot become a business expenditure merely because he is also the owner or a director of a business in which the son or daughter subsequently takes part. It is not the case of the assessee that the assessee had a scheme of sending people abroad for training with the stipulation that after receiving the benefit of training they should work for the company and that moneys expended on such training were in fact, moneys which were expended for the purpose of obtaining the benefit of their expert service after they acquire proficiency in the field in which they had been sent for training. It is evident that a director-father had, instead of incurring expenses from his personal account, which he should have, had, merely chosen to debit the expenditure of his sonâs education to the business of which he was the director. Such expenditure does not become business expenditure, merely because the father was in a position to debit the expenditure to the accounts of the business. The Tribunal was clearly in error in accepting and allowing the claim which had been rightly disallowed by the AO and by the CIT(A) in appeal. This Court considered a similar claim of a father debiting the expenditure of the education of his sons to the business, in the case of M. Subramaniam Bros. vs. CIT (2001) 170 CTR (Mad) 527 : (2001) 250 ITR 769 (Mad). In that case, the father had sent his son abroad for higher education. The son as a minor had been admitted to the benefits of partnership and only after returning he took part in running the business of the firm. It was held by the Court that the expenditure incurred on the education of the son before he joined the business was not an expenditure in respect of which deduction would be granted.
The question referred to us as to whether on the facts and circumstances of the case, the expenditure on foreign travel amounting to Rs. 64,922 of Rajiv Rai, son of the director of the company can be said to have been incurred for the purpose of the business and was admissible deduction, is answered in favour of the Revenue and against the assessee.
[Citation : 258 ITR 306]