ORDER
Mukul Shrawat, Judicial Member
1. This is an appeal filed by the assessee directed against an order of CIT(A) dated 30th October 98. Initially, the grounds raised were narrative as well as argumentative, hence it was directed to concise this ground, hence this appeal is hereby decided-as per the concised ground reproduced below:
1. In view of the facts and circumstances of the case, Assessing Officer has erred is disallowing expenditure of Rs. 1,71,500/-. Same being for the purpose of business/profession. Same may please be allowed in computation of Income.
This is the case of a doctor earning income from medical profession. During the course of assessment proceedings, it was noticed that the assessee has claimed a deduction of Rs. 1,71,500/- as business expenditure under the head “Educational and Training Expenses”. It was explained to A.O that the assessee’s son had taken admission in a Medical College and the said amount was in respect of fees paid for his education. The explanation submitted before the A.O was rejected due to following reasons, firstly, the expenditure was not for the purpose of business but as a matter of parental duty towards his son to meet education expense. The second reason for rejection was that the son was not a partner in the business of the assessee, hence not related with the business activity of the assessee. Due to this disallowance, the issue was carried before the first appellate authority.
2. Before the Learned CIT(A), it was explained that the fees was paid by the assessee for the admission of his son in MBBS. The claim of the assessee was that his son had joined him in the medical profession after completion of MBBS Course and in this manner helped in the profession of the assessee. It was also explained that the assessee at that time was running a small hospital known as “Naik Hospital” and earning professional income as a doctor. For smooth and efficient running, a professional from the family was a business necessity because the outside doctors employed hardly remained with the hospital for a month or so. Those doctors termed as “houseman” continued their employment for a short period due to which, the profession of the assessee was adversely effected. It was also brought to the notice of the Ld CIT(A) that there was a complaint against the assessee on the ground of professional negligence and his practicing licence was suspended for six months by Maharashtra Medical council. A compensation of Rs. 1,50,000/- was also awarded for the alleged negligence. So, it was argued that it was the business necessity to train his own son as a doctor, accordingly, the appellant has persuaded his son to join the MBBS Course. In turn, the appellant has agreed to bear the medical expenditure only to the extent of Rs. 3 lacs. There was an agreement with the son wherein the son undertook to serve the appellant as an employee for a period of 7 years after the completion of his studies and the son was also required to reimburse the training expenses. In view of the above facts, it was argued that the expenditure was incurred for the legitimate need of the business, hence allowable Under Section 37 of I.T. Act. The case-laws relied upon were ITO v. R. Gadesham &
Co. 32 TTJ 17, and M.P. Agricultural Corporation, 49 TTJ 450.
3. The Learned CIT(A) has considered at length the arguments of Ld. A.R. and remarked that every parent educates his son as it was done by the assessee. Merely because the assessee has educated his son for the same profession, in his opinion, it could not be said to be for the purpose of business or profession but the father had simply performed his parental duty. He has further remarked that if such an expenditure would allowed as a business expenditure, the law would become a laughing stock of itself in the eyes of general public. Further, he has remarked that if such type of an expenditure was to be allowed, then there was no reason as to why other educational expenses incurred for the education of children should also be not allowed as a deduction for various reasons such as Insurance of old age etc., According to him, appellant’s son should not be educated at the cost of the exchequer. Ld. CIT(A) has also examined the narrated precedents and arrived at the conclusion that those were not relevant in the present context. Thus, the addition was confirmed.
