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Facts
The assessee, Axis Finance Limited, claimed Rs. 7,59,872 as business expenditure for club membership, subscription fees, and restaurant charges. The Assessing Officer disallowed the entire amount, considering these as inadmissible expenses based on the tax audit report. The CIT(A) upheld this disallowance.
Held
The Tribunal held that club membership and subscription fees are pure business expenses, drawing strength from a Supreme Court decision. However, restaurant charges incurred at the club were not discernible as business-related and were therefore disallowed.
Key Issues
Whether club membership, subscription, and restaurant expenses incurred by the assessee are allowable as business expenditure under Section 37(1) of the Income Tax Act, 1961, despite being reported in Form 3CD.
Sections Cited
37(1), 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, vide order no. ITBA/NFAC/S/250/2024-25/1073281158(1), dated 14.02.2025 passed against the assessment order passed by National e-Assessment Centre, u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 06.04.2021 for Assessment Year 2018-19.
Grounds taken by the assessee are reproduced as under: " 1. On the facts and in circumstances of the case and in law, the Hon'ble NFAC has erred in upholding the disallowance of club membership expense of Rs. Axis Finance Ltd. AY 2018-19 7,59,872 claimed as business expenditure under section 37(1) of the Income-tax Act, 1961.
2. On the facts and in circumstances of the case and in law, the Hon'ble NFAC has erred in upholding the disallowance of club membership expense stating that the appellant's statutory auditor in entry no. 21 of Audit Report gives further acknowledgement towards these expenses being of personal nature, without appreciating that such club membership expense is not disclosed as personal or inadmissible in nature in the tax audit report and were merely reported to comply with the format of Form 3CD i.e. the tax audit report."
The only issue involved in this appeal is in respect of disallowance made by ld. Assessing Officer towards expenditure incurred by the assessee amounting to Rs.7,59,872/- towards club membership fees, club subscription fees and restaurant charges at the club. Ld. Assessing Officer has made the addition by noting that these items are inadmissible as mentioned in Tax Audit Report furnished by the assessee. The break-up of the expenses noted by ld. Assessing Officer are as under: i) Restaurant charges at club – 1,21,881/- ii) Club membership fees – 6,03,041/- iii) Club subscription fees – 34,950/-
According to the assessee, these expenses were reported by the tax auditor in the Tax Audit Report in Form 3CD in the relevant clauses by way of disclosure and not as inadmissible expenses. For this, reference was made to the Tax Audit Report contained in Form 3CD placed on record. Clause 21(a) of Form 3CD requires furnishing of details of amounts debited to the profit and loss account being in the nature of capital, personal, advertisement expenditure, etc. Under the head ‘expenditure incurred at clubs’ being entrance fees and subscriptions, amount of Rs.34,950/- is reported at Sr.No.1 as subscription fees and amount of Rs.6,03,041/- is reported at Sr. No.2 as membership fees. Another amount of Rs.1,21,881/- is reported Axis Finance Ltd. AY 2018-19 under the heading, ‘expenditure incurred at clubs being cost for club services and facilities’ mentioned as restaurant charges at club. It is on these noting that ld. Assessing Officer took an adverse view and disallowed the same to make an addition.
Assessee is a non-deposit accepting non-banking finance company registered with Reserve Bank of India. It filed its return of income on 04.10.2018, reporting total income at Rs.332,10,00,310/- which was revised on 17.11.2019 with the same total income reported in the original return. We note that the issue raised before us is no longer res integra, in respect of club membership and subscription fees claimed by the assessee as its business expenses u/s.37(1) of the Act.
5.1. We draw force from the decision of Hon'ble Supreme Court in the case of CIT vs. United Glass Manufacturing Co. Ltd. [2012] 28 taxmann.com 429 (SC), wherein Hon'ble Court held that these are pure business expenses. Relevant para-3.3 from the said judgement is reproduced below, wherein Hon'ble Court observed that club membership fees for employees incurred by the assessee is business expense u/s.37 of the Act. “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 expense.”
5.2. On the issue in respect of claim of restaurant charges at the club incurred by the assessee, it is not discernible as to whether these were incurred for the purpose of business or were on account of personal expenses by the employees. Accordingly, restaurant expenses at the club are on account of food and beverages which are held to be Axis Finance Ltd. AY 2018-19 disallowed. Assessee thus gets relief in respect of expenses incurred towards membership fees and subscription fees and the balance of Rs.1,21,881/- is sustained as addition. Ground raised by the assessee is thus, partly allowed.
In the result, appeal of the assessee is partly allowed.