WESTIN HOSPITALITY SERVICES P. LTD, MUMBAI v. DCIT CEN CIR 39, MUMBAI

ITA 6581/MUM/2009 | 2005-2006
Pronouncement Date: 27-10-2010 | Result: Dismissed

Appeal Details

RSA Number 658119914 RSA 2009
Assessee PAN AAACW3255G
Bench Mumbai
Appeal Number ITA 6581/MUM/2009
Duration Of Justice 10 month(s) 3 day(s)
Appellant WESTIN HOSPITALITY SERVICES P. LTD, MUMBAI
Respondent DCIT CEN CIR 39, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 27-10-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted G
Tribunal Order Date 27-10-2010
Date Of Final Hearing 23-09-2010
Next Hearing Date 23-09-2010
Assessment Year 2005-2006
Appeal Filed On 24-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G MUMBAI BEFORE SHRI J SUDHAKAR REDDY ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO JUDICIAL MEMBER ITA NO. 6577 TO 6582/MUM/2009 (ASSESSMENT YEARS: 2001-02 TO 2006-07) WESTIN HOSPITALITY SERVICES P LTD. C/O THE CLUB 197 D N NAGAR ANDHERI (W) MUMBAI-400053 PAN: AAACW3255G . APPELLANT VS DCIT CEN CIR 39 GR.FLOOR AAYAKAR BHAVAN M K ROAD MUMBAI-400020. RESPONDENT ASSESSEE BY : SHRI PARESH VAKHARIA RESPONDENT BY : MRS. NEERAJ VINAY BANSAL O R D E R PER VIJAY PAL RAO JM THESE SIX APPEALS BY THE ASSESSEE ARE DIRECTED AGA INST THE DIFFERENT ORDERS OF CIT(A) OF DATED 8.10.2009 ARISING FROM THE ASSESSMENT ORDERS PASSED UNDER SECTION 143(3) R.W. SECTION 153 FOR THE ASSESSMENT YEARS TO 2001-02 TO RESPECTIVELY. 2. THE ASSESSEE HAS RAISED IDENTICAL GROUNDS IN AL L THESE SIX APPEALS THUS SOLITARY COMMON ISSUE ARISES IN THESE ITA NO. 6577 TO 6582/MUM/2009 (ASSESSMENT YEARS: 2001-02 TO 2006-07) 2 APPEALS IS WHETHER IN THE FACTS AND CIRCUMSTANCES O F THE CASE THE LEARNED CIT(A) IS JUSTIFIED IN CONFIRMING THE D ISALLOWANCE OF EXPENDITURES INCURRED ON THE FOREIGN EDUCATION OF SON OF THE DIRECTOR OF THE ASSESSEE COMPANY. 3. THE BRIEF FACTS RELEVANT TO THE ISSUE EMERGING F ROM THE RECORD AND PARTICULARLY BY TAKING THE ASSESSMENT YE AR 2001-02 AS BASIS ARE AS UNDER : 3.1 THE ASSESSEE COMPANY IS IN THE BUSINESS OF SERV ING OF READY TO SERVE FOOD AND BEVERAGES (ONLY TEA AND COF FEE) TO THE HOTELS AND CLUBS. THERE WAS A SEARCH AND SEIZURE OPERATIONS UNDER SECTION 132 OF THE INCOME TAX ACT 1961 CARR IED OUT ON 22.02.2007 AT THE RESIDENTIAL AND BUSINESS PREMISES OF THE KHANNA GROUP OF CASES AND THE MAIN CONCERN/PERSON O F 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 SA ID CONTRACT THE ASSESSEE AGREED FOR SERVING READY FOOD AND BEV ERAGES (TEA AND COFFEE) TO ALL THE HOTELS AND BANQUETS FAC ILITIES AT THE ITA NO. 6577 TO 6582/MUM/2009 (ASSESSMENT YEARS: 2001-02 TO 2006-07) 3 CLUB. IT WAS FOUND THAT THE ASSESSEE COMPANY HAS I NCURRED AN EXPENDITURE ON AN EMPLOYEE FOR EDUCATION INCLUD ING THE TRAVELING EXPENDITURES ON SHRI TUSHAR KHANNA WHO I S SON OF ONE OF THE DIRECTORS OF THE COMPANY