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of <h1>Tribunal allocates corporate membership fee over ten years, deeming it revenue expenditure</h1> <h3>Deputy Commissioner of Income-tax, Circle 11(3), Bangalore Versus G. Corp. (P.) Ltd.</h3> Deputy Commissioner of Income-tax, Circle 11(3), Bangalore Versus G. Corp. (P.) Ltd. - TMI Issues Involved:1. Whether the CIT(A) was justified in deleting the addition of Rs.15 lakhs being corporate membership fee paid to Bangalore Club.Issue-Wise Detailed Analysis:1. Deletion of Addition of Rs. 15 Lakhs as Corporate Membership Fee:Background:- The assessee, a Private Limited company engaged in property development/real estate management, claimed Rs.15 lakhs as revenue expenditure for corporate membership fee paid to Bangalore Club.- The AO treated this as capital expenditure, arguing it provided an enduring benefit to the assessee.Arguments by the Assessee:- The payment was made out of business expediency to foster business relations and improve prospects.- It provided a venue for meetings, facilitating business discussions and client entertainment.- The fee was non-refundable, and no capital asset or enduring benefit was acquired.- Cited case laws supporting the view that such expenditure is revenue in nature:- Otis Elevator Co. (India) Ltd. v. CIT- Gujarat State Export Corporation Ltd. v. CIT- CIT v. Sundaram Industries Ltd.- JCIT v. M/s. Cabot India Ltd.- DCIT v. Kodak India Ltd.- Engineers India Ltd.Arguments by the Revenue:- The first appellate authority erred in allowing the payment as revenue expenditure.- The payment provided an enduring benefit and should be treated as capital expenditure.Tribunal's Analysis:- Revenue Expenditure: Defined as expenditure incurred for earning income for the previous year, with benefits exhausted within that year.- Capital Expenditure: Involves bringing into existence an asset or advantage of enduring benefit.- Prepaid Expenditure: Incurred for benefits/services over multiple years, paid in a lump sum in a previous year.Corporate Membership Analysis:- Corporate membership of Bangalore Club entitles the company to nominate directors/executives to use club facilities for ten years, without voting rights or management participation.- The fee paid is non-refundable, and benefits extend over the membership period.Accounting Standards:- AS 26: Intangible assets should be amortized over their useful life, presumed not to exceed ten years.- Materiality Concept: If the cost is significant relative to the company's financials, it should be apportioned over the membership period.Conclusion:- The Rs.15 lakhs paid for corporate membership should be apportioned over ten years, not written off entirely in the year of payment.- The expenditure is revenue and prepaid in nature, requiring proportional write-off over the membership period.Relevant Case Laws:- Orchid Chemicals & Pharmaceuticals Ltd. v. Asstt. CIT: Non-compete fees spread over the agreement period.- Techno Shares & Stocks Ltd. v. CIT: Membership of Bombay Stock Exchange as an intangible asset eligible for depreciation.Order:- The appeal of the Revenue is partly allowed, directing the apportionment of the corporate membership fee over ten years.Appreciation:- The tribunal acknowledged the detailed arguments presented by both the Ld. DR and the Ld. AR.Result:- The appeal of the Revenue is partly allowed.
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