TaxTMI 
TaxTMI 
2011 (2) TMI 529
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....t Garware Club is a very prestigious club where executives from corporate world meet frequently and do business dealings since club provides facilities for arranging business meetings. Office of the company is also located at Girgaon which is close to the club and appropriate for arranging meetings with the executives of companies; moreover, executives visit club regularly. The object of taking membership was to develop the business of the company by coming in contact with various businessman from various industries. Since Garware Club has no system of granting membership to private companies, assessee applied for membership in the name of one of its Directors, though the object of taking membership was to develop the business of the company. Therefore, expenditure incurred towards payment of entrance fees is wholly and exclusively incurred for the purpose of business and hence, allowable as business expenditure under section 37(1) of the Income-tax Act. Reliance was placed upon the decision of the Hon'ble Bombay High Court in the case of Otis Elevators 195 ITR 682 wherein club membership fees was allowed as business expenditure. It was also contended that though entrance fees was ....
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....ince Director of the company can make use of the facility for interacting with various industrialists and executives of the corporate world. As per the policy of the club, membership of the club is restricted to individuals and corporate membership is only restricted to public limited companies. Assessee being a private limited company there was no option but to take membership in the name of the Director of the company. However, the underlying object or the sole object was to facilitate and promote business of the company and thus in the hands of assessee-company it has to be treated as revenue expenditure. It was also contended that the Assessing Officer has not disputed the business purpose of the expenditure but merely disallowed on the ground that it has to be treated as a capital expenditure overlooking to the fact that under similar circumstances Courts have time and again held that expenditure incurred on one time entrance fees is allowable as deduction under section 37 (1) of the Income-tax Act. Learned Counsel relied upon the following decisions: (i) CIT v. Samtel Colour Ltd. [2009] 180 Taxman 82 (Del.) (ii) CIT v. Engineers India Ltd. [1999] 239 ITR 237 (....
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....as wholly and exclusively incurred for the purpose of business of the assessee. 8. We have carefully considered the rival submissions and perused the record. It is well-settled that the initial onus is upon the assessee to prove that any expenditure incurred by it was wholly and exclusively for the purpose of business. If it is proved that it was incurred for the purpose of business, the next question that arises for consideration is as to whether the said expenditure was capital or revenue in nature. As regards the second aspect Courts have time and again held that as to what would fall in the realm of capital or revenue is a vexed question because the line of demarcation between the two is very thin. Hon'ble Delhi High Court in the case of CIT v. Engineers India Ltd. [1999] 239 ITR 237 (Del.) had observed that it is not possible to lay down any single or exhaustive test as infallible or any single criterion as decisive for determination of the question and one of the broad criteria to distinguish between the two (i.e., capital or revenue), is the test of 'enduring benefit'. At the cost of repetition it may be stated that the question as to whether it is capital or revenue....
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....any appears to have been made members of the club. Assessing Officer as well as the CIT(A) have recorded a finding that no evidence was produced by the assessee as to how this membership was actually utilised for the benefit of the assessee-company. Even before us, no evidence whatsoever was furnished to prove that the membership facility was actually utilised for the benefit of the assessee-company. Learned CIT(A) observed that Garware Club does not grant membership to companies which implies that the club is not meant for corporate world in which event the claim of the assessee that Garware Club provides incentives to a company for conducting business meetings cannot be accepted. Learned CIT(A) further noted that the assessee had not filed any evidence to prove that this membership was actually used for the benefit of the assessee-company. Even before us, no evidence was furnished to rebut the findings of the learned CIT(A). Under these circumstances, we are of the opinion that the expenditure incurred by the assessee is not allowable under section 37 (1) of the Act since it was not wholly and exclusively incurred for the purpose of business. Since the impugned expenditure did no....