Club Entrance Fees paid by Vi amounts to Revenue Expenditure u/s.37(1) of Income Tax Act: ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) has held that Club entrance fees paid by Vodafone Idea Ltd ( Vi )amount to revenue expenditure u/s.37(1) of the Income Tax Act,1961.

The revenue challenged the deletion of disallowance on account of club entrance fees amounting to Rs.37,79,021/-.  The assessee had debited expenses on account of club entrance fees paid to various clubs amounting to Rs.37.79,021/- and claimed the same as revenue expenditure u/s.37(1) of the Income Tax Act. The AO disallowed the same on the ground that it is capital in nature as it is giving enduring benefit to the assessee.

Section 37(1) of the Income Tax Act expressly prohibits deduction on account of personal expenses. Personal expenses mean expenses satisfying personal needs such as food, cloth, shelter, etc., which are not related to the business. In other words, money expended for domestic or private purpose, as distinct from the purpose of the trade or profession, are not deductible.

The above-said provisions provide for the allowability of revenue and non-personal expenditure (other than those failing under sections 30 to 36) laid out or expended wholly and exclusively for business or profession. Explanation 1 of sub-section (1) of section 37 of the Income Tax Act provides that if any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for business or profession and no deduction or allowance shall be made in respect of such expenditure.

The ITAT bench consisting of Shri Vikas Awasthy, judicial member & Shri M Balaganesh, accountant member observed that the assessee paid for membership of various clubs to enable the Senior Executives to socialise and develop contacts with various persons for promoting the assessee’s business.

The membership of any clubdoes not bring in any enduring benefit to the club member the c and held that the club expenses were allowed as Revenue expenditure. The appeal for the revenue was dismissed.

Shri J D Mistry appeared on behalf of the assessee and Shri T Shankar appeared on behalf of the revenue.

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