SUNDARESAN NARAYAN, MUMBAI V. DCIT 19(3), MUMBAI

ITA 354/MUM/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3505 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 14-01-2015
• Court: TRIBUNAL
• Department Lawyers: MOHAMMED RIZWAN
• Assessee Lawyers: SUSHIL LAKHANI
• Keywords: Business income; Earning of tax free income; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) I.T.A. NO. 354 /MUM/ 20 15 (ASSESSMENT YEAR 20 1 0 - 11 ) MR. SUNDARESAN NARAYAN 701, MARBLE ARCH NARGIS DUTT ROAD PALI HILL, BANDRA EAST MUMBAI - 400 050. VS. DCIT - 19(3) MUMBAI ( APPELLANT ) ( RESPONDENT ) PAN NO . AAAPN1020D ASSESSEE BY SHRI SUSHIL LAKHANI DEPARTMENT BY SHRI MOHAMMED RIZWAN DATE OF HEARING 22 . 6. 201 6 DATE OF PRONOUNCEMENT 22 . 6 . 201 6 O R D E R THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 1 .1 2 .2014 PASSED BY LEARNED CIT(A) - 3 4 , MUMBAI AND IT RELATES TO A.Y. 20 10 - 11 . 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION RENDERED BY LEARNED CIT(A) ON FOLLOWING ISSUES : - (A) DISALLOWANCE OF CLUB MEMBERSHIP FEES OF ` 4 LAKHS ( B) DISALLOWANCE MADE U/S. 14A OF THE ACT. 3. THE ASSESSEE IS MANAGEMENT CONSULTANT IN THE AREA OF REAL ESTATE AND INFRASTRUCTURE. IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE CLAIMED BUSINESS PROMOTION EXPENSES OF ` 4,37,703/ - WHICH INCLUDED MUMBAI CRICK E T ASSOCIATION SUBSCRIPTION OF ` 4 LAKHS. THE ASSESSEE HAD ACQUIRED ASSOCIATE LIFE TIME MEMBERSHIP IN MUMBAI CRICKET ASSOCIATION FOR A SUM OF ` 13.23 LAKHS AND ALSO AVAILED INSTA L L MENT FACILITY FOR PAYMENT OF MEMBERSHIP FEES. ACCORDINGLY, THE ASSESSEE P AID ` 4 LAKHS DURING THE YEAR AND CLAIMED THE SAME MR. SUNDARESAN NARAYAN 2 AS DEDUCTION AGAINST HIS PROFESSIONAL RECEIPTS . BEFORE THE ASSES SING OFFICER, THE ASSESSEE SUBMITT ED THAT HE HAS BECOME A MEMBER OF MUMBAI CRICKET ASSOCIATION IN ORDER TO ESTABLISH CONTACTS WITH INDUSTRIA LISTS AND BUSINESSMEN, WHICH , IN TURN, WILL PROMOTE THE PROFESSION OF ASSESSEE. ACCORDINGLY IT WAS CONTENDED THAT THE EXPENDITURE IS RELATED TO PROMOTION OF PROFESSIONAL ACTIVITIES. HOWEVER, THE ASSESSING OF FICER NOTICED THAT THE ASSESSEE HAS EARNED PROFE SSIONAL INCOME DURING THE CURRENT YEAR ONLY FROM COMPANIES IN WHICH HE IS A DIRECTOR. EVEN THOUGH THE ASSESSEE CONTENDED THAT HE EARNED PROFESSIONAL INCOME FROM OUTSIDERS IN THE SUBSEQUENT YEARS, YET THE ASSESSING OFFICER DID NOT ACCEPT THE SAME AND ACCORD INGLY DISALLOWED THE CLAIM ON THE REASONING THAT (A) HE HAS RECEIVED FEES ONLY FROM KNOWN COMPANIES. (B) O NETIME FEE PAID FOR OBTAINING LIFE TIME ASSOCIATE MEMBERSHIP IS IN THE NATURE OF CAPITAL EXPENDITURE. (C) THE CLUB MEMBERSHIP FEE PAID BY THE ASSESSEE CAN NOT BE CONSIDERED TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS . ACCORDINGLY HE DISALLOWED CLAIM OF ` 4 LAKHS. LEARNED CIT(A) ALSO CONFIRMED THE DECISION OF THE ASSESSING OFFICER WITH FOLLOWING OBSERVATIONS : - 2.4 .1 I HAVE DULY CONSIDERED