Admission Fees Paid To Club For Corporate Membership Is Exclusively For Business Purpose, It Is 'Revenue' In Nature: Bombay HC

The Bombay High Court has held that the admission fees paid to a club towards corporate membership are wholly and exclusively for business purposes, and the same are revenue-generating in nature.

The bench of Justice K.R. Shriram and Justice Rajesh S. Patil also observed that the expenditure incurred towards entrance fees and annual membership would be a "revenue expenditure" because it has been incurred wholly and exclusively for business and not towards the capital account.

Such expenditure only facilitates the smooth and efficient running of the business enterprise and does not add to the profit-making apparatus of the business enterprise, the bench added.

The bench made this observation while dealing with a Writ petition filed by the petitioner/assessee (Swiss Re Services India Pvt. Ltd) which received a reassessment notice stating that there were reasons to believe that the petitioner’s income chargeable to tax had escaped assessment. The petitioner was directed to file a return of income, which the petitioner did. The petitioner was provided with reasons to believe there was an escape of income. The reasons to believe were the entrance and subscription fees to Willington Sports Club (WSC).

It was the primary contention of the assessee that the expenditure, having been incurred wholly and exclusively for the business of the company, is revenue in nature, and it has been rightly claimed as a deduction.

On the other hand, the department contended that such expenditure cannot be termed revenue expenditure because it has an enduring effect and the assessee is to get the benefits of membership for years to come. It was also argued that the same has been incurred to bring into existence an advantage of enduring benefit to the business, and it should therefore be appropriately attributable to capital and be like capital expenditure.

The High Court, in its order, noted that there is no basis on which the assessing officer has formed a reason to believe that an 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.

Further, the court held that the club membership fee of the employees is a pure business expense, and hence, deductions are allowable under Section 37 of the Income Tax Act. With this, the petition was disposed of.

Counsel For Petitioner: Niraj Sheth

Counsel For Respondent: Suresh Kumar

Case Title: Swiss Re Services India Pvt. Ltd. Vs Deputy Commissioner Of Income-Tax [Writ Petition No. 1323 Of 2012]

Case Citation: 

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