Admission Fee Paid To Club For Corporate Membership Is Revenue Expenditure And Is Not Towards Capital Accounts: Bombay High Court
The Bombay High Court held that the admission fee paid to the club for corporate membership would be revenue expenditure and therefore, would not be recorded towards capital accounts.
The Court disposed of a Writ Petition challenging the notice dated March 29, 2010, that was issued under Section 148 of the Income Tax Act 1961 (the Act). The Court reiterated that entrance fees and annual membership are considered revenue expenditures as they are for the purpose of business and not towards capital gains.
The Bench comprising Justice K.R. Shriram and Justice Rajesh S. Patil observed, “In our view also 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 the business enterprise”.
Advocate Niraj Sheth appeared for the Petitioner and Advocate Suresh Kumar appeared for the Respondent.
The Petitioner filed a return of income for assessment year 2008-09 accompanied by computation of income and loss account along with schedule 9. The return was accepted and an intimation under section 143 (1) of the Act dated May 10, 2009, was issued. The Petitioner received a notice under Section 148 of the Act because the Petitioner’s chargeable income to tax had escaped assessment within the meaning of Section 147 of the Act. The Petitioner raised certain objections which were dismissed on the ground that the benefit of the payment to Willington Sports Club (WSC) was long-term in nature. The Petitioner approached the Court by way of a Writ Petition challenging the notice dated March 29, 2010, that was issued under Section 148 of the Income Tax Act 1961 (the Act).
The Court ascertained the following issue: “How did the assessing officer know that it was towards entrance and subscription fees to WSC as recorded in the reasons to believe because Schedule 9 of the profit and loss account only mentions membership and subscription of Rs.1,98,326/”.
The Bench held that there was no basis on which the assessing officer had formed a reason to believe that the amount of Rs. 1,98,326/- was paid towards entrance and subscription fees to WSC. The Court observed that Schedule 9 of the profit and loss account only enumerated membership and subscription of Rs.1,98,326/- and did not disclose the name of the club.
“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 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”, the Court noted.
Accordingly, the Court disposed of the Petition and set aside the impugned notice.
Cause Title: Swiss Re Services India Pvt. Ltd. v Deputy Commissioner Of Income-Tax (2023:BHC-OS:12260-DB)
