T.V.SUNDARAM IYENGAR & SONS LIMITED,MADURAI vs. DCIT, MADURAI

This appeal of the assessee is directed against the order of Commissioner of Income Tax (Appeals)-I, Madurai, dated 18.09.2014.

The first issue arises for consideration is with regard to expenditure incurred by the assessee on education of the children of the Directors.

Sh.S.A. Balasubramanyan, the Ld.counsel for the assessee, submitted that the assessee incurred expenditure on the foreign education of grand children of the Directors. According to the Ld. counsel, the assessee-company was in existence over several decades. But because of their education, the company could not have grown to this level. The Ld.counsel submitted that the entire expenditure was only for the purpose of business. The Ld.counsel placed reliance on the judgment of the Delhi High Court in Kostub Investment Ltd. v. CIT (2014 365 ITR 436. According to the Ld. counsel, the judgments of Madras High Court in CIT v. RKKR Steels P. Ltd. (2002) 258 ITR 306 and in K. Subramaniam Bros v. CIT 250 ITR 769 are not applicable to the facts of the case.

On the contrary, Sh. P. Radhakrishnan, the Ld. Departmental Representative, submitted that admittedly the children of the Directors were sent to foreign for education and the expenditures were incurred by the assessee-company. According to the Ld. D.R., it is liability of the parents to educate their children. It is not grandchildren or children, the Directors have to educate them by their own income. No business purpose would come into operation when the expenditure on foreign education of grandchildren and children of the Directors are incurred by the assessee-company.

We have considered the rival submissions on either side and perused the relevant material on record. It is not in dispute that the assessee incurred expenditure on higher education and foreign tours of the grandchildren/children of the Directors. As rightly submitted by the Ld. D.R., it is the responsibility of the parents/ grandparents to give education to their children/grandchildren. No business purpose is going to be served to the assessee by incurring expenditure on the foreign education of the children and grandchildren of the Directors. Merely because the company was in existence for decades, the law laid down by the jurisdictional High (supra) would not change. This Tribunal is of the considered opinion that the law laid down by Madras High Court in RKKR Steels P. Ltd. (supra) and in K. Subramaniam Bros (supra) is squarely applicable to the facts of the case. Therefore, this Tribunal do not find any infirmity in the order of the CIT(Appeals) and accordingly, the same is confirmed.

The next ground of appeal is with regard to disallowance made by the Assessing Officer under Section 14A of the Income-tax Act, 1961 (in short 'the Act').

We have considered the rival submissions on either side and perused the relevant material on record. As rightly submitted by the Ld. D.R., the Assessing Officer on the basis of the statement of account called upon the assessee to show cause why the expenditure relatable to earning of dividend should not be disallowed. This clearly shows that the Assessing Officer is not satisfied with the claim of the assessee on the basis of the books of account. Therefore, it would not be correct to say that the Assessing Officer is not satisfied with the correctness of the account. Rule 8D came into operation by Finance Act, 2009, which is mandatory for computation of disallowance under Section 14A of the Act. Therefore, this Tribunal do not find any reason to interfere with the order of the CIT(Appeals) and accordingly, the same is confirmed.

In the result, the appeal of the assessee is dismissed.