Law:

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Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowable as - Assessment year 1977-78 - Whether expenditure incurred on education of son of a director abroad could not be treated as business expenditure merely because son subsequently took part in business - Held, yes FACTS The assessee-company had claimed that Rs. 64,922 expended on meeting the cost of travel to USA and the expenditure connected with the education of the son of the director of the company, was deductible as business expenditure for the assessment year 1977-78 as the son had acquired an M.B.A. degree and had later on joined the company. There was no agreement between the son and the company before he was sent 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 director within a year after his return from the USA. Both the assessing authority and the Commissioner (Appeals) disallowed the claim. However, the Tribunal allowed the same as business expenditure. On appeal : HELD The expenditure permissible for deduction is expenditure that is wholly and exclusively laid out for the purposes of the 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. [Para 3] In the instant case, it was not the case of the assessee that it 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 acquired proficiency in the field in which they had been sent for training. It was evident that a director-father instead of incurring expenses from his personal account, had merely chosen to debit the expenditure of his son's education to the business of which he was the…

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