I.E MRS.NISHI K HANNA. THE DETAILS OF EXPENDITURES INCURRED FOR ALL THESE SIX YEARS ARE AS UNDER : AY 2001-02 ` 29 27 748 AY 2002-03 ` 14 95 826 AY 2003-04 ` 17 50 057 AY 2004-05 ` 23 78 669 AY 2005-06 ` 3 14 546 AY 2006-07 ` 10 501 4. ON INQUIRY ABOUT THE ALLOWABILITY OF SUCH FORE IGN EDUCATION EXPENSES THE ASSESSEE MADE DETAILED SUBM ISSIONS BEFORE THE AO WHICH ARE REPRODUCED BY THE ASSESSIN G OFFICER IN THE ASSESSMENT ORDER. THE MAIN CONTENTION OF TH E ASSESSEE BEFORE THE AO WAS THAT THE ASSESSEE COMPANY IS ENGA GED IN THE BUSINESS OF HOTELS AND CATERING SERVICES. FOOD BUSINESS IS HIGHLY SPECIALIZED AND EXTREMELY SUBJECTIVE TO TH E VARIED TESTS OF CUSTOMERS. PROFICIENT CUSTOMERS SERVICES BACKED UP BY HIGHLY DEDICATED SYSTEM IS A PRE-REQUISITE I N THIS LINE OF BUSINESS . SINCE THE INDUSTRIES OF HOSPITALITY AND CATERING SERVICES IS FACING PERSISTENT PROBLEMS OF HIGH M ANPOWER ITA NO. 6577 TO 6582/MUM/2009 (ASSESSMENT YEARS: 2001-02 TO 2006-07) 4 TURNOVER THIS ADVERSELY AFFECTS THE CONTINUITY IN BUSINESS AND HUGE QUANTUM OF MONEY TIME AND EFFORTS IS SPENT O N TRAINING EMPLOYEES AND IMPARTING THE REQUIRED SKILLS TO THE EMPLOYEES. IT IS EXPERIENCED THAT AFTER GETTING TRAINING AND S KILLED PERSONNEL LEAVE THE ASSESSEE-COMPANY IN LURCH. TO SOLVE THE AFORESAID PROBLEM OF RETAINING THE KEY EMPLOYEES IT WAS DECIDED IN THE BOARD MEETING HELD ON 14.3.2000 TO SPONSORED MR. TUSHAR KHANNA TO ACQUIRE SUCH TRAINING AND EDU CATION AT CORNELL UNIVERSITY. THE CORNELL UNIVERSITY IS ON E OF THE BEST FOREIGN UNIVERSITY IN THE WORLD.. THE ASSESSEE COM PANY ALSO ENTERED INTO AN AGREEMENT WITH MR. TUSHAR KHANNA W HEREIN IT WAS MADE MANDATORY FOR THE SPONSORED EMPLOYEE THAT AFTER TRAINING AND RETURN BACK TO INDIA HE WILL SERVE TH E ASSESSEE COMPANY FOR A PERIOD OF MINIMUM PERIOD OF THREE YEA RS THEREAFTER. THE LEARNED AR ALSO CONTENDED THAT MR. TUSHAR KHANNA EARNED AN HONOUR PLACE IN DEANS LIST OF THE OUTSTANDING SCHOLAR IN OCTOBER 2002. IN MAY 2004 HE COMPLETED THE TRAINING SUCCESSFULLY AND AS PER THE TERMS OF THE AGREEMENT HE RETURNED BACK TO INDIA AND EMPLOY ED WITH THE ASSESSEE THE ENTIRE TRAINING AND EDUCATION I N HOTEL MANAGEMENT WAS FOR THE BENEFIT OF THE ASSESSEE COMP ANY BEING SPECIALIZED FIELD. THIS WAS NOT A SPECIFIC CASE ON WHICH THE ASSESSEE COMPANY HAS INCURRED THE EXPENSES FOR TRAINING AND EDUCATION BUT IN GENERAL THE ASSESSEE COMPANY U SED TO ITA NO. 6577 TO 6582/MUM/2009 (ASSESSMENT YEARS: 2001-02 TO 2006-07) 5 INCUR LAKHS OF RUPEES FOR TRAINING OF ITS OTHER EMP LOYEES ALSO. THE LEARNED AR FURTHER SUBMITTED THAT AFTER JOINING THE COMPANY MR. TUSHAR KHANNA IS DRIVING HIGH SALES A ND PROFIT YEAR AFTER YEAR. HE CONTINUED TO SERVE THE COMPANY ON A LOWER REMUNERATION OF RS.35 000/- PER MONTH IN CO MPARE TO THE REMUNERATION RECEIVED BY THE OTHER EMPLOYEE TRA INED AT CORNELL UNIVERSITY WITH SUCH EXPERIENCE. THUS THE COMPANY IS GETTING ADVANTAGE AND BENEFIT OF TRAINING EXPENDITU RE INCURRED ON MR. TUSHAR KHANNA. IT WAS SUBMITTED THAT THE EX PENDITURE IN RELATION TO THE FOREIGN EDUCATION IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE CO MPANY. THIS DECISION WAS TAKEN ON THE BASIS OF HIS ABILITY RELIABILITY AND GUARANTEE ABOUT CONTINUITY OF THE SERVICES AFTE R TRAINING. THIS TYPE OF ASSURANCE IS NOT AVAILABLE TO THE ASSE SSEE 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 L EFT THE COMPANY WITHIN A SPAN OF SMALL PERIOD. THUS DU E TO THE REQUIREMENT OF THE BUSINESS OF THE ASSESSEE COMPAN Y THE PRUDENT BUSINESS DECISION WAS TAKEN FOR SENDING THE EMPLOYEE OF THE ASSESSEE COMPANY FOR TRAINING AND HIGHER ED UCATION. THE ASSESSEE RELIED UPON THE DECISION OF THE JURIS DICTIONAL HIGH COURT IN THE CASE OF SAKAL PAPER LIMITED REPOR TED IN 256 ITR 114 (BOM) J.B. ADVANI AND CO. LTD. VS JOINT ITA NO. 6577 TO 6582/MUM/2009 (ASSESSMENT YEARS: 2001-02 TO 2006-07) 6 COMMISSIONER OF INCOME TAX REPORTED IN (2005) 92 T TJ MUM 175 AND ITO V/S D M HARISH AND CO (ITA NO.227 / BO M/1982 DATED 29 TH MAY 1984. 5. THE AO BY FOLLOWING THE ORDER PASSED UNDER SECTI ON 143(3) IN THE ASSESSEES OWN CASE DISALLOWED THE E XPENSES. IT IS PERTINENT TO NOTE THAT THE ISSUE OF DISALLOW ANCE OF FOREIGN EDUCATION WAS ALSO IN THE REGULAR ASSESSMENT UNDER SECTION 143(3). THE ASSESSEE FILED THE APPEAL AGAINST THE SAID DISALLOWANCE MADE BY THE AO WHILE PASSING THE ORDE R UNDER SECTION 143(3). THE MATTER WAS CARRIED TO THIS T RIBUNAL. THIS TRIBUNAL VIDE ORDER DATED 21.1.2009 FOR THE ASSESS MENT YEAR 2001-02 REMITTED THE MATTER TO THE FILE OF THE CIT( A) WITH A DIRECTION TO DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER CONSIDERING THE ADDITIONAL EVIDENCE AND AFTER PROVIDING THE REASONABLE OPPORTUNITY OF HEARING TO BOTH THE P ARTIES. THE CIT(A) DECIDED THE ISSUE VIDE IMPUGNED ORDER AND AF TER GIVING OPPORTUNITIES TO BOTH THE SIDES. THUS THE EARLIER ORDER WHICH WAS REMITTED BACK BY THE TRIBUNAL AND THIS ORDER PA SSED UNDER SECTION 143 READ WITH SECTION 153A ARE MERGED IN TH E IMPUGNED ORDER OF CIT(A). THE CIT(A) WHILE DECIDI NG THE ISSUE AGAINST THE ASSESSEE HAS RELIED UPON THE DEC ISION OF THIS TRIBUNAL IN THE CASE OF INTERSIL INDIA LTD V /S ADDL. CIT REPORTED IN 101 ITD 85 SBG V/S MILLS 07 SOT 561. APART ITA NO. 6577 TO 6582/MUM/2009 (ASSESSMENT YEARS: 2001-02 TO 2006-07) 7 FROM THIS THE CIT(A) HAS ALSO CONSIDERED THE DECI SION OF HONORABLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. HINDUSTAN HOSIERY INDUSTRIES 209 ITR 383 (BOM) D ECISION OF HON. MADRAS HIGH COURT IN THE CASE OF M. SUBRAMANI AM BROS. V. CIT 250 ITR 769.