Payment Made For Acquiring Membership In A Social Club Can’t Be Allowed As Business Expenditure: ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has observed that payments made for acquiring membership in a social club could not be allowed as business expenditure when there was no evidence to prove that membership in the social club was acquired for entertaining customers by the assessee.

The bench of Vikas Awasthy (Judicial Member) and Om Prakash Kant (Accountant Member) has upheld the adjustment under Section 143(1) of an individual's Club Membership Fees as capital expenditure.

The appellant/assessee is an individual and filed a return of income, which was processed by the Central Processing Centre, Bangalore (CPC). The CPC made an upward adjustment of Rs. 10,76,720 to the returned income.

The assessee filed an appeal before the CIT (A). The assessee claimed that the amount paid for the entry fee of the membership of Mumbai Cricket Association, Bandra, was for the benefit of the employees and for entertaining the customers of its business. Therefore, it is an allowable expenditure.

The CIT (A), however, rejected the contention of the assessee, observing that the membership fee paid to the club is admittedly a one-time membership fee paid to a Club, MA Recreation Centre, which is capital in nature.

The department contended that any expenses for entertaining business customers during club visits could have been allowed as business expenditures subject to verification. However, the one-time entrance fee for acquiring club membership by individual members cannot be treated as a business expenditure.

The ITAT noted that membership fees to clubs could be business expenditures in the case of "corporate membership", but not in the case of individual club membership.

The tribunal held that the CPC is justified in making adjustments under Section 143(1)(a).

Case Title: BalrajsinghJagjitsingh Versus ADIT

Case No.: ITA No. 797/MUM/2023

Date: 07/06/2023

Counsel For Appellant: Rajesh S. Kothari

Counsel For Respondent: Kamble Minal Mohan

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