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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 ..... nce identical grounds have been taken by the assessee in both the appeals, therefore, for the sake of convenience both were heard together and are being disposed of by this common order. ITA No.1812/PN/2013 (A.Y. 2005-06) : 2. The assessee in this appeal has challenged the order of the CIT(A) in confirming the order of the Assessing Officer in disallowing the entrance fee of ₹ 5,00,000/- for membership of business club . 3. The facts of the case, in brief, are that the Assessing Officer, during the course of assessment proceedings, observed that assessee had claimed club expenses of ₹ 5,08,750/- as expenditure, which consists of one-time entrance fee of ₹ 5,00,000/- and the annual subscription of ₹ 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 ₹ 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 appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing on the decision of the Hon ble Kerala High Court in the case of Framatone Connector Oen Ltd. vs. DCIT reported in 294 ITR 559 and distinguishing the various decisions relied upon before him the Ld. CIT(A) held that the expenditure is in the nature of capital expenditure. 5.1 Aggrieved with the such order of the Ld. CIT(A), assessee is in appeal before us. 6. The Ld. Counsel for the assessee referred to the decision of the Mumbai Bench of the Tribunal in the case of DCIT vs. M/s Bank of America Securities (India) Pvt. Ltd. vide ITA No.6611/Mum/2008 order dated 09.09.2010 for A.Y. 2004-05 and submitted that the Tribunal after considering 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 Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ea of the Id. DR that the decision in Alembic Chemical Works Co. Ltd. (supra), is not applicable to the facts of the assessee's case. In fact, Their Lordships referred to various decisions particularly the decision in the case of City of London Contract Corporation vs. Styles (1987) 2 Tax Cases 239 wherein broad area of distinction is pointed out. It is held in that case that the outlay on the 'acquisition of the concern' would be capital while an outlay in 'carrying on the concern' is revenue. The Court further referred to the following observations in the case of Assam Bengal Cement Companies Ltd. vs. CIT (1955) 27 ITR 34 (SC): TC 16R 841: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In assessee's own case in Bank of America Securities (India) Pvt. Ltd. (supra), the Tribunal has observed and held vide para 3.1 of the order as under: 3.1 We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of expenditure on account of entree fees towards membership of a club as a revenue expenditure. No doubt, the payment made is one time lumpsum payment but this criteria of lumpsum payment is not decisive in understanding the true nature of an expenditure as held by Hon'ble Supreme Court in case of Empire Jute Co. (124 ITR Page 1) Similarly test of enduring benefit is also not conclusive. Hon'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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and against the Revenue. In that case assessee had paid corporate membership fee to Indian Habitat Centre and Sports Caltural Club, Noida amounting to ₹ 5,00,000/- and ₹ 1,00,000/- respectively. The Assessing Officer disallowed the expenditure on the following ground :- (i) the expenditure did not bear any nexus with the business carried on by the assessee; (ii) the expenditure was incurred for the benefit of employees or its directors; (iii) the expenditure did not enhance the image of the assessee or its products as its membership could not be used to advertise the products of the assessee; and (iv) lastly, the expenditure resulted in benefit of an enduring nature. 10. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te membership 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 profit earning apparatus of a business enterprise. 5.3 To support the Revenue s contention that the impugned expenditure is on capital account the learned counsel, Ms. Prem Lata Bansal has cited the judgment of the Framatone Connector OEN Ltd. vs. Dy. CIT (2006) 205 CTR (Ker) 250 : (2006) 157 Taxman 116 (Ker). The said judgment is based on the Supreme Court judgment in the case of Punjab State Industrial Development Corporation Ltd. vs. CIT (1997) 140 CTR (SC) 594 : (1997) 225 ITR 792 (SC). 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 aforem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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