2020 (3) TMI 1069 - AT - Income Tax

Expenditure incurred on Club membership and subscription fees - Claim of business expenses by the Partner against the interest income from partnership firm - declaring loss from business - HELD THAT - In this case, the assessee is neither carrying out any business activity, nor incurred said expenditure wholly and exclusively for the benefit of her business. Therefore, we are of the considered view that there is no merit in the contention of the assessee and also, the support taken from various case laws. Hence, we are of the considered view that there is no error in the findings of the Ld.CIT(A) in confirming disallowances made by the Ld. AO towards subscription and membership fees paid to clubs, while computing income under the head profits and gains of business or profession. Accordingly, we are inclined to uphold the findings of the Ld.CIT(A) and dismiss, appeal filed by the assessee.

Summary

Issues:
Disallowance of club membership and subscription fees as business expenditure under section 37(1) of the Income-tax Act, 1961.

Analysis:
1. The assessee, a partner in a partnership firm, declared a loss from business/profession, income from house property, and income from other sources for Assessment Year 2014-15. The assessing officer disallowed club membership and subscription fees paid to National Sports Club of India as business expenditure, prompting the assessee to appeal.

2. The assessing officer disallowed the expenses as they were considered personal or capital in nature, not wholly and exclusively for business purposes. The assessee argued that the expenses were revenue in nature and deductible under section 37 of the Income-tax Act, 1961.

3. The Commissioner of Income Tax (Appeals) upheld the disallowance, stating that the expenses were not incurred in the name of the firm and were not paid from the firm account, thus not wholly and exclusively for business. The assessee then appealed to the Appellate Tribunal ITAT Mumbai.

4. The Appellate Tribunal considered both parties' arguments and relevant case laws. The assessee contended that the fees were revenue expenditure, citing precedents like CIT vs United Glass Manufacturing Company. The Revenue argued that the assessee did not conduct business in an individual capacity to claim the deductions.

5. The Tribunal noted that for expenses to be deductible under section 37(1), they must be wholly and exclusively for business purposes and not personal or capital in nature. As the assessee did not conduct business individually and the fees were not paid from the firm account, the expenses were not allowable deductions.

6. Ultimately, the Tribunal upheld the Commissioner's decision, dismissing the assessee's appeal. The Tribunal found no merit in the assessee's arguments and supported the disallowance of the club membership and subscription fees as business expenditure.

This detailed analysis covers the issues involved in the legal judgment regarding the disallowance of club membership and subscription fees as business expenditure under section 37(1) of the Income-tax Act, 1961.