By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi Chartered Accountants
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Section 37 – Expenditure incurred on foreign education of Mr. Goenka, the whole time director, under authority of a resolution passed pursuant to which an agreement between the assessee and Mr. Goenka, is a business expenditure which is allowable.
Facts:
The assessee had debited a sum of Rs. 33,95,589 to its P & L Account towards expenditure on foreign education of its whole-time director. In the course of assessment proceedings, in response to the show cause issued by the Assessing Officer asking the assessee to justify the allowability of this expenditure, the assessee submitted that it had sponsored MBA studies of whole-time director Sri Goenka and that expenditure was incurred to improve the management and profitability of the assessee company. The AO noted that there was no policy of company of sponsoring studies of employees. He also noted that Mr. Goenka was appointed as director on 29- 04-2002 and board resolution was passed on 24-07-2002 for his studies abroad and he resigned from the company on 18-10-2003 and was later reappointed. He noted that Sri Goenka is son of G. P. Goenka, chairman of the company. He disallowed the expenditure on the ground that it is a personal expenditure.
Aggrieved, the assessee preferred an appeal to CIT(A) who held that the assessee’s claim of improvement of business efficiency is contingent upon his completing MBA abroad and possibly meaningfully contribution to the appellant company thereafter. He held that since the business purpose is contingent, remote and in the realm of unforeseen and at least two steps away from the incurring of the expenditure, the same is not allowable.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
The Tribunal observed that there is no dispute that the expenditure has been incurred as per resolution passed at the meeting of the Board of Directors of the assessee and that pursuant to the resolution passed, an agreement was entered between the assessee and Sri Goenka, according to which he will work for two years after his return from USA. It also noted that this agreement was acted upon and that the facts of the case are covered by the ratio fo the decision of the Karnataka High Court in the case of Ras Information Technology Pvt. Ltd. (12 taxman 58)(Kar). It also noted that a similar view has been Ahmedabad Bench of ITAT in the case of Mazda Ltd. in ITA No. 3190/Ahd/2008. The Tribunal held that the expenses incurred by the assessee company on foreign education of whole-time director be treated as a business expenditure of the assessee and be allowed as a deduction.
The appeal filed by the assessee was allowed.
