Cost Of Higher Education Qualify As Business Expenditure Only When Direct Nexus With Assessee’s Business

In Indian Galvanics Cyrium Foils Ltd. vs Deputy Commissioner of Income-tax, the appellant company incurred an expenditure of Rs.11,76,540 under the head ‘management training and development expenditure’. It was incurred for the higher education and training of one Harsh Kumar who had been sent to the USA for the course in Business Administration. Harsh is the son of one of the directors in the company.

It was the appellant’s case that an agreement was executed by the employee concerned, who then had committed to serve the company for 10 years. It was brought to notice of the Income Tax Officer that after completing education and training, Harsh had been serving the company for three years. It is on this premise that it was claimed that expenditure then incurred on his education and training was incurred wholly and exclusively for the purpose of business. His explanation was rejected by the assessing officer in an order dated February 28, 2000. The company challenged the said order before the Commissioner of Income Tax (Appeals) who allowed the appeal. Then, the Deputy Commissioner of Income Tax challenged the order allowing the appeal filed by the company before the Income Tax Tribunal which was allowed. Thus, the appellant challenged the said order before the high court.

The High Court rejected the appeal and sided with the Revenue Dept. holding that the course in Business Administration is general in nature and though a contract was placed on record whereby Mr. Harsh Kumar had agreed to render his services after completing his education and training, but that itself was not sufficient to hold that the Appellant Assessee has proved nexus between the expenditure and its business activities.