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TMI Blog2015 (5) TMI 786X X X X Extracts X X X X X X X X Extracts X X X X ..... 08,750/- as expenditure, which consists of one-time entrance fee of Rs. 5,00,000/- and the annual subscription of Rs. 8,750/-. The amount was paid to Indian Hotels Co. Ltd. (Taj Group) for acquiring membership in the club known as "The Chambers" of Taj Group. The expenditure incurred by way of entrance fee of Rs. 5,00,000/- was disallowed by the Assessing Officer on the ground that it is nothing but a non-refundable deposit, which provides an enduring benefit to the assessee till the expiry of the membership of the club and it is a capital expenditure. 4. In appeal the Ld. CIT(A) upheld the action of the Assessing Officer. On further appeal, the Tribunal vide ITA No.659/PN/2009 and other connected appeals vide orders dated 16.12.2010 for A.Y. 2005-06 restored the issue back to the file of the CIT(A) with the following observation :- "3. In connection with ground no.3 Ld. Counsel mentioned that the issue in question relates to disallowance of Rs. 5,00,000/- towards entrance fee for membership of the 'business club' in the hotel. Ld. Counsel relied upon Gujrat High Court decision in the case of Gujrat State Export Corporation Limited (Guj) 209 ITR 649 in his favour. On the other ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering the decision of Hon'ble Kerala High Court in the case of Framatone Connector Oen Ltd. (supra) has held that admission fees paid towards corporate membership of the club is an expenditure incurred wholly and exclusively for the purposes of business and not towards capital account as it only facilitates smooth and efficient running of a business enterprise and does not add to the profits earning apparatus of a business enterprise and accordingly the appeal of the Revenue was dismissed. 6.1 Referring to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Samtel Color Ltd. reported in 326 ITR 425, the Ld. Counsel for the assessee submitted that corporate membership fee paid to clubs is an allowable expenditure being for business purposes. He accordingly submitted that the order of the Ld. CIT(A) be set-aside and the ground raised by the assessee be allowed. 7. The Ld. Departmental Representative, on the other hand, strongly supported the order of the CIT(A). He submitted that the Ld. CIT(A) following the decision of the Hon'ble Kerala High Court in the case of Framatone Connector Oen Ltd. (supra) and distinguishing the decision of the Hon'ble Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If, on the other hand, it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits, it is a revenue expenditure. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure." The aforesaid principle of law has been applied by Their Lordships in Gujarat State Corpn. Ltd. supra, and it has been held that the expenditure incurred in payment of entrance fee for becoming member of sports club is in the nature of an advantage in the commercial sense but not an advantage in the capital field, therefore, revenue expenditure. 9. In Otis Elevator Co. (India) Ltd. (supra), Their Lordships have held as under: "In our judgment considering the clear finding given by the AAC, without a contrary finding thereto by the Tribunal, we must accept the facts as found by the AAC. Consequently, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court have held in the said case that what is required to be seen is whether the expenditure has resulted into an advantage in the revenue field or in the capital field. In case the expenditure has not resulted into creation of any capital asset or any new source of income and it has not changed the capital structure of the company and had been incurred only for conduct of the business more efficiently and profitably, then it will be revenue expenditure. In this case the expenditure has not resulted into creation of any capital asset or acquisition of any new sources of income. The expenditure has been incurred for the efficient conduct of the business and therefore the expenditure will be of the nature of revenue expenditure. This view is also supported by the judgment of Hon'ble High Court of Gujarat in case of Gujarat State Export Corporation Ltd. (209 ITR 649) in which the lumpsum entrance fees paid towards membership of the club has been held to be allowable as revenue expenditure. Though the Hon'ble High Court of Kerala in case of Connector Oven Ltd. (294 ITR 559) have taken a different view, we have to follow the view taken by Hon'ble High Court of Gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. CIT(A) held that the clubs had various facilities for conference, business meetings, as well as, provision for multimedia exhibition for the directors and senior executives could also use the club facilities for their private purposes for which they would have to incur extra expenditure out of their own pockets. He accordingly concluded that while the membership of the clubs did provide for the assessee a benefit which fulfilled the business purpose test, it also resulted in benefits of the directors and executives in their personal capacity. He accordingly directed the Assessing Officer to disallow 20% of Rs. 6,00,000/- and allow the balance amount as revenue expenditure on the ground that the entire expenditure was not incurred for business purposes. The assessee and the Revenue both preferred appeal before the Tribunal. The Tribunal held that membership by itself did not confer any enduring benefit on the assessee and it allowed the expenditure as revenue in nature. On further appeal, the Hon'ble High Court observed as under :- "5. Having heard the learned counsel for the Revenue as well as the assessee we are of the view that the impugned judgment of the Tribunal dese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The judgment of the Supreme Court on which the Kerala High Court has relied heavily dealt with the issue with regard to fee paid to the RoC for increase of authorized capital, that is, whether such an expense was in the nature of revenue or capital expenditure. The Supreme Court came to the conclusion that since the fee was paid to the RoC for increase in the capital base of the assessee it was in the nature of capital expenditure. According to us the ratio of the aforementioned Supreme Court judgment is not applicable to the expenses incurred on an admission fee for corporate membership. We respectfully disagree with the ratio of the judgment of the Kerala High Court. In turn, we respectfully follow the ratio of the judgment of the Division Bench of this Court in CIT vs. Nestle India Ltd. (2008) 296 ITR 682 (Del) and that of the Bombay High Court in the case of Otis Elevator Co. (India) Ltd. vs. CIT (1991) 96 CTR (Bom) 14 : (1992) 195 ITR 682 (Bom). 6. In view of the above, in the aforesaid circumstances we are of the opinion that the impugned judgment as indicated above, deserve to be upheld. In the result, the appeal is dismissed." 11. So far as the decision of Hon'ble Kerala ..... X X X X Extracts X X X X X X X X Extracts X X X X
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