2023 (6) TMI 1064 - AT - Income Tax

Deduction of club membership fees paid to Cricket Club of India - Membership in the name of Director - Business Expenditure or not - Business was closed / wounded up as the company was converted to LLP - HELD THAT - The facilities of the Club would be utilized by the director/partner for meeting and interacting with other members of Cricked Club of India and thus would ultimately benefit the assessee (even though converted to LLP). The Kolkata Tribunal in the case of M/s. MKJ Tradex Ltd 2018 (3) TMI 1172 - ITAT KOLKATA has succinctly described the advantage of assessee company/its employees becoming members of a club which is not repeated again for the sake of brevity. Since the assessee company functions through the director/share-holders and even though converted to LLP, still will be functioning through the key persons; and it is noted that membership was for Shri. Anand Didwania, who was a director later partner of LLP and so, is a key person of assessee company/LLP. So entrance fees paid by the assessee on behalf of Shri Anand Didwania for becoming member of the Cricket Club of India would inure benefits for the business of the assessee/LLP. And therefore, in the light of decision in the case of United Glass MFG Co. Ltd. 2012 (9) TMI 914 - SUPREME COURT it is held to be an allowable deduction in the facts and circumstances of this case. Therefore, AO is directed to delete addition - Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Disallowance of club membership fees as a business expense.

Summary:

1. Delay in Filing the Appeal:
The appeal was filed with a delay of around 600 days. The delay was attributed to the earlier authorized representative not informing the assessee promptly about the outcome of the impugned order and the subsequent Covid-19 pandemic, which hindered the timely filing. The Tribunal found the delay to be non-deliberate and condoned it, reducing the effective delay to 90 days after excluding the Covid-19 period.

2. Disallowance of Club Membership Fees:
The main grievance was the disallowance of Rs. 22,60,000/- paid as club membership fees to the Cricket Club of India. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disallowed the expenditure, considering it non-genuine and non-business related, as the company had wound up its business on the payment date and the membership was in the director's name under the "Member's Son Category."

The Tribunal examined the facts and judicial precedents, including the Supreme Court's decision in CIT Vs. United Glass MFG Co. Ltd., which held that club membership fees for employees are business expenses under section 37(1) of the Income Tax Act, 1961. The Tribunal noted that the company could not qualify for corporate membership due to turnover criteria and that the director's individual membership was more cost-effective and beneficial for the company's business interactions.

The Tribunal concluded that the expenditure was for the company's benefit, even though the director availed the membership in an individual capacity. The expenditure was deemed allowable as it facilitated business growth and interactions, benefiting the company/LLP.

Conclusion:
The Tribunal allowed the appeal, directing the AO to delete the addition of Rs. 22,60,000/-. The order was pronounced in the open court on 25/05/2023.