TaxTMI 
TaxTMI 
2010 (10) TMI 200
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....o serve food and beverages (only tea and coffee) to the hotels and clubs. There was a search and seizure operations under section 132 of the Income-tax act, 1961 carried out on 22-2-2007 at the residential and business premises of the Khanna group of cases and the main concern/person of the Group. The assessee is one of the group concern of the Khanna Group and subject to search and seizure. Mr. Dinesh Khanna was found to be the main person of the group. M/s Khanna Hotels Pvt. Ltd. owns the famous club, named "the club" which is located at Andheri (W), Mumbai. The assessee company and M/s Khanna Hotels Pvt. Ltd. entered into an agreement dated 28-6-1998. As per the said contract the assessee agreed for serving ready food and beverages (tea and coffee) to all the hotels and banquets facilities at the Club. It was found that the assessee company has incurred an expenditure on an employee for education including the travelling expenditures on Shri Tushar Khanna, who is son of one of the Directors of the Company i.e. Mrs.Nishi Khanna. The details of expenditures incurred for all these six years are as under : AY 2001-02 Rs. 29,27,748 AY 2002-03 Rs. 14,95,826 AY 2003-04 Rs. 17,50,....
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.... company on a lower remuneration of Rs. 35,000 per month, in compare to the remuneration received by the other employee trained at Cornell University with such experience. Thus, the company is getting advantage and benefit of training expenditure incurred on Mr. Tushar Khanna. It was submitted that the expenditure in relation to the foreign education is wholly and exclusively for the purposes of the business of the assessee company. This decision was taken on the basis of his ability, reliability and guarantee about continuity of the services after training. This type of assurance is not available to the assessee company from the other employees and the person who has ability, integrity and reliability. The assessee has incurred various expenditures on their ex-staff who have left the company within a span of small period. Thus, due to the requirement of the business of the assessee company, the prudent business decision was taken for sending the employee of the assessee company for training and higher education. The assessee relied upon the decision of the jurisdictional High Court in the case of Sakal Paper Limited reported in 256 ITR 114 (Bom.), J.B. Advani And Co. Ltd. v. Joint....
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....nt between the assessee-company and Mr. Tushar Khanna for serving the company for at-least three years after completion of training, therefore, the entire expenditure incurred for the training and education of Mr. Tushar Khanna was for the purpose of business of assessee-company. He has specifically and forcefully contended that this is not a exceptional case where the assessee company has incurred the expenditure for imparting training and education in abroad only to Mr. Tushar Khanna but there are various instances, where the company has been bearing the expenses for imparting the training and higher education to other employees. He has pointed out that the company is spending about Rs. 25 lakhs yearly for imparting training and education to the employees. Due to the nature and requirement of the business of the assessee-company, the assessee-company has been consistently using such huge amount on training each year. He has submitted that the lower authorities have doubted the employment of Mr. Tushar Khanna with the assessee- company and one of the objection was that he had even not complete age of 18 years when he was given employment in the company. He has submitted that Mr. T....
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....aid training and higher education then the expenditure on such training or higher education would be a business expenditure. In the present case, it appears that the process for admission at the Cornell University, USA for education in Hotel Management must have started much earlier and even before the completion of schooling of Mr. Tushar Khanna who is a son of one of directors of the company. He was appointed as a Management Trainee in the Month of April 2000 and then he got the admission in the University in the month of June 2000. We note that the assessee claimed that he was appointed as Management Trainee on 1-4-2000, whereas the resolution for sending him for education in Cornell University was passed by the Board of Directors of the assessee company on 14-3-2000. The resolution of the company is placed at pages 5 and 6 of the paper book. Thus, it is not understandable as to how the decision for sending him for training and education in Hotel Management at Cornell University was taken on 4-3-2000 when he was allegedly appointed as Management Trainee on 1-4-2000. Thus, the decision for sending Mr. Tushar Khanna to the Cornell University for education in Hotel Management was t....
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....n of the director and thus, it appears that giving appointment as a Management Trainee was only with a view to claim the expenses on education. 10. The Hon'ble Madras High Court in the case of M. Subramaniam Bros. v. CIT, 250 ITR 769 after following the decision of the Hon'ble Bombay High Court in the case of CIT v. Hindustan Hosiery Industries (supra) has taken a similar view when the assessee firm founded by the father admitted his children even when they were minor to the benefit of the firm, the children continued their studies even after attaining the age of majority. One of the sons was sent abroad for further study could not be regarded as a deputation made by the firm of one of its partners in connection with the business of the assessee-firm. The Hon'ble High Court has observed it was in substance, only a step taken by the father who was naturally interested in giving the best possible education to his son, and had sent him abroad to get a higher degree after he completed his degree. An agreement that was drawn up was merely intended to give a colour of commercial expediency, and was rightly not relied upon by the Tribunal. 11. We find that the decision of the Hon'ble Ma....
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.... expenditure. The decision relied upon by the learns AR are not applicable in the facts and circumstances of the case because in all those cases expenditure was incurred on the son/daughter of the director while the daughter/son were already working as an employee of the assessee company. We further note that in the case of Intersil India Ltd. v. Addl. CIT (supra), the tribunal vide paragraphs 9 and 10 held as under : "9. In the case of..... When we examine the case of the assessee on the principles so laid down by the Third Member decision, the conclusion is irresistible that the expenditure could not be "said to be entirely without extra commercial considerations. Shri Rishav Mehra was not an employee of the company at the material point of time, and there is no material before us, unlike the case of Sakal Papers for example, that the selection of Shri Rishav Mehra was on pure commercial considerations. It is useful to remember that in Sakal Papers case, there was a categorical conclusion by the Tribunal that the person sent abroad was not selected for further studies because of the reason of her relationship with the two directors, that the selection could not be attributed to....