THE SUBMISSIONS OF THE APPELLANT, INCLUDING THE CASE LAWS RELIED UPON BY HIM. THE DECISION IN THE CASE OF DAVID DHAWAN(SUPRA), AS DISCUSSED BY THE AO WAS ON DIFFERENT SETS OF FACTS HENCE, NOT APPLICABLE IN THE CASE OF THE APPELLAN T. THE OTHER TWO DECISIONS RELATE TO CORPORATE ASSESSEES. I, THEREFORE, FIND THAT THE DECISIONS RELIED UPON BY THE APPELLANT DO NOT SUPPORT HIS CASE. ON THE CONTRARY, I FIND THAT RATIO OF THE DECISION OF THE MUMBAI ITAT IN NEW INDIA EXTRUSIONS (P) LTD VS A CIT 10 TAXMANN.COM 145 AND DCIT VS. G. CORP (P) LTD [2012] 21 TAXMANN.COM 304 (BANGLORE TRIB) IS APPLICABLE. AS THE APPELLANT HAS FAILED TO EXPLAIN AS TO HOW MEMBERSHIP OF THE ABOVE CLUB FACILITATED IN HIS PROFESSIONAL AND BUSINESS INCOME, I UPHOLD THE FINDING OF THE AO AND CONFIRM THE DISALLOWANCE OF THE AMOUNT OF RS. 4 LAC. THIS GROUND OF APPEAL IS DISMISSED. 4. THE LD A.R SUBMITTED THAT THE ASSESSEE, BEING A PROFESSIONAL, IS NOT ENTITLED TO GIVE ADVERTISEMENTS AND H ENCE ONE OF THE WAYS OF PROMOTING HIS MR. SUNDARESAN NARAYAN 3 PROFESSION IS BY INCREASING HIS CONTACTS BY WAY OF BECOMING A MEM BER OF A CLUB. SINCE THE ASSESSEES CLIENTS SHALL BE MOSTLY INDUSTRIALISTS AND BIG BUSINESSMEN, THE ASSESSEE HAS THOUGHT IT WISE TO BECOME MEMBER OF MUMB AI CRICKET ASSOCIATION, ONE OF THE PRESTIGIOUS CLUBS /ASSOCIATIONS IN MUMBAI. ACCORDINGLY HE CONTENDED THAT THE MEMBERSHIP FEE PAID SHOULD BE CONSIDERED AS EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HE SUBMITTED THAT THE MEMBERSHIP FEE/E NTRANCE FEE PAID CANNOT BE CONSIDERED AS CAPITAL EXPENDITURE AS HELD IN THE CASE OF CIT VS. SAMTEL COLOR LTD (326 ITR 425)(DELHI). HE FURTHER SUBMITTED THAT THE EXPENDITURE MAY NOT BRING THE INCOME IMMEDIATELY AND HENCE THE AO WAS NOT JUSTIFIED IN EXAMINI NG THE CURRENT YEARS INCOME ALONE. HE SUBMITTED THAT THE ASSESSEE HAS RECEIVED INCOME FROM OUTSIDERS IN THE SUBSEQUENT YEARS. 5. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE MEMBERSHIP OF CLUB IS NORMALLY TAKEN BY INDIVIDUALS FOR ENTERTAINMENT PURP OSE AND THE GENERATING CONTACTS IS AN INCIDENTAL ACTIVITY ONLY. HE SUBMITTED THAT A PROFESSIONAL NORMALLY EARNS NAME AND FAME THROUGH THE WORK CARRIED ON BY HIM AND THE SAME SHALL BRING MORE PROFESSIONAL WORK . ACCORDINGLY HE SUBMITTED THAT THE LD CIT(A) WAS JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF MEMBERSHIP FEE. 6. I HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS AN INDIVIDUAL PROFESSIONAL. THE VARIOUS CASE LAW S DEAL WIT H THE MEMBERSHIP FEE PAID BY A C ORPORATE COMPANY TO CLU BS, WHICH WOULD ENTITLE ITS DIRECTORS AND OFFICIALS TO USE THE CLUB FACILITIES. IN THAT KIND OF SITUATION, THE MEMBERSHIP TAKEN BY A CORPORATE COMPANY IS NORMALLY CONSIDERED AS RELATED TO ITS BUSINESS ACTIVITIES, SINCE THE MEMBERSHIP FACILITIES ARE ENJOYE D BY THE DIRECTORS AND OFFICIALS. THUS, IT IS A KIND OF PERQUISITE PROVIDED TO THEM. HENCE, IN MY VIEW, THE DECISION RENDERED IN RESPECT