Intervalve (India) Ltd.,, Pune v. Additional Commissioner of Income-tax,,

ITA 1812/PUN/2013 | 2005-2006
Pronouncement Date: 30-04-2015 | Result: Allowed

Appeal Details

RSA Number 181224514 RSA 2013
Assessee PAN AAACI3917P
Bench Pune
Appeal Number ITA 1812/PUN/2013
Duration Of Justice 1 year(s) 6 month(s) 22 day(s)
Appellant Intervalve (India) Ltd.,, Pune
Respondent Additional Commissioner of Income-tax,,
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2015
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 30-04-2015
Date Of Final Hearing 29-04-2015
Next Hearing Date 29-04-2015
Assessment Year 2005-2006
Appeal Filed On 08-10-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI R.K. PANDA ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY JUDICIAL MEMBER ITA NOS.1812 & 1813/PN/2013 (ASSESSMENT YEARS : 2005-06 & 2006-07) INTERVALVE (INDIA) LTD. 16-B/1 SAROSH BHAVAN DR. AMBEDKAR ROAD PUNE 411 001. PAN NO. AAACI3917P .. APPELLANT VS. ADDL. COMMISSIONER OF INCOME TAX RANGE 1 PUNE. .. RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI B. C. MALAKAR DATE OF HEARING : 29-04-2015 DATE OF PRONOUNCEMENT : 30-04-2015 ORDER PER R.K. PANDA AM: THE ABOVE TWO APPEALS FILED BY THE ASSESSEE ARE DIR ECTED AGAINST THE SEPARATE ORDERS DATED 29.08.2013 AND 30 .08.2013 OF THE CIT(A)-I PUNE RELATING TO ASSESSMENT YEARS 2005-06 AND 2006-07 RESPECTIVELY. SINCE IDENTICAL GROUNDS HAVE BEEN TA KEN BY THE ASSESSEE IN BOTH THE APPEALS THEREFORE FOR THE SA KE OF CONVENIENCE BOTH WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO.1812/PN/2013 (A.Y. 2005-06) : 2. THE ASSESSEE IN THIS APPEAL HAS CHALLENGED THE O RDER OF THE CIT(A) IN CONFIRMING THE ORDER OF THE ASSESSING OFF ICER IN 2 DISALLOWING THE ENTRANCE FEE OF RS.5 00 000/- FOR M EMBERSHIP OF BUSINESS CLUB. 3. THE FACTS OF THE CASE IN BRIEF ARE THAT THE AS SESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERV ED THAT ASSESSEE HAD CLAIMED CLUB EXPENSES OF RS.5 08 750/- AS EXPEN DITURE WHICH CONSISTS OF ONE-TIME ENTRANCE FEE OF RS.5 00 000/- AND THE ANNUAL SUBSCRIPTION OF RS.8 750/-. THE AMOUNT WAS PAID TO INDIAN HOTELS CO. LTD. (TAJ GROUP) FOR ACQUIRING MEMBERSHIP IN TH E CLUB KNOWN AS THE CHAMBERS OF TAJ GROUP. THE EXPENDITURE IN CURRED BY WAY OF ENTRANCE FEE OF RS.5 00 000/- WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT IT IS NOTHING BUT A NON- REFUNDABLE DEPOSIT WHICH PROVIDES AN ENDURING BENEFIT TO THE ASSESSEE TILL THE EXPIRY OF THE MEMBERSHIP OF THE CLUB AND IT IS A CA PITAL EXPENDITURE. 