Training Expenses on company executive revenue in nature not capital – ITAT

Training Expenses on company executive revenue in nature not capital as the workforce can move out any time-ITAT 

ABCAUS Case Law Citation
ABCAUS 3400 (2020) (10) ITAT

Important case law relied upon by the parties:
ST Ericsson India Pvt. Ltd.
CIT vs. Munjal Showa Ltd.

In the instant case, the assessee had challenged the order passed by the Assessing Officer (AO) in consonance with the orders passed by  the DRP/TPO under section 143(3) read with section 144C of the Income-tax Act, 1961 (the Act).

During the year under assessment, the AO inter alia treated training expenses as capital expenditure claimed by the assessee as revenue expenditure and added the same to the income of the taxpayer.

Before the Tribunal, the taxpayer contended that when the training expenses incurred by the taxpayer on imparting training to its executor is not part of the enduring benefits as the trained workforce may move out any time, it could not be treated as capital expenditure.

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The assessee relied upon the coordinate Bench of the Tribunal and Hon’ble High Court. The Hon’ble High Court had held that when the training of the personnel of the assessee was imperative to run the business and was in the nature of technical support  to the assessee it will certainly enhance the profit of the company on which it will pay the taxes, such expenditure cannot be treated as capital in nature rather they are revenue in nature.

Following the decision rendered by the Hon’ble High Court, the Tribunal opined that when training imparted by the   taxpayer company to its executives, though increased its  profitability, was not  of  any  enduring  benefit as the trained   workforce  can  move  out  any  time  and  the  taxpayer company pays tax on the enhanced income on account of enhanced efficiency of its trained staff, this has to be treated  as revenue in nature.

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