2024 (9) TMI 1107 - AT - Income Tax

Qualification of the expenditure u/s 37(1) - treatment of membership and subscription fees - revenue or capital expenditure - HELD THAT - The assessee is a proprietor and running business in his own hand. The adjustment was made of the membership fees of the club u/s 143(1) during the processing of return. The assessee was duly asked about the adjustment and reply was given and objection was filed. AR argued that the assessee has taken this membership for his business promotion and for development of his business. Out of the business hour the connection with customer and the meeting with the parties are conducted in the club premises. So, this membership is very much connected for the furtherance of the business. We respectfully relied on the order of in case of Bayer Vapi (P.) Ltd. 2019 (5) TMI 1208 - GUJARAT HIGH COURT and in the case of Swiss Re Services India (P.) Ltd. 2023 (10) TMI 979 - BOMBAY HIGH COURT - In our considered view, expense claimed in the head of revenue expenditure u/s 37(1) is related with the business of the assessee. Assessee appeal allowed.

Summary

Issues:
Interpretation of Section 37(1) of the Income Tax Act, 1961 regarding the treatment of membership and subscription fees as revenue or capital expenditure.

Detailed Analysis:

Issue 1:
The appeal was against the order of the Ld. Commissioner of Income-tax, appeal, Addl./ JCIT (A), Kochi, regarding the disallowance of membership and subscription fees under Section 37(1) of the Income Tax Act, 1961 for A.Y. 2018-19.

Issue 2:
The assessee contended that the disallowance of the expenses as capital expenditure was incorrect, arguing that the fees were for sales promotion and should be treated as revenue expenditure under Section 37(1) of the Act.

Issue 3:
The case involved a detailed analysis of whether the membership and subscription fees of Rs. 25,49,449/- paid by the assessee were for the purpose of business promotion and thus eligible for deduction under Section 37(1) of the Act.

Issue 4:
The Authorized Representative relied on legal precedents, including the decisions of the Hon'ble Gujarat High Court and the Hon'ble High Court of Bombay, to support the argument that the fees should be considered revenue expenditure and not capital expenditure.

Issue 5:
The Departmental Representative argued in favor of the revenue authorities' decision to disallow the expenses as capital expenditure, emphasizing the enduring benefit and capital nature of the expenditure.

Issue 6:
After considering the arguments and documents, the Tribunal concluded that the membership fees were directly related to the business activities of the assessee, citing legal precedents to support the decision that the fees should be treated as revenue expenditure under Section 37(1) of the Act.

Conclusion:
The Tribunal allowed the appeal of the assessee, quashing the addition amount of Rs. 25,49,449/- and ruling in favor of treating the membership and subscription fees as revenue expenditure. The decision was based on the connection of the expenses to the business activities of the assessee, in line with the interpretations provided by legal precedents cited during the proceedings.