4. IN APPEAL THE LD. CIT(A) UPHELD THE ACTION OF TH E ASSESSING OFFICER. ON FURTHER APPEAL THE TRIBUNAL VIDE ITA NO.659/PN/2009 AND OTHER CONNECTED APPEALS VIDE ORDERS DATED 16.12 .2010 FOR A.Y. 2005-06 RESTORED THE ISSUE BACK TO THE FILE OF THE CIT(A) WITH THE FOLLOWING OBSERVATION :- 3. IN CONNECTION WITH GROUND NO.3 LD. COUNSEL MENTIONED THAT THE ISSUE IN QUESTION RELATES TO DIS ALLOWANCE OF RS.5 00 000/- TOWARDS ENTRANCE FEE FOR MEMBERSHIP O F THE BUSINESS CLUB IN THE HOTEL. LD. COUNSEL RELIED U PON GUJRAT HIGH COURT DECISION IN THE CASE OF GUJRAT STATE EXPORT C ORPORATION LIMITED (GUJ) 209 ITR 649 IN HIS FAVOUR. ON THE OT HER HAND LD. DR FOR THE REVENUE RELIED ON THE KERALA HIGH COURT JUDGEMENT IN THE CASE OF FRAMATONE CONNECTOR OEN LTD. (KER) REPO RTED IN 294 ITR 559 FOR THE PROPOSITION THAT THE ENTRANCE FEE P AID IS CAPITAL IN NATURE. LD. COUNSEL ALSO MENTIONED WHEN THERE ARE 2 DIVERGENT 3 DECISIONS FAVOURABLE TO THE ASSESSEE MAY BE CONSID ERED IN FAVOUR OF THE ASSESSEE. WE HAVE HEARD THE PARTIES AND PER USED THE ORDERS OF THE REVENUE AND THE DECISIONS FILED BEFORE US. ON PERUSAL WE FIND THERE IS NEED FOR COMPARISON OF THE FACTS OF T HE PRESENT CASE TO THE FACTS OF THE BOTH CASES DECIDED BY THE HONBLE HIGH COURTS OF KERLA AND GUJARAT. FOR THIS LIMITED EXERCISE WE A RE OF THE OPINION THE MATTER SHOULD GO TO THE FILE OF THE CI T(A) FOR WANT OF FACTS AND A FINDING ON THE APPLICABILITY OF THE DEC ISIONS. CIT(A) SHALL GRANT THE OPPORTUNITY OF BEING HEARD TO THE A SSESSEE. ACCORDINGLY GROUND NO.3 3.1 AND 3.2 ARE SET ASIDE TO THE FILE OF THE CIT(A). 5. SUBSEQUENTLY AFTER THE MATTER WAS RESTORED BACK TO THE FILE OF THE LD. CIT(A) HE DECIDED THE ISSUE AGAINST THE AS SESSEE. WHILE DOING SO HE OBSERVED THAT THE MEMBERSHIP IS NATIONA L AND THE MEMBER CAN USE THE CHAMBERS IN BOMBAY DELHI HYDER ABAD AND CALCUTTA AND THE CHAMBERS AT BOMBAY HAS VARIOUS FAC ILITIES AS WELL AS ADDITIONAL FACILITIES WHICH ARE IN THE NATURE OF HIRING PREMIUM ACCOMMODATION WITH SEVERAL FACILITIES BY MAKING PAY MENT OF INITIAL DEPOSIT AND ANNUAL RENT. THE FEES OF RS.5 00 000/- PAID BY THE ASSESSEE IS AKIN TO INITIAL DEPOSIT AND NOT AN ANNU AL FEES PAID AND IT WAS A ONE-TIME PAYMENT TO FACILITATE MEMBERSHIP OF THE ASSESSEE COMPANY IN THE CHAMBERS. THE PAYMENT OF ONE-TIME E NTRANCE FEES PROVIDES A BENEFIT OR AN ADVANTAGE TO THE ASSESSEE OVER A PERIOD OF TIME TILL THE EXPIRY OF MEMBERSHIP. RELYING ON THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF FRAMATONE CONNECTOR OEN LTD. VS. DCIT REPORTED IN 294 ITR 559 AND DISTI NGUISHING THE VARIOUS DECISIONS RELIED UPON BEFORE HIM THE LD. CI T(A) HELD THAT THE EXPENDITURE IS IN THE NATURE OF CAPITAL EXPENDI TURE. 4 5.1 AGGRIEVED WITH THE SUCH ORDER OF THE LD. CIT(A) ASSESSEE IS IN APPEAL BEFORE US. 6. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCI T VS. M/S BANK OF AMERICA SECURITIES (INDIA) PVT. LTD. VIDE I TA NO.6611/MUM/2008 ORDER DATED 09.09.2010 FOR A.Y. 20 04-05 AND SUBMITTED THAT THE TRIBUNAL AFTER CONSIDERING THE D ECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF FRAMATONE CONNECTOR OEN LTD. (SUPRA) HAS HELD THAT ADMISSION FEES PAID TOWARDS CORPORATE MEMBERSHIP OF THE CLUB IS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND NO T TOWARDS CAPITAL ACCOUNT AS IT ONLY FACILITATES SMOOTH AND EFFICIENT RUNNING OF A BUSINESS ENTERPRISE AND DOES NOT ADD TO THE PROFITS EARNING APPARATUS OF A BUSINESS ENTERPRISE AND ACCORDINGLY THE APPEAL OF THE REVENUE WAS DISMISSED. 