Madras High Court
M. Subramaniam Brothers vs Commissioner Of Income-Tax on 13 December, 2000
Equivalent citations: [2001]250ITR769(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT R. Jayasimha Babu, J.
1. Counsel contends that form should prevail over substance. The assessee is a partnership firm consisting of father and three children, two sons and a daughter. The sons were aged 23 and 21. The assessment year was 1979-80. The head of the family who was a partner of the firm claimed the amounts spent on educating his younger son abroad as business expenditure. That claim having been negatived by the Income-tax Officer and the Tribunal, though it had been allowed by the Commissioner, the present reference has been brought before us by the assessee. The assessment years with which we are concerned are 1978-79 and 1979-80.
2. The son who went abroad had been initially admitted to the firm even as a minor to share the benefits of the partnership. He attained majority in the year 1974. He did not take active part in the business of the firm but continued his studies for B.Com. and then M.Com. After completing his studies in India, he went abroad to do M.B.A. He returned to India in 1979. It is only after his return, he appears to have taken some part in the business activities of the firm.
3. Counsel contended that had the firm sent an employee of the firm, to undergo training abroad and such training was found to be useful to the business of the firm, the expenditure on such training would have been allowed as deduction and the fact that the person who was sent abroad is the son of a partner should not result in the denial of the benefit of that deduction. Counsel referred in this context to the agreement dated August 11, 1977, between the firm consisting of the partners, Sri T. V. Subra-
maniam, Sri T. S. Viswanathan and Miss T. S. Sudha and T. S. Viswanathan under which, Viswanathan was required not to engage himself in any other business to the detriment of the firm, to join the firm after he returns from abroad, and serve the firm for a period of five years. That agreement does not provide for any penalties in the event of breach.
4. The terms of the agreement cannot be decisive as to the true intent and purpose of the arrangement. The firm is one founded by the father T. V. Subramaniam. He had admitted his children even when they were minors to the benefit of the partnership. The children continued their studies even after attaining the age of majority. The fact that one of the sons Viswanathan was sent abroad for further study, cannot be regarded as a deputation made by the firm of one of its partners in connection with the business of the firm. It was in substance, only a step taken by the father who is naturally interested in giving the best possible education to his son, and had sent him abroad to get a higher degree after he completed his B.Com. and M.Com. in India. The agreement that was drawn up was merely one which was intended to give a colour of commercial expediency and was rightly not relied upon by the Tribunal.
5. Counsel for the assessee invited our attention to the decision of the Madhya Pradesh High Court in the case of CIT v. Kohinoor Paper Products wherein the court upheld the deduction claimed by the firm, of the expenses incurred in educating one of the partners of the firm abroad for three years. Having perused that judgment, we are unable, with great respect, to agree with what has been held therein.
6. We find ouselves in agreement with the approach of the Bombay High Court in the case of CIT v. Hindustan Hosiery Industries [1994] 209 ITR 383 wherein the facts were somewhat similar. There also, the son of a partner aged 21 was sent abroad to obtain a degree in business management and the expenditure on his education claimed as deduction was negatived by the High Court holding that the expenditure was of personal nature and not business expenditure.
7. The question referred to us as to whether the Tribunal was right in holding that a sum of Rs. 51,019 incurred by the appellant for the assessment year 1978-79 and the sum of Rs. 20,764 for the assessment year 1979-80 in connection with the training of its partner, Mr. T. S. Viswanathan, is not an allowable deduction in the hands of the firm, is answered in favour of the Revenue and against the assessee.