ITO 3(2)(1), MUMBAI V. ICAN SECURITIES & RESEARCH LTD, MUMBAI

ITA 3118/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1507 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 07-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 13-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MOHANTY
• Assessee Lawyers: R C SANGHVI
• Keywords: Capital asset; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI D.K. AGARWAL, J.M AND SHRI A.L. GEHLOT , A.M. ITA NO. 3118/M/2009 ASSESSMENT YEAR: 2005-06 INCOME TAX OFFICER 3(2)(1), APPELLANT R.NO. 673, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 20. VS. M/S ICAN SECURITIES & RESEARCH LTD., RESPONDENT 107, MAKER CHAMBER III, NARIMAN POINT, MUMBAI 400 021 (PAN AAAC13175P) APPELLANT BY : MR. S.K. MOHANTY RESPONDENT BY : MR. R.C. SANGHVI ORDER PER A.L. GEHLOT, A.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF CIT(A)-III, MUMBAI, PASSED ON 12.03.2009 FOR THE AS SESSMENT YEAR 2005- 06 WHEREIN THE REVENUE HAS RAISED THE FOLLOWING GRO UNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE PAYMENT OF RS. 15 LAKHS TOWARDS ENTRANCE FEES FOR ENROLMENT OF DIRECTOR OF COMPANY AS MEMBER OF CRICKET CLUB OF INDIA. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN RELYING UPON THE DECISION OF BO MBAY HIGH COURT IN CASE OF OTIS ELEVATOR CO. VS. CIT 195 ITR 682. IN T HE AFORESAID CASE, THE COURT HAD ALLOWED CLUB FEES PAID ON BEHALF OF T HE EMPLOYEES WHEREAS IN THE PRESENT CASE, THE PAYMENT HAS BEEN M ADE FOR ENROLMENT OF DIRECTORS AS CLUB MEMBERS WHICH IS CER TAINLY A BENEFIT ENDURING IN NATURE TO THE COMPANY AND THE EXPENDITU RE IS TO BE TREATED AS CAPITAL. 3. THE APPELLANT PRAYS THAT THE ORDER OF CI(A) ON T HE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO BE RESTORED. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY HAD INCURRED EXPENSES OF RS. 15,00,000/- ON ACCOUNT OF ENTRANCE FEES FOR ENROLMENT OF DIRECTOR OF COMPANY AS MEMBER OF CRICK ET CLUB OF INDIA. ACCORDING TO AO THE ENTRANCE FEES PROVIDES BENEFIT OF AN ENDURING NATURE ITA NO. 3118/M/09 M/S ICAN SECURITIES AND RESEARCH LTD. 2 AND IS THEREFORE THE EXPENDITURE IS OF A CAPITAL NA TURE. HE HAD, ACCORDINGLY, MADE THE DISALLOWANCE. BEFORE THE CIT( A) THE LEARNED AR OF ASSESSEE HAD ARGUED THAT THE PAYMENT TOWARDS ENTRAN CE FEE WAS ENROLMENT OF DIRECTORS OF THE COMPANY AS MEMBERS OF CLUB AND WAS INCURRED FOR PROMOTING BUSINESS OF THE ASSESSEE COM PANY. THE LEARNED AR CONTENDED THAT IN THE COMMERCIAL WORLD CONTRACTS WITH RIGHT PERSONS IS VITAL FOR EFFICIENT BUSINESS ORGANISATION FOR WH ICH HE RELIED UPON THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF GUJAR AT EXPORTS CORPORATION LTD. REPORTED IN 209 ITR 649 AND DECISI ON OF BOMBAY HIGH COURT IN THE CASE OF OTIS ELEVATORS REPORTED IN 195 ITR 682. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND CAS ES RELIED UPON BY THE ASSESSEE, THE CIT(A) HELD AS UNDER:- 4. I HAVE PERUSED THE FACTS OF THE CASE AND I FIND THAT BOTH THE DECISIONS RELIED UPON ARE DIRECTLY ON THE ISSUE AND IT HAS BEEN HELD THAT PAYMENT OF ENTRANCE FEES TO SPORTS CLUB DOES N OT RESULT IN CREATION OF ANY CAPITAL ASSET AND DOES NOT GIVE BEN EFIT OF ENDURING NATURE. CONSEQUENTLY, THE EXPENSES HAVE TO BE ALLOW ED AS REVENUE IN NATURE. ASSESSING OFFICER IS DIRECTED ACCORDINGL Y. 3. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. WE FIND THAT HONBLE GUJARAT H IGH COURT IN THE CASE OF GUJARAT STATE EXPORTS CORPORATION LTD. HELD THAT EXPENDITURE INCURRED IN PAYMENT OF ENTRANCE FEE FOR BECOMING MEMBER OF S PORTS CLUB IS IN THE NATURE OF AN ADVANTAGE IN THE COMMERCIAL SENSE BUT NOT AN ADVANTAGE IN CAPITAL FIELD, THEREFORE, REVENUE EXPENDITURE. THE JURISDICTIONAL HIGH COURT IN THE CASE OF OTIS ELEVATORS CITED SUPRA WHI LE ALLOWING ASSESSEES CLAIM HELD THAT CLUB FEE PAYMENT WAS FOR THE PURPO SE OF BUSINESS. WE DO NOT FIND ANY SUBSTANCE IN THE SECOND GROUND OF APPE AL BECAUSE THE SECOND GROUND OF APPEAL RAISED IS NOT IN ACCORDANCE WITH LAW AS THIS WAS NOT THE CASE OF THE AO THAT THE EXPENDITURE RELATED TO DIRECTOR, THEREFORE, DISALLOWABLE. HOWEVER, IN CASE OF OTIS ELEVATORS CI TED SUPRA IS IN RESPECT OF CASE OF EMPLOYEES & NOT DIRECTOR BUT THE RATIO L AID DOWN BY JURISDICTIONAL HIGH COURT IS APPLICABLE TO BOTH CAS ES. THE FINDING GIVEN BY THE CIT(A) THAT PAYMENT OF ENTRANCE FEES TO SPO RTS CLUB DOES NOT RESULT IN CREATION OF ANY CAPITAL ASSET AND DOES NO T GIVE BENEFIT OF ENDURING NATURE IS IN LIEU OF THE SAID JUDGMENTS, THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). THE CONT ENTION OF THE REVENUE IN GROUNDS OF APPEAL THAT THE PAYMENT HAS BEEN MADE FO R ENROLMENT OF ITA NO. 3118/M/09 M/S ICAN SECURITIES AND RESEARCH LTD. 3 DIRECTORS AS CLUB MEMBERS WHICH IS CERTAINLY A BENE FIT OF ENDURING IN NATURE TO THE COMPANY AND THE EXPENDITURE IS TO BE TREATED AS CAPITAL DOES NOT HAVE ANY MERIT. ACCORDINGLY, THE ORDER OF CIT(A) IS HEREBY CONFIRMED. 4. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. PRONOUNCED IN OPEN COURT ON THIS 18 TH DAY OF JUNE, 2010. SD/- SD/- (D.K. AGARWAL) (A.L. GEHLO T) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED: 18 TH JUNE, 2010. COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, I BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 7.6.10 SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR 8.6.10 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER