The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) in the case of M/s. Hinduja Group India Ltd. v. ACIT held that salary payments to management trainees cannot be disallowed since these are expenses incurred for the purpose of business.
The assessee company is engaged in the profession of rendering management consultancy services to the Hinduja Group. The Assessing Officer (AO) disallowed the remuneration paid to Management Graduates on the ground that the expenditure is capital in nature and Foreign Exchange for Foreign Travel. The AO further held that the assessee has not furnished any evidence in support of its claim and the expenses cannot be said to be for the purpose of business. The Commissioner of Income Tax (CIT(A)) further upheld the decision of the AO.
The issue in the present matter was regarding the treatment of salary payments to management trainees since the expenses were huge and not shown to be incurred for the appellant’s business.
The assessee contended that during the A.Y. 2010-11, management trainee fees were paid to various IIM Graduates by the assessee company for rendering their management consultancy services to Hinduja Group. It was submitted that graduates were hired from Indian Institute of Managements across India. The copies of employment agreements entered into by the appellant with these trainees were also submitted. Relying upon a number of decisions it contended that the expenditure was incidental to the business and hence the assessee is entitled to the deduction of expenses.
After hearing both the parties, the Tribunal discussed that these management trainees assisted other senior professionals and were not independent consultants. The Tribunal held that it is not correct to conclude that no evidence was submitted as regards to which employees were sent on deputation since the letter of appointment of these trainees and service agreement entered into with group entities were presented before the lower authorities.
Further, with regard to the issue where the AO pointed that an amount pertaining to Service Tax still remained unpaid, since the fees was not collected, it was held that the Service Tax liability had not been crystallized since according to Rule 6(1) of the Service Tax Rules, service tax is required to be paid only on the value of taxable services received in a particular month and not the gross amount charged or billed. Hence, the amount being Service Tax on unrealized fees cannot be disallowed under Section 43B of the Income Tax Act.
Hence, the ITAT holding in favor of the assessee-appellant allowed the appeal.
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