Business expenditure – Section 37 – A. Y. 2005- 06 – Assessee running hospital – Daughter of MD working in hospital as doctor – Expenditure on her higher studies incurred by assessee – She comes back to work in hospital – Expenditure had nexus with business of assessee – Expenditure allowable as deduction

Mallige Medical Centre P. Ltd. vs. JCIT; 375 ITR 522 (Karn):

The assessee company was running a hospital. In the A. Y. 2005-06, it had claimed deduction of Rs.5 lakh spent for the higher education of the daughter of the managing director of the company who was working in the assessee’s hospital as a doctor. The deduction was claimed on the ground that the daughter was committed to work for the assessee after successful completion of studies. The Assessing Officer disallowed the claim for deduction. The Tribunal upheld the disallowance.

On appeal by the assessee, the Karnataka High court reversed the decision of the Tribunal and held as under:

“i) Before the expenditure was incurred, the daughter had acquired a degree in medicine. She was employed by the assessee. She was sent outside the country for acquiring higher educational qualification, which would improve the services, which the assessee was giving to its patients. It was in this context, that the sum of Rs.5 lakh was spent. That was not in dispute. After acquiring the degree she had come back and she was working with the assessee.

ii) Therefore, there was a direct nexus between the expenses incurred towards the education, with the business, which the assessee was carrying on. In that view of the matter, the expenditure was deductible.”