Dr. O.K. Narayanan, Accountant Member - This appeal is filed by the assessee. The relevant assessment year is 1997-98. The appeal is filed against the order of the CIT(A)-VI at Mumbai dated 6-10-2000 and arises out of the assessment completed under section 143(3) of the Income-tax Act, 1961.
2. The assessee in this case is a company engaged in manufacturing of welding transformers, rectifiers and engineering items. The assessee-company incurred an expenditure of Rs. 6,75,237, during the relevant previous year, towards foreign study expenses of Miss Reshma A. Lalwani. Miss Reshma A. Lalwani is the daughter of a Director of the assessee-company and also an employee of the assessee-company. According to the assessee-company, Miss Reshma A. Lalwani was sent to Britain for the higher study in Business Administration at the interest of the assessee-company. Miss Reshma Lalwani had entered into an agreement with the assessee-company that she would work in the assessee-company for a period of 5 years on return to India. It is the case of the assessee-company that she did in fact work for the company after returning to India. The said amount of expenditure of Rs. 6,75,237 was claimed by the assessee-company as a deductible item in computing its taxable income, relying on the decision of Hon’ble Bombay High Court in the case of Sakal Papers Pvt. Ltd. v. Commissioner Of Income-Tax, Poona [1978] 114 ITR 256.
3. But the Assessing Officer relied on the decision of the Bombay High Court in Commissioner Of Income-Tax v. Hindustan Hosiery Industries. [1994] 209 ITR 383 1 and held that the expenditure was not deductible. In the said case, the Hon’ble Bombay High Court has held that the expenditure incurred on foreign study of a son of the partner was not an allowable expenditure. The Assessing Officer held that the decision relied on by the assessee-company in Sakal Papers (P.) Ltd.’s case (supra) is not applicable to the assessee’s case. In that case, the husband and wife were the Directors of the company and their daughter was sent abroad for higher studies in Journalism. The assessee was carrying on the business of printing and publishing of newspaper. The Assessing Officer pointed out that the foreign study of the daughter in that case was very much related to the nature of business carried on by the assessee. In the present case the Assessing Officer found that the assessee was more engaged in technical activities and Miss Reshma Lalwani was sent abroad for studies in Business Administration and it did not have any direct nexus with the business carried on by the assessee-company. The first appeal filed by the assessee has been dismissed. Therefore the second appeal is filed before us.
4. We heard Shri Prakash K. Jotwani, the learned Advocate appearing for the assessee. He submitted that the distinction made by the Assessing Officer with reference to the decision in Sakal Papers (P.) Ltd.’s case (supra) is not justified. He contended that the facts of the present case are different from the facts of the case in Commissioner Of Income-Tax v. Hindustan Hosiery Industries.’s (supra) and relied on by the Assessing Officer. In the case of the decision relied on by the Assessing Officer, the son of a partner of the assessee-firm was sent abroad whereas in the present case Miss Reshma Lalwani is one of the employees of the assessee-company even though she happens to be the daughter of one of the Directors. She had entered into an agreement with the assessee-company for serving the company on return to India which has been complied by her.
5. The learned Advocate further pointed out that the facts of the case are similar to the facts of the case considered by the Tribunal in an unreported case in ITO v. D.M. Harish & Co. [IT Appeal No. 227 (Bom.) of 1982, dated 29-5-1984]. He further submitted that the assessment for the subsequent assessment year 1998-99 was completed under section 143(3) of the Income-tax Act, 1961 and the very same expenditure was allowed by the Assessing Officer as a deduction on appreciating the merits of the claim made by the assessee. Therefore, he submitted that this item of expenditure is to be allowed as a deduction.
6. Shri A.B. Joshi, the learned D.R. on the other hand relied on the decision of the Hon’ble Delhi High Court in the case of Enkay (India) Rubber Co. Pvt. Ltd. v. Commissioner Of Income-Tax [2003] 263 ITR 5211 and contended that the said expenditure is not deductible in computing the taxable income of the assessee-company.
7. On a careful reading of the facts of the case, we are of the view that the facts of the present case are almost identical to the facts of the case considered in the case of Sakal Papers (P.) Ltd. (supra). In that case also it was the daughter of the Director of the assessee-company who was sent abroad for higher studies in Journalism. In the present case, Miss Reshma A. Lalwani is the daughter of one of the Directors of the assessee-company but also an employee of the assessee-company. The assessee-company in a better footing in the present case. Not only that, Miss Reshma Lalwani on returning to India continued to work for the assessee-company in compliance of the agreement she had entered into with the assessee-company before leaving India. She has been further made as a Director of the assessee-company. Therefore the relation of Miss Reshma Lalwani to one of the Directors of the assessee-company as such need not disqualify her from being sent abroad for higher studies by the assessee-company. The only reason, pointed out by the Assessing Officer to distinguish the present case from the decision in Sakal Papers (P.) Ltd.’s case (supra) is that the subject studied by Miss Reshma Lalwani does not have a direct relation to the activities carried on by the assessee-company. The assessee-company is basically engaged in manufacturing activities and Miss Reshma Lalwani had gone abroad for higher studies in Business Administration. We do not agree with the view of the Assessing Officer that the subject Business Administration does not have any connection with the business carried on by the assessee-company. If we accept the proposition made by the Assessing Officer, the result would be that, the expenditure on foreign study incurred by an assessee in respect of "technical subjects" alone would be allowed as deduction. It is not proper to say that management studies are not relevant for carrying on a business. Therefore, the distinction made by the Assessing Officer on the basis of the subject studied abroad is without any conviction. But for the difference in the subjects studied abroad, the facts of the case in Sakal Papers (P.) Ltd. (supra) are exactly similar to the facts involved in the present case. Miss Reshma Lalwani being an employee of the assessee-company, the case of the assessee-company is on a better footing. In addition to this, the decision of the Tribunal in the case of ITO v. D.M. Harish & Co. case (supra) lent support to the argument of the assessee. In the said case also it was the son of a partner of the assessee-firm, who went abroad for higher studies in law. Therefore, the relation of the student with the Director or partner of the assessee need not weigh that much against the assessee.
8. Furthermore, it is to be seen that the Assessing Officer has allowed the same expenditure for the immediately succeeding assessment year 1998-99 in the case of Miss Reshma A. Lalwani herself. Therefore, we do not find any reason why the expenditure incurred for the same event should not be allowed in the impugned assessment year 1997-98.
9. Therefore we direct the Assessing Officer to treat the amount of Rs. 6,75,237, as a business expenditure and allow the same as deduction in computing assessee’s taxable income.
10. The next ground raised by the assessee is that the CIT(A) has erred in confirming the disallowance of sundry expenses of Rs. 4,000. This ground is dismissed as not pressed.
11. The third ground raised in this appeal is that the CIT(A) has erred in confirming the disallowance of loss on sale of assets amounting to Rs. 43,000. After the introduction of the concept of "block of asset", the loss or profit arising out of the sale of individual asset cannot be independently reflected in the computation of income or loss of an assessee. The loss, if any, arising on sale of an asset will be automatically reflected in the value of the corresponding block of asset. It is the same case with profit also. Therefore even if there is a loss on sale of an individual asset, the same cannot be independently considered for computing the income. On the other hand, the loss shall go to reduce the value of the connected block of asset, thereby resulting in a marginal reduction in the amount of depreciation to be claimed by the assessee. Therefore the disallowance made by the Assessing Officer is in order. The said ground is therefore dismissed.
12. In the result this appeal filed by the assessee is partly allowed. Order accordingly.