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2009 (11) TMI 670 - AT - Income TaxEnhancement u/s 251(2) - TDS u/s 195 - disallowance u/s 40(a)(i) - training expenses of the surveyors paid to Lloyds Register of Shipping London - Whether the training fee can be termed as "fee for technical services"? - AO noticed that assessee had incurred training expenses, which mainly consisted of travelling, lodging and boarding abroad, made reference to reasonableness of expenditure and ultimate disallowed 50 per cent of the balance of this expenditure - CIT(A) was of the view that whole of the training expenses were in the nature of fee for technical services and since no tax has been deducted the whole of the expenditure was not allowable u/s 40(a)(i) and accordingly, he issued a notice for enhancement. HELD THAT:- Hon’ble Supreme Court in the case of Kanpur Coal Syndicate [1964 (4) TMI 18 - SUPREME COURT] made it clear that first appellate authority has plenary powers in disposing of an appeal and the scope of his power is co-terminus with that of the Income-tax Officer. This has been interpreted by various Courts that the CIT(A) would have the same powers as the Income-tax Officer. In any case, the issue regarding training expenses was raised by the AO himself. Though the addition was made from a different angle and CIT(A) has invoked another angle by holding that why training expense should not be considered as fee for technical services. Merely because a new angle has been examined, it cannot be said that a new source of income has been created by the CIT(A). Therefore, we find no force in this issue and dismiss the same. We find that during the assessment proceedings AO noticed that assessee had claimed expenses towards training cost. He further found that as per the claim the expenses included stay and travel cost. According to him the cost of stay was much higher and thus the expenses were on higher side. After excluding the travel expenses he disallowed 50 per cent of the balance of expenses. Addition u/s 40(a)(ia) - As common sense would tell us that training expenses cannot be called as "fee for technical services". In the modern days even these categories can be further sub-divided, for example - in the case of taxation, it can be direct taxes and indirect taxes and with further specialization, for example - say International taxation etc. Similarly, civil matters can be divided into various fields say property matters, family matters etc. What we mean to say is that a person is highly qualified by his law degree but still requires training for rendering practical aspects. Similarly, in the case before us surveyors were highly technically qualified but such persons, may need to learn practical aspects of examining various electrical and other equipments. Such training in our view is a continuous process because technology is changing very fast and one needs to keep touch with such technology and therefore, expenses incurred towards training cannot be termed as "fee for technical services". In any case, the case before us major amount has been paid by way of reimbursement for boarding and lodging arrangements also for which no separate claims have been made. Therefore, according to us, the training fee cannot be termed as "fee for technical services". CIT(A) has not dealt with the aspects whether such expenditure was excessive, or not as held by the Assessing Officer. Thus, while holding that these training expenses are not in the nature of fee for technical services, we remit the matter back to the file of the CIT(A) for examining whether the expenditure on training is excessive or not as held by Assessing Officer after providing adequate opportunity to the assessee of being heard. Deduction u/s 37(1) - Payment towards contribution to PF, superannuation fund and employee’s fund - as explained that this amount was misappropriated by the brokers out of these funds while making investment. Therefore, assessee made the payment but AO did not agree with the explanation and observed that assessee had suffered huge losses and therefore, there was no justification in payment of ex gratia. CIT held that such a payment is required to be held as of revenue admissible for deduction u/s 37(1). HELD THAT:- We find that various trusts created by the assessee company PF, superannuation fund, etc., lost the money because of the broker and not because of employees. It is clear that the assessee company made the payment to keep the moral of the staff high and therefore, it cannot be said that sums were paid for the purpose of business. In view of this, we find nothing wrong in the order of the learned CIT(A) and we confirm the same. In the result the appeal is dismissed.
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