ACIT CEN CIR 22, MUMBAI V. SSKI CORPORATE FINANCE P.LTD, MUMBAI

ITA 4961/MUM/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6281 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 01-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 31-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Keywords: Capital asset; Business expenditure; Revenue expenditure; Capital expenditure

Judgement Text

1 ITA 4961/M/09, SSKI CORPORATE FINANCE P. LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I BEFORE SHRI D. MANMOHAN, V.P. AND SHRI P.M. JAGTAP, A.M. ITA NO. 4961/MUM/09 ASSESSMENT YEAR 2006-07 A.C.I.T. CENT. CIR. 22, AAYAKAR BHAWAN, 4 TH FLOOR, M.K. ROAD, MUMBAI 20. VS. M/S SSKI CORPORATE FINANCE PVT. LTD., 803/804 TULSIANI CHAMBERS, NARIMAN POINT, MUMBAI. 21 PAN AAACS 8752N APPELLANT RESPONDENT APPELLANT BY SHRI S.K. SINGH RESPONDENT BY SHRI HIRO RAI ORDER PER P.M. JAGTAP, A.M. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LD. CIT(A) IV MUMBAI DATED 30.06.2009 AND THE SOLITARY ISSUE ARIS ING OUT OF THE SAME RELATES TO THE ADDITION OF ` 33,34,000/- MADE BY THE A.O. BY WAY OF DISALLOWANC E OF EXPENSES INCURRED BY THE ASSESSEE ON PAYMENT MADE TO CRICKET CLUB OF INDIA (CCI) FOR MEMBERSHIP WHICH HAS BEEN DELETED BY THE LD. CIT(A). 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPAN Y WHICH IS ENGAGED IN THE BUSINESS OF INVESTMENT BANKING AND SHARE TRADING. THE RETURN O F INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 30.11.06 DECLARING TOTAL INCOME OF ` 15,19,11,778/-. IN THE P&L ACCOUNT FILED ALONG WITH THE SAID RETURN, T HE ASSESSEE COMPANY HAD DEBITED A SUM OF ` 33,34,000/- ON ACCOUNT OF MEMBERSHIP FEES PAID TO C CI. THE SAID AMOUNT WAS PAID AS ENTRANCE FEE FOR CORPORATE MEMBERSHIP OF CC I FOR A PERIOD OF 10 YEARS AND AS PER THE RULES AND REGULATIONS OF CCI GOVERNING THE SAID MEMBERSHIP, TWO OF THE DIRECTORS OF 2 ITA 4961/M/09, SSKI CORPORATE FINANCE P. LTD. THE ASSESSEE COMPANY NAMELY SHRI SHRIPAL MORAKHIA A ND SHRI TAPASIJE MISHRA WERE ALLOWED TO USE THE CLUB FACILITIES AS NOMINEE OF TH E ASSESSEE COMPANY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS SUBMITTED ON BEHA LF OF THE ASSESSEE COMPANY THAT CCI IS ONE OF THE PRESTIGIOUS CLUBS OF MUMBAI WHERE BIG BUSINESSMEN AND EXECUTIVES OF LEADING COMPANIES ARE MEMBERS. IT WAS SUBMITTED TH AT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES IN MERCHANT B ANKING AND CORPORATE FINANCING AS WELL AS TRADING IN SHARES AND SECURITIES. IT WAS SUBMITT ED THAT ITS DIRECTORS, THEREFORE, COULD USE THE MEMBERSHIP OF CCI TO DEVELOP THE CONTACTS WITH OTHER MEMBERS IN ORDER TO EXPLOIT THE SAME TO INCREASE THE BUSINESS OF THE ASSESSEE C OMPANY. IT WAS CONTENDED THAT THE EXPENDITURE INCURRED ON MEMBERSHIP FEES OF CCI THUS WAS USEFUL FOR THE ASSESSEE COMPANY IN PROMOTING ITS BUSINESS AND THE SAME WAS ALLOWABLE AS BUSINESS EXPENDITURE. IN SUPPORT OF THIS CONTENTION, RELIANCE WAS PLACED ON BEHALF OF THE ASSESSEE INTER ALIA ON THE DECISION OF MUMBAI BENCH OF ITAT IN THE CASE OF ITO VS. BRIGHT BROTHERS LTD. 18 TTJ 377. THE CONTENTIONS RAISED ON BEHALF OF THE A SSESSEE IN SUPPORT OF ITS CASE ON THIS ISSUE WERE NOT FOUND ACCEPTABLE BY THE A.O. AND HE DISALLOWED THE EXPENDITURE OF ` 33,34,000/- INCURRED BY THE ASSESSEE ON PAYMENT OF ENTRANCE FEES TO CCI HOLDING THAT THE SAME WAS OF CAPITAL NATURE AND THAT IT WAS NOT EXPE