Sakal Papers Pvt. Ltd v. Cit, Poona 1977 Scc Online Bom 199

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.199 OF 2002 Indian Galvanics Cyrium Foils Ltd.a company registered under the Indian Companies Act, 1956 and havingits office at 1009-10, Maker ChamberV, Nariman Point, Mumbai-400 021. ......Appellant V/s.1 Deputy Commissioner of Income-taxCIR 4(4),Aaykar Bhawan, M.K.Road,Mumbai-400 021.2 The Commissioner of Income-tax(Appeal)-XLI, Aaykar Bhawan,M.K.Road,Mumbai-400 021.3 Income-tax Appellate TribunalBench, Mumbai Bench 'A', CGSBuilding, M.K.Road,Mumbai-400 020........Respondents Mr. Pulkit Sharma with Mr. Sanket Shah i/by Akshar Laws,Advocates for Appellant.Mr. Suresh Kumar , Advocate for Respondents. CORAM : M.S.SANKLECHA & SANDEEP K. SHINDE, JJ. RESERVED ON : 27TH JUNE, 2018.PRONOUNCED ON : 6TH JULY, 2018 JUDGMENT : This Appeal under Section 260A of the Income-tax Act, 1961 (Act) is preferredbytheAppellants-Assessee against the order dated 18.10.2001 (hereinafterreferred to as 'impugned order') passed by the Income TaxAppellateTribunal(Hereinafterreferredtoas'Tribunal'),Mumbai Bench 'A', Mumbai in relation to Assessment Year1997-98.TheAppealwasadmittedon2.9.2014onthefollowing substantial question of law: “Whether the Tribunal erred in law indisallowinganamountofRs.11,76,540/-asabusinessexpenditureundertheIncomeTaxAct, 1961 ? “ Factual matrix: 2TheAppellants-Assesseeisacloselyheldindustrial company engaged in manufacturing copper foilsat District:GandhiNagar.It's administrativeofceis atMumbai. During the previous year ending on 31.3.1997,theAppellant-AssesseeincurredexpenditureofRs.11,76,540/- under the head 'Management Training andDevelopmentexpenditure'.Itwasincurredforhighereducation and training of Shri Harsh Kumar who had beensent to USA for course in “Business Administration”. Shriindustrial company engaged in manufacturing copper foilsat District:GandhiNagar.It's administrativeofceis atMumbai. During the previous year ending on 31.3.1997,theAppellant-AssesseeincurredexpenditureofRs.11,76,540/- under the head 'Management Training andDevelopmentexpenditure'.Itwasincurredforhighereducation and training of Shri Harsh Kumar who had beensent to USA for course in “Business Administration”. Shri Harsh Kumar is son of one of the directors, Shri Arun KumarDalmia. Inthecourseoftheassessment,itwas 3Inthecourseoftheassessment,itwasexplained that expenditure was incurred for the purpose ofAppellants' business, so as to ensure better administrationin long run. That, as such Appellants thought it ft to trainsuitable employee. It is Appellants' case that an agreementwas executed by the concerned employee, who then hadcommitted to serve Appellants-Assessee for ten years. Itwas brought to notice of the Income-tax Ofcer that aftercompleting education and training, Shri Harsh Kumar wasserving Appellants-Assessee for three years. It is on thispremise it was claimed that expenditure then incurred onhiseducationandtrainingwasincurredwhollyandexclusively for the purpose of business.explained that expenditure was incurred for the purpose ofAppellants' business, so as to ensure better administrationin long run. That, as such Appellants thought it ft to trainsuitable employee. It is Appellants' case that an agreementwas executed by the concerned employee, who then hadcommitted to serve Appellants-Assessee for ten years. Itwas brought to notice of the Income-tax Ofcer that aftercompleting education and training, Shri Harsh Kumar wasserving Appellants-Assessee for three years. It is on thispremise it was claimed that expenditure then incurred onhiseducationandtrainingwasincurredwhollyandexclusively for the purpose of business. 4ExplanationgivenbytheAppellants-Assesseewas rejected vide assessment order dated 28.2.2000. 5Aggrievedbytheabovedisallowance,theAppellants-AssesseepreferredanappealbeforetheCommissionerof Income-tax(Appeals,)XLI,Mumbai.Theappeal was allowed vide order dated 15.9.2000. 4ExplanationgivenbytheAppellants-Assesseewas rejected vide assessment order dated 28.2.2000. 5Aggrievedbytheabovedisallowance,theAppellants-AssesseepreferredanappealbeforetheCommissionerof Income-tax(Appeals,)XLI,Mumbai.Theappeal was allowed vide order dated 15.9.2000. 6Being aggrieved by the order passed by the CIT(Appeals), Respondent No.1 preferred an appeal before theTribunalonvariousgroundswhichwasallowedandresultantlydisallowancewasrestoredasmadebytheAssessing Ofcer. 