6.1 REFERRING TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SAMTEL COLOR LTD. REPORTED IN 3 26 ITR 425 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT CORPORA TE MEMBERSHIP FEE PAID TO CLUBS IS AN ALLOWABLE EXPENDITURE BEING FOR BUSINESS PURPOSES. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE LD. CIT(A) BE SET-ASIDE AND THE GROUND RAISED BY THE AS SESSEE BE ALLOWED. 5 7. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND STRONGLY SUPPORTED THE ORDER OF THE CIT(A). HE SUB MITTED THAT THE LD. CIT(A) FOLLOWING THE DECISION OF THE HONBLE KE RALA HIGH COURT IN THE CASE OF FRAMATONE CONNECTOR OEN LTD. ( SUPRA) AND DISTINGUISHING THE DECISION OF THE HONBLE DELHI HI GH COURT IN THE CASE OF SAMTEL COLOR LTD. (SUPRA) HAS DECIDED THE I SSUE AGAINST THE ASSESSEE BY HOLDING THAT THE EXPENDITURE OF RS.5 00 000/- INCURRED BY WAY OF ENTRANCE FEE FOR THE MEMBERSHIP OF THE CH AMBERS AS CAPITAL EXPENDITURE. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE CIT(A) BE UPHELD. 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES PERUSED THE ORDERS OF THE ASSESSING OFFICER AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THE DISPUTE IN THE IMPUGNED APPEAL IS REGARDING THE ALLOWABILITY OF EN TRANCE FEE OF RS.5 00 000/- AS REVENUE EXPENDITURE OR CAPITAL EXP ENDITURE. 8.1 WE FIND THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S BANK OF AMERICA SECURITIES (INDIA) PVT. LTD. (S UPRA) WHILE DECIDING AN IDENTICAL ISSUE HAS ALLOWED THE ADMISSI ON FEE PAID TOWARDS CORPORATE MEMBERSHIP OF THE CLUB AS AN EXPE NDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND NOT TOWARDS CAPITAL ACCOUNT. IT WAS HELD THAT SUCH EXP ENDITURE ONLY FACILITATES SMOOTH AND EFFICIENT RUNNING OF A BUSIN ESS ENTERPRISE AND DOES NOT ADD TO THE PROFIT EARNING APPARATUS OF A B USINESS ENTERPRISE. 6 THE RELEVANT OBSERVATION OF THE TRIBUNAL FROM PARAS 8 TO 13 READS AS UNDER :- 8 . WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVA I LABLE ON RECORD. WE FIND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT HAS BEE N RIGHTLY OBSERVED BY THE ID. CIT(A) THE ASSESSING OFFICER HA S NOT DISPUTED THE FACT THAT THE EXPENDITURE OF CLUB MEMBERSHIP FE ES RS.16.00 LACS HAS BEEN INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. FURTHER WE FIND NO MERIT IN THE PLEA OF THE ID. DR THAT THE DECISION IN ALEMBIC CHEMICAL WORKS CO . LTD. (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEE'S CASE. IN FACT THEIR LORDSH I PS REFERRED TO VARIOUS DECISIONS PARTICULARLY THE DECISION