OF CORPORATE MEMBERSHIP CANNOT BE STRAIGHT AWAY APPLIED TO THE CASE OF THE ASSESSEE. HOWEVER, IN MY VIEW, THE MEMBER SHIP FEE CANNOT BE CONSIDERED TO BE A CAPITAL EXPENDITURE IN VIEW OF THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF SAMTEL COLOURS (SUPRA). MR. SUNDARESAN NARAYAN 4 7. NORMALLY A PERSON JOINS CLUB WITH DIFFERENT OBJECTIVES. IN MY VIEW, THE MAIN OBJECTIVE IS TO SPEND LEISURE TIME IN CLUBS IN A QUALITATIVE MANNER. IN THE CASE OF SPORTS CLUBS, THE OBJECTIVE SHOULD NORMALLY BE TO ENJOY THE SPORTS AND ALSO TO WORK FOR PROMOTION OF SPORTS. IF A PERSON ANNOUNCES PRIOR HAND TO A CLUB THAT HE IS BECOMING MEMBER ONLY WITH THE INTENTION OF PROMOTING HIS PROFESSION, POSSIBLY HE MAY NOT BE GIVEN MEMBERSHIP AT ALL. AS RIGHTLY POINTED OUT BY LD D.R, IN MY VIEW ALSO , GETTING NEW CONTACTS/ACQUAINTANCES THROUGH CLUBS IS ONLY INCIDENTAL BENEFITS ATTACHED TO A CLUB . THERE IS NO DOUBT THAT P OPULARITY OF A PROFESSIONAL IS THE KEY TO HIS SUCCESS IN PROFESSION , BUT THE POPULARITY ALONE MAY NOT BRING SUCCESS. A PROFESSIONAL IS NORMALLY JUDGED BY THE QUALITY OF HIS WORK AND HIS EXPERTISE. 8. SINCE THE CONTACTS DEVELOPED THROUGH CL UBS ALSO BRINGS NEW CLIENTS AND PROFESSIONAL OPPORTUNITY, IN MY VIEW, ONLY A PART OF THE MEMBERSHIP FEE MAY BE CONSIDERED TO BE RELATED TO CARRYING ON PROFESSION. SINCE THE PREDOMINANT OBJECT OF BECOMING MEMBER OF A SPORTS CLUB IS PROMOTION OF SPORTS AND SPENDING LEISURE TIME, I AM OF THE VIEW THAT 2/3 RD OF THE EXPENDITURE MAY BE CONSIDERED AS PERSONAL AND 1/3 RD OF EXPENDITURE MAY BE CONSIDERED AS ATTRIBUTABLE TO PROFESSIONAL ACTIVITIES. 9. IN VIEW OF THE ABOVE, I SET ASIDE THE ORDER PASSED BY LD CIT (A) ON THIS ISSUE AND DIRECT THE AO TO ALLOW 1/3 RD OF MEMBERSHIP FEE TREATING THE SAME AS RELATED TO THE PROFESSION CARRIED ON BY THE ASSESSEE. 10. THE NEXT ISSUE RELATES TO THE DISALLOWANCE MADE U/S 14A OF THE ACT. THE ASSESSEE HAD EARNED DIVIDEND IN COME OF ` 43,391/ - AND CLAIMED THE SAME AS EXEMPT. HOWEVER HE DID NOT MAKE DISALLOWANCE AS REQUIRED U/S 14A OF THE ACT. HENC E THE AO DISALLOWED A SUM OF ` 12,910/ - , BEING 0.5% OF AVERAGE VALUE OF INVESTMENTS. THE LD CIT(A) ALSO CONFIRMED THE SAME. 11. BEFORE US, THE LD A.R SUBMITTED THAT THE ASSESSEE DID NOT INCUR ANY EXPENDITURE FOR EARNING THE EXEMPT INCOME. HOWEVER, A PERUSAL OF THE PROFIT MR. SUNDARESAN NARAYAN 5 AND LOSS ACCOUNT SHOWS THAT THE ASSESSEE HAS CLAIMED ADMINISTRATIVE EXPENSE OF ` 14.18 LAKHS. ACCORDINGLY I A M OF THE VIEW THAT THE TAX AUTHORITIES ARE JUSTIFIED IN REJECTING THE CONTENTIONS OF THE ASSESSEE AND FURTHER COMPUTING DISALLOWANCE AS PER RULE 8D(2)(III) OF THE I.T RULES. ACCORDINGLY I CONFIRM THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER HAS BEEN PRONOU NCED IN THE OPEN COURT ON 2 2 . 6 .2016 . SD/ - (B.R.BASKARAN ) ACCOUNTANT MEMBER MUMBAI ; DATED : 2 2 / 6/ 20 1 6 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) ITAT, MUMBAI PS