Law: Income Tax Act, 1961

Section: 37(1)

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Education expenses) - Assessment year 2005-06 - Assessee-company was running a hospital - Assessee claimed deduction of a sum spent on higher education of daughter of managing director of assessee-company - Assessing Officer disallowed assessee's claim on ground that expenditure was incurred by director out of his natural love and affection for his daughter and meeting cost of their education could not become a business expenditure - However, daughter was sent abroad for acquiring specialised kowledge in medical field and after acquiring same, she came back and she was working with assessee - Whether where there was direct nexus between expenses incurred towards daughter's education with business which assessee was carrying on, said expenses were to be allowed under section 37(1) - Held, yes [para 6] [In favour of assessee] CASES REFERRED TO CIT v. Ras Information Technologies (P.) Ltd.[2011] 12 taxmann.com 158/200 Taxman 305 (Kar.) (para 5). JUDGMENT N. Kumar, J. - The assessee has preferred this appeal against the impugned order, where it has been held that the disallowance of expenditure of Rs. 5,00,000 spent for the education of Dr. Gauri Sriram is justified as the said amount spent on her did not accrue any benefit to the assessee company. 2. The assessee is a private limited company running a hospital. The assessee filed return of income for the assessment year 2005-06 on October 31, 2005, declaring a total income of Rs. 94,43,461. The assessee claimed deduction in a sum of Rs. 5,00,000 spent for the higher education of Dr. Gowri S. D/o. Dr. A.C. Sriram and Mrs. Kala Sriram, who are managing director and executive director of the company. The exemption was claimed on the ground that their daughter was committed to work for the assessee after successful completion of her studies. It is not in dispute that after successful completion of studies, she has come back and working in the said assessee-company. She was paid a sum of Rs. 20,000 per month as salary before she was sent for higher studies. After returning, she is being paid Rs. 30,000 per month. The assessing authority…

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