Income Tax Appellate Tribunal - Ahmedabad
Asstt Cit vs P.C. Hathi on 27 August, 2003
Equivalent citations: (2004)86TTJ(AHD)306
ORDER
I.S. Verma, J.M.:
This is an appeal by the revenue against the order of the Commissioner (Appeals) dated 8-5- 1998, whereby he had allowed the expenditure incurred by the assessee towards education, for procuring degree in business management law in USA by way of the following ground :
"On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in allowing the claim of expenditure of Rs. 6,85,602 incurred by the assessee on foreign studies of the partner.
2. On the facts and in the circumstances of the case and in law the learned Commissioner (Appeals) ought to have upheld the order of the assessing officer.
3 It is, therefore, prayed that the order of the Commissioner (Appeals) be set aside and that of the assessing officer be restored."
2. I have heard the learned departmental Representative as well as the counsel for the assessee.
3. The learned departmental Representative admitted that the assessee was carrying on legal profession in various law including international laws and also the fact that Shri Adarsh Hathi was the partner of the assessee's firm styled as M/s P.C. Hathi, and has objected to the order of the Commissioner (Appeals) whereby he has allowed expenses incurred by the firm towards education i.e., for procuring degree in business management law in USA, by the partner Shri Adarsh Hathi, on the ground that assessee's claim that procuring of this degree was instrumental in increasing assessee's business with foreign clients is not correct because assessee was already dealing with the cases of foreign clients. The learned departmental Representative further submitted that the expenses incurred to enhance the knowledge to be used in future is prcurement of a capital asset and cannot be revenue expenditure. The learned departmental Representative submitted that even it is considered to be revenue expenditure then also, the partner having become non-working partner just after leaving India, any payment made to him or expenditure incurred on him is disallowable under section 40(b) of the Income Tax Act, 1961. The learned departmental Representative further submitted that there being no agreement between the assessee and the partner that after procuring the degree he will remain working with the assessee and that there being no nexus between the education procured by the partner and the business of the assessee, the expenditure was not admissible and for this purpose he has relied on the decision of the Hon'ble Bombay High Court in the case of CIT v. Hindustan Hosiery Industries (1994) 209 ITR 383 (Bom).
3.1 The counsel for the assessee, on the other hand, first of all submitted that simply because there was no written agreement that the partner will continue with the assessee-firm after coming back from USA is not relevant for allowance of the expenditure and in support of this submission relied on the decision in case of M/s Sakal Papers (P) Ltd. v. CIT (1978) 114 ITR 256 (Bom). With respect to learned departmental Representative's objection that the expenditure will not be allowable under section 40(b) of the Act, the counsel for the assessee, after relying on the decision of the Hon'ble High Court of Gujarat in the case of CIT v. Natwarlal Tribhovandas (1973) 87 ITR 703 (Guj) where the Hon'ble High Court has considered the meaning of "actively engaged in the conduct of business" has held that the knowledge gained by the partner during the stay abroad would ultimately benefit the firm and help it in carrying on its business more efficiently and also to expand its business and that income earned by the partner from the firm was, therefore, earned income within the meaning of section 2(7)(iii)(b) of the Finance (No. 2) Act, 1962, submitted that in the present case though the partner had gone to USA but had remained actively engaged in the conduct of the assessee's business and, therefore, provisions of section 40(b) were not applicable. With regard to capital nature, the counsel for the assessee has submitted that expenses will be of capital nature if incurring on such expenses brings about a capital asset appearing in the balance sheet or otherwise, but in the present case no such evidence having been brought and not appearing in the balance sheet the expenses incurred cannot be of capital nature. In support of his submission, the learned counsel relied on the decision of the Supreme Court in the case of Empire Jute Co. Ltd. v. CIT (1980) 124 ITR 1 (SC) 3.2 The counsel for the assessee, after having met the objections raised by the learned departmental Representative by way of the aforesaid submissions, submitted that the expenditure in question was of revenue nature and for the betterment and the same is rejected. In support of his submission, he has relied on the following two decisions of the Tribunal :
(i) B.K. Seshu v. ITO (1984) 10 ITD 365 (Hyd) ITAT 'C' Bench Hyderabad
(ii) un-reported decision of the Tribunal Ahmedabad 'C' Bench in the case of Shri Labhahankar Jathalal, Purani, v. Income Tax Officer for assessment year 1986-87 in ITA No. 1074/Ahd/1992 dated 15-5- 1997, wherein the expenses incurred by the assessee on the education of his son who had gone abroad were allowed as business expenses.