7ThatagainsttheorderoftheTribunal,thisAppeal is preferred. 8Mr.SharmathelearnedcounselfortheAppellantssubmittedthattheTribunalhaderredinconfrmingdisallowancebyignoringevidencei.e.appointmentletterofconcernedemployee,copyofresolutionpassedby theBoardof Directors,agreementwith the concerned employee and the fact that concernedemployeewasservingAppellants-Assesseeaftercompleting his education and training abroad. Mr. Sharmathus submitted expenditure incurred by the Appellants foreducation and training of it's employee was for securingbetter administration of the Appellants and the fact thatthe concerned employee was serving Appellants-Assesseeafter completing education and training has established a'nexus'betweentheexpenditureincurredbythe * 5/11 * ITXA-199-2002.doc Appellants and it's business. Mr. Sharma also submittedthat fnding recorded by the Tribunal that, there was nonexus between the expenditure incurred by the Appellants-Assessee and its business is incorrect and material placedon record was self-evident of 'nexus'. Mr. Sharma reliedupon following judgment in support of his submissions: (1)SakalPapersPvt.Ltd.v.CIT,Poona1977 SCC Online Bom 199; 9 That, on the other hand, Mr. Suresh Kumar thelearned counsel appearing for the Revenue would submitthat Shri Harsh Kumar is son of one of the directors of theAppellants-Assessee and he had gone to attend the courseof, Business Administration, which is of “general” in nature,in-as-much as it is neither in special subject nor related tobusiness activities of the Appellants-Assessee. Mr. SureshKumar further submitted that expenditure incurred by theAppellants-Assessee had no nexus with the business of theAppellant.Hefurthersubmittedthatattendingcircumstancesonrecorddivulgethattheexpenditureincurred by the Appellants-Assessee on such a course was * 6/11 * ITXA-199-2002.doc a personal expenditure of the Appellants' director and notbusiness expenditure. Mr. Suresh Kumar further submittedthat if the Appellants were genuinely attempting to securebetteradministrationandwasinneedofsuchperson,Appellantscouldhavesentsomeotheremployeeforcompleting course in the business administration. He thussubmitted, having chosen son of one of the directors forcompleting course whichwas of “general”, in nature,itcannot be said that Appellants-Assessee have establishednexus between the expenditure and its business activities.Hehasalsosubmittedthatcoursein'BusinessAdministration'wasreadilyavailableinIndiaandAppellants have not placed on record any material as towhy employee was sent to USA ? 10Mr. Suresh Kumar in support of his submissionhas relied on following two judgments: (1)ShreenathMotors(P)Ltd.v.CommissionerofIncome-tax-V,Mumbai;[2014] 365 ITR 538 Bom; (2)DivyakantC.Mehtav.Income-taxOfcer, 11(2)(2) [2014] 46 taxmann.com 266(Bombay). 11We have gone through the facts of the case aswell as judgments cited by the Appellants as well as by theRevenue. 12In the case of Sakal Papers Pvt. Ltd. (Supra), 10Mr. Suresh Kumar in support of his submissionhas relied on following two judgments: (1)ShreenathMotors(P)Ltd.v.CommissionerofIncome-tax-V,Mumbai;[2014] 365 ITR 538 Bom; (2)DivyakantC.Mehtav.Income-taxOfcer, 11(2)(2) [2014] 46 taxmann.com 266(Bombay). 11We have gone through the facts of the case aswell as judgments cited by the Appellants as well as by theRevenue. 12In the case of Sakal Papers Pvt. Ltd. (Supra), disputewasrelatedtoexpenditureincurredbySakalPapers on the education of daughter of director in USA. Inthegivencase,daughterofthedirectorswasholdingmaster's degree in Arts from Pune University with EnglishandFrenchasspecialsubjectsandwasworkingintheeditorial department of the Sakal Papers since September,1955 as an apprentice on salary of Rs.50/- per month. Afterserving Sakal Papers for a period of fve years, in March,1960, directors of Sakal Papers passed a resolution that sheshould be sent for specialised education in journalism andbusiness administration in a university of good standing inUSAwhichdirectorsbelievedwouldbegoodfortheprogressofthePaper.ShesecuredadegreefromtheuniversityofColumbiainjournalismandafterobtainingpractical training once again joined editorial department ofthe Sakal Papers and was still working with it though therewas no agreement between