Club Membership allowed partly as business expenses. Contacts developed through clubs also brings new clients and professional opportunity – ITAT

Club Membership allowed partly as business expenses

Contacts developed through clubs also brings new clients and professional opportunity. 1/3rd of club membership fee paid allowed as attributable to professional activities by ITAT

ABCAUS Case Law:
965 2016 (06) ITAT
Assessment Year: 2010-11
Date/Month of Judgment/Order: June, 2016

Brief Facts of the Case:
The assessee was a management consultant in the area of real estate and infrastructure. The assessee had acquired Associate life time membership in Mumbai Cricket Association and paid 4 lakhs during the year claiming the same as business promotion expenses. Before the Assessing Officer, the assessee submitted that he had become member of the association in order to establish contacts with industrialists and businessmen, which, in turn, will promote the profession of assessee. Therefore the expenditure was related to promotion of professional activities. However, the Assessing Officer noticed that the assessee has earned professional income during the current year only from companies in which he is a director. Even though the assessee contended that he earned professional income from outsiders in the subsequent years, yet the Assessing Officer did not accept the same and accordingly disallowed the claim holding that:

(a) The assessee had received fees only from known companies.
(b) Onetime fee paid for obtaining “life time associate membership” was in the nature of capital expenditure.
(c) The club membership fee paid by the assessee could not be considered to have been incurred wholly and exclusively for the purpose of business.

CIT(A) also confirmed the order of the Assessing Officer.

Contentions of the Assessee:
Before the Tribunal the assessee submitted  that being a professional, he was not entitled to give advertisements and hence one of the ways of promoting his profession was by increasing his contacts by way of becoming a member of a club. Since the assessee’s clients shall be mostly industrialists and big businessmen, the assessee had thought it wise to become member of Mumbai Cricket Association, one of the prestigious clubs/associations in Mumbai. Accordingly the membership fee paid should be considered as expended wholly and exclusively for the purpose of business.

Observations made by ITAT:

Normally a person joins club with different objectives. The main objective is to spend leisure time in clubs in a qualitative manner. In the case of Sports clubs, the objective should normally be to enjoy the sports and also to work for promotion of sports. If a person announces prior hand to a club that he is becoming member only with the intention of promoting his profession, possibly he may not be given membership at all. 

Getting new contacts/acquaintances through clubs is only incidental benefits attached to a club. No doubt, popularity of a professional is the key to his success in profession, but the popularity alone may not bring success. A professional is normally judged by the quality of his work and his expertise