IN THE CASE OF CITY OF LONDON CONTRACT CORPORATION VS. STYLES (1987) 2 TAX CASES 239 WHEREIN BROAD AREA OF DISTINCTION I S POINTED OUT. IT IS HELD IN THAT CASE THAT THE OUTLAY ON THE 'ACQU I SITION OF THE CONCERN' WOULD BE CAPITAL WHILE AN OUTLAY IN 'CARRYING ON THE CONCERN ' IS REVENUE . THE COURT FURTHER REFERRED TO THE FOLLOWING OBSERVATION S IN THE CASE OF ASSAM BENGAL CEMENT COMPANIES LTD. VS. CIT (1955) 27 ITR 34 (SC): TC 16R 841: 'IF THE EXPENDITURE IS MADE FOR ACQUIRING OR BRINGING INTO EXISTENCE AN ASSET OR ADVANTAGE FOR THE ENDUR I NG BENEFIT OF THE BUSINESS IT IS PROPERLY ATTRIBUTABLE TO CAPITAL AND IS OF THE NATURE OF CAPITAL EXPENDITURE. IF ON THE OT HER HAND IT IS MADE NOT FO R THE PURPOSE OF BRINGING INTO EXISTENCE ANY SUCH ASSET OR ADVANTAGE BUT FOR RUNNING THE BUSINESS OR WORKING IT WITH A VIEW TO PRODUCE THE PROFITS IT IS A REVENUE EXPE NDITURE. THE AIM AND OBJECT OF THE EXPENDITURE WOULD DETERMINE THE C HARACTER OF THE EXPENDITURE WHETHER IT IS A CAPITAL EXPENDITURE OR A REVENUE EXPENDITURE.' THE AFORESAID PRINCIPLE OF LAW HAS BEEN APPLIED BY THEIR LORDSHIPS IN GUJARAT STATE CORPN. LTD. SUPRA AND I T HAS BEEN HELD THAT THE EXPENDITURE INCURRED IN PAYMENT OF ENTRANC E FEE FOR BECOMING MEMBER OF SPORTS CLUB IS IN THE NATURE OF AN ADVANTAGE IN THE COMMERCIAL SENSE BUT NOT AN ADVANTAGE IN THE CAPITAL FIELD THEREFORE REVENUE EXPENDITURE. 9. IN OTIS ELEVATOR CO. (INDIA) LTD. (SUP R A) THEIR LORDSHIPS HAVE HELD AS UNDER: 'IN OUR JUDGMENT CONSIDERING THE CLEAR FINDING GIVE N BY THE AAC WITHOUT A CONTRARY FIND I NG THERETO BY THE TRIBUNAL WE MUST ACCEPT THE FACTS AS FOUND BY THE AAC . CONSEQUENTLY THE PAYMENTS MUST BE ALLOWED AS BUSIN ESS EXPENDITURE NOT FALLING WITHIN THE MISCHIEF OF S 40 (A)(V)'. 10. IN SAMTEL COLOUR LTD. SUPRA THEIR LORDSHIPS AF TER CONSIDERING THE VARIOUS DECISIONS INCLUDING THE DEC ISION IN 7 FRAMATONE CONNECTOR OEN LTD. SUPRA RELIED ON BY TH E ID. DR HAVE OBSERVED AND HELD AS UNDER: '5 . 3 TO SUPPORT THE REVENUE'S CONTENTION THAT THE IMPUGNED EXPENDITURE IS ON CAPITAL ACCOUNT THE ID. COUNSEL MS. PREM LATA BANSAL HAS C I TED THE JUDGMENT OF THE FRAMATONE CONNECTOR OEN LTD. VS. DY. CIT (2006) 205 CTR (KER.) 250 : (2006) 157 TAXMAN 116 (KER.). THE SAID JUDGMENT IS BASED ON THE SUPREME COURT JUDGMENT IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORA TION LTD. VS. CIT (1997) 140 CTR (SC) 594: (1997) 225 IT R 792 (SC). THE JUDGMENT OF THE SUPREME COURT ON WHICH TH E KERALA HIGH COURT HAS RELIED HEAVILY DEALT WITH THE ISSUE WITH REGARD TO FEE PAID TO THE ROC FOR INCREASE OF AUTHORIZED CAPITAL THAT IS WHETHER SUCH AN EXPENSE WAS IN TH E NATURE OF REVENUE OR CAPITAL EXPENDITURE. THE SUPREME COURT C AME TO THE CONCLUSION THAT SINCE THE FEE WAS PAID TO THE R OC FOR INCREASE IN THE CAPITAL BASE OF THE ASSESSEE IT WAS IN THE NATURE OF CAPITAL