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TMI Blog2018 (3) TMI 1172X X X X Extracts X X X X X X X X Extracts X X X X ..... e company in the newspapers has added to the brand value of the company and as such was a commercial expediency to promote the business. 2. That the learned CIT(A) erred in confirming addition of membership fees paid to club of Rs. 52,555/- made by the AO, not appreciating the fact that the said expense was incurred for the purpose of promoting the business. 3. That the order of the CIT(A) should accordingly be modified and the assessee be granted necessary relief as prayed for n this appeal. 4. That, the appellant craves leave to alter, amend, rescind and substitute any of the above-mentioned grounds and add any further grounds before or at the time of hearing of the appeal." 3. First issue raised by assessee in ground No.1 is that Ld. CIT(A) erred in confirming the order of Assessing Officer by sustaining the disallowance of Rs.6,09,402/- on account of expenditure incurred on advertisement. 4. Briefly, the facts of the case are that assessee is a private limited company and engaged in business of trading in stainless steel and allied products. The assessee in the year under consideration has claimed expense of Rs.6,09,402/- for celebrating French National Day. During the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e advertisement expense incurred is directly related to the business of the assessee-company. The same ought to be allowed u/s. 37(1) of the Act. In this regard, Ld. AR of the assessee submitted that it would be befitting to discuss section 37(1) of the Act. Section 37 is a residuary section for allowability of business expenditure and the same is reproduced below:- "37(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession." Condition for allowance u/s 37(1) a) Such expenditure should not be covered under the specific section i.e. sections 30 to 36; b) Expenditure should not be of capital nature; c) The expenditure should be incurred during the previous year; d) The expenditure should not be of personal nature. e) The expenditure should have been incurred woe for the purpose of the business or profession; f) The business should be commenced. If a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t were made before Ld. CIT(A). On the other hand, Ld. DR vehemently relied on the order of Authorities Below. 7. We have heard the rival contentions of both the parties and perused the material available on record. The undisputed facts are as under:- a) Shri Mahendra Kumar Jalan is the Managing Director of the assessee-company. b) The award was conferred by the President of France to Shri Mahendra Kumar Jalan in promoting the trade and culture between France and India which is evident from the certificate enclosed on page 6 of the paper book c) The news of the award was published in the local newspaper as evident from the newspaper cutting page 5 of the paper book. However, the cost incurred by assessee on the advertisement was disallowed by the AO on the ground that there was no export to France. Therefore, the impugned expenses are not connected with the business of assessee. d) The Managing Director of the assessee-company plays very pivotal role in the company which inter alia includes the following:- o Formulating and successfully implementing company policy. o Directing strategy towards the profitable growth and operation of the company. o Developing strategi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of advertisement must be considered from the point of view of the assessee and not from any other angle. Once it is found that the expenditure had been, as a matter of fact, incurred by the assessee for publicity or advertisement, it is not for the department to consider whether commercial expediency justified the expenditure. Reasonableness of the expenditure can be gone into only for the purpose of determining whether in fact the amount was spent. In this view of the matter, the Tribunal was not justified in disallowing part of said expenditure." In the above proposition, we feel that the impugned expenditure has been incurred by assessee exclusively for its business activity and therefore the same is eligible for deduction us 37(1) of the Act. As such, in the given facts and circumstances no disallowance of impugned expenditure is warranted. Thus, we reverse the order of lower authorities and direct the AO to delete the addition. We order accordingly. Hence, this ground of assessee is allowed. 8. Next issue raised by assessee in this appeal is that Ld. CIT(A) erred in confirming the addition of club membership fees paid by assessee of Rs.52,555/-. 9. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before us to delete the same. On the other hand, Ld. DR vehemently relied on the order of lower authorities. 12. We have heard the rival contentions and perused the material available on record. We find that in the instant case the AO disallowed the club expenses claimed by the assessee on the ground that these were not incurred for the purpose of the business. The view taken by the AO was partly confirmed by the ld CIT(A). Now the issue before us arises for the adjudication so as to whether the club expenses incurred by the assessee are having any nexus with the business of the assessee in the aforesaid facts and circumstances. In this connection, we find that the clubs provided several kinds of facilities such as conferences, business meetings, as well as provision for multimedia exhibition. Many clubs allow membership to companies or other business entities. The membership is given in name of company or other concern. It is very well known that the clubs are a platform to meet people. The meetings can be privately organized or can be in the course of mass meetings or gatherings at the time of functions or celebrations at club. By visiting clubs, chances of making new contact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital asset." We also find support & guidance from the judgment of Hon'ble Delhi High Court in the case of CIT Vs. Samtel Color Limited reported in 326 ITR 425 wherein it was held as under : "The expenditure incurred towards admission fee was towards corporate membership. The nature of the expenditure was one for the benefit of the assessee. The 'business purpose' basis adopted for eligibility of expenditure under section 37 was the correct approach. That was more so in view of the Tribunal's findings that it was the assessee which nominated the employees who would avail the benefit of corporate membership given to the assessee. [Para 5.1] The other hurdle for qualification of the expenditure under section 37 is that expenditure incurred should not be on capital account. It is well-settled that an expenditure which gives enduring benefits is, by itself, not conclusive as regards the nature of the expenditure. Even a lump sum payment is not decisive as regards the nature of the payment. The true test for qualification of expenditure under section 37 is that it should be incurred wholly and exclusively for the purpose of business and the expenditure should not be to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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