TMI Blog2011 (2) TMI 529X X X X Extracts X X X X X X X X Extracts X X X X ..... TA. No. 429/Mum./2009 - - - Dated:- 28-2-2011 - D. Manmohan, J. ORDER D. Manmohan, Vice President 1. Disallowance of claim of deduction of 3,50,000, referable to the amount paid towards membership fees of Garware Club in the name of one of the Directors of the assessee-company, is the subject matter of dispute before us. 2. Facts of the case are stated in brief. Assessee is a private limited company engaged in the business of manufacture and sale of non-ferrous metals. In respect of the previous year relevant to the assessment year 2004-05 assessee declared total income of 95,31,818. When the case was taken-up for scrutiny, the Assessing Officer noticed that the company debited 3,50,000 in its P and L account, referable to the entrance fees paid to Garware Club for the membership of Shri Vishnukumar Agarwal, Director of the assessee-company. Assessing Officer called upon the assessee to explain as to how the same is allowable as revenue expenditure in the hands of the assessee. In response thereto, it was contended that Garware Club is a very prestigious club where executives from corporate world meet frequently and do business dealings since club provides fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal entity. The appellant has claimed that it could not obtain the membership in the name of the company since there is no provision in the club to give membership in the name of the company. When the club has not granted membership to companies, this means that club is not meant for corporate world. In such a situation, the claim of the appellant that club provides incentive to company for conducting business meetings cannot be accepted. The expenditure incurred by the appellant is incurred on behalf of the director of the company. The appellant filed no evidence as to how this membership was actually used for the benefit of the appellant company. Accordingly, the action of the Assessing Officer in disallowing these expenses is upheld. As a result, this ground of appeal is not allowed." 5. Aggrieved, assessee is in appeal before us. Learned Counsel, appearing on behalf of the assessee, submitted that membership of the club was taken with an object to conduct business meetings smoothly and to promote the business since Director of the company can make use of the facility for interacting with various industrialists and executives of the corporate world. As per the policy of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Connectors OEN Ltd. 294 ITR 559 wherein the Hon'ble Court categorically held that entrance fees paid, to become a member of a club, has to be treated as capital expenditure and therefore, rejected the claim of deduction under section 37(1) of the Act. It was strongly contended that one time expenditure towards entrance fees gives an enduring advantage to a party and hence it has to be treated as a capital asset since it does not become obsolete or perishable. Last but not the least, it was contended that the beneficiary in the instant case is the Director and, as per the normal terms of the membership of any club, the life membership benefit perpetually goes to the individual and his family members even if he does not continue as a Director or in any other capacity connected to the company for a longer period. Thus, in the absence of any proof to show that the assessee had taken some benefit out of the expenditure incurred on the membership of the Director it cannot be said that expenditure was wholly and exclusively incurred for the purpose of business of the assessee. 8. We have carefully considered the rival submissions and perused the record. It is well-settled that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es within the determination of the intention of the company when membership is taken in the name of the Directors when a Director has heavy stakes involved in the company. In such a case, it is for the assessee to prove that the membership was obtained solely for the purpose of business and efforts have to be made by furnishing some evidence or by proving through substantial evidence that the fees for the membership of the Director was paid by the company with an object to advance its business interests. Once it is proved that the dominant object was to advance business interest, merely because certain incidental benefits are enjoyed by the individual by becoming a Member of a Club, it cannot be said that such expenditure was not incurred for the purpose of business of the company. 9. Turning to the facts of the instant case, membership was taken in the name of Shri Vishnukumar Agarwal who is none other than the Director of the assessee-company and none of the Executives of the company appears to have been made members of the club. Assessing Officer as well as the CIT(A) have recorded a finding that no evidence was produced by the assessee as to how this membership was actually ..... X X X X Extracts X X X X X X X X Extracts X X X X
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