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Facts
The assessee company, engaged in trading of imported tires, filed returns declaring losses. The cases selected for scrutiny involved transfer pricing adjustments and club expenses. The assessee had entered into an Advance Pricing Agreement concerning the transfer pricing issues.
Held
The tribunal held that the club expenses incurred for the welfare of key management persons were not for enduring benefit but were a pure business expense. Following the Supreme Court's verdict, the addition made by the Assessing Officer on account of club expenses was deleted.
Key Issues
Whether club expenses incurred for employee welfare are allowable as business expenditure under Section 37 of the Income Tax Act, 1961.
Sections Cited
143(1), 143(2), 142(1), 129, 92CA, 37
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, ‘H’: NEW DELHI
Before: SHRI PRAKASH CHAND YADAV & SHRI BRAJESH KUMAR SINGH
ORDER PER BENCH
This bunch of three appeals is arising from the order of the National Faceless Appeal Centre, Delhi, dated 30.03.2021, 24.02.2022 and 29.06.2024 respectively and relates to Assessment Years 2016-17, 2017-18 and 2020-21 respectively.
Since, the issues are common and connected, these appeals were heard together and disposed of by this common order for the sake of convenience.
There is a delay of 47 days in ITA Number 856/Del/2021 for AY 2016-17.
Counsel for the assessee pointed out that this was covid period and hence delay may kindly be condoned. Ld DR could not object to the same. Hence we condone the delay for ITA number 856 and proceed to decide the appeal.
Brief facts as coming out from the orders of the authorities below are that during the year under consideration the assessee company was engaged in trading of tyres which it imports from it's holding company named M/s Yokohama Rubber Company limited Japan. We are taking AY 2016-17 as lead year and discussing the facts of this year. For this year the return of income was electronically filed on 30.11.2016 vide acknowledgement no. 548389681301116 declaring loss of Rs.34,21,11,785/-. The return filed was processed u/s 143(1) of the I T Act, 1961. The case was selected for scrutiny under CASS. Statutory notice u/s. 143(2) dated 20.07.2017 was issued and served upon the assessee. Further, notices u/s 142(1)/129 of the Act along with questionnaires were also issued electronically via ITBA Portal. In response to the notices issued in this case, the Assessee/AR of the assessee
3 Yokohama India Pvt. Ltd. filed basic documents called for electronically on the e-filing portal. During the relevant assessment year, the assessee company was engaged in the trading of tyres which it imports from its holding company. During the course of the assessment proceedings the assessee filed reply electronically dated 13.12.2019, 12.12.2019, 04.12.2019, 30.11.2019, 26.11.2019, 09.09.2019, 04.10.2018, 04.09.2018 and 02.07.2018 on ITBA Portal. From the records, it was seen that the assessee had entered into International Transactions with Associate Enterprises during the year. During the course of assessment proceedings, a reference U/S 92CA was made to the Transfer Pricing Officer for determining the arm's length price of International Transactions entered by the assessee with its associate concerns. The DCIT/ACIT TPO-3(3)(2) New Delhi's vide its order No.239 dated 31.10.2019 passed u/s 92CA (3) of the Act [DIN No.ITBA/TPO/F/92CA3/2019-20/1019614917(1)], received in this office on 04.11.2019, has determined cumulative TP Adjustment of Rs.52,72,08,663/- in the following manner and recommended to add the same in the total income of the assessee.
Sl. Particulars Amount No. 1 Purchase of raw materials in 57,06,407 manufacturing segment 2 AMP issue (Intensity method) in 52,15,02,256 manufacturing and trading segments Total 52,72,08,663
Besides TP additions, the Assessing Officer has also made addition by observing the club expenses to the tune of Rs.3,25,605/- incurred by the assessee for the partnership of the Director of the company. It is pertinent to note that in all other years the issue is same. These expenses were made
4 Yokohama India Pvt. Ltd. towards payment of club annual subscriptions charges and other club expenses during the year under consideration for welfare of the key management persons.
At the outset, the ld. Counsel for the assessee pointed out that the so far as the TP additions are concerned, the assessee has entered into Advance Pricing Agreement with the governing authority i.e. CBDT on 18.03.2025 and hence international tax issues pertaining to the impugned years are no more res-integra as they are settled in the APA agreement with CBDT. Therefore, the assessee is not pressing the grounds of appeal
no. 1 to 28. Hence, the same are dismissed as not pressed.
7. In ground no.29, the only issue is with respect to the payment of club expenses for these years.
The ld. AR drawn the attention of the Bench towards various judgments of the Hon’ble High Courts and Hon’ble Apex Court and contended that the expenses incurred are to be allowed as they are incurred on account of commercial expediency.
The ld. DR relied upon the orders of the authorities below.
We have heard the rival submissions and perused the material available on record. We observe that the club expenses were incurred by the assessee for welfare of key personal of the company. These expenses are not in the nature of providing any enduring benefit to the assessee. We observe that the Hon’ble Supreme Court in the case of CIT vs United Glass Mfg. Co.
Ltd. reported in [2012] 28 taxmann.com 429(SC) has held that club
5 Yokohama India Pvt. Ltd. membership fees paid by the assessee company for its employees is pure business expenses. The relevant observations of the Hon’ble Supreme Court are reproduced hereunder:-
3.3 As far as Question No. 1 is concerned, the issue is answered in favour of the assessee in the order passed today in civil appeal arising out S.L.P. (C) No. 20791 of 2009. As far as Question No. 2 is concerned, we find that a series of judgements have been passed by High Courts holding that club membership fees for employees incurred by the assessee is business expense under Section 37 of the Income Tax Act, 1961. We also find that none of the decisions have been challenged in this Court. Even otherwise, we are of the view that it is a pure business expenses.”
Respectfully following the verdict of Hon’ble Supreme Court in the case of CIT vs United Glass Mfg. Co. Ltd. (supra), we hereby delete the addition made by the Assessing Officer on account of Club expenses. This ground of the assessee is allowed.
Our above decision would apply mutatis-mutandis to all the appeals also.
In the result, all the appeals of the assessee are partly allowed.
Order pronounced in the open court on 09th May, 2025.