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Foreign education expenses of employee (son of director) deductible if there is business nexus

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Income Tax | Business Expenditure

Foreign education expenses of employee (son of director) deductible if there is business nexus

 Case: The assessee company had claimed the foreign education expenses of one employee, he happens to be the son of a director as business expenditure. He has also produced the extract of the Board meeting in which a decision was taken to send Mr.Dushyant, for further studies at UK.

The assessee also stated in the resolution that on coming back to India after completion of the studies, Mr.Dushyant will serve the assessee company at least for 5 years on a remuneration as mutually agreed with the Board of Directors.

Eventually, Dushyant Poddar was sent to U.K. for further study. The assessee incurred an expenditure of 23,16,942/- during the year under consideration.

 Income Tax Officer and ITAT Decision: The AO and ITAT in their orders refused to accept the assessee ‘s contentions and rejected the argument that the sum of 23,16,942/- could be claimed as business expenditure deductible under Section 37 of IT Act

 High Court, Delhi:

  • There can be no doubt that the burden of showing that expenditure would be wholly and exclusively for the purpose of business under Section 37(1) is  upon the assessee and that personal expenditure cannot be claimed as business expenditure
  • As to whether the assessee would have similarly assisted another employee unrelated to its management is not a question which this Court has to consider
  • But that it has chosen to fund the higher education of one of its Director’s sons in a field intimately connected with its business is a crucial factor that the Court cannot ignore. It would be unwise for the Court to require all assessee and business concerns to frame a policy with respect to how educational funding of its employees generally and a class thereof, i.e. children of its management or Directors would be done
  • In view of the above discussion, having regard to the circumstances of the case, this Court is of the opinion that the expenditure claimed by the assessee to fund the higher education of its employee to the tune of 23,16,942/- had an intimate and direct connection with its business, i.e. dealing in security and investments. It was, therefore, appropriately deductible under Section 37(1)

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About Mr. Vijayakanth

Background: Mr.Vijayakanth is actor turned politician (not fully turned, still acting!) of Tamil Nadu. He is popularly known as Captain Vijayakanth. He got this nickname after he acted in a movie titled ‘Captain Prabhakaran’

So, what is the issue? The issue is his nickname ‘Captain’

Petition at High Court, Chennai: One ex-serviceman by name Mr. K Dhandapani has filed a petition and his contention is – “He is an actor. To my knowledge he never served in the Army, but he has been using the term ‘Captain’ in a fraudulent manner. It is illegal and an insult to the honour and respect of the Indian Army”

So,what the Judge did?

Justice C T Selvam, before whom the petition came up for hearing, directed the Saligramam police to investigate the complaint and register an FIR if it reveals commission of any cognizable offence by the actor

Punch Line: No need to write any punch line for this matter. As you are aware around 3 Crores of cases pending in various Courts of India. You can frame your own opinion about the quality of this case.

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About CA Prasad Chartered Accountant

CA Prasad Chartered Accountant
CA Prasad is a practicing Chartered Accountant and partner in Bangalore -based CA Firm. For further information or query, please email it to [email protected]