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TMI Blog2023 (10) TMI 979X X X X Extracts X X X X X X X X Extracts X X X X ..... fees for 1 year and it is incurred for the purpose of business. Even if, we accept what has been stated in the order disposing objection that petitioner did not produce the bill to substantiate its claim, schedule 9 of the profit and loss account itself discloses that membership and subscription is recurring annual expenditure. In the schedule, it is mentioned for the year ended 31st March 2007 the amount was Rs. 2,05,639/- and for the year ended 31st March 2006 the amount was Rs. 1,98,326/-. It, therefore, shows that it was an annual expenditure and certainly of a recurring nature and has to be allowed as revenue expenditure. As decided in Lubrizol India Ltd. [ 2015 (8) TMI 134 - BOMBAY HIGH COURT] court was pleased to answer that expenses incurred in obtaining club membership is allowable as revenue expenditure. Thus the expenditure incurred towards entrance fees and annual membership would be a revenue expenditure because it has been incurred wholly and exclusively for the purposes of business and not towards capital account. Such expenditure only facilitates the smooth and efficient running of the business enterprise and does not add to the profit earning apparatus of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot have been claimed as Revenue expenditure in P L account. 5. Petitioner filed its objection through its chartered accountant s letter dated 30th June 2010, in which it was explained that expenditure incurred is towards short term membership renewal fees, i.e., entrance fees Rs. 12,360/- and annual subscription fees Rs. 1,85,077/- for 1 year and it is incurred for the purpose of the business and hence the same is allowable as claimed. It was submitted that as per the provisions of Section 37 (1) of the Act, any expenditure (not being capital or personal in nature) incurred wholly and exclusively for the purpose of the business of the assessee will be allowed as deduction while computing taxable income of the assessee. It was submitted that expenditure having been incurred wholly and exclusively for the business of the company is revenue in nature and it has been rightly claimed as deduction. Various decisions of various High Courts and Tribunals were also submitted. 6. These objections were rejected by the order dated 10th October 2011. The only basis for rejection is because the benefit of the payment to WSC was long term in nature. How it becomes long term in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26/-. It, therefore, shows that it was an annual expenditure and certainly of a recurring nature and has to be allowed as revenue expenditure. 11. In CIT (Large Tax Payer Unit), Centre-1, Mumbai Vs. Lubrizol India Ltd . (2013) 37 taxmann.com 294 (Bombay), a question that came up for consideration was whether the Tribunal was right in holding that expenses incurred in obtaining club membership is revenue in nature as held by the assessing officer and confirmed by CIT(A). The court was pleased to answer the same and held that it is allowable as revenue expenditure. Paragraph 2 of the order in Lubrizol India Ltd. (Supra) reads as under: 2. So far as question A is concerned, the dispute relates to payment of entrace fees for club memberships. The case of the revenue is that the entrance fees is of capital nature while the respondent contends that it is revenue and should be allowed as expenses. The Tribunal in the impugned order has followed the decision of this Court in the case of Otis Elavator Co. Ltd. (India) reported in 195 ITR 682 ) holding that the entrance fees for the membership of a club would be considered as revenue expenditure. The Tribunal observed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id test, in our view, it is apparent that, by paying the entrance fee for a sports club, the assessee had no intention to acquire any capital asset or take advantage for the enduring benefit of the business. By commonsense standard, it can be stated that it is for running the business or for bettering the conduct of its business. In the case of Alembic Chemical Works Co. Ltd. (supra), the Court further observed that whether a particular outlay is capital or revenue is required to be determined after taking into consideration various aspects and the relevant criterion is the purpose of the outlay and its intended object and effect, considered in a commonsense way having regard to the business realities. Further, with regard to the test of enduring benefit, the Court observed that in a given case, the test of 'enduring benefit' might break down. For this purpose, the Court relied upon the following observations in the case of CIT vs. Associated Cement Companies Ltd. (1980) 172 ITR 257 (SC) : There may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tant matter, is not decisive as regards the nature of the payment. See observations in Empire Jute Co Ltd vs. CIT; (1980) 124 ITR 1 (SC) as also the judgment of the Division Bench of this Court in CIT vs. J.K. Synthetics; ITR Nos. 139/1988 202/1989. The true test for qualification of expenditure under Section 37 of the Act is that it should be incurred wholly and exclusively for the purposes of business and the expenditure should not be towards capital account. In the instant case, as discussed above, the admission fee paid towards corporate 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. DCIT; (2006) 157 Taxmann 116. The said judgment is based on the Supreme Court judgment in the case of Punjab State Industrial Development Corporation Ltd vs. CIT; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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