NDED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS. 3. THE DISALLOWANCE MADE BY THE A.O. ON ACCOUN T OF MEMBERSHIP FEES PAID TO CCI WAS CHALLENGED BY THE ASSESSEE IN AN APPEAL FILED B EFORE THE LD. CIT(A) AND THE SUBMISSIONS MADE BEFORE THE A.O. WERE MAINLY REITER ATED ON ITS BEHALF DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE HIM. THE LD. CIT(A) FOUND MERIT IN THE SAID SUBMISSIONS AND DELETED THE DISALLOWANCE MADE BY THE A.O. ON AC COUNT OF MEMBERSHIP FEES PAID TO CCI FOR THE FOLLOWING REASONS GIVEN IN PARA NO. 5 O F HIS IMPUGNED ORDER: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE A ND ALSO THE ORDER OF THE ASSESSING OFFICER. I AGREE WITH THE LD. COUNSEL THAT FOR DEC IDING THE QUESTION AS TO WHETHER CERTAIN EXPENDITURE IS CAPITAL IN NATURE OR REVENUE , ONE OF THE RELEVANT CRITERIA IS WHETHER IT WILL AUGMENT THE RUNNING OF THE BUSINESS AND BOOST THE REVENUES OF THE CONCERN. IF THE AIM AND OBJECT OF THE EXPENDITURE IS FOR CARRYING ON THE BUSINESS OF 3 ITA 4961/M/09, SSKI CORPORATE FINANCE P. LTD. THE CONCERN AND ENHANCING THE PROSPECTS OF THE REVE NUE, THEN IT CERTAINLY IS REVENUE EXPENDITURE. I AGREE WITH THE APPELLANT THAT BY BE COMING THE MEMBER OF THE SAID CLUB, NO ASSET OF ENDURING NATURE HAS COME INTO EXI STENCE. THE SAID EXPENDITURE HAS BEEN INCURRED FOR THE SOLE PURPOSE OF COMMERCIAL EX PEDIENCY AND TO RUN THE BUSINESS OF THE APPELLANT IN A MORE EFFICIENT AND EFFECTIVE MANNER. THE APPELLANT BECAME THE MEMBER OF THE CCI WITH THE VIEW TO USE THE FACILITI ES PROVIDED BY THE CLUB. SINCE THERE IS A CLOSE NEXUS BETWEEN THE EXPENDITURE INCU RRED BY THE APPELLANT AND ITS BUSINESS ACTIVITY, WHICH IS MERCHANT BANKING AND CO RPORATE FINANCING, I HOLD THAT THE EXPENDITURE HAS BEEN WHOLLY AND EXCLUSIVELY USE D FOR THE PURPOSE OF BUSINESS. IN VIEW OF THE ABOVE THE DISALLOWANCE MADE BY THE A .O. IS DELETED. THE GROUND OF APPEAL SUCCEEDS. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) GIVING REL IEF TO THE ASSESSEE AS ABOVE, THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUN AL. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD. D.R. HAS MAINLY RELIED ON THE D ECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF CONNECTOR OVEN LTD. REPORTED IN 294 ITR 559 WHEREIN IT WAS HELD THAT LUMPSUM ENTRANCE FEES PAID FOR CLUB MEMBERSHIP GIVE S A BENEFIT OF ENDURING NATURE AND THE SAME THEREFORE IS A CAPITAL EXPENDITURE. IT WA S ALSO HELD THAT EVEN IF THE SAID EXPENDITURE IS INCURRED BY THE ASSESSEE TO PROMOTE ITS BUSINESS, THE NATURE THEREOF WOULD NOT CHANGE AND THE CAPITAL EXPENDITURE WOULD NOT BE COME REVENUE EXPENDITURE. 5. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTH ER HAND, HAS RELIED INTER ALIA ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT STATE EXPORT CORPORATION LTD. VS. CIT REPORTED IN 209 ITR 649 WHEREIN THE CL AIM OF THE ASSESSEE FOR DEDUCTION OF EXPENDITURE INCURRED ON PAYMENT OF ENTRANCE FEES TO SPORTS CLUB WAS HELD TO BE ALLOWABLE BY HOLDING THAT BY PAYING THE ENTRANCE FEES TO THE SPORTS CLUB, THE ASSESSEE HAD NO INTENTION TO ACQUIRE ANY CAPITAL ASSET OR TAKE ADVA NTAGE FOR THE ENDURING BENEFIT OF THE BUSINESS. IT WAS HELD THAT THE SAID PAYMENT WAS MA DE BY THE ASSESSEE FOR RUNNING THE BUSINESS OR FOR BETTERING THE CONDUCT OF ITS BUSINE SS AND THE AMOUNT PAID AS ENTRANCE FEES THUS WAS DEDUCTIBLE AS REVENUE EXPENDITURE. THE LD . COUNSEL FOR THE ASSESSEE HAS ALSO CