INCOME TAX ACT, 1961

--Business expenditureAllowability Expenditure on overseas education of trainee--Assessee was mainly engaged in manufacturing and trading of corrugated sheets and inter alia in plastic materials. A just employed (minor maticulated employee) was sent to abroad for pursuing degree in computer education and subsequently, master's degree in accounting. Held: There was no nexus with assessee's business and expenditure incurred on employee's education. The expenditure on foreign travel and employees education could not be allowed, as it was a colourable device to avoid tax.

It is true that the letter of appointment of the trainee was issued at a time when he was a minor. However, it must be borne in mind that subsequently the minor on attaining majority had ratified of such contract and also his liabilities arising therefrom. [Para 29] In view of such fact, it may not be correct to hold that there was no binding contract between the company and the trainee in the instant case. However, a more relevant issue in the matter is whether the act of the company in sponsoring such a minor trainee within a couple of days of his appointment for pursuing the studies in computer science, without assessing his competence and capability, can be construed to be a bona fide act on its part or a colourable device for ulterior purposes. The tax authorities below have rightly come to conclusion on facts that the appellant-company without assessing the competence of the trainee and within a couple of days from his joining, sponsored him for pursuing study in software development in an area which was unconnected with the business activity of the company at the time when such decision was taken. [Para 31] It is an admitted position that the principal business of the company was manufacturing and supplying of packets/pouches to oil manufacturers for filling and packaging their products. It was only in the assessment year 1992-93 the company made necessary amendments in its memorandum to enable it to enter the business of computer operation and data processing while the decision to send the trainee abroad for computer education was (sic-taken) on 4-6-1990. [Para 32] Therefore, it cannot be said that the sponsoring of the trainee for overseas computer education was for the business of the company at the time when such decision was taken on 4-6-1990. Furthermore, the trainee had already secured admission for such course in the foreign university and applied for release of foreign exchange with regard thereto five weeks prior to his appointment. Hence, the finding of the Tribunal that the sponsorship of the trainee was colourable in nature and not for the purpose of business of the company is wholly justified and borne out from the materials on record. [Para 33] The purpose for which the trainee was being sent abroad, namely, computer education was admittedly not one of the businesses in which the company was indulging in at the time when the board resolution was taken to sponsor his foreign education. [Para 34]