(MAD) AS WELL AS THE DECISION I N THE CASE OF COMMISSIONER OF INCOME-TAX V. R.K.K.R. STEELS P . LTD. [2002] 258 ITR 306 (MAD.) 6. BEFORE US THE LEARNED AR OF THE ASSESSEE APART FROM REITERATING THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES SUBMITTED THAT THOUGH MR. TUSHAR KHANNA WHO WAS THE SON OF ONE OF THE DIRECTORS WAS EMPLOYED A MANAGEMENT TRAI NEE OF THE COMPANY THE SELECTION OF MR.TUSHAR KHANNA FOR CORNELL UNIVERSITY FOR ADMISSION IS ON MERITS. HE WAS EMPL OYED AS MANAGEMENT TRAINEE OF THE COMPANY. HE HAS FURTHER CONTENDED THAT THE BOARD OF DIRECTOR HAS PASSED T HE RESOLUTION FOR THE HIGHER STUDIES AND EDUCATION OF MR.TUSHAR KHANNA FROM CORNELL UNIVERSITY WHICH IS ONE OF THE BEST UNIVERSITY IN THE WORLD IN THE FIELD OF HOTEL MANAG EMENT. SINCE THERE WAS AN AGREEMENT BETWEEN THE ASSESSEE-C OMPANY 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 ITA NO. 6577 TO 6582/MUM/2009 (ASSESSMENT YEARS: 2001-02 TO 2006-07) 8 ASSESSEE-COMPANY. HE HAS SPECIFICALLY AND FORCEFUL LY CONTENDED THAT THIS IS NOT A EXCEPTIONAL CASE WHERE THE ASSESSEE COMPANY HAS INCURRED THE EXPENDITURE FOR I MPARTING 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 T HAT THE COMPANY IS SPENDING ABOUT ` 25 LAKHS YEARLY FOR IMPARTING TRAINING AND EDUCATION TO THE EMPLOYEES. DUE TO TH E NATURE AND REQUIREMENT OF THE BUSINESS OF THE ASSESSEE-COM PANY THE ASSESSEE-COMPANY HAS BEEN CONSISTENTLY USING SUCH H UGE AMOUNT ON TRAINING EACH YEAR. HE HAS SUBMITTED THA T THE LOWER AUTHORITIES HAVE DOUBTED THE EMPLOYMENT OF M R.TUSHAR KHANNA WITH THE ASSESSEE- COMPANY AND ONE OF THE OB JECTION WAS THAT HE HAD EVEN NOT COMPLETE AGE OF 18 YEARS W HEN HE WAS GIVEN EMPLOYMENT IN THE COMPANY. HE HAS SUBMIT TED THAT MR.TUSHAR KHANNA WAS APPOINTED AS MANAGEMENT TRAINE E IN THE MONTH OF APRIL 2000 JUST 37 DAYS SHORT OF ATTEN DING THE AGE OF 18 YEARS. HE HAS FURTHER CONTENDED THAT THERE IS NO PROHIBITION FOR APPOINTING THE MANAGEMENT TRAINEE BELOW THE AGE OF 18 YEARS. THUS THE LEARNED AR HAS VEHEMEN TLY CONTENDED THAT THE ENTIRE EXPENDITURE WAS FOR THE INTEREST OF THE COMPANY AND THUS FOR THE PURPOSES OF BUSINESS O F THE ASSESSEE-COMPANY. HE HAS RELIED UPON THE DECISIONS AS ITA NO. 6577 TO 6582/MUM/2009 (ASSESSMENT YEARS: 2001-02 TO 2006-07) 9 REFERRED BEFORE OF THE LOWER AUTHORITIES. HE HAS ALSO RELIED UPON THE DECISION OF THE HON.GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON & ENGG. CO. V. COMMISSIONER OF INCOME-TAX REPORTED IN [2002] 253 ITR 749 (GUJ.) AS WELL AS T HE DECISION IN THE CASE OF J.B. ADVANI AND CO. LTD. VS JOINT C OMMISSIONER OF INCOME TAX (2005) 92 TTJ MUM 175 (1 SOT 830). HE HAS ALTERNATIVELY SUBMITTED THAT AT THE BEST THIS EXPEN DITURE MAY BE TREATED AS A PERQUISITES IN THE NAME OF THE EMP LOYEE AND THEREFORE CANNOT BE DISALLOWED. 