IT : Where by providing scholarship, business of assessee-coaching institute was expanded, same would be allowable as business expenditure
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[2013] 38 taxmann.com 365 (Allahabad)
HIGH COURT OF ALLAHABAD
Commissioner of Income-tax
v.
Rubic's Rostram Coaching Institute (P.) Ltd.*
RAJIV SHARMA AND DR. SATISH CHANDRA, JJ.
IT APPEAL NO. 117 OF 2010†
AUGUST 20, 2013
Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of [Scholarship] - Assessment year 2004-05 - Assessee-company was engaged in running coaching institute - It provided a scholarship to attract more student - As a result business had increased tremendously and there was higher receipt in subsequent years - Whether providing scholarship could be considered as a business strategy and same was allowable as business expenditure - Held, yes [Para 9] [In favour of assessee]
FACTS
| ■ | The assessee-company was engaged in running coaching institute for engineering, medical and other competitive examination. | |
| ■ | During scrutiny, the Assessing Officer found that the assessee gave scholarship only to a student and hence, same could not be claimed as business expenditure. He, therefore, made addition to the assessee's income. | |
| ■ | On appeal, the Commissioner (Appeals) affirmed the order of the Assessing Officer. | |
| ■ | On further appeal, the Tribunal, however, deleted the said addition. | |
| ■ | On appeal: |
HELD
| ■ | The assessee has launched the Scholarship Scheme to attract more students, as there is a cut throat competition. During the assessment year under consideration, first time board of director selected a student 'A' to get education in USA as he got admission on merit after qualifying the TOFFLE, SET and other examinations. He has executed a bond as appears from the order of the Tribunal, where he was supposed to complete the education, failing which, the Scholarship amount was supposed to be refunded along with interest at the rate of 10 per cent. During the course of arguments, the assessee has shown higher receipt in the subsequent years, which shows that business has increased tremendously. It means that by providing foreign scholarship, more students were attracted. It is a business strategy/intelligentsia. [Para 7] | |
| ■ | In the instant case, it appears that by providing Scholarship, the business of the assessee has increased. So, it can be considered as a business strategy and the same is allowable as business expenditure. [Para 9] |
CASE REVIEW
CIT v. Walchand & Co. (P.) Ltd. [1967] 65 ITR 381 (SC); Voltamp Transformer (P.) Ltd. v. CIT [1981] 129 ITR 105/5 Taxman 253 (Guj);Kewal Chand Bagri v. CIT [1990] 183 ITR 207/53 Taxman 536 (Cal.) and Sassoon J Dravid & Co. v. CIT [1979] 118 ITR 261/1 Taxman 485 (SC) (para 8) followed.
CASES REFERRED TO
CIT v. Walchand & Co. (P.) Ltd. [1967] 65 ITR 381 (SC) (para 8), Voltamp Transformers (P.) Ltd. v. CIT [1981] 129 ITR 105/5 Taxman 253 (Guj.) (para 8), Kewal Chand Bagri v. CIT [1990] 183 ITR 207/53 Taxman 536 (Cal.) (para 8) and Sassoon J. David & Co. v. CIT [1979] 118 ITR 261/1 Taxman 485 (SC) (para 8).
D.D. Chopra for the Appellant. Surendra Kr. Garg for the Respondent.
ORDER
Dr. Satish Chandra, J. - Present appeal under Section 260-A of the Income Tax Act 1961, has been preferred against the judgment and order dated 14.07.2010 passed by the Income Tax Appellate Tribunal, Lucknow in ITA No.2/Luc/2010 for the Assessment Year 2004-05.
2. On 18.08.2011, a Coordinate Bench of this Court has admitted the instant appeal on the following substantial question of law:
"The learned Income Tax Appellate Tribunal has erred in law and in facts in treating the single scholarship expense of Rs.14,71,199.00 as business expenditure even though the assessee failed to prove that this expenditure was for the benefit of his business."
3. The brief facts of the case are that the assessee is a registered company under the Companies Act, 1956 and engaged in running a coaching institute for Engineering and Medical and other Competitive examinations.
4. During the assessment year under consideration, the assessee has given a Scholarship to Sri Akash Kumar, a student, for getting education in Drexel University in Philadelphia, USA. During the scrutiny, the A.O. observed that the Scholarship has been given to a single student and the same cannot be claimed by the assessee as a business expenditure. So, he made an addition of Rs.14,71,199/-, which was confirmed by the first appellate authority. However, the Tribunal has deleted the said addition.
5. Sri D. D. Chopra, learned counsel for the department has justified the order of the A.O. He at the strength of written submission, submits that the Scholarship was given to only one student namely, Akash Kumar for getting education in U.S.A. He submits that the said expenditure cannot be claimed as business expenditure. Lastly, he justified the addition made by the A.O.
6. On the other hand, Sri K. R. Rastogi holding brief of Sri S. K. Garg, learned counsel for the assessee has justified the impugned order passed by the A.O. He submits that the assessee is running a coaching institute for Engineering and Medical Examinations. To attract more students, the assessee has launched Scholarship Scheme. Under the Scheme, the financial assistance was provided to the students for getting education in India and abroad after qualifying entrance examination. He submits that Sri Akash Kumar was a brilliant student. He got very good score in the TOFFLE and SET examination. On merit, he got the admission in USA. So, he was selected by the Board of Directors for granting the foreign Scholarship. As per the terms and conditions, the candidate was bound to complete the course, otherwise, the amount was to be refunded with interest @10%. The bond was executed by the student. Sri Akash Kumar was not the relative of any Director. He also submits that the tax effect is less than the prescribed limit. Lastly, he justified the impugned order passed by the Tribunal.
7. After hearing both the parties and on perusal of record, it appears that the assessee has launched the Scholarship Scheme to attract more students, as there is a cut throat competition. During the assessment year under consideration, first time Board of Director selected a student Sri Akash Kumar to get education in USA as he got admission on merit after qualifying the TOFFLE, SET and other examinations. He has executed a bond as appears from the order of the Tribunal, where he was supposed to complete the education, failing which, the Scholarship amount was supposed to be refunded along with interest @10%. During the course of arguments, learned counsel for the assessee has shown higher receipt in the subsequent years, which shows that business has increased tremendously. It means that by providing foreign Scholarship, more students were attracted. It is a business strategy/intelligentsia.
8. Needless to mention that the yardstick will have to be seen from the businessman's point of view, as observed in the case of CIT v. Walchand & Co. (P.) Ltd. [1967] 65 ITR 381 (SC) as well as in the case of Voltamp Transformers (P.) Ltd. v. CIT [1981] 129 ITR 105/5 Taxman 253. Whether, real income materialized has to be considered with reference to commercial and business realities of the situation or not. This aspect will have to be examined by the businessman and not by the department as per the ratio laid down in the case of Kewal Chand Bagri v. CIT [1990] 183 ITR 207/53 Taxman 536 (Cal.). Similar views were expressed in the case of Sassoon J. David & Co. v. CIT [1979] 118 ITR 261/1 Taxman 485 (SC).
9. In the instant case, it appears that by providing Scholarship, the business of the assessee has increased. So, it can be considered as a business strategy and the same is allowable as business expenditure.
10. Hence, we find no reason to interfere with the impugned order passed by the Tribunal. The same is hereby sustained along with the reasons mentioned therein.
11. The answer to the substantial question of law is in favour of the assessee and against the revenue.
12. In the result, the appeal filed by the department is dismissed.
SBRegards
Prarthana Jalan
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