Delhi High Court
Natco Exports Pvt Ltd vs Cit on 12 March, 2012
Author: Sanjiv Khanna
$~3
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision : 12th March, 2012.
+ ITA 150/2012
NATCO EXPORTS PVT LTD ..... Appellant
Through Mr. Piyush Kaushik, Adv.
versus
CIT ..... Respondent
Through Ms. Suruchi Aggarwal, sr. standing
counsel
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE R.V. EASWAR
SANJIV KHANNA,J: (ORAL)
CM No.3682 & 3683 of 2012 (Delay)
These are applications for condonation of delay in filing and re-
filing of the appeal. Ld. sr. standing counsel for the Revenue has no
objection if the delay is condoned. Accordingly, the delay in filing
and re-filing of the appeal is condoned.
Applications are disposed of.
ITA 150/2012
1. NATCO Exports Pvt. Ltd. in this appeal under Section 260A of
ITA 150/2012 Page 1 of 6
the Income Tax Act, 1961 (Act, for short) impugns the order dated
29th March, 2011 passed by the Income Tax Appellate Tribunal
(„Tribunal‟, for short). The appeal pertains to assessment year 2006-
07.
2. Ld. counsel for the appellant relies upon paragraph 3 and 5 of
the impugned order and submits that in the present case, the Tribunal
has erred in holding that the expenditure incurred on education of one
of the directors Ms. Ruchika Grover, who had undergone a course
called Master of Science in Entrepreneurship at United Kingdom from
University of Nottingham, was not expenditure wholly and
exclusively incurred for the purpose of business. Ld. counsel for the
appellant relies on decision of the High Court of Karnataka in Krishna
Fabrications Ltd. Vs. Joint Commissioner of Income Tax (2010) 192
Taxman 287 (Kar). The relevant quote from the decision of
Karnataka High Court reads as under: -
"After hearing the learned counsel for the parties, we are
of the view just because the two directors were children of
the managing director, of the company, cannot be a
ground for the AO to reject the claim of the assessee, until
and unless. It is established that these two children of the
managing director, sponsored to acquire higher education
are not connected with the business of the company, even
though they are directors. Since the vital issue has not
been considered by the AO and such a mistake is
committed by the CIT(A) as well as the Tribunal, we have
ITA 150/2012 Page 2 of 6
no other business, except to set aside all the orders and
remand the matter to the AO for fresh consideration
without answering questions of law framed herein,
keeping open all the contentions since the order of
dismissal is in the nature of best judgment assessment."
3. Section 37 of the Act postulates that expenditure which is
wholly and exclusively incurred for the purpose of business can be
allowed as a deduction in computing the taxable business income.
The twin conditions must be satisfied. The onus is on the assessee to
show and establish that the twin conditions are satisfied. Personal
expenses cannot be claimed under Section 37 of the Act.
4. In the present case, the findings recorded by the CIT(Appeals)
read as under: -
"3.2 I have considered the submissions made by the
authorized representative of the appellant company.
During the course of present proceedings, it has been
observed that there were four directors in the appellant
company namely Sh. Ajay Grover, Smt. Manju Grover,
Ms Ruchika Grover and Sh. Naresh Inderpal Singh. It is
further observed that in earlier years as well as in later
years, the appellant company has not sent any of his
employees/directors for studying abroad. Bio-data of Ms
Ruchika Grover has been perused as per which the date of
birth is 30.09.1984 and she completed her graduation from
Shri Ram College of Commerce, Delhi University in the
year 2005. The graduation result was declared o
12.07.2005 whereas Ms. Ruchika Grover applied to
University of Nottingham, UK much earlier than the
ITA 150/2012 Page 3 of 6
declaration of graduation result by Delhi University as in
a later (sic.) dated 25.05.2005 written by Nottingham
University to Ms. Ruchika Grover (intimating her
selection for the post graduate course) clearly suggestive
of the fact that the expenditure is in the nature of personal
expenditure and has no relation with the business
activities of the appellant company. The appellant
company is a family concern where the parents of Ms.
Ruchika Grover and Ms. Ruchika Grover are the directors.
Sh. Naresh Inderapal Singh has been taken as director
only till the time of property owned by him at Cottage
No.9, West Patel Nagar, New Delhi-110008 is mortgaged
to Union Bank of India with rider that he shall
automatically cease to be the director of appellant
company as and when the property is released from
mortgage of the Bank meaning thereby that Sh. Naresh
Inderpal Singh has no say in the day-to-day running of the
appellant company. Ms. Ruchika Grover did Commerce
from one of the very reputed institution of Delhi
University is concerned and if the argument of the
appellant company that higher studies shall benefit the
appellant company then the same reasoning is applicable
as far as doing graduation from Delhi University and the
appellant or for that matter all other assessees doing
business shall start taking the plea that the studies are in
connection with the business and hence to be allowed as
"business expenditure".
3.2.1 The case laws of JB Advani & Co. Ltd. Vs JCIT
(supra) and Sakal Paper P. Ltd. Vs. CIT (Supra), on which
the appellant relied, are not applicable to the present case
as these decisions had been distinguished later on is
Mustang Mouldings P. Ltd. Vs ITO 306 ITR 361 (ITAT -
ITA 150/2012 Page 4 of 6
Mum) where the assessee company was controlled by the
family members and it was held that the expenditure on
higher education of a child was personal expenditure of
father/parents. Reference can be made to the case law of
Mac Explotec Pvt. Ltd. Vs Cit 286 ITR 378 (Kar) where
the High Court held that the expenses incurred by the
assessee company in sending its director‟s son aboard for
training in general management were not allowable since
the training did not pertain to the assessee‟s business. In
doing so, the Karnataka High Court concurred with the
ratios of case laws of CIT vs. Hindustan Hosiery Ind. 209
ITR 383, M. Subramanium Brothers vs. CIT 250 ITR 769
and CIT vs. R.K.K.R. Steels Pvt. Ltd. 258 ITR 306. As
there is no business connection between the expenditure
incurred on higher education of Ruchika Grover who went
abroad for doing M.Sc. in Entrepreneurship immediately
after completing her graduation and there being no history
of the appellant company as far as sending its workforce
abroad for training which can be said to have relation with
relation with the business activities hence, I uphold the
action of the Assessing Officer in making addition on
account of expenditure relating to higher studies of Ms.
Ruchika Grover. This ground of appeal is taken as
rejected accordingly".
5. The aforesaid findings are findings of fact and have been upheld
by the Tribunal. We may also note that in the present case Ruchika
Grover had not executed any bond that she would work for the
appellant company after she completes the course and on failure shall
return the money spent. The findings of the Tribunal clearly show
ITA 150/2012 Page 5 of 6
that Ruchika Grover, who had completed her graduation in the year
2005 and immediately thereafter applied for further studies in
University of Nottingham in United Kingdom. It is a case where she
continued with her studies. The said application for undertaking the
studies abroad was made even prior to her completing the course. The
alleged board resolution has rightly not been relied upon as it was not
relied and filed before the Assessing Officer. Considering the facts
and circumstances of the case, the aforesaid expenditure, it has been
held, cannot be regarded as wholly and exclusively incurred for the
purpose of business. The findings are findings of fact. The findings
are not perverse.
The appeal is dismissed.
SANJIV KHANNA, J.
R.V.EASWAR, J.
MARCH 12, 2012
vld
