2016 (6) TMI 791 - AT - Income Tax

Disallowance of club expenses - Held that - It cannot be doubted that assessee is an internationally reputed consultancy company having clients and business across the globe and in that process, key employees and directors had to travel to various destinations in furtherance of their business. We find that the issue is covered by the various decisions of High courts and by this tribunal in assessee s own case for AY 2002-03. The issue is also covered by the decision of the Hon ble Apex Court in the case of CIT Vs. United Glass Mfg. Co. Ltd. 2012 (9) TMI 914 - SUPREME COURT wherein held that club membership fees for employees incurred by the assessee is business expense under Section 37 of the Income Tax Act, 1961. - Decided in favour of assessee

Summary

Issues: Disallowance of club expenses.

Analysis:
The appeal arose from the order of CIT(A)-XX, Kolkata concerning the disallowance of club expenses amounting to ?8,45,854 for Assessment Year 2004-05. The primary contention was whether the disallowance of club expenses was justified. The AO disallowed the expenses as personal expenditure, and the CIT(A) upheld the disallowance due to lack of supporting documents to prove that the expenses were not for non-business purposes. The appellant argued that the club expenses were solely for business purposes, citing activities like business meetings and dealings with prospective clients. The appellant also referred to previous court decisions supporting the allowability of club fees as business expenditure. The appellant emphasized that the tax auditor and statutory auditor confirmed no personal expenditure in the books of accounts. The appellant highlighted the absence of material supporting the AO's claim of personal nature of the expenses.

The Tribunal noted that the issue had been previously addressed in the appellant's case for AY 2002-03 and referred to the decision of the Hon'ble Apex Court in CIT Vs. United Glass Mfg. Co. Ltd. The Court held that club membership fees for employees are a business expense under section 37 of the Income Tax Act, 1961. The Tribunal, following the precedent and legal principles established in previous judgments, allowed the appellant's appeal, dismissing the Department's challenge. The Tribunal emphasized that club expenses incurred by the appellant, an internationally reputed consultancy company with global business operations, were essential for conducting business activities and maintaining business relations. The Tribunal concluded that the club expenses were legitimate business expenditures and allowed the appellant's appeal.