Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 2003-04 - Commercial expediency is distinct from ordinary needs of firm; practice of sponsoring children of partner of firm in guise of commercial expediency is not to be encouraged by bringing under scope of section 37(1) cases where there is no commercial expediency [In favour of revenue] Commercial expediency is distinct from the ordinary needs of the firm; the practice of sponsoring the children of the partner of the firm in the guise of commercial expediency is not to be encouraged by bringing under the scope of section 37(1) cases where there is commercial expediency. The nexus of expenditure by the firm with the business purpose should be distinguished from the nexus of the beneficiary of such expenditure with the partners of the firm. It is evident that the expenditure on foreign education of the son-turned partner of the firm or the partner himself is not an allowable expenditure and the provisions of section 37 are to be applied in a reasonable and justified manner. The acquisition of educational qualification is manifested in the form of award of certificates by the colleges or universities as the case may be. These are personal acquisitions of that person concerned and, therefore, constitute the right of that person. Consequently, the expenditure incurred for acquiring such right is personal in nature. Primarily, these certificates or degrees or knowledge or experiences or exposures being personalised ones, essentially contribute for the furtherance of the career of that person. Further, the contribution if any of that person for the firm are auxiliary one. For this reason, the expenditure incurred for such auxiliary benefits of the firm cannot be termed as 'wholly and exclusively for business purpose' of the firm within the meaning of section 37(1). Unless the commercial expediency of the firm is demonstrated, such personal expenditure cannot become the expenditure of the firm, where he is a partner. The assessee was engaged in trading in cloth and readymade garments. In its return, the assessee had claimed a sum of Rs. 10,96,503 on account of…

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