4. From the side of the appellant, the Ld. Counsel Mr. V.G. Bhide has appeared and filed a compilation consisting several submissions made before the authorities below, copy of agreement between son and father, details of expenditure claimed, few cited decisions and the evidences pertaining to compensation paid on account of medical negligence and correspondence of Medical Council. He has emphasized that the appellant was facing great difficulty in conducting his medical profession because of two reasons, firstly there was a charge against him of medical negligence by the Maharashtra Medical Council, resulting into suspension of licence for six months and compensation payment of Rs. 1,50,000/- and consequently, for running his hospital as “Naik Hospital”, he has to employ doctors termed as “houseman”. These doctors generally remain with the hospital for few months and after getting better opportunity and desired training from this hospital, preferred to leave the job. Due to these reasons, the assessee wanted a member of his family to look after the well established hospital and medical profession which was created by him after a long persuation and sacrifice. To preserve his medical practice and the medical business, he has persuaded his son to join MBBS Course and for that purpose, an agreement was also executed between father and son. In terms of the said agreement, the son was under obligation to join with the father in medical profession. In lieu of this assurance, the assessee has agreed to make the part payment of total medical fees. He has also stated that after the completion of MBBS Course, the son has actually joined with his father. The details of fees payment and necessary evidence are also placed on record. After narrating these facts, he has argued on law points. The Ld. A.R. has stated that it is not necessary to claim an expenditure that the assessee must actually earn income in the year in which the expenditure is incurred. One has to examine the purpose of expenditure and in this case, the purpose was for the survival and proper continuation of the business. It may be possible that after incurring such an expenditure, the other person may derive some benefit but it is not relevant. He has also vehemently argued that it is not justifiable to examine the relationship because the necessity of the business is the fundamental point which is to be examined in such type of expenditure. Again, referring the agreement dated 23rd August 93 between the assessee and son, he has mentioned that the business interest was duly protected by incorporating a clause that in case of breach of any terms, the son shall be responsible for re-payment of the expenditure incurred on his fees. So, he has stressed that the clause of reimbursement established that the expenditure was wholly and exclusively for the benefit of the business of the assessee. Another plank of his argument was that the expenditure incurred had a direct nexus with the existing profession of the assessee. According to him, this is not the case of expenditure unconnected with the ‘profession but the case is that the expenditure was also connected with MBBS degree, hence the nexus has also been proved. Several decisions have also been cited as follows:
1) Jhalani Holdings Pvt. Ltd 42 TTJ 116
2) Sasson J. David & Co. 118 ITR 261 (S.C)
3) Natwarlal Tribhuwandas 87 ITR 703 (Guj.)
4) Royal Calcutta Turf Club 41 ITR 414 (S.C)
5) Travancore Titanium Products (Pvt.) Ltd. 60 ITR 277 (S.C.)
6. CIT v. Delhi Safe Deposit Co. 133 ITR 756 (Del.)
So, he has concluded that since the expenditure incurred had a direct nexus with the profession of the assessee and the same was spent for the preservation of the existing medical profession, which was wholly and exclusively laid out for the purpose of the running business activity, hence on the basis of factum of the case, expenditure deserves to be allowed.
5. From the side of the revenue, Mr. Abhay Damle, the Ld. D.R. has appeared and vehemently opposed the arguments of the opposite side and relied upon the findings of the authorities below. It was stated at the outset that the expenditure was very much personal in nature being incurred by a father on the studies of his son. The law cannot permit such type of an expenditure, and if this type of relaxation is granted, then the scope of admissible expenditure shall have no limit and even for basic education of children, any business man can start claiming the deduction having utility of such education in future in the existing business. The scope of the admissibility of expenditure as prescribed Under Section 37(1) cannot be enlarged to this extent. Relying upon the decision of M. Subramaniam Brothers 260 IT 769 (Mad.) and another decision, the CIT v. K.K.R. Steels Pvt. Ltd. 258 ITR 306 (Mad.), he has vehemently argued that the father has fulfilled his obligation of providing good education to his son and for that purpose, expenditure should not have been allowed at the cost of the exchequer.