7. ON THE OTHER HAND THE LEARNED DR HAS SUBMITTED THAT IT WAS ONLY A PERSONNEL EXPENDITURE ON THE EDUCATION O F THE SON OF THE DIRECTOR OF THE COMPANY. WHEN THE SON DID N OT EVEN COMPLETE THE AGE OF 18 YEARS AND JUST PASSED THE S CHOOL EDUCATION HOW FURTHER EDUCATION CAN BE FOR THE BEN EFIT AND BETTERMENT OF THE ASSESSEE COMPANY. THE ASSESSEE H AS NOT ADOPTED ANY PROCEDURE FOR SELECTION OF THE EMPLOYE ES FOR HIGHER EDUCATION IN FOREIGN UNIVERSITY. MR.TUSHAR KHANNA WAS SENT FOR THE HIGHER EDUCATION NOT ON THE BASIS OF REQUIREMENT OF THE COMPANY OR HIS ABILITY BUT ONLY BECAUSE OF HIS RELATIONSHIP WITH THE ONE OF THE DIRECTORS OF T HE COMPANY. HE HAS FURTHER POINTED OUT THAT THE PROCESS OF ADM ISSION AT THE FOREIGN UNIVERSITY MUST HAVE STARTED BEFORE HE WAS APPOINTED AS MANAGEMENT TRAINEE AND EVEN BEFORE ATTAINING ITA NO. 6577 TO 6582/MUM/2009 (ASSESSMENT YEARS: 2001-02 TO 2006-07) 10 THE AGE OF 18 YEARS. IT WAS ONLY FOR THE PURPOSE O F SHIFTING THE PERSONAL EXPENDITURE ON FOREIGN EDUCATION OF THE S ON OF THE DIRECTOR TO THE ASSESSEE COMPANY. EVEN OTHERWISE H E WAS NOT AN EMPLOYEE AT THE RELEVANT POINT OF TIME BUT O NLY A MANAGEMENT TRAINEE THEREFORE THE EXPENDITURE CANN OT BE TREATED AS BUSINESS EXPENDITURE. HE HAS RELIED UP ON THE ORDERS OF THE LOWER AUTHORITIES. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND REL EVANT RECORD. THERE IS NO DISPUTE THAT IF THE EXPENDITUR E IS INCURRED BY AN ASSESSEE FOR THE TRAINING AND HIGHER EDUCATI ON OF ITS EMPLOYEES FOR REAPING THE BENEFIT OF THE SAID TRAI NING AND HIGHER EDUCATION THEN THE EXPENDITURE ON SUCH TRAIN ING OR HIGHER EDUCATION WOULD BE A BUSINESS EXPENDITURE. IN THE PRESENT CASE IT APPEARS THAT THE PROCESS FOR ADMI SSION AT THE CORNELL UNIVERSITY USA FOR EDUCATION IN HOTEL MANA GEMENT MUST HAVE STARTED MUCH EARLIER AND EVEN BEFORE T HE COMPLETION OF SCHOOLING OF MR. TUSHAR KHANNA WHO I S 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 APPOI NTED AS MANAGEMENT TRAINEE ON 1 .4.2000 WHEREAS THE RESOL UTION FOR SENDING HIM FOR EDUCATION IN CORNELL UNIVERSI TY WAS ITA NO. 6577 TO 6582/MUM/2009 (ASSESSMENT YEARS: 2001-02 TO 2006-07) 11 PASSED BY THE BOARD OF DIRECTORS OF THE ASSESSEE C OMPANY ON 14.3.2000. THE RESOLUTION OF THE COMPANY IS PLA CED AT PAGES 5 AND 6 OF THE PAPER BOOK. THUS IT IS NOT UNDERSTANDABLE AS TO HOW THE DECISION FOR SENDING H IM FOR TRAINING AND EDUCATION IN HOTEL MANAGEMENT AT CORNE LL UNIVERSITY WAS TAKEN ON 4.3.2000 WHEN HE WAS ALLEG EDLY APPOINTED AS MANAGEMENT TRAINEE ON 1.04.2000. TH US THE DECISION FOR SENDING MR. TUSHAR KHANNA TO THE CORN ELL UNIVERSITY FOR EDUCATION IN HOTEL MANAGEMENT WAS TAKEN BEING HE A SON OF THE DIRECTOR AND NOT BEING THE EM PLOYEE OF THE ASSESSEE. EVEN OTHERWISE IT IS CLEAR FROM TH E FACTS AND PARTICULARLY FROM THE DECISION IN THE BOARD MEETIN G HELD ON 14.3.2000 THAT THE PROCESS OF ADMISSION IN THE CORN ELL UNIVERSITY WAS STARTED MUCH EARLIER THEN HE WAS AL LEGEDLY APPOINTED AS MANAGEMENT