TaxTMI 
TaxTMI 
2012 (10) TMI 131
X X X X Extracts X X X X
X X X X Extracts X X X X
....unal misdirected itself in law and it adopted a wholly erroneous approach in confirming the disallowance of overseas travel (Rs. 40,443/-) and educational expenditure (Rs. 3,37,084-/) in the aggregate sum of Rs. 3,77,527/- incurred by the appellant/assessee company herein in respect of his trainee employee, Sri Saumya Meattle and whether its findings on the aforesaid issue are vitiated in law having been recorded by it without any material and/or in disregard of the undisputed material facts including the relevant and vital evidences on record and whether such findings are wholly unreasonable and/or otherwise perverse. II. Whether on the facts and in the circumstances of the case the tribunal misdirected itself in law and it adopted a wholly erroneous approach in confirming the disallowances of Rs. 1,66,660/- representing commission paid by the appellant/assessee company to M/s. Telecom Ancillaries Pvt. Ltd. and whether its findings on the aforesaid issue are vitiated in law having been recorded by it without any material and/or in disregard of the undisputed material facts including the relevant and vital evidences on record and whether such findings are wholly unreasonable and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pouches and supplying them to Public Sector Oil Companies. The company also carried on investment in shares and securities of quoted companies. On or about 28.05.1990 the company appointed one Saumya Meattle, minor, aged about 17 years two months, who had passed the 10 + 2 examination as a trainee in the appellant company for a remuneration of 2000/- per month. In terms of his letter of appointment, Saumya Meattle was to join the company on or before 1st June, 1990. Within a few days from his date of joining, the company took a resolution in its Board meeting held on 04.06.1990 for sponsoring the aforesaid Saumya Meattle for advance study in Computer Science from University of South California Lose Angles, USA as an employee of the company on condition, inter alia, that he shall continue be an employee of the company for seven years after completing his course in USA and the he along with his guarantor Ms. Gnan N. Swarup, would execute a surety bond for a sum of Rs. 2,00,000/- plus all costs and charges that shall/may be incurred by the company in that regard. Pursuant to such understanding it appears that a surety bond was got to be duly executed by the Saumya Meattle and Ms. G....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the tune of Rs. 3,37,084/ and Rs. 40,443/- respectively. The assessee company appealed against such order before the Commissioner of Income Tax (Appeals) and the said Commissioner (Appeals) dismissed the said appeal by its order dated 19.02.1999. Being aggrieved by the said appellate order dated 19.02.1999 the appellant company filed an appeal before the tribunal which was being I.T.A. 698 (Cal) of 1999. The said appeal was heard along with another appeal filed by the appellant company being I.T.A. No. 699 (Cal) of 1999 arising out of assessment year 1992-93 and both the appeals were disposed of by the learned tribunal by its impugned order dated 28th November, 2002. Hence, the present appeal being I.T.A. No. 98 of 2003 has been filed in respect of assessment year 1991-92. Similarly, in respect of the assessment year 1996-97 the Assessing Officer passed an assessment order dated 30.03.1999 under Section 143(3) of the Income Tax Act by disallowing the overseas educational and training expenses to Saumya Meattle to the tune of Rs. 2,44,991/- and his overseas travel expenses to the tune of Rs. 98,600/- for the said assessment year. Such order was also appealed before t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ract Act. Mr. Khaitan further challenged the finding of the tribunal that the sponsorship was colourable in nature. He strongly disputed the finding of the tribunal that such expenditure was personal expenditure in the guise of "staff welfare expenses". He submitted that such finding was wholly perverse as the trainee had no relation with any of the directors of the appellant company. He however admitted that the mother of the trainee was a partner in a firm in which the company was also a partner and that in respect of the assessment year 1996-97 relating to I.T.A. No. 265 of 2003 a relative of the trainee held substantial shares in the appellant company. He further submitted that the findings of the tribunal were based on mere surmise and the expenses incurred by the company for overseas educational foreign travel were clearly deductible in terms of Section 37 (1) of the Income Tax Act. Mr. Khaitan relied on a unreported decision of this Court in I.T.A. No. 249 of 2005 (M/s. Gour Nitya Tea Industries Limited Vs. Commissioner of Income Tax) delivered on 24th June, 2010 in support of his contention that since there are materials on record that the appellant had served t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d exclusively for the business of the company or the same was merely the designed for ulterior purpose. 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. The judgements cited by Mr. Som in this regard are clearly distinguishable on facts as in none of the cited cases the minor on attaining majority had ratified his liabilities arising from such contract. On the other hand, in the case reported in AIR 2001 SC 2552 such a contract is held to be good against the whole world. 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 bonafide act on its part or a colourable devise for ulterior purposes. The Tax Authorit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ioner of Income Tax is clearly distinguishable on facts. In that case, the appellant had been sent abroad after working as a trainee for more than nine months in the assessee company and the purpose of overseas education was in an area which the principal business of the assessee company. The said facts are significantly absent in the instant case to justify the deduction claimed by the appellant company under Section 37(1) of the Income Tax Act. The ratio of the case reported in 118 ITR 261 is not applicable in the facts of the instant case since the business of the company which is principally in the area of manufacturing and marketing of plastic pouches cannot justify the sponsoring of the trainee for overseas education in computer software development and accounting. Even for accounting purpose of the Company no employee is required to be sent at road. It must be borne in mind that this was also not a regular practice of the company, inasmuch, as no one before or thereafter had been selected by the company for such preferential treatment in the matter of obtaining overseas education. For the aforesaid reasons, we find that the findings of the tribunal in this regard are w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on, the question of commercial expediency did not arise. It is true that the agreement between M/s. Telecom Ancillaries Pvt. Ltd. and the appellant company was executed on 25.01.1992 (in the assessment year 1992-93) instead of 25.03.1992 as wrongly recorded by the tribunal in paragraph 11 of its order in I.T.A. No. 99 of 2003. However, bearing in mind the nature of the contract namely providing expertise in preparation and procurement of tender in favour the appellant company with regard to tender floated by Public Sector organization we have no doubt in our mind that scope and ambit of payment of such commission transcended the lawful or permissible limits of participation in such tender. Furthermore, the tribunal has rightly held that the nature of such expertise in preparation of tender documents and follow up action for obtaining such tender has not been clearly spelt out. When the commission payments had been made in for purposes which are prima facie impermissible in law the question of permitting such expenses on the anvil of commercial expediency does not arise at all. The decision in 288 I.T.R. 1 (SC) is not of any assistance to the appellant as it did not relate to leg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iness of which is the business of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares." A plain reading of the aforesaid provision of law would show that if a part of the business of the company consisted of purchase and sale of shares of other companies, the said company would be deemed to be in speculation business and loss suffered by such company in such activity, i.e. purchase and sale of shares, would be deemed to be speculation loss and would not be deductible from the profits and losses of the said company in respect of other businesses. Hence, the condition precedent for attracting the said provision is that a part of the business of the company must relate to purchase and sale of shares. Indisputably CIT (Appeals) as well as the tribunal had come factually to a conclusion that the appellant company was not involved in the business of sale and purchase of shares. Merely indulging in purchase and sale of shares for investme....