(O&M) COMMISIONER OF INCOME TAX-I, LUDHIANA vs. M/S UPPER INDIA STEEL MFG. & ENGG. CO. LTD.

This appeal has been filed by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 11.10.2004 (Annexure A-III) passed by the Income Tax Appellate Tribunal, Chandigarh Bench “B”, Chandigarh (hereinafter referred to as “the Tribunal”) for the assessment year 1997-98. The appeal was admitted vide order dated 9.10.2006 for determination of the following substantial questions of law:- “i) Whether on the facts and the circumstances of the case, the Hon'ble Income Tax Appellate Tribunal was justified in reversing the action of the CIT(A) by ignoring the fact that one time expenditure incurred for the Club Membership GURBACHAN SINGH 2014.08.14 12:19 integrity of this document High Court Chandigarh -2- Fee is of a capital nature? ii) Whether on the facts and the circumstances of the case, the Hon'ble Income Tax Appellate Tribunal was justified in reversing the order of the CIT by ignoring the facts that expenses incurred on ISO 9002 Certificate is a 'capital expenditure' having its characteristics enduring in nature and its benefits are for the years to come? iii) Whether on the facts and the circumstances of the case, the Hon'ble Income Tax Appellate Tribunal was justified in entertaining the claim of the assessee, filed after the expiry of the period stipulated under the provision of section 139(5) of the I.T. Act?

Put shortly, the facts necessary for disposal of the present appeal as mentioned therein are that the assessee filed its return of income on 31.12.1997 for the assessment year 1997-98 declaring net income at ` 1,36,51,730/-. The said return was processed under Section 143(1)(a) of the Act on 31.3.1998. Subsequently, the return was revised on 23.3.1999 claiming unabsorbed depreciation and the same was filed at an income of ` 75,17,109/-. The Assessing Officer vide order dated 18.1.2000 (Annexure A-1) assessed the income at ` 87,27,344/-. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [for brevity “the CIT(A)”]. The CIT (A) vide order dated 19.10.2000 (Annexure A-II) partly allowed the appeal. Still dissatisfied, the assessee filed an appeal before the GURBACHAN SINGH 2014.08.14 12:19 integrity of this document High Court Chandigarh -3- Tribunal who vide order dated 11.10.2004 (Annexure A-III) partly allowed the appeal. Hence, the present appeal by the revenue.

Learned counsel for the revenue submitted that one time expenditure incurred for the club membership fee was capital in nature and, therefore, the Tribunal had erred in holding the same as revenue expenditure. It was further submitted that the expenses incurred on ISO 9002 Certificate was also capital in nature as the same was enduring in nature and its benefit was to accrue for the years to come and the Tribunal had wrongly allowed the same to the assessee. According to the learned counsel for the revenue, the assessee had not made any claim with regard to the bad debts while filing the revised return under Section 139(5) of the Act and, therefore, the Tribunal had wrongly remanded the case to the Assessing Officer.

On the other hand, learned counsel for the assessee besides supporting the order passed by the Tribunal pleaded that question No. (i) stands concluded against the revenue by this Court in a Full Bench judgment dated 24.1.2013 passed in ITA No. 366 of 2008 (The Commissioner of Income Tax, Patiala v. M/s Groz Beckert Asia Limited) whereas question No. (ii) was decided against the revenue by this Court vide judgment dated 22.12.2006 passed in ITA No. 424 of 2005 (Commissioner of Income Tax v. M/s Varinder Agro Chemicals Ltd., Ludhiana). With regard to question No. (iii), learned counsel for the assessee submitted that the matter was remanded to the Assessing Officer holding that if the assessee's claim was as per law on merit, then the same be allowed to the assessee.

After hearing learned counsel for the parties, we do not find any merit in this appeal. GURBACHAN SINGH 2014.08.14 12:19 integrity of this document High Court Chandigarh -4-

Adverting to first question relating to nature of one time expenditure incurred for the Club Membership fee, the Full Bench of this Court in M/s Groz Beckert Asia Limited's case (supra) had held that the corporate membership which was obtained for running the business with a view to produce profit would amount to revenue expenditure. It was also noticed that such an expenditure does not bring into existence an asset or an advantage for the enduring benefit of a trade. It was recorded as under:- “16. In the present case, the nature of the expenditure incurred by the assessee cannot be said to be a capital expenditure. The second test culled down in Assam Bengal Cement Co. Limited's case (supra) is that expenditure should bring into existence an asset or an advantage for the enduring benefit of a trade. In the present case, the corporate membership of Rs.6 lacs was for a limited period of 5 years. The corporate membership was obtained for running the business with a view to produce profit. Such membership does not bring into existence an asset or an advantage for the enduring benefit of the business. It is an expenditure incurred for the period of membership and is not long lasting. By subscribing to the membership of a club, no capital asset is created or comes into existence. By such membership, a privilege to use facilities of a club alone, are conferred on the assessee and that too for a limited period. Such expenses are for running the business with a view to produce the benefits to the assessee. Consequently, it cannot be treated as capital asset. Therefore, the reasoning given by Delhi, Bombay and Gujarat High Courts in respect of members of Clubs is based upon correct enunciations of the principles of law as delineated above in the judgments of the Supreme Court.”

The Tribunal had decided the issue by following the decision GURBACHAN SINGH 2014.08.14 12:19 integrity of this document High Court Chandigarh -5- M/s Groz Beckert Asia Limited's case (supra). The first question is thus answered against the revenue.

Taking up question No.(ii), the issue regarding expenditure incurred on account of expenses for ISO 9002 certificate was held to be revenue expenditure by this Court in Commissioner of Income Tax I, Ludhiana vs. M/s Varinder Agro Chemicals Limited, 85, Industrial Area 'A', Ludhiana, ITA No.424 of 2005, decided on 22.12.2006 relying assessee's claim on merits in accordance with law. In view of the remand, the issue being referred back to the Assessing officer, the question stands disposed of.

In view of the above, the substantial questions of law are decided accordingly. Consequently, finding no merit in the instant appeal, the same is hereby dismissed. (AJAY KUMAR MITTAL) JUDGE July 8, 2014