TRAINEE. THEREFORE THE SAID APPOINTMENT OF MR.TUSHAR KHANNA AS A MANAGEMENT T RAINEE WAS ONLY WITH A VIEW TO CLAIM THE EXPENDITURE TO B E INCURRED ON THE EDUCATION OF THE SON OF THE DIRECTOR OF THE FAMILY OWNED COMPANY AS A EDUCATION EXPENDITURE ON THE GROUND T HAT THE EXPENDITURE BENEFITED THE COMPANY. THE ENTIRE EXER CISE OF ALLEGED APPOINTMENT AS A MANAGEMENT TRAINEE AFTER THE DECISION TAKEN FOR SENDING HIM TO THE FOREIGN UNIVE RSITY FOR EDUCATION IS A CALCULATED PRE-PLANNED AND DELIBER ATE EXERCISE ON THE PART OF THE ASSESSEE COMPANY TO CLAIM THE ED UCATION ITA NO. 6577 TO 6582/MUM/2009 (ASSESSMENT YEARS: 2001-02 TO 2006-07) 12 EXPENDITURE. THE HON. JURISDICTIONAL HIGH COURT IN CIT V. HINDUSTAN HOSIERY INDUSTRIES (SUPRA) HAS OBSERVED THAT THE ASSESSEE WAS A FAMILY CONCERN OF A MOTHER AND HER F OUR SONS AMONG WHOM SHRI VIJAYKUMAR KEJRIWAL WAS ONE. THE AS SESSEE HAD TAKEN SHRI VIJAYKUMAR KEJRIWAL AS A PARTNER IN THE FIRM ALMOST AT OR ABOUT THE SAME TIME WHEN HE WAS SENT FOR HIGHER STUDIES TO THE U.S.A. THE AGE OF SHRI VIJAYKUMAR W AS 21 AT THE MATERIAL TIME. IN THESE FACT THE HON. JURISDI CTIONAL HIGH COURT HAS HELD AS UNDER : WE HAVE GONE CAREFULLY THROUGH THE ORDERS OF THE I NCOME- TAX APPELLATE TRIBUNAL THE COMMISSIONER OF INCOME- TAX (APPEALS) AND THE INCOME-TAX OFFICER. IT IS NOT POS SIBLE TO ACCEPT THE SUBMISSION OF LEARNED COUNSEL FOR THE AS SESSEE THAT THE EXPENDITURE IN QUESTION WAS INCURRED IN RE LATION TO THE BUSINESS OF THE ASSESSEE-FIRM. WE HAVE NO HESIT ATION IN RECORDING OUR CONCLUSION TO THE FACT THAT THE EXPEN DITURE INCURRED BY THE ASSESSEE HAS NO NEXUS WITH THE BUSI NESS OF THE ASSESSEE. WE AGREE WITH THE CONCLUSION ARRIVED AT BY THE INCOME-TAX OFFICER AND THE COMMISSIONER OF INCOME-T AX (APPEALS). IN THE LIGHT OF THE ABOVE DISCUSSION WE ANSWER THE QUESTION REFERRED TO US IN THE NEGATIVE I.E. IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. 9. THE CASE IN HAND THE DECISION FOR SENDING THE S ON OF THE DIRECTOR OF THE ASSESSEE-COMPANY WAS TAKEN EVEN PR IOR TO THE ALLEGED APPOINTMENT OF SAID SON AS A MANAGING TRAI NEE. MOREOVER THE SAID APPOINTMENT WAS EVEN PRIOR TO THE AGE OF 18 YEARS OF THE SON OF THE DIRECTOR AND THUS IT APPEARS THAT ITA NO. 6577 TO 6582/MUM/2009 (ASSESSMENT YEARS: 2001-02 TO 2006-07) 13 GIVING APPOINTMENT AS A MANAGEMENT TRAINEE WAS ONL Y WITH A VIEW TO CLAIM THE EXPENSES ON EDUCATION. 10. THE HON. MADRAS HIGH COURT IN THE CASE OF M. SUBRAMANIAM BROS. V. CIT 250 ITR 769 AFTER FOLLOW ING THE DECISION OF THE HON.BOMBAY HIGH COURT IN THE CASE OF CIT V. HINDUSTAN HOSIERY INDUSTRIES (SUPRA) HAS TAKEN A SI MILAR VIEW WHEN THE ASSESSEE FIRM FOUNDED BY THE FATHER ADMIT TED HIS CHILDREN EVEN WHEN THEY WERE MINOR TO THE BENEFIT O F THE FIRM THE CHILDREN CONTINUED THEIR STUDIES EVEN AFTER ATT AINING 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 BUSIN ESS OF THE ASSESSEE-FIRM. THE HON. 