TMI Blog2009 (4) TMI 532X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the total income at Rs. 30,26,900. The issue-wise adjudication is as under. 3. First issue relates to conforming of an addition of Rs. 4,57,068 disal-lowed by the Assessing Officer under section 40A(2)( b ) of the Act. Briefly stated, the relevant facts in this regard are that the assessee paid interest of Rs. 12,46,251 on borrowed funds to the specified persons and the average interest rate works out to 18.95 per cent per annum. On considering the data on rate of interest in respect of certain comparable cases in his circle and also on finding that the rate of interest paid in the instant case is excessive, the Assessing Officer restricted the claim to only 12 per cent and disallowed the balance. The disallowance works out to Rs. 4,57,068. In this regard, Assessing Officer relied on interest payable by the Central Government under the Income-tax Act. 4. Before the CIT(A), the case of the assessee is that the interest payable on the secured, unsecured loans, OD loans etc. is much higher and it goes upto 21 per cent. On the contrary, the applicable rate of interests in respect of the loans taken from the specified persons is much cheaper and therefore, decision to take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t deductible in certain circumstances. ****** (2)( a ) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause ( b ) of this sub-section, and the Assessing Officer is of opinion that the such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as deduction." 7. From the above, it is evident that the Assessing Officer is of opinion that the such expenditure is excessive or unreasonable having regard to the, ( i )fair market value of the goods, services or facilities for which the payment is made; or ( ii )legitimate needs of the business or profession of the assessee; or ( iii )the benefit derived by or accruing to him therefrom. Assessing Officer may arrive the said excessiveness or unreasonableness having regard to one of the above three ways. Further, the expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the order of the CIT(A) does not call for any interference. Accordingly ground 1 of the assessee is dismissed. 9. Second issue relates to the allowability of subscription fee of Rs. 3 lakhs paid to NSCI in the name of its working partner. Assessee submitted before the Assessing Officer that the subscription paid to sports club is wholly and exclusively for the purpose of the business and, therefore, the same is business expenditure. Assessing Officer disallowed the claim holding that the amount involved is mere subscription fee and assessee has not spent any money on the club expenses for the business purposes during the year. Accordingly, the Assessing Officer disallowed the claim of the assessee. 10. During the proceedings before the CIT(A), the assessee repeated the same arguments and relied on various judgments for the proposition that the club membership fee is allowable revenue expenditure. In this regard he relied on the following judgments : (1) Echjoy Industries (P.) Ltd. v. ITO (Second) [1988] 26 ITD 259 (Bom.) (2) Pritam Hotel (P.) Ltd. v. ITO [1983] 17 TTJ (Bom.) 550 and (3) Bombay Burmah Trading Corpn. Ltd. v. Asstt. CIT [2002] 82 ITD 531 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed judgment of the jurisdictional High Court in the case of Otis Elevator Co (India) Ltd. ( supra ). The case of the assessee is that the said subscription of Rs. 3 lakhs is wholly and exclusively for the business purpose. On the other hand, the case of the revenue is that the unlike in company, the membership of a working partners should be seen in a different context as the firm has more than one partners, who are equal in matters of running of the business of the firm. The payment of Rs. 3 lakhs to the NSCI is for personal enjoyment as discussed in para 6 of the assessment order. 14. Undisputedly, the membership of the NSCI Club is held in the name of Sri Rajesh D. Shah and the amount of Rs. 3 lakhs is paid by the assessee-firm. Further, it is a fact that the no amount was spent on use of the club during the year but membership was used and an amount was spent in the subsequent years. The ratio decidendi in the case of Otis Elevator Co. (India) Ltd. ( supra ) was decided in the context of the provisions of section 40( a )( v ) and in connection with the expenditure incurred on club subscriptions of the employees. Whereas, the present issue is whether the said expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal use. Assessing Officer has not brought out a single instance or single bill or single purchase etc. to demonstrate the personal use of the partner either in the instant year or in the later years. Certain disallowances made by the Assessing Officer in the later years are only on the basis of estimation and not on facts. Further, the linkage of this membership to the aspect of the turnover is misplaced as such facility has limited use in terms of facilitation and not decision taking processes. Further also, we find that the name appearing in the records of the club or for that matter contents of any documentation, is not the determining factor and what is important is who incurred the expenditure, from whose account the money is spent and for what purpose it is spent. There can be many reasons for Sri Rajesh D. Shah to have a membership in his name and not in the name of the firm. As seen from para 4.5 of the impugned order that it is a undisputed fact that the assessee has taken the customers of the firm to the club for business purposes. Once commercial angle is established, we do not find any difference in the corporate membership or a membership of working partner in a club ..... X X X X Extracts X X X X X X X X Extracts X X X X
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