Is admission fee paid by a company towards corporate membership of a club allowable as a revenue expenditure?

Is admission fee paid by a company towards corporate membership of a club allowable as a revenue expenditure?

Case Law: CIT v. Samtel Color Ltd. (2010) 326 ITR 425 (Delhi)

Section : 37(1) of the Indian Income-Tax Act

Facts

Assessee claimed the corporate membership fee paid to a club as revenue expenditure. The AO disallowed the same and assessed the same as capital expenditure.

The Commissioner (Appeals) opined that though the membership of the club provided the assessee a benefit which fulfils the business purpose test, it also resulted in benefits to directors and executives in their personal capacity. Accordingly, it directed the Assessing Officer to disallow 20% of the expenditure and allow the balance amount as revenue expenditure on the ground that the entire expenditure was not incurred for business purposes.

The Tribunal, however, observed that corporate membership itself was meant for the benefit of the company and hence the expenses were for business purposes and, therefore, there was no reason to disallow the expenditure either wholly or in part.

The High Court upheld the decision of the Tribunal observing that the expenditure incurred towards admission fee for corporate membership was for the benefit of the company.

In the instant case, the admission fee paid towards corporate membership is an expenditure incurred wholly and exclusively for the purposes of business and not towards capital account as it only facilitates smooth and efficient running of a business enterprise and does not add to the profit-earning apparatus of the business enterprise.