Friday, May 23, 2014

Exp. on higher education of director’s son was deductible as he committed to continue his employment after education

Where expenditure on higher education of employee had an intimate and direct connection with assessee's business, it would be deductible, even though such an employee was son of a director.

a)The assessee, engaged in business of dealing in securities and investment, had incurred expenditure on higher education of 'D', an employee of the company, who happened to be the son of a director, for undertaking an MBA course in the UK.

b)The Assessing Officer rejected the deduction under section 37(1). Further, the CIT(A) and the Tribunal upheld the disallowance. The aggrieved-assessee filed the instant appeal.

The High Court held in favour of assessee as under:

1)As assessee was in business of investments and securities and expenditure was incurred on MBA course of D, it couldn’t be said that course was unconnected with the business of the assessee.

2)The board of directors duly passed a resolution authorizing the disbursement of such expense. As assessee had secured a bond from ‘D’ by which he committed himself to work for a further five years period, after completing his MBA, such arrangement could not be regarded as a sham.

3)The expenditure claimed by the assessee to fund the higher education of its employee had an intimate and direct connection with its business, i.e., dealing in security and investments. It was, therefore, deductible under section 37(1). - KOSTUB INVESTMENT LTD. V. CIT [2014] 45 123 (Delhi)