EXPENDITURE. ACCORDING TO US THE RATIO OF THE AFOREMENTIONED SUPREME COURT JUDGMENT IS NOT APPLIC ABLE TO THE EXPENSES INCURRED ON AN ADMISSION FEE FOR CORPO RATE MEMBERSHIP. WE RESPECTFULLY DISAGREE WITH THE RATIO OF THE JUDGMENT OF THE KERALA HIGH COURT. IN TURN WE RESPECTFULLY FOLLOW THE RATIO OF THE JUDGMENT OF TH E DIVISION BENCH OF THIS COURT IN CIT VS. NESTLE INDIA LTD. (2 008) 296 ITR 682(DEL . ) AND THAT OF THE BOMBAY HIGH COURT IN THE CASE OF OTIS ELEVATOR CO.(INDIA) LTD. VS. CIT (1991 ) 96 CTR (BOM.) 14: (1992) 195 ITR 662(BOM).' 11 . IN ASSESSEE'S OWN CASE IN BANK OF AMERICA SECURITIE S (INDIA) PVT. LTD. (SUPRA) THE TRIBUNAL HAS OBSERVE D AND HELD VIDE PARA 3.1 OF THE ORDER AS UNDER: ' 3 . 1 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RI VAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALL OWABILITY OF EXPENDITURE ON ACCOUNT OF ENTREE FEES TOWARDS MEMBERSHIP OF A CLUB AS A REVENUE E X PEND I TURE. NO DOUBT THE PAYMENT MADE I S ONE TIME LUMPSUM PAYMENT BUT THIS CRITERIA OF LUMPSUM PAYMENT IS NOT DECISIVE IN UNDERSTANDING THE TRUE NATURE OF AN EXPEND I TURE AS HELD BY HON'BLE SUPREME COURT I N CASE OF EMPIRE JUTE CO. (124 ITR PAGE 1) SIMILAR L Y TEST OF ENDURING BENEFIT IS ALSO NOT CONCLUSIVE. HON'BLE SUPREME COURT HAVE HELD I N THE SAID CASE THAT WHAT IS REQUIRED TO BE SEEN IS WHETHE R THE E X PENDITURE HAS RESULTED INTO AN ADVANTAGE IN THE REVENUE FIELD O R IN THE CAPITAL FIELD. IN CASE THE EXPENDITURE HAS NOT RESULTED INTO CREAT I ON OF ANY CAPITAL ASSET OR ANY NEW SOURCE OF INCOME AND IT HAS NOT CHANGED THE CAP ITAL STRUCTURE OF THE COMPANY AND HAD BEEN INCURRED ONLY FOR CONDUCT O F THE BUS I NESS MORE EFFICIENTLY AND PROFITABLY 8 THEN I T WILL BE RE V ENUE E X PEND I TURE. IN THIS CASE THE EXPENDITURE HAS NOT RESULTED INTO CREATION OF ANY CAPITAL ASSET OR ACQUISIT I ON OF ANY NEW SOURCES OF INCOME. THE E X PENDITURE HAS BEEN INCURRED FOR THE EFFIC I ENT CONDUCT OF THE BUSINESS AND THEREFORE THE EXPENDITURE WILL BE OF THE NATURE OF REVENUE EXPENDITURE. TH I S VIEW IS ALSO SUPPORTED BY THE JUDGMENT OF HON'BLE HIGH COURT OF GUJARAT I N CASE OF GUJARAT STATE EXPORT CORPORATION LTD. (209 ITR 6 49) IN WHICH THE LUMPSUM ENTRANCE FEES PAID TOWARDS MEMB E RSHIP OF THE CLUB HAS BEEN HELD TO BE ALLOWABLE AS REV E N U E EX PENDITURE. THOUGH THE HON'BLE HIGH COURT OF KERALA IN CASE OF CONNECTOR OVEN LTD. (294 ITR 559) HAVE TAKEN A DIFFERENT VIEW WE HAVE TO FOLLOW THE VIEW TA K EN BY HON'BLE HIGH COURT OF GUJARAT WHICH IS FAVOURABLE T O THE ASSESSEE IN VIEW OF THE JUDGMENT OF HON'BLE SUPREME COURT IN CASE OF VEGETABLE PRODUCTS (88 ITR 192). W E THEREFORE SEE NO INFIRMITY IN THE ORDER OF CIT(A) A ND THE SAME IS UPHELD.' 