Desai, J.:— We are concerned in this reference with the assessment year 1961–62. It may be stated that in the very next reference, viz., Income-tax Reference No. 184 of 1970, we are concerned with the very same assessee for the two subsequent years, and the question referred to us in that reference will have to be answered in accordance with the answer given to the question referred to us in this reference.
2. The assessee is a private limited company publishing a leading Marathi newspaper in Poona. The company at the relevant period was a closely-held company and its directors (and we are informed, the only two shareholders) were Dr. and Mrs. N.B Parulekar. The dispute giving rise to this reference relates to the expenditure incurred by. Miss Leela Parulekar, daughter of these two directors, on her education in U.S.A Miss Parulekar is a Master of Arts of the Poona University with English and French as special subjects. She worked in the editorial department of the paper from September, 1955, starting as an apprentice, on a salary of Rs. 50 per month. On 24th March, 1960, the directors of the company passed a resolution that Miss Leela should be sent for specialised education in journalism and business administration in a university of good standing in U.S.A, which the directors believed would be good for the progress of the paper. The university and the course were to be selected by Miss Parulekar in consultation with one of the directors. A sum of Rs. 15,000 was sanctioned for this purpose in addition to the cost of passage to and from U.S.A In pursuance of this resolution Miss Parulekar went to U.S.A in September, 1960, and attended the Graduates’ School of Journalism at Columbia University in New York. She secured the degree of Master of Journalism and thereafter spent three months to obtain practical training in printing and lithography. During the years 1960, 1961 and 1962 an expenditure of Rs. 29,654 was incurred in connection with her trip to U.S.A; this included the passage money and expenses incurred prior to her departure. Out of this amount, a sum of Rs. 6,000 was claimed by the assessee-company as deduction for the assessment year in question. On return from U.S.A, Miss Parulekar once again joined the editorial department of the company and was still working with the company. There was, however, no agreement between her and the company binding her or committing her to serve the company for a specified period of years. The Income-tax Officer disallowed the amount of Rs. 6,000 on the ground that but for her relationship with the directors of the assessee-company Miss Parulekar would not have been sent abroad. According to him, further, when facilities for such education are available in India, it could not be held to be expedient from a businessman's point of view to incur such large expenditure on foreign education. According to him, further, as the paper was a Marathi newspaper, her proficiency in the two languages in which she has specialised for her M.A degree and her further foreign training could not be regarded as very useful for the paper. According to him, therefore, the expenditure was not incurred for the company's business but was only an amenity granted to a relation of the directors.
3. In appeal, the Appellate Assistant Commissioner agreed with the view expressed by the Income-tax Officer that the selection was merely by reason of the relationship of the directors to the member of the editorial board. The Appellate Assistant Commissioner further considered whether the expenses could be regarded as capital expenses, and, following the decision of the Madras High Court referred to in his order, he came to the conclusion that it was a proper revenue deduction duly allowable to the assessee-company.
4. The department thereafter went in appeal before the Tribunal and the arguments which had been indicated by the Income-tax Officer in his order rejecting the allowance were repeated. The Tribunal did not accept the contention that Miss Parulekar was selected for further training in U.S.A only by reason of her relationship with the directors or that it was in the nature of an amenity provided by the directors to their daughter. According to the Tribunal, she was fully qualified for being selected for training in U.S.A and the selection could not be attributed to any extra-commercial consideration, nor was the Tribunal in any doubt about her qualifications as also in her ability to serve the newspaper even though her specialised subjects originally were English and French. The ground which appealed to the Tribunal, however, was that the company had not taken any commitment about the service from the trainee, and, according to the Tribunal, it had not behaved in a sensible or a businesslike manner. According to the Tribunal, therefore, the spending of such a large amount on her training without obliging her to undertake service of the company clearly smacked of extra-commercial consideration.
5. It is on these facts that the following question has been referred to us:
“Whether, on the facts and in the circumstances of the case, the expenditure incurred on the foreign education of Miss Parulekar was allowable as a deduction in determining the business profits of the company for the assessment year 1961–62?”
6. On the facts found by the Tribunal, the following position emerges;
(1) That prior to her being selected Miss Parulekar had for nearly five years worked on the paper, starting as an apprentice;
(2) The Tribunal has found—and this finding is binding on us—that the selection was proper and that her training would be of assistance to the company, and it has rejected the views expressed by the Income-tax Officer in this behalf;
(3) in U.S.A she attended the Graduates’ School of Journalism at Columbia University in New York, secured the degree of Master of Journalism and thereafter obtained practical training in printing and lithography; and
(4) That on her return from U.S.A Miss Parulekar once again joined the editorial board of the company and was still working with the company. (underlining* supplied).
7. On these facts, it appears to us impossible to accept the Tribunal's contention that merely because there was no commitment or contract or bond taken from the trainee, the expenditure, which was otherwise proper, should be disallowed to the company, particularly when as a result of that expenditure the trainee has secured both a degree and training which will be of assistance to the assessee-company and she has in fact served the assessee-company after her return to India. The relationship between the directors and the trainee is also to be borne in mind. With that relationship the question is whether any formal contract or bond is required. We are of the opinion, that the factum of relationship itself will confer assurance on any scrutinising mind that as far as possible the result of the training will be utilised for the benefit of the company. On the facts as found by the Tribunal, which have been indicated and summarized above, it appears to us that the reason given by the Tribunal for the disallowance in the facts and circumstances of this case and particularly bearing in mind the close relationship of the two directors and the trainee is clearly unsustainable; and if that be the only reason which has weighed with the Tribunal, we must answer the question referred to us in favour of the assessee since the view we have taken is that the reason given by the Tribunal is not a good reason.
8. In the result, the question referred to us is answered in the affirmative and in favour of the assessee.
9. The parties, however, will bear their own costs of the reference.