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Monetary help to students to pursue law at Oxford is “expenditure incurred for profession” under Income Tax Act: ITAT

The Income Tax Appellate Tribunal (ITAT) recently allowed Senior Counsel Harish Salve’s (assessee) claim to include monetary assistance rendered by him to students to pursue law degree abroad as expenditure incurred “exclusively for the purposes of the business or profession” under Section 37(1) of the Income Tax Act, 1961 (Harish Salve v. ACIT New Delhi).


The said income would, therefore, be chargeable under the head of income from “profits and gains of business or profession” instead of capital expenditure, it was held.

A Bench of Accountant Member RK Panda and Judicial Member K Narasimha Chary relied upon an August 2019 order of the ITAT in a similar matter which had allowed such a claim.

Salve had claimed Rs. 34 lakh for the assessment year 2013-14 and Rs. 84.4 lakh for assessment year 2014-15 under the head “Assistance to Law Students”.

He submitted that it was the assistance paid to two law students to study at Oxford.

While disallowing such a claim of assessee, the Assessing Officer (AO) observed that the facts were similar to the ones in earlier assessment years and therefore, similar disallowance had to be made on the ground that assistance to law students, who are nowhere related to the profession of the assessee, cannot be claimed as a business expense incurred wholly and exclusively for the purpose of business/profession of the assessee.

Salve appealed against the AO’s decision to the Commissioner of Income Tax (Appeals) which was rejected, prompting him to approach the ITAT.

It was Salve’s argument that his object of extending support to students was two-fold.

First was to create a name and develop contacts in legal fraternity and academia abroad, especially London, since he was focusing on international practice and spent considerable amount of time, taking on international arbitration work in London and Singapore.

Second was to support the juniors in chambers who may go abroad, become technically sound, and help him in preparing cases involving complex issues of international taxation and commercial laws.

“Since this whole profession is based on developing contacts and UK being a center wherein the academicians are an active part of legal fraternity, the assessee decided to provide funding for education of Indian students in the Oxford University,” it was contended by Salve.

Accordingly, in all circumstances, the decision to fund the students was a business decision to support the assessee in his profession as a lawyer and therefore, the expenses incurred for this purpose was claimed as an expenditure for both the assessment years respectively.

Importantly, Salve highlighted a similar decision by ITAT for the assessment year 2011-12. In that case too, disallowance was made by the AO but a co-ordinate Bench of ITAT had deleted that disallowance.

The Court proceeded to place reliance on the decision of co-ordinate Bench of ITAT. The co-ordinate Bench had held that the “allowability of expenditure should always be judged from the mindset of the assessee”.

“It is not the AO but the assessee is carrying on the profession. He knows better that what kind of expenditure he should incur for furtherance of his business. To judge allowability of an expenditure, the learned assessing officer should put himself into the shoes of the assessee and then decide that whether the expenditure incurred by the assessee is necessary or not for the business of the assessee,” it had held.

The AO cannot put his thinking to say that the expenditure incurred by the assessee is not wholly and exclusively incurred for his profession, unless, he brings his level of thinking to the level of the professional like assessee, the co-ordinate Bench had further stated.

It had, therefore, allowed the expenses as “expenditure wholly and exclusively for the purposes of the business” and disallowed the claim of the department that the expenditure was capital expenditure.

“The expenditure incurred by the assesses is the routine day-to-day expenditure incurred by the assesses for promoting his professional profile. These expenditures cannot be held to be capital expenditure in nature as no fresh new fixed assets is created by paying the scholarship sum,” the co-ordinate Bench had ruled.

The ITAT placed reliance on the said decision to allow Salve’s claim.

“On the parity of facts of the cases on hand with the facts of earlier years, we are of the considered opinion that the consistent view taken by the Tribunal for earlier assessment years cannot be disturbed. While respectfully following the same, we direct the Assessing Officer to delete the addition,” it held.


Via Bar & Bench
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