6. We have heard the submissions at length of both the sides. We must appreciate at the outset, the efforts of the Ld. Counsel. However, at this juncture, we want to make it clear that the scope of Section 37(1) cannot be enlarged to this extent. An analysis of Section 371(1) shows that any expenditure laid out or expended wholly and exclusively for the purpose of business or profession shall be allowed but the expenditure should not be personal expense of the assessee and also not in the nature of capital expenditure. Section 37(1) also forbids expenditure of the nature described in Sections 30 to 36 of IT. Act. If the expense is found to bear an element other than the trade or profession, interest of the assessee to expenditure is not an allowable one. To arrive at the conclusion that the expenditure was incurred solely for the purpose of business consideration one has to examine the nature of expenditure and its nexus with the business necessity. In the present case, the assessee although has placed necessary facts before the revenue authorities but still the commercial expediency was not justified. An allowability of expenditure is to be judged from the point of view of subjective standards and empirical character. The commercial expediency of a business-man’s decision to incur an expenditure has also to be judged with point of view of the necessity of the business. Though a business-man is the best judge, to determine the business expediency but he is not the best judge to determine its admissibility as prescribed under a statute. The decision of the business-man has to be tested on the touchstone of strict legal requirement. One has got to take into consideration questions of commercial expediency and the principles of ordinary commercial necessity and to weigh the same with the provisions of the statute. While considering whether a given case falls within the scope of Section 37(1), one of the tests to be applied is whether the expenditure is incurred by the assessae in his character as a common business-man or profession or whether it is incurred in some other capacity. In the present example such type of expenditure was not generally incurred by medical professionals to provide education to any student unconnected with the family. It is not the general ‘practice in this medical profession to nurture and engage medical students at the stage of medical study and to enroll them while in the medical colleges, definitely not a private practitioner. For eligibility of an allowance Under Section 37(1), there should be an existence of nexus between the expenditure and the purpose of the business. The nexus should be with the existing business needs and the nexus should not be between the persons. It is quite a far-fetched preposition that after the completion of education, the services of the son shall be utilized by the assessee. This cannot be termed as a nexus with the current medical profession. The nexus should be established with the day to day running of current business or profession. Next is the question that whether an expenditure had the effect of reducing the assessee’s taxable income and the sole purpose was to claim the expenditure at the cost of the exchequer without considering whether it was a prudent or judicious transaction or even without considering whether it was indispensable for the running of day to day business. Naturally, irrelevant considerations or remotely connected expenditure do not qualify the test of “wholly and exclusively for the purpose of business”. Definitely, in order to find out whether a claim is permissible under the provisions of Section 37(1), the facts of a particular case have to be taken as they are. It is not open in law to extend the scope of the admissibility of an expenditure merely relying upon the motive of the assessee having far-fetched and remote connection that too restricted to his son and not to any other outsider. It is not permissible in law to bring in such suppositions and then to find out whether the claim is allowable or not. This type of approach has to be curtailed, so that the scope of section should be applied in a reasonable and justifiable manner. Otherwise also, the cardinal principle of law is that in so far as the language of a provision of physical law is unambiguous, that has to be given fully effect without importing into it any imaginations, suppositions and far-fetched motive of a tax payer. In tax laws, a deduction cannot be permitted on the remote analogy of any other deduction or remote simplicity of a ratio laid down in a precedent. A deduction can be allowed only when it is provided under the Act explicitly and the nature of the expenditure is far from any ambiguity. With these observations, we have examined the decision of Hon’ble Madras High Court in the case of CIT v. R.K.K. Steel 258 ITR 306 (supra) and M. Subramaniam Brothers v. CIT 250 ITR 769 (supra). In both these decisions, the Hon’ble Court has unanimously held that the expenditure which a father incurs out of his natural love and affection for his children in meeting the cost of their education could not be a business expenditure merely because he was also the owner or the Director of a bus ness in which the son or daughter subsequently takes part. The view taken by the Hon’ble Court is directly applicable on the issue now raised before us. The court has also observed that as is also applicable in the present case that it is not the case of the assessee that the assessee had a scheme of sending people abroad for training with these stipulations that after receiving the benefit of training, they should work for the company and the monies expended on such training were in fact monies which were expended for the purpose of obtaining the benefit of their exports service after they acquired proficiency in the field in which they had been sent for training. Such expenditure does not become business expenditure merely because the father was in a position to debit the expenditure to the accounts of the business. Even the jurisdictional High Court in the case of CIT v. Hindustan Hoisery Industries 209 ITR 383 has opined that the expenditure in question which was incurred for sending the son to USA for higher studies was in fact the expenditure having no nexus with the business of the assessee and not deductible as business expenditure.