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 MER ELY 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. MADRAS HI GH COURT IS APPLICABLE IN THE FACTS AND CIRCUMSTANCES OF TH E PRESENT CASE WHERE THE DIRECTOR OF THE ASSESSEE COMPANY IN TERESTED TO SEND HER SON FOR EDUCATION AND GIVING THE COLOUR AS THE ITA NO. 6577 TO 6582/MUM/2009 (ASSESSMENT YEARS: 2001-02 TO 2006-07) 14 EDUCATION WAS FOR THE INTEREST OF THE ASSESSEE-COMP ANY AND THUS CLAIMED AS AN EXPENDITURE. THEREFORE THE AGR EEMENT BETWEEN THE ASSESSEE AND THE SON OF THE DIRECTOR CA NNOT CHANGE THE REAL INTENT BEHIND THE ENTIRE EXERCISE OF THE ARRANGEMENT MADE. 12. IN THE CASE OF COMMISSIONER OF INCOME-TAX V. R. K.K.R. STEELS P. LTD.(SUPRA) THE HONORABLE HIGH COURT HAS FOLLOWED THE DECISION IN THE CASE OF M. SUBRAMANIAM BROS. V. CIT (SUPRA) AS UNDER : THE TRIBUNAL .. IT WAS CANVASSED FOR THE ASSESSEE BEFORE THE TRIBU NAL THAT THE FACT THAT RAJIV RAI WAS THE SON OF THE DIRECTOR OF THE COMPANY SHOULD NOT BE HELD AGAINST HIM AND THE EXPE NDITURE INCURRED ON HIS TRAINING WAS IN FACT AN EXPENDITUR E WHICH WAS TO THE BENEFIT OF THE COMPANY AS HE SUBSEQUENTL Y BECAME A DIRECTOR. IF THIS LOGIC WERE TO BE ACCEPTED IN EVERY FAMILY OWNED BUSINESS ALL THE EXPENDITURE INCURRED IN BRINGING UP THE CHILDREN WHO MAY LATER ON BE GIVEN A ROLE IN THE BU SINESS AS PARTNERS OR DIRECTORS COULD BE CLAIMED AS BUSINESS EXPENDITURE INCURRED IN TRAINING THE PROSPECTIVE EM PLOYEES AND DIRECTORS OF THE BUSINESS. THE EXPENDITURE PERM ISSIBLE FOR DEDUCTION IS EXPENDITURE THAT IS WHOLLY AND EXC LUSIVELY LAID OUT FOR THE PURPOSES OF THE BUSINESS. THE EXPE NDITURE WHICH A FATHER INCURS OUT OF HIS NATURAL LOVE AND A FFECTION FOR HIS CHILDREN IN MEETING THE COST OF THEIR EDUCA TION CANNOT BECOME A BUSINESS EXPENDITURE MERELY BECAUSE HE IS ALSO THE OWNER OR A DIRECTOR OF A BUSINESS IN WHICH THE SON OR DAUGHTER SUBSEQUENTLY TAKES PART. ITA NO. 6577 TO 6582/MUM/2009 (ASSESSMENT YEARS: 2001-02 TO 2006-07) 15 13. IN THE CASE IN HAND THE ASSESSEE IS CLOSELY H ELD COMPANY IN WHICH MORE THAN 99 PER CENT OF THE HOLD ING IS WITH THE TWO MEMBERS OF THE FAMILY. THE MOTHER OF MR.TU SHAR KHANNA IS HAVING 49.9 PER CENT HOLDING AND THE REM AINING HOLDING WITH THE OTHER MEMBERS OF THE FAMILY. THUS IN VIEW OF THIS DECISION OF THE HON. JURISDICTIONAL HIGH COU RT AS WELL AS THE HON. MADRAS HIGH COURT (SUPRA) THE EXPENDITURE FOR THE EDUCATION OF THE SON OF ONE OF THE DIRECTOR WHO IS NOT WORKING FOR THE COMPANY BUT WAS FOR NOMINAL AND NAME SAKE APPOINTED AS MANAGEMENT TRAINEE AT THE AGE OF LESS THAN 18 YEARS JUST AT THE TIME WHEN HE HAD ALL SET GO ABR OAD FOR FURTHER EDUCATION CANNOT BE ALLOWED AS BUSINESS EX PENDITURE . THE DECISION RELIED UPON BY THE LEARNS AR ARE NOT A PPLICABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE BECAUSE IN ALL THOSE CASES EXPENDITURE WAS INCURRED ON THE SON/DA UGHTER OF THE DIRECTOR WHILE THE DAUGHTER/SON WERE ALREADY WORKING AS AN EMPLOYEE OF THE ASSESSEE COMPANY. WE FURTHER NO TE THAT IN THE CASE OF OF INTERSIL INDIA LTD V/S 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 DECISIO N THE CONCLUSION IS IRRESISTIBLE THAT THE EXPENDITURE COULD NOT BE 'SAID TO BE ENTIRELY WITHOUT EXTRA COMMERCIAL CONSIDERATIONS. SHRI RISHAV MEHRA WAS ITA NO. 6577 TO 6582/MUM/2009 (ASSESSMENT YEARS: 2001-02 TO 2006-07) 16 NOT AN EMPLOYEE OF THE COMPANY AT THE MATERIAL POIN T OF TIME AND THERE IS NO MATERIAL BEFORE US UNLIKE THE CASE OF SAKAL PAPERS FOR EXAMPLE THAT THE SELECTIO N OF SHRI RISHAV MEHRA WAS ON PURE COMMERCIAL CONSIDERATIONS. IT IS USEFUL TO REMEMBER THAT IN SA KAL 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 ANY EXTRA COMMERCIAL CONSIDERATIONS AND THAT THERE WERE NO DOUBTS ABOUT HER QUALIFICATIONS AS ALSO IN HER ABILITIES TO SERVE THE PAPER. IN ASSESSEE'S SUBMISSIONS BEFORE US IT WAS STATED THAT 'THOUGH N OT AN EMPLOYEE' SHRI RISHAV MEHRA WAS RENDERING SERVICES TO THE ASSESSEE COMPANY IN THE USA. HOWEVER THERE IS NO MATERIAL TO SUPPORT OR EVEN INDICATE THAT SHRI RISHAV MEHRA RENDERED ANY SERVICES FROM THE USA. WE HAVE ALSO NOTED THAT THE ASSESSEE HAS CATEGORICALLY ACCEPTED THAT SHRI RISHA V MEHRA WAS NOT AN EMPLOYEE OF THE ASSESSEE COMPANY. 10. KEEPING ALL THESE FACTORS IN MIND AS ALSO ENTI RETY OF THE CASE WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. THE EXPENSES INCURRED ON THE FOREIGN EDUCATION OF SHRI RISHAV MEHRA WHOSE ONLY CONNECTION WITH THE ASSESSEE COMPANY AT THE RELEVANT POINT OF TIME WAS THAT HE WAS SON OF THE MANAGING DIRECTOR OF THE COMPANY CANNOT BE ALLOWED AS DEDUCTION IN COMPUTING BUSINESS INCOME OF THE ASSESSEE COMPANY. WE SEE NO INFIRMITY IN CIT(A)'S SUSTAINING THE SAID DISALLOWANCE. ITA NO. 6577 TO 6582/MUM/2009 (ASSESSMENT YEARS: 2001-02 TO 2006-07) 17 14. ACCORDINGLY THE CASE IN HAND WHEN THE SON OF T HE DIRECTOR OF THE ASSESSEE COMPANY HAD JUST COMPLETE D HIS SCHOOLING AND IN ANY CASE HAD TO TAKE FURTHER EDUC ATION /STUDY AND THE EXPENDITURE IS TO BE INCURRED BY THE PAREN TS BEING PERSONAL IN THE NATURE CANNOT BE CLAIMED AS BUSINES S EXPENSES. IN VIEW OF THE ABOVE DISCUSSION WE DO N OT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE LOWER AUTH ORITIES ON THIS ISSUE. ACCORDINGLY WE DISMISS THE APPEALS FILED B Y THE ASSESSEE FOR ALL THE ASSESSMENT YEARS. 15. IN THE RESULT THE APPEALS OF THE ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 27.10.2010 SD SD (J.SUDHAKAR REDDY) (VI JAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL ME MBER MUMBAI DATED 27 TH OCT 2010 SRL:201010 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR ITAT MUMBAI