12 . IN NATIONAL TEXTILE CORPORATION LTD. (M.P.) VS. ERR (2008) 216 CTR (MP) 153 IT HAS BEEN HELD AS UNDER: 'TRIBUNAL HAS TO FOLLOW THE DECISION OF THE JURISDI CTIONAL HIGH COURT WITHOUT MAKING ANY COMMENT UPON THE SAID DECISION; IT IS NOT PERMISSIBLE FOR THE TRIBUNAL TO SIDETRACK AND/OR IGNORE THE DECISION OF THE JURISDICTIONAL HI GH COURT ON THE GROUND THAT IT D I D NOT TAKE INTO CONSIDERATION A PARTICULAR PR O VISION OF LAW.' 13. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF T HE HON'BLE JURISDICTIONAL HIGH COURT AND THE TRIBUNAL IN THE A SSESSEE ' S OWN CASE AND FOR THE REASONS AS MENTIONED IN PARA 5.3 I N THE CASE OF SAMTEL COLOUR LTD. SUPRA WE ARE OF THE VIEW THAT ADMISSION FEES PAID TOWARDS CORPORATE MEMBERSHIP OF THE CLUB IS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUS I NESS AND NOT TOWARDS CAPITAL ACCOUNT AS IT ONLY FACILITA TES SMOOTH AND EFFICIENT RUNNING OF A BUSINESS ENTERPRISE AND DOES NOT ADD TO THE PROFIT EARNING APPARATUS OF A BUSINESS ENTERPRISE A ND ACCORDINGLY WE ARE INCLINED TO UPHOLD THE FINDING OF THE ID. CI T(A) IN DELETING THE DISALLOWANCE OF RS.16.00 LACS MADE BY THE ASSES SING OFFICER. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE RE JECTED. 9. WE FIND THE HONBLE DELHI HIGH COURT IN THE CAS E OF SAMTEL COLOR LTD. (SUPRA) WHILE DECIDING AN IDENTICAL ISSU E HAS DISTINGUISHED THE DECISION OF THE HONBLE KERALA HI GH COURT IN THE CASE OF FRAMATONE CONNECTOR OEN LTD. (SUPRA) AND DE CIDED THE 9 ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REV ENUE. IN THAT CASE ASSESSEE HAD PAID CORPORATE MEMBERSHIP FEE TO INDIA N HABITAT CENTRE AND SPORTS & CALTURAL CLUB NOIDA AMOUNTING TO RS.5 00 000/- AND RS.1 00 000/- RESPECTIVELY. THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE ON THE FOLLOWING GROUND :- (I) THE EXPENDITURE DID NOT BEAR ANY NEXUS WITH TH E BUSINESS CARRIED ON BY THE ASSESSEE; (II) THE EXPENDITURE WAS INCURRED FOR THE BENEFIT O F EMPLOYEES OR ITS DIRECTORS; (III) THE EXPENDITURE DID NOT ENHANCE THE IMAGE OF THE ASSESSEE OR ITS PRODUCTS AS ITS MEMBERSHIP COULD NOT BE USED TO ADVERTISE THE PRODUCTS OF THE ASSESSEE; AND (IV) LASTLY THE EXPENDITURE RESULTED IN BENEFIT OF AN ENDURING NATURE. 10. THE LD. CIT(A) HELD THAT THE CLUBS HAD VARIOUS FACILITIES FOR CONFERENCE BUSINESS MEETINGS AS WELL AS PROVISIO N FOR MULTIMEDIA EXHIBITION FOR THE DIRECTORS AND SENIOR EXECUTIVES COULD ALSO USE THE CLUB FACILITIES FOR THEIR PRIVATE PURPOSES FOR WHIC H THEY WOULD HAVE TO INCUR EXTRA EXPENDITURE OUT OF THEIR OWN POCKETS . HE ACCORDINGLY CONCLUDED THAT WHILE THE MEMBERSHIP OF THE CLUBS DI D PROVIDE FOR THE ASSESSEE A BENEFIT WHICH FULFILLED THE BUSINESS PURPOSE TEST IT ALSO RESULTED IN BENEFITS OF THE DIRECTORS AND EXEC UTIVES IN THEIR PERSONAL CAPACITY. HE ACCORDINGLY DIRECTED THE ASS ESSING OFFICER TO DISALLOW 20% OF RS.6 00 000/- AND ALLOW THE BALANCE AMOUNT AS REVENUE EXPENDITURE ON THE GROUND THAT THE ENTIRE E XPENDITURE WAS NOT INCURRED FOR BUSINESS PURPOSES. THE ASSESSEE A ND THE REVENUE BOTH PREFERRED APPEAL BEFORE THE TRIBUNAL. THE TRI BUNAL HELD THAT MEMBERSHIP BY ITSELF DID NOT CONFER ANY ENDURING BE NEFIT ON THE 10 ASSESSEE AND IT ALLOWED THE EXPENDITURE AS REVENUE IN NATURE. ON FURTHER APPEAL THE HONBLE HIGH COURT OBSERVED AS UNDER :- 5. HAVING HEARD THE LEARNED CO U NSEL FOR THE REVENUE AS WELL AS THE ASSESSEE WE ARE O F THE V IE W THAT THE IMPUGNED JU DGMENT OF THE TRIBUNAL DESERVES TO BE UPHELD FOR THE FOLL OWING REASONS: 5.1 THE EXPENDITURE INCUR R ED TOWARDS ADMISSION FEE ADMITTEDLY WAS TOWARDS C O R PORATE MEMBERSHIP. AS COR R ECTLY HELD BY THE TRIBUNAL THE NATURE OF THE EX PENDITURE WAS ONE FOR TH E BENEFIT OF THE ASSESSEE. THE 'BUSINESS PURPOSE' BAS IS A DOPTED FO R E LIGIBI L ITY OF EXP EN D I TURE UNDER S. 37 OF THE ACT WAS THE CORRECT APPROACH . THIS IS MORE SO IN VI EW OF TH E TRI BUNAL ' S FINDINGS THAT IT WAS THE ASSESSEE WHICH NOMIN A TED THE EM P L OYEE WHO WOULD AVAIL THE BENEFIT OF THE CORPORATE MEMBERSHIP GIVE N TO T H E ASSESSEE. 5 . 2 T H E O T H E R HURDLE FOR QUALIFICATION OF THE EXPENDITURE UNDER S . 37 OF THE ACT IS THAT EX P E ND I TURE INCURRED S HOULD NOT BE ON CAPITAL ACCOUNT. THE AO CAME TO THE CONCLUSION T HAT T HE EX P E NDITUR E W AS OF A CAPITAL NATURE BASED ON A FALLACIOUS REASONING THAT THE EX P E NDITU RE W AS O F AN E NDU R ING NATU R E AND HENCE ON A CAPITAL ACCOUNT. IT I S WEL L SETTLE D THAT AN E XPENDITURE WHICH GIVES ENDURING BENEFIT IS BY ITSELF NOT CONC L USIVE AS RE G A RDS THE NA T URE OF THE EXPENDITURE. WE MAY ADD THAT EVEN LUMP SUM PAYMENT WH I CH WAS THE CASE IN THE INSTANT MATTER IS NOT DECISIVE AS REGARDS THE NATURE OF THE PA YMENT . SEE OBSERVATIONS I N EMPIRE JUTE CO. LTD. VS. CIT (1980) 17 CTR (SC) 113 : ( 1 9 8 0) 12 4 ITR 1 (SC) AS ALSO THE JUDGMENT OF THE DIVISION BENCH O F THIS COURT IN C I T VS . J.K. YNTHETICS IT REF. NOS. 139 OF 1988 AND 202 OF 1989. THE TRUE TEST FOR QUAL I FICATION OF EXPENDITURE UNDER S. 37 OF THE ACT IS THAT IT SHOULD BE INCURRED WHOLLY A ND EXCLUSIVELY FOR THE PURPOSES OF BUS I NESS AND THE EXPENDITURE SHOULD NOT BE T O W ARDS CAP I TAL ACCOUNT. IN THE INSTANT CASE AS DISCUSSED ABOV E THE ADMISSION F E E PAI D TO W ARDS CORPORATE MEMBERSHIP IS AN EXPEND I TURE INCURRED WHOLLY AND EXCLUS I V EL Y F O R T H E PURPOSES OF BUSINESS AND NOT TOWARDS CAPITAL ACCOUNT AS IT ONLY FACILITAT E S SM OOTH AND EFFI CIENT R UNNING OF A BUSINESS ENTERP R ISE AND DOES NOT ADD TO THE PROFIT EA RNING APPARATUS OF A BUSINESS ENTERPRISE. 5.3 TO SUPPORT THE REVENUES CONTENTION THAT THE IM PUGNED EXPENDITURE IS ON CAPITAL ACCOUNT THE LEARNED COUNS EL MS. PREM LATA BANSAL HAS CITED THE JUDGMENT OF THE FRAMATONE CONNECTOR OEN LTD. VS. DY. CIT (2006) 205 CTR (KER) 250 : (20 06) 157 TAXMAN 116 (KER). THE SAID JUDGMENT IS BASED ON TH E SUPREME COURT JUDGMENT IN THE CASE OF PUNJAB STATE INDUSTRI AL DEVELOPMENT CORPORATION LTD. VS. CIT (1997) 140 CTR (SC) 594 : (1997) 225 ITR 792 (SC). THE JUDGMENT OF THE SUP REME COURT ON WHICH THE KERALA HIGH COURT HAS RELIED HEAVILY D EALT WITH THE ISSUE WITH REGARD TO FEE PAID TO THE ROC FOR INCREA SE OF AUTHORIZED 11 CAPITAL THAT IS WHETHER SUCH AN EXPENSE WAS IN TH E NATURE OF REVENUE OR CAPITAL EXPENDITURE. THE SUPREME COURT CAME TO THE CONCLUSION THAT SINCE THE FEE WAS PAID TO THE ROC F OR INCREASE IN THE CAPITAL BASE OF THE ASSESSEE IT WAS IN THE NATU RE OF CAPITAL EXPENDITURE. ACCORDING TO US THE RATIO OF THE AFOR EMENTIONED SUPREME COURT JUDGMENT IS NOT APPLICABLE TO THE EXP ENSES INCURRED ON AN ADMISSION FEE FOR CORPORATE MEMBERSH IP. WE RESPECTFULLY DISAGREE WITH THE RATIO OF THE JUDGMEN T OF THE KERALA HIGH COURT. IN TURN WE RESPECTFULLY FOLLOW THE RA TIO OF THE JUDGMENT OF THE DIVISION BENCH OF THIS COURT IN CIT VS. NESTLE INDIA LTD. (2008) 296 ITR 682 (DEL) AND THAT OF THE BOMBAY HIGH COURT IN THE CASE OF OTIS ELEVATOR CO. (INDIA) LTD. VS. CIT (1991) 96 CTR (BOM) 14 : (1992) 195 ITR 682 (BOM). 6. IN VIEW OF THE ABOVE IN THE AFORESAID CIRCUMSTA NCES WE ARE OF THE OPINION THAT THE IMPUGNED JUDGMENT AS INDICA TED ABOVE DESERVE TO BE UPHELD. IN THE RESULT THE APPEAL IS DISMISSED. 11. SO FAR AS THE DECISION OF HONBLE KERALA HIGH C OURT RELIED ON BY LD. DEPARTMENTAL REPRESENTATIVE IS CONCERNED TH E SAME HAS BEEN DISTINGUISHED BY HONBLE DELHI HIGH COURT CITE D (SUPRA). IN ANY CASE WHEN TWO DIVERGENT VIEWS ARE AVAILABLE ON THE SAME ISSUE THE VIEW FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLO WED IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF VEGETABLE PRODUCTS LTD. REPORTED IN 88 ITR 192. IN VIEW OF T HE ABOVE WE ARE OF CONSIDERED OPINION THAT ENTRANCE FEE FOR MEMBERS HIP OF BUSINESS CLUB IS REVENUE EXPENDITURE. THE ORDER OF THE LD. CIT(A) IS THEREFORE SET-ASIDE AND THE GROUND OF APPEAL RAISE D BY THE ASSESSEE IS ALLOWED. ITA NO.1813/PN/2013 (A.Y. 2006-07): 12. AFTER HEARING BOTH THE SIDES WE FIND IDENTICAL GROUND HAS BEEN TAKEN BY THE ASSESSEE IN THE ABOVE APPEAL. SI NCE FACTS OF THE ABOVE APPEAL ARE IDENTICAL TO THE FACTS IN THE CASE OF ITA NO.1812/PN/2013 THEREFORE FOLLOWING THE SAME REAS ONING WE 12 HOLD THAT THE ENTRANCE FEE FOR MEMBERSHIP OF BUSINE SS CLUB IS A REVENUE EXPENDITURE AND ACCORDINGLY THE APPEAL BY T HE ASSESSEE IS ALLOWED. 13. IN THE RESULT BOTH THE APPEALS FILED BY THE AS SESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 30.04.2015 SD/- SD/- (VIKAS AWASTHY) (R.K. P ANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: 30 TH APRIL 2015 SUJEET COPY OF THE ORDER FORWARDED TO: 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-I PUNE 4. THE CIT-I PUNE 5. THE D.R B PUNE BENCH 6. GUARD FILE BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT PUNE BENCHES PUNE