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CLUB FEES AND EXPENSES INCURRED TO MAINTAN CONTACTS, GOOD RELATIONS AND GOODWILL ARE ALLOWABLE BUSIENSS EXPENSES

Income Tax - By: - CA DEV KUMAR KOTHARI - Dated:- 4-10-2017 - 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 service .....

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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 o .....

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zations. This is because at own cost businessman may not be able to establish very high class facility of clubs required for business purposes. Hotels: 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. Cl .....

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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) .....

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nse. 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 .....

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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 a .....

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