7. As far as the decisions cited from the side of the appellant is concerned, the same cannot be applied being distinguishable on facts as well as on the ratio laid down therein by the Hon’ble Courts. In this regard, the decision in the case Sasson J. David 118 ITR 261 (SC), the view was that the expression wholly and exclusively does not mean “necessarily”. Here in the present case, the assessee has even not established that the expenditure was wholly and exclusively required for the running of medical profession at the time when the expenditure was incurred. As far as the decision in the case of Tranvancore Titanium Products (Supra) is concerned, the ratio laid down therein supports the action of the A.O because it was observed that the expenditure must be directly and intimately connected with the business and must be laid out by the tax payer in his character as a trader being incidental to the business and justified the test of commercial expediency. Rather in the case, the assessee has not acted upon as a common medical practitioner because no other instance was quoted where in such profession this type of expenditure was generally incurred irrespective of any relation or connection on whom the expenditure was incurred. There is a decision of Hon’ble Gujarat High Court in the case of Natwarlal Tribhuvandas 87 ITR 703 (supra) wherein a partner had gone out of country to obtain further knowledge in the line of business of the firm. The basic distinction is that the firm has taken a decision at the time when it was a business necessity to send one of its partner to obtain higher educational qualification which was required to be utilized in the current business activity of the assessee. Likewise in the case of Royal Calcutta Turf Club (supra), the Hon’ble supreme Court has considered the facts of that case where a finding was that there was a reason of jockeys becoming unavailable and that such unavailability affects its business. Hence, the expenditure was incurred for the preservation of its business held to be wholly and exclusively for the purpose of the business. An another decision referred was in the case of Sakal Papers Pvt. Ltd. 114 ITR 256 (Bom). This was the case of a closely held company with two share-holders (Husband and Wife), both directors, published a leading Marathi newspaper. Their daughter, who was a Master of Arts with English and French, worked in the Editorial Department of the paper from September 1955. In pursuance of a resolution of the directors, the daughter was sent to USA in September 1960, for specialized education in Journalism and Business Administration. The decision was on the belief that the education would be good for the progress of paper. In those circumstances, it was held by the Hon’ble Court that merely because there was commitment or contract, the expenditure which was otherwise proper could not be disallowed, particularly when, as a result of that expenditure, the trainee had secured both a degree and training which would be of assistance to the assessee company. Further, a finding was also given that she had in fact served the company on her return to India. In those circumstances, it was held that the expenditure incurred on the foreign education of the daughter was allowable as a deduction. The distinguishing feature of this precedent is that the daughter had not gone for higher education as a relation of the director but through a resolution of the company, she was allowed to go abroad for education being an employee of the company, because admittedly, she was working in the Editorial Department of the paper. Otherwise also, a company is entitled for claim of a genuine expenditure incurred on the employees and merely because of relationship, it should not have been disallowed if proved to be wholly and exclusively for the purpose of the business. In this case, the admitted position is that her education abroad was directly going to improve the business of the assessee and in fact, after her return, she had joined the company. Contrary to this, in this appeal, the son of the assessee was not working in the medical establishment of the assessee and he was simply a student at that time. Hence, the expenditure incurred on the education of son was nothing, but personal expense of the assessee not entitled for claim Under Section 37(1) of the IT. Act.
8. In view of the foregoing discussion as well as on careful analysis of several precedents, discussed in the light of the facts of this case, we hereby confirm the findings of the authorities below and dismiss this ground of the assessee.
9. Resultantly, the appeal is dismissed.
The judgment is pronounced in the open court on 24-3-2006.