Corporate membership of club of MD of company allowed as incurred wholly and exclusively for business

Corporate membership of club of Managing Director (MD) of the company allowed as incurred wholly and exclusively for the purpose of business of the assessee company 

ABCAUS Case Law Citation:
ABCAUS 3068 (2019) (07) ITAT

Important Case Laws Cited/relied upon by the parties:
Ankit Metal & Power Ltd vs Addl CIT
CIT vs Samtel Colour Limited reported in (2010) 326 ITR 425 (Del)
CIT vs United Glass Manufacturing Company Ltd
Otis Elevator Co. (India) Ltd vs CIT reported in (1992) 195 ITR 682 (Bom)

The instant appeal was filed by the assessee against the order by the Commissioner of Income Tax (Appeals) in upholding the disallowance of payment made towards corporate membership of the Managing Director (MD) of the company.

The assessee was a limited company. It had incurred expenses towards corporate membership of the Managing Director (MD) of the company as a one time payment.

However the Assessing Officer (AO) treated the same as being not incurred wholly and exclusively for the purpose of business of the assessee company u/s 37 of the Income Tax Act, 1961 (the Act) and disallowed the same.

On first appeal, the CIT(A) upheld the addition.

The Tribunal observed that admittedly the membership was in the name of the assessee company wherein the MD was permitted to use the facilities of the club.

The Tribunal noted that the issue had been decided in favour of the assessee by the co-ordinate bench of the Tribunal. The Coordinate Bench relied upon the judgment of the Hon’ble Supreme Court wherein it was held that the subscription and admission fee paid towards corporate membership to club was an expenditure incurred wholly and exclusively for the purposes of the business of the assessee and not towards capital account as it only facilitated the smooth and efficient running of a business enterprise and did not add to the profit-earning apparatus of a business enterprise.

The Tribunal further noted that the issue was also covered by the decision of Hon’ble Jurisdictional High Court. Accordingly, following the said decisions, the Tribunal held that the expenses incurred for corporate membership of club was incurred wholly and exclusively for the purpose of business of the assessee company and was squarely allowable as deduction.

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