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2012 (6) TMI 229 - AT - Income TaxCapital vs revenue expenditure – Accounting Standards and GAAP, AS1 and AS26 - Amount paid to Club as corporate membership fee. - The AO was, however, of the view that the amounts paid to a club membership which was a payment once and for all, resulting in an enduring benefit to the assessee and, thus, treated the same as capital expenditure – Held that:- the gross income of the assessee is Rs.90,00,000. The assessee has claimed Rs.15 lakhs as expenses for obtaining corporate membership in the club thereby declaring a net income of Rs.75 lakhs in its return of income. It amounts to approx. 16.67% of the gross income of the assessee which is on a higher side thereby distorting the correct income of the assessee for the previous year. Following the matching concept, the materiality concept and Accounting Standard AS 26 in the assessee's case before us, the amount of Rs.15 lakhs claimed as expenses towards corporate membership for a period of 15 years has to be apportioned in ten years proportionately from the date of obtaining the membership. However, if the amount paid is negligible, it will be appropriate to write off the expense in the year in which such expense is incurred. We further make it clear that the expenditure incurred by way of fees for obtaining corporate membership in a club is revenue and prepaid in nature and has to be written off in the year in which it is incurred or to be apportioned for a period not exceeding ten years, as the case may be - Appeal of the Revenue is partly allowed
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