4. I have considered the rival submissions, the facts and circumstances of the case and the various decisions relied upon by the parties.
5. So far as the decision of the Hon'ble High Court of Bombay in the case of CIT v. Hindustan Hosiery Industries (supra) is concerned, I am of the opinion that the same is not of any help to the revenue because in that case there was a specific finding that the education procured by the partner going abroad had no nexus with the nature of business of the assessee but in the present case there is direct nexus between the type of education procured by the partner and the business of the assessee and, therefore, the learned Commissioner (Appeals) has rightly distinguished the same from assessee's case.
6. According to the nature relied by the assessee and the reasons stated by the Commissioner (Appeals), I am of the opinion that the expenses incurred by the assessee-firm towards the education i.e., procurement of degree in business management in law by one of its partners, was definitely in the nature of revenue expenses and therefore, I do not find any reason to interfere with the findings of the Commissioner (Appeals) which are in the following terms :
"3. I have considered the facts of the case. In the case of CIT v. Hindustan Hosiery Industries (1994) 209 ITR 383 (Bom) which was a firm consisting of a mother and four sons, one of the sons was sent to USA for higher studies, at the same time when he was taken as a partner. The said partner obtained the degree in business management in USA. The Income Tax Officer did not allow the claim of the assessee on the ground that it was a personal expenditure. The Commissioner (Appeals) confirmed the disallowance but the Tribunal allowed the claim. The High Court held that the expenditure incurred by the assessee had no nexus to the business of the assessee and was not deductible as business expenditure. In the case of the appellant, Shri Adarsh Hathi was a partner in 1990 and he went abroad many years after joining the firm. The discipline in which the partner graduated in USA was the same discipline in which he had practice in India as a partner of the firm. There, therefore, appears to be a nexus between the expenditure and the knowledge attained by the partner. In the case of CIT v. Dr. M.S. Shroff (1971) 80 ITR 687 (Del) who was a surgeon, the Delhi High Court held that the tour expenses of foreign countries to visit hospitals to keep abreast of latest technique was an expenditure which was an allowable one. In my view, considering these two decisions there is a direct nexus between the incurring of expenses for acquisition of knowledge by the partner Shri Adorsh Hathi for the business of the firm. Therefore, the expenditure is an allowable expenditure and has to be allowed as a deduction from the total income. The assessing officer is directed to allow the same."
7. The aforesaid decision is further fortified by the following decisions
(i) The decision of the Hon'ble High Court of Bombay in the case of Sakal Papers (P) Ltd. v. CIT (1978) 114 ITR 256 (Bom) where the expenditure incurred by a company in which the husband and wife as shareholders and directors and running Marathi newspaper, towards specialized higher education and to obtain practical training in printing and lithography by their daughter who was holding MA degree in French and English working in editorial department of the company was held to be revenue expenses, after holding that the expenditure incurred for foreign education cannot be disallowed merely because there was no undertaking by the trainee or there was no contract or bond of service with the company in future.
(ii) By the decision of the Tribunal, Hyderabad 'A' Bench in the case of B.K. Seshu v. Income Tax Officer (supra) where the expenses incurred by an advocate who had attended international conferences held abroad in the capacity of delegate of Bar Council of India and studied legal systems of foreign countries during his stay abroad, have been held to be deductable expenses.
(iii) Un-reported decision of the Tribunal, Ahmedabad 'C' Bench in the case of Shri Labhahankar Jathalal, Ahmedabad for assessment year 1986-87 in ITA No. 1074/Ahd/1992, dated 15-5-1997, where the Hon'ble Bench has allowed the expenses on the training of an employee, who happended to be assessee's son, in foreign country.
8. In the result, the order of the Commissioner (Appeals) is confirmed and the revenue's appeal is dismissed.