2009 (11) TMI 402 - HC - Income Tax

High Court: Club memberships not business expenses. Attire, travel accessories not perquisites.

The High Court ruled in favor of the assessee, stating that club memberships for business entertainment do not qualify as business promotion expenses ... Salary- The dispute in these two appeals pertain to the club expenses/membership incurred by the assessee for the benefit of its employees. According to the Revenue the membership card obtained in the name of the employees, subscription paid by the company on behalf of the employees falls under section 17(2)(iv) of the Act. The Assessing Officer levied interest under section 201(1A) of the Act. The Commissioner (Appeals) confirmed the order in part. However Tribunal allowed the appeal. Held that- remand the matter to the Assessing Officer to find out whether the expenses incurred by the company towards the club member for entertaining the guests is for the benefit of the assessee or not, has to be examined based on the records to be produced by the assessee. Issues:1. Whether the assessee failed to deduct tax at source from employees' perquisites, leading to interest under section 201(1A) of the ActRs.2. Whether attire and travel allowances provided to employees can be treated as perquisites under section 17 of the ActRs.Analysis:Issue 1:The Revenue contended that the company's expenses on club memberships, attire, and travel accessories for employees fall under section 17(2)(iv) of the Income-tax Act, necessitating tax deduction at source. The Tribunal's decision was challenged, arguing that these expenses are incidental to employment and should have been subject to tax deduction. However, the assessee's counsel argued that club memberships were for business purposes, not falling under section 17(2)(iv). The High Court disagreed with the Revenue, stating that club memberships for business entertainment do not qualify as business promotion expenses under section 17(2)(iv).Issue 2:Regarding attire expenses, it was noted that the nature and purpose of the attire reimbursements to officers were not clearly defined. The High Court emphasized that attire expenses should be examined by the Assessing Officer to determine if they meet the definition of attire expenses under the Act. The court directed a reevaluation of the attire expenses to ascertain their nature and purpose. However, expenses on travel accessories and office communication were deemed beneficial to the company, not the employees, and thus were not considered perquisites under section 17(2)(iv).In conclusion, the High Court allowed the appeals in part, remanding the matter to the Assessing Officer for further assessment based on the court's observations. The Assessing Officer was instructed to reevaluate club membership expenses and attire allowances to determine their tax implications accurately, while upholding the decision on travel accessories and office expenses in favor of the assessee.