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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 ..... alia, include the rent of Rs. 1,18,80,722/- and membership and subscription of Rs. 1,98,326/-. The return was accepted and an intimation under section 143 (1) of the act dated 10th May 2009 came to be issued. 4. Petitioner, thereafter, received a notice dated 29th March 2010 under Section 148 of the Act, which is impugned in this petition, in which it was stated that there were reasons to believe that petitioner's income chargeable to tax for A.Y.-2008-2009 had escaped assessment within the meaning of Section 147 of the Act. Petitioner was directed file return of income, which petitioner did. Petitioner was provided with reasons to believe why there was escapement of income. The reasons to believe provided related to two items: 1) deducting rent received at Rs. 1.04 in profit and loss account and 2) towards entrance and subscription fees to Willington Sports Club (WSC). The first item that is rent of Rs. 1.04 crores, the assessing officer by an order dated 10th October 2011 rejecting petitioner's objection, has dropped the same. That would lead us to consider only the second item that is entrance and subscription fees paid to WSC. The relevant portion of the reasons read as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect and the assessee is to get the benefits of membership for years to come. Mr Suresh Kumar also submitted that it has been incurred to bring into existence an advantage of enduring benefit of the business and it should be therefore appropriately attriibutable to capital and is in the nature of capital expenditure. 9. We are unable to accept the submissions of the revenue because first of all there is no basis on which the assessing officer has formed a reason to believe that amount of Rs. 1,98,326/- was paid towards entrance and subscription fees to WSC. Schedule 9 of the profit and loss account only enumerates membership and subscription of Rs. 1,98,326/- and does not disclose anywhere which club it was. 10. Moreover, petitioner has, in its reply to the notice under Section 148 of the Act, given a breakup of the amount being Rs. 12,360/- towards entrance fees and Rs. 1,85,077/- towards subscription 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that Club membership fee of the employees is pure business expense and deductions allowable under Section 37 of the Act. The question that came up for consideration before the Apex Court was whether club membership for employees incurred by the assessee is a business expense and is liable to be deducted under Section 37 of the Act. The Apex Court also referred to various High Court rulings which have held that club membership fee of employee is business expenditure. While answering the question, the Apex Court stated as under: "As far as Question No. 2 is concerned, we find that a series of judgments have been passed by High Courts holding that club membership fees for employees incurred by the assessee is business expense under Section 37 of the Income Tax Act 1961. We also find that none of the decisions has been challenged in this court. Even otherwise, we are of the view that it is a pure business expense." 13. Hon'ble Gujarat High Court in Gujarat State Export Corporation Ltd. Vs. Commissioner of Income Tax (1994) 209 ITR 649 (Guj) held that it would be difficult to accept the contention of the revenue that the entrance fees paid by the assessee for getting the membersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Paragraphs 5 to 5.3 of Samtel Color Ltd. (Supra) read 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 deserves to be upheld for the following reasons:- 5.1 The expenditure incurred towards admission fee, admittedly, was towards corporate membership. As correctly held by the Tribunal, 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 of the Act was the correct approach. This is more so in view of the Tribunal's findings that it was the assessee which nominated the employee who would avail the benefit of the corporate membership given to the assessee. 5.2 The other hurdle for qualification of the expenditure under Section 37 of the Act is that expenditure incurred should not be on capital account. The Assessing Officer came to the conclusion that the expenditure was of a capital nature based on a fallacious reasoning that the expenditure was of an enduring nature and hence on a capital account. It is well settled that an expenditure which gives enduring bene ..... X X X X Extracts X X X X X X X X Extracts X X X X
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