Business expenditure: Section 37: A. Y. 2006- 07: Expenditure on foreign education of employee (son of director) is deductible if there is business nexus:

In the relevant year, the assessee company had claimed the deduction of an expenditure of Rs. 23,16,942/- being expenditure on higher education of an employee, who happens to be the son of directors, for undertaking an MBA course in the UK. The Assessing Officer disallowed the claim for deduction and the Tribunal upheld the disallowance.

The Delhi High Court allowed the appeal filed by the assessee, reversed the decision of the Tribunal and held as under:

“i) Whilst there may be some grain of truth that there might be a tendency in business concerns to claim deductions u/s. 37, and foist personal expenditure, such a tendency itself cannot result in an unspoken bias against claims for funding higher education abroad of the employees of the concern. 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 son in a field intimately connected with its business is a crucial factor that the Court cannot ignore.

ii) It would be unwise for the Court to require all assesses 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. Nor would it be wise to universalise or rationalise that in the absence of such a policy, funding of employees of one class – unrelated to management – would qualify for deduction u/s. 37(1). We do not see such a intent in the statute which prescribes that only expenditure strictly for business can be considered for deduction. Necessarily, the decision to deduct is to be case dependent.

iii) 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 Rs. 23,16,942/- had an intimate and direct connection with its business, i.e., dealing in security and investments. It was, therefore, appropriately deductible u/s. 37(1).

iv) The Assessing Officer is thus directed to grant the deduction claimed.”