her and Sakal Papers. Thus,Sakal Papers, claimeddeduction of Rs.29,654/- asbusinessexpenditure.TheTribunalinthegivencasedisallowed the said expenditure on the ground that therewas no commitment, contract or bond taken from trainee.Issue came up before this Court in Income Tax ReferenceNo.49 of 1968 and the following question was referred: “Whetheronthefactsandcircumstancesofthecase,expenditureincurredonforeigneducationofMs.Parulekar was allowable as a deduction indetermining the business profts of theCompany for the Assessment Year 1961-62?” That in the Reference, reasons given by the Tribunal were found unsustainable and as such, Reference was answeredin afrmative in favour of the Assessee. In our view, the facts in the case ofSakal Papers(Supra) were altogether diferent in-as-much as in the saidcase, daughter of the director was post-graduate in Artswith English and French subjects and was serving with thecompanyineditorialdepartmentnearlyforfveyearsbefore she was sent for the training and further educationinjournalism.Thataftersecuringdegreefromreputeduniversity in USA, she again started working with editorial department of Sakal Papers. Thus, there was dependableevidencetoholdthatexpenditureincurredbySakalPapers was for securing better services and for promotingits business. Inthecaseinhand,Appellants-Assesseeisacompanymanufacturingcopperfoils.Sonofone of thedirectorswassenttoUSAforcompletingcourseinBusiness Administration which was 'general' in nature andhadnodirectnexuswiththebusinessactivitiesoftheAppellant-Assessee.Appellantsdidnotplacebetterparticulars on record like, basic qualifcation of Mr. HarshKumar; subjects in which he did his administration course;how such subjects has-had nexus to business activities ofAppellant and so on. Though a contract was placed onrecord whereby Mr. Harsh Kumar had agreed to render hisservices after completing his education and training, butthat itself was not sufcient to hold that the Appellants-Assessee has proved nexus between the expenditure andits business activities. 13That in the case ofShrinath Motors (Supra)somewhat similar issue fell for consideration before thissomewhat similar issue fell for consideration before this * 10/11 * ITXA-199-2002.doc 13That in the case ofShrinath Motors (Supra)somewhat similar issue fell for consideration before thissomewhat similar issue fell for consideration before this * 10/11 * ITXA-199-2002.doc CourtwhereintheAppellant-CompanyhadpaidfeesofRs.1,75,000/-onbehalfofoneofitsdirectorsforcompleting course from S.P.Jain Institute of ManagementandResearch.DeductionwasclaimedforsuchanexpenditurewhichwasdisallowedthroughoutuptoTribunal. Against that order of the Tribunal, Shrinath MotorsPrivate Ltd. had fled an appeal before this Court. Whiledealing with various contentions, which were almost similarto the case in hand, the Division Bench of this Court aftertakingsurveyofvariousjudgmentsincludingthatofDivyakant C. Mehta (Supra) upheldtheordersofAuthorities and dismissed the appeal fled by the Appellant.14It may be stated that in the case of DivyakantC. Mehta(Supra), the Appellant-Assessee had claimeddeductionofRs.22,25,614/-asexpenditureincurredforhigher education for his daughter. Justifcation for the saiddeduction was that she joined his frm of advocates andhad given undertaking that on attending higherqualification and degree from university abroad, she wouldjoin firm for minimum period of five years and thus, saidexpenditure was incurred for the business of the Assessee and was allowable as deduction. Facts of the case in handare almost similar, in-as-much as son of one of thedirectors was sent abroad for acquiring degree in 'BusinessAdministration' and expenditure incurred for highereducation was claimed as deduction which was sought tobe supported by contract/agreement which was in natureof commitment of Mr. Harsh Kumar that he would serveAppellants-Assesseeafteracquiringdegreein'BusinessAdministration'. 15 Wethus,concludethatamountwhichis 15Wethus,concludethatamountwhichisclaimedbytheAppellants-Assesseeasdeductibleallowance was not incurred wholly and exclusively for thepurpose of business of the Appellants-Assessee. 16That, for the reasons, as stated, here-in-above,weanswerthequestionsinnegativei.e.infavourofRevenue and against the Appellants. (SANDEEP K. SHINDE, J) (M.S.SANKLECHA, J)