TaxTMI 
TaxTMI 
2014 (1) TMI 1180
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....id to External faculties; & (iii) Rs.38,38,958/- being 20% of Rs.1,91,94,739/- paid to Org. direct incurred towards staff training. 3. Briefly stated, the facts of the issues are as under: The assessee is a company engaged in the business of software development and allied activities. During the year under dispute, the assessee had filed its return of fringe benefits on 30.9.2009, declaring taxable FB of Rs.8,85,08,943/- which was revised on 23.3.2010. During the course of proceedings, the assessee had furnished the reconciliation of FB with the financial statements. The AO had concluded the assessment u/s 115 WE(3) by making additions on the following expenses: (i) Rs.1,29,473/- being 20% of Rs.6.47 lakhs incurred towards event management; (ii) Rs.6,87,089/- being 20% of Rs.34.35 lakhs paid to Org. Indirect towards staff training; (iii) Rs.41,772/- being 20% of Rs.2.08 lakhs paid to external faculties towards staff training; and (iv) Rs.38,38,958/- being 20% of Rs.1.91 crores paid to Org. Direct towards staff training. 3.1. Aggriev....
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....instead of bringing it to tax under the head 'conference' u/s 115WB(2(C), I am of the view that it should rightly be brought to tax under the head 'entertainment' u/s 115WB(2)(A)..." (ii) Rs.6,87,089/-, Rs.41,772/- & Rs.38,38,958/- being 'staff training', 'staff training expenses - External Faculty & 'staff training expenses' respectively: "5.2. As already pointed out in para 4.2, clauses (a) to (e), it was evident that the purpose or rationale behind introduction of FBT provisions was to tax a benefit which was enjoyed collectively by the employees which was enjoyed collectively by the employees which was hitherto untaxed in the hands of the employees and in r/o which the employer was claiming deduction. Likewise, an expenditure which did not result in any benefit to an employee would not be liable for FBT as FBT was leviable only in a case where expenditure was incurred by the employer ostensibly for the purpose of business but included partially a benefit of a personal nature which could not be attributed or was difficult to attribute. It is crystal clear from the Finance Minister's speech and Memorandum explaining the FBT prov....
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..... 115WB(2)(C) and would be liable to FBT. However, it is abundantly clear that both the queries referred to above are in connection with the applicability or otherwise of the deeming provisions of sec.115WB(2)(C) which directly relates to 'conference' whereas the AO has clearly brought the other amounts to tax as 'employees' welfare' under the deeming provisions of sec. 115 WB(2)(E). Therefore, the whole argument of whether 'in-house' training includes within its ambit payment made to external faculty or not or merely denotes location is irrelevant. Under the circumstances, I am inclined to agree with the AO that staff training expenses, whether direct, indirect or external faculty, are all liable to FBT under the deeming provisions of sec. 115 WB(2)(E)." 3.2. Aggrieved, the assessee has come up with the present appeal. During the course of hearing, the learned AR, extensively quoting the Finance Minister's speech on 28.2.2005 as well as in the Lok Sabha on 2.5.2005, Memorandum to Finance Bill 2005 and also his interview with the Economic Times, it was contended that the fringe benefits can only mean privilege, service, benefit or amenity provided directly or indirectly by an empl....
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....une) 365. 3.2.2. To drive home his point, the learned AR had averred that an expense would be subjected to FBT only if the following attributes are present, namely: * Benefit is given in consideration for employment; * Benefit is available to employee as a matter of right; * Benefit is collectively enjoyed by the employees; * Benefits enjoyed in the hands of the employee are quantified; * Expenditure incurred by the employer is ostensibly for the purpose of business but includes an element of benefit of a personal nature which cannot be attributed or is difficult to attribute; & * Payments were not made to third parties. 3.2.3. With regard to the sustaining of the addition of Rs.1,29,473/- by the CIT (A), it was argued that the CIT (A) ought not to have treated the expenditure of Rs.6.47 lakhs as 'entertainment expenditure' liable to be treated as deemed benefit u/s 115WB (2) as against the addition made by the AO as 'conference' expenditure liable to tax u/s 115WB(2)(C) without affording an opportunity to the assessee to explain its stand, even though the details of expenses were furnished to the AO as well as the CIT (A)-LTU. It was contended that s. 115WB (2) provi....
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....olved as medical reimbursement, recreation facilities offered for employees, incentive awards etc. In the instant case, staff training was provided by the assessee with an intention to increase the productivity of the employees which was evident from the above said description. It was argued that the CIT (A) had failed to appreciate that the purpose of providing the training was to equip the employees to perform their official duties efficiently. In other words, it was explained, the training provided was to improve the employee's productivity at the workplace by giving cutting-edge knowledge and ideas which directly benefits the assessee in carrying on its business more efficiently. It was, further, argued that the CIT (A) had failed to appreciate that if the purpose of incurring the expenses was to protect the employer's business interest and not the welfare of/benefit to the employees, the expenses incurred thereon would not be termed as 'employee welfare.' It was the stand of the learned AR that the Board's Circular (supra) has clarified that the expenses incurred for the purpose of imparting in-house training to employees would be out of the ambit of FBT and that the authoriti....
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....refore, pleaded that the stand of the CIT (A) requires to be sustained. 3.3. We have carefully considered the submissions of both the parties and also perused the relevant materials on record. It is an undisputed fact that the assessee had incurred the following expenses: Lighting arrangements during Chennai event Items hired for Panache Cricket match finals for employees held Rs. 15,000 in Bangalore between different project teams Rs. 34,000 Aztecsoft with Mindtree Rs. 71,617 Relates to Mindtree Chennai facility inauguration Rs.5,26,310 3.3.1. The break-up of expenses grouped under Event Management Expenditure account along with documentary evidences were furnished before the AO as well as the CIT (A) by the assessee. However, the CIT (A)-LTU, after analysing the provisions of s. 115 WB (1), 115WB(1)(a) of the Act, was of the view that the nature of expenses claimed make it abundantly clear that such expenses were in the nature of 'entertainment' liable to be treated as a deemed benefit u/s 115WB (2)(A) of the Act rather than as expenditure incurred towards conference liable to be taxed u/s 115WB(2)(C) of the Act. However, on a careful consideration of th....