Tribunal allows revenue's appeal on disallowed payment to Employees' Recreation Club under Income-tax Act

The tribunal allowed the revenue's appeal challenging the disallowance of the amount paid to the Employees' Recreation Club under section 40A(9) of the Income-tax Act for A.Y. 2006-07. The tribunal remanded the matter to the AO for further examination to determine if the payment was a reimbursement or a general contribution, citing a similar judgment from the High Court of Mumbai. The appeal was allowed for statistical purposes, with the decision announced on 27.04.2011.

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Issues involved: Disallowance of amount paid to Employees' Recreation Club u/s 40A(9) of the Income-tax Act for A.Y. 2006-07.

Summary:
The appeal by the revenue challenged the disallowance of the amount paid to the Employees' Recreation Club u/s 40A(9) of the Income-tax Act for A.Y. 2006-07. The club was formed by the employees of a government company to provide recreation facilities to all permanent employees. The AO disallowed the claim, but the CIT(A) allowed it, leading to the revenue's appeal before the tribunal.

The Learned AR for the assessee cited the judgment of the Hon'ble High Court of Mumbai in CIT Vs Bharat Petroleum Corporation Ltd., where a similar payment to a club formed for employee welfare was found allowable. The Learned DR relied on the AO's order.

Upon review, the tribunal found the dispute centered on the expenditure incurred by the assessee for the employees' recreation club. While the High Court judgment supported reimbursement of expenses by the club, it was unclear whether the payment made by the assessee was reimbursement or a general contribution. Therefore, the tribunal set aside the order and remanded the matter to the AO for a fresh examination in light of the High Court judgment and after providing a hearing to the assessee.

The appeal of the revenue was allowed for statistical purposes. The decision was pronounced on 27.04.2011.

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