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Expenditure for higher studies

James Antony FCA, CISA (Chartered Accountant) (135 Points)

10 October 2010

Hi,

If a doctor practicing as a proprietor of the clinic, goes for a higher study for a specialisation in his field spending 20 lakhs, then, whether the expenditure for his studies including his capitation fee paid, can be deducted u/s 37 ? any cases laws? a detailed reply from the experts is highly appreciated. Thanks in advance

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6 Replies

Priyank (Learner) (98 Points)
Replied 06 December 2010

As per my opinion,

Expenditure on further studies (including capitation fees) should be allowed as deduction u/s 37.

It is clearly a revenue expenditure aimed at enhancing knowledge of the professional and thereby, earning capability.

Further, capitation fees shall also be allowed as deduction; if it is proved that, said expense was necessary to secure a seat. It is immaterial if the same is shown as a voluntarily contribution received by the educational institute. Nexus between allotment of seat & capitation fees is necessary.

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CA PARAS BAFNA (Practising CA ) (33423 Points)
Replied 06 December 2010

Mr James,

I am having a different view. For qualifying this expenditure under the general deduction category of Section 37, except other criteria laid down in the Section we have to justify that -

1. The expenditure is not personal expense of the assessee-

2. The expenditure should not be a Capital Expenditure.

Higher Studies results into personal achievements. As such it has got every chance of being caught in this provision. Secondly if we think about the nature of expenditure we should consider that whether this expenditure is a revenue expenditure. The benefit of revenue expenditure does not go beyond the accounting year, generally.

Here, higher education by the Doctor is being taken to get enduring benefits till his lifetime.

So in my view the expenditure will not be allowed

Rahul Agarwal (Future CA) (217 Points)
Replied 07 December 2010

The higher studies expenditure cannot be claimed as expenditure as it like an intangible asset that will help you earn in future and secondly I agree with Mr. Bafna that somewhere down the line it does not qualifies the basic requirement of section 37.

Again It would be difficult to convince the AO for him to allow the expenditure.

regards,

Rahul

Priyank (Learner) (98 Points)
Replied 07 December 2010

Dear sirs,

Following points also needs to be considered, in regarding the expense as a revenue or personal in nature.

The expression 'revenue expenditure' need to be construed in a true commercial sense. One should consider the object with which the expense was incurred. Revenue expenditure is incurred with a perspective of furtherance of the profession practiced. In the instant case, the practicing doctor is already a 'professional' practicing in the same capacity. He does not acquire the status of professional, on undergoing further studies. Further study is intended only for specialisation. Further, professionals are required to constantly update their level of knowledge to keep pace with newer technologies & changes. Hence, in my opinion, the expenditure is clearly in consonance & is incidental to the objective of carrying on profession of medical practitioner,in a proficient manner.

But, as rightly pointed out by Mr. Bafna, the issue whether the expenditure constitutes a 'personal' expenditure; is a moot point. But for sure, it does not fall within the ambit of "Capital Expenditure".

Let me know, if u find any case laws in support of the contention.

CA. MUKESH KUMAR (CHARTERED ACCOUNTANT) (183 Points)
Replied 07 December 2010

Section37 -Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession".

I m agree with Mr.Bafna, assessee can increase his salary or reminararion(in case of Firm or LLP) but can not claim such exp. u/s 37. Otherwise it will defeat the purpose of law.

If we follow view of Priyanka then some professional can claim exp. on education of his children by forming partnership firm.