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Klaxon Trading (P) Ltd., New Delhi vs. Deputy Commissioner of Income Tax - (Income Tax Appellate Tribunal) (19 Jan 2021)

Expenditure incurred towards membership fee paid by company is allowable as revenue expenditure


Direct Taxation

Present appeal filed by the assessee is directed against the order passed by the Learned Commissioner of Income Tax [CIT(A)]. The only effective ground raised by the assessee is that, on the facts and in the circumstances of the case and in law, the Learned CIT(Appeals) erred in confirming the addition of Rs.1,23,375 made by the Assessing Officer treating the expenditure incurred on membership fees as personal in nature. The assessee is a Private Limited Company and is engaged in the business of trading of metal scrap.

The Assessing Officer (AO) in the instant case disallowed an amount of Rs. 1,23,375 being the expenditure debited in the profit and loss account towards membership fees of a club treating the same as personal in nature. The Learned CIT(A) sustained the addition made by the AO. It is the submission of the assessee that, since the business premises of the assessee is located at a crowded locality and dusty, the assessee, without incurring substantial expenditure in the establishment of a separate office, opted for membership of a club to provide a better environment to its customers. It is also his submission that, since the assessee is a Company, the membership fee has always been held to be an allowable expenditure.

The Hon'ble Delhi High Court in the case of CIT vs. Samtel Colour Ltd. has held that, corporate membership fees payable to a club is revenue expenditure. The coordinate benches of the Tribunal are consistently taking the view that, expenditure incurred towards membership fee paid by company is allowable as revenue expenditure. Since in the instant case, the genuineness of payment is not in dispute, therefore, in view of decision of Delhi High Court in the case of CIT vs. Samtel Colour Ltd. present Tribunal held that, the membership fee paid to the club is an allowable expenditure. The order of CIT(A) is set aside and the AO is directed to delete the addition. The ground raised by the assessee is accordingly allowed.


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