Expenditure on higher education of son of director.

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Rupesh Jain (Querist)
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12 August 2011 Mr. M. is a diploma Engineer and son of Managing Director of a company. Mr. M. is regular part-time working in the Company, since last 2 years. Mr. M. also attended training courses in Paper Technology in North Carolina State University USA. Now he is planning to go to USA for higher studies in Engineering for 4 years. He has requested sponsorship for his fees & expenses, which are around 36,000/- USD per year for four years. He is ready to execute a bond, to continue with company after completion of education. Or otherwise will refund entire sponsorship cost with interest @ 16% p. a. He has also agreed that, during his study & stay in USA he will study also Paper Technology & Design Engineering and provide latest development & feedback to company. His education will benefit to the company in future development.

Can we sponsor him at company cost & can claim expenditure U/s 37(1) for Income Tax purpose? Please advice.

Ref :- 1] CIT Vs. Ras Information – (2011) 238 CTR ( Kar ) 76.
2] CIT Vs. Hindustan Housing Ind. (1994) 209 ITR 383 ( BOM.)

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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12 August 2011 The first citation is favorable to the company.
Unless the commercial expediency of the company is demonstrated, expenditure incurred by the company on foreign education of the director's son cannot be treated as incurred wholly and exclusively for the purposes of the business of the company but is to be treated as personal expenditure and not allowable under section 37(1). Refer, Kohinoor Cloth Stores Vs. ACIT 40 DTR 60 (Pune) (Trib.)