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October 4, 2017
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CIT Vs United Glass Mfg Co. Ltd. 2012 (9) TMI 914 - SUPREME COURT

Other judgments of various High Courts and Tribunals which can be searched on this website in advance search under section 28 and 37 and club expenses.

Section  28 and 37.

Club expenses:

Club expenses can be of different type and nature like:

a. Entrance fees or Joining fees

b. Periodical fees for one year or few years

c. Membership fees

d. Expenses for goods and services availed at club by member or his nominated persons/ associates/ guests etc. as may be permitted.

Business and club expenses:

A businessman himself or his employees / officers / / workers/ agents can incur expenses at clubs. If the expenses are incurred for the purpose of business, then such expenses should be allowed as business expenditure.

Own clubs of business organization:

In case of large business organization like factory, or service centres, big office complex, some clubs are mainly for employees. Like employee’s games and sports club, employees recreation club, Employees club house,  Employee welfare centres etc.

Such clubs are in fact a part and parcel of business organization and these are created or established for benefit of employees which help them  and their children in physical fitness,  mental fitness, entertainment and go long way in improving health of employees, children of employees which is a source of good human resources. Therefore, for allowability of expenses of such clubs there is generally not much dispute, however some officers make some estimated disallowance for non-business purposes. Or some expenses as capital expenditure.

Other clubs:

In case of medium and small organizations services of other clubs are availed for employees and agents of business. Even in case of big organizations such facilities may be availed for places where there is no business organizations club and also for senior officers who have to meet senior persons of other organizations. This is because at own cost businessman may not be able to establish very high class facility of clubs required for business purposes.


Many times, instead of clubs facilities of hotels are also used for staying at other places for business purposes, meeting people, holding conference etc.

Verification of expenses:

In case of corporates and other business organizations where business is looked after by employees, a reasonable system of internal check and control is maintained.  Claimant who may be an employee or other agent of company makes a claim for expenses incurred or for advance for expenses to be incurred for employer. These are checked and approved by concerned officer. Then only payment is made. While making claim and approving the same it is expected that the same belongs and relates to business of employer. Therefore, prima facie such expenses are incurred after due verification. Therefore, the AO must not doubt about such expenses and their purposes.

However, unfortunately some disallowances are made on various flimsy grounds like not for business purposes, for personal use, or some part being capital expenditure.  

Case before the Supreme Court:

In case of United Glass Mfg Co. Ltd (supra.) matter relating to club fees came for consideration of the honourable  Supreme Court. The relevant question reads as follows:

            (ii) Whether club membership fee for employees incurred by the assessee is a business expense and liable to be deducted under Section 37(1) of the Income Tax Act, 1961?"

The honourable  Supreme Court observed and held as follows (with highlights added):

    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.

In the circumstances, this civil appeal filed by the Department stands dismissed with no order as to cost.

Thus the Supreme Court confirmed allowability of claim of assessee and dismissed departmental appeal for the reasons that in many cases High Courts have allowed such expenses and revenue has nto challenged the same. Therefore they have attained finality.

The honourable Supreme Court in its own opinion also held that “ Even otherwise, we are of the view that it is a pure business expense”.

Therefore, now there is finality that club expenses which are incurred by a businessman in course of business are purely business expenses.

The matter before the honourable Supreme Court was for Club fees, this may be entrance fees, or periodical fees. Such fees is essential and prerequisite for availing facilities and services at club. Therefore, other expenses for supply and services should also be considered as purely business expenses.

We find that now-a-days in many of cases such expenses are allowed by AO. However there are also cases in which AO disallow either entire or a part of such expenses. In a recent case of a tea company, AO for the first time disallowed club expenses for clubs at Tea Estate of assessee. In all earlier years such expenses were allowed in case of the same assessee. In case of other tea companies in the charge of the same AO such expenses are being allowed. Long ago a dispute as to allowability of travelling expenses of wives of managers of Tea Estates and club expenses arose and the Tribunal in case of Warren Tea Ltd allowed such expenses. The judgment of Tribunal was not challenged. Thereafter, in most of cases such expenses are being mostly allowed. Thus we can say that taxpayers have to depend on mood and behaviour of Tax Officers because they feel free to disregard decision and discretion of taxpayers about their business expenses and try to impose their own view, where they should not do so. This is because primarily it is the businessman who is making payment and his decision about commercial expediency must prevail.      


Where a business avails facility of clubs for business purposes, entrance fees, joining fees, periodical fees etc. are not personal and capital expenditure. Expenses incurred for holding business meetings, conference, etc. should be allowed as business expenses particularly in organizations where business is looked after employees and agents who incur expenses on account of their principal for business purposes. In case of proprietary concerns and partnership firms some element of personal expenses can be found. Estimation of such personal element of expenses can be made best by the proprietor / partner who incur such expenses. Therefore, they should them-self make an estimate and make a disallowance for personal use and personal expenses, if any.

The tax authorities must also have some regard to businessman/ taxpayer and must not disregard or disbelieve and should not disallow expenses due to doubt or presumption.      


By: CA†DEV KUMAR KOTHARI - October 4, 2017



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