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TMI Blog2014 (1) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... staff training – Held that:- The authorities below have justified in their stand that the expenses as part of ‘employee welfare’ u/s 115WB(2)(E) of the Act – However, they have failed to appreciate that the expression of ‘welfare’ in general parlance would mean the health, fortunes of a person or a group - they have failed to justify that the staff training falls within the sphere of ‘employee welfare’ - The purpose of providing training to its employees by its employer was to perform their official duties efficiently which will definitely enhance the productivity thereby the ultimate beneficiary would be the employer in carrying on its business more effectively and not the employees - If the purpose of incurring the expenses was to protect the employer’s business interest and not the welfare of the employees and, as such, it cannot be termed as employees’ welfare - These aspects have neither been considered by the AO nor by the CIT (A) - the comprehensive details of expenses incurred for the staff training have neither been furnished before the authorities below nor during the course of hearing before the Bench by the assessee to ascertain as to whether the assessee’s claim that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I am of the considered opinion that the nature of expenses listed in Table I above wherein the appellant has furnished the break-up of event management expenditure makes it abundantly clear that such expenses are in the nature of Entertainment liable to be treated as a deemed benefit u/s 115WB(2)(A) rather than as expenditure incurred towards conference liable to be taxed u/s 115WB(2)(C). It is quite evident from a plain reading of the Finance Minister s speech dt 28.2.2005 and from the Memorandum to the Finance Bill, 2005 that where the benefits are usually enjoyed collectively by the employees and where the expenditure incurred by the employer is ostensibly for purposes of the business but includes, in partial measure, a benefit of a personal nature, such expenses would clearly fall within the purview of FBT. In the instant case, the expenses towards event management have been largely incurred towards inauguration of its Chennai Facility and the Cricket Match which were for the collective benefit of its employees between different project teams. Obviously, the very nature of the expenses incurred makes it crystal clear that the event management expenses incurred to the tune ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is proposed to levy a separate tax known as FBT on the employer on the value of such benefits provided or deemed to have been provided to the employees. Thus, the intention of creation of a deeming fiction under section 115WB(2) is to include an expenditure resulting in collective enjoyment of fringe benefits by the employees and it is difficult or not feasible to attribute such benefit personally to employees. 5.2.1. In the instant case, it is quite evident from the nature of the staff training expenses incurred by the appellant on its employees that both elements of employer employee relationship as well as collective benefit to the employees are clearly visible and omnipresent though incidentally this may ultimately result in improving productivity in the long run. The appellant placed reliance on q No.51 of the Board s Circular wherein the Board clarified in its answer to the query as to whether expenditure incurred during in-house employee training would be considered as conference expenses deemed to be a fringe benefit u/s 115WB(2)(C), the Board clarified that though FBT was not envisaged on expenditure incurred for purpose of imparting in-house training to emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same directly to the employee. It was submitted that the Memorandum states that FBT is sought to be levied where attribution of the personal benefit poses problems. Thus, it was contended that deeming fiction u/s 115 WB is attracted only when the expenditure results in some benefit to employees and/or it is difficult to isolate the personal element of enjoyment or benefit. Further, it was claimed that s. 115 WB (2) incorporating a deeming fiction should be read along with the intention of Legislature to tax the collective enjoyment of benefits by the employees and that u/s 115WB (2), the expenditure should be incurred in the capacity of employer for his employees and, therefore, legitimate business expenditure bereft of any benefit to employees is outside the ambit of FBT. For this proposition, the learned AR relied on the case laws, namely, (i) CIT v. Karnataka Power Transmission Corporation Ltd (2012) 20 Taxmann.com 142 (Kar); (ii) M/s. Toyota Kirloskar Motor Pvt. Ltd v. Addl CIT - 2012-TIOL-313-ITAT-BANG; (iii) Bosch Ltd. v. DCIT (2011) 15 Taxmann.com 187 (Bang); (iv) DCIT v. Mescon - 2010-TIOL-419-ITAT-BANG. 3.2.1. Referring to s. 115WB (1), it was submitted that the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermed as entertainment as it was in the course of the expansion of the assessee s business and not meant for the employees and the employees were not benefited from such expenses and as such, the FBT is not attracted in the instant case. It was claimed, the CIT (A)-LTU erred in treating Rs.34000/- paid towards items hired for Panache Cricket match conducted between different project team also as entertainment . Quoting the provisions of s. 115 WB(2)(E), it was argued that it was evident from the Explanation to clause (E) that if an employer organizes any sports event for employees, the amount expended on the said event shall not be considered as employee s welfare and thereby cannot be regarded as FB and the employer was not required to pay FBT on the same. In conclusion, it was argued that the sum of Rs.6,47,363/- incurred by the assessee cannot be regarded as FB and, thus, not chargeable FBT on the said amount. 3.2.4. In respect of the staff training expenses of Rs.34,35,443/-, staff training expenses External faculty of Rs.2,08,860/- and Rs.1,91,94,739/- paid towards Org. direct under the head staff training expenses for which 20% of the same were treated as liable to FBT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employees in any conference is excluded from the scope of s. 115 WB (2)(C) and, thus, the participation fee in respect of a conference organized by an outside entity was excluded from the purview of FBT. If it were so, even staff training provided by the employer should also be free from FBT. The purpose of participation, it was contended, in any conference organized by a third party cannot be different from purpose of training provided by the employer itself to its employees. If the former cannot be regarded as employee welfare, the latter also cannot be regarded as such. Without prejudice the ruling of the Hon ble Calcutta High Court in the case of Ravi Marketing (P) Ltd v. CIT (2006) 280 ITR 519 (Cal), the learned AR submitted that the reply to Q. No.54 [Circular No.8/2005] doesn t apply to the present case for the following reasons: (i) The aforesaid expenditure was not incurred by the assessee for attending training programmes organized by trade bodies or institutions; (ii) The training programmes as referred to in the above query are general in nature whereas in the present case, it was an in-house training provided to the employees of the assessee for improvement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the employees whatsoever. (i) To illustrate further, the assessee had incurred an expenditure of Rs.34,000/-for organizing the cricket match. In this connection, we refer to Explanation to s. 115 WB(2)(E) of the Act that Explanation For the purposes of this clause, any expenditure incurred or payment made to- (i) (vi) organise sports events for employees, shall not be considered as expenditure for employees welfare; (ii) A sum of Rs.71,617/- and Rs.15,000/- were incurred for the purpose of organising shareholders and creditors meet during merger of Aztecsoft with Mindtree. In these events, the question of involvement of any employees welfare doesn t arise. Therefore, invoking the provisions of s. 115 WB (2)(A) of the Act do not arise as there was no any involvement of entertainment on the issue. (iii) Rs.5,26,310/- was claimed being expenses incurred towards the inauguration of Chennai facility. On a perusal of the Invoice produced during the course of hearing, we find that the expenses incurred towards organizing the inauguration of Chennai facility [Source: Page 65 66 of PB AR]. Hereto, we find there was n ..... 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