09 September 2007
u/s 37 of the income tax act personal expenses are not allowable . only expenses for the purpose of business is allowable.
EXAMPLES:
Personal expenses
‘Personal expenses’ includes those on personal needs of assessee and those having purposes unrelated to business - Personal expenses include only expenses on the person of the assessee or to satisfy his personal needs such as clothes, food, etc., or for purposes not related to the business for which the deduction is claimed. Every expense to discharge a personal obligation does not become a personal expense - State of Madras v. G.J. Coelho [1964] 53 ITR 186 (SC).
Where, in a partnership firm comprising father and his three children as partners, the father sent one of the said children abroad for higher studies, and the agreement between the firm and its partners provided that the said son should, on his return, join the firm and serve it for five years, the expenses incurred by the firm on the education of the son abroad is not allowable as business expenditure, being personal in nature - M. Subramaniam Bros. v. CIT [2001] 250 ITR 769 (Mad.).
Note : Same view taken earlier in CIT v. Hindustan Hosiery Industries [1994] 209 ITR 383 (Bom.). Contrary view taken in CIT v. Kohinoor Paper Products [1997] 226 ITR 220 (MP) dissented from.
Expenditure on education of son of director is not deductible - Expenditure incurred on the education of the son of a director of a family-owned company cannot be claimed as deduction on the ground that the expenditure benefited the company since the son became a director. If this logic were to be accepted, in every family-owned business, all the expenditure incurred in brining up the children who may later on be given a role in the business as partners or directors could be claimed as business expenditure incurred in training the prospective employees and directors of the business. The expenditure which a father incurs out of his natural love and affection for his children in meeting the cost of their education cannot become a business expenditure merely because he is also the owner or a director of a business in which son or daughter subsequently takes part. It was evident that a director-father had, instead of incurring the expenses from his personal account, which he should have, had merely chosen to debit the expenditure of his son’s education to the business of which he was the director. Such expenditure does not become business expenditure merely because the father was in a position to debit the expenditure to the accounts of the business - CIT v. R.K.K.R. Steels (P.) Ltd. [2002] 258 ITR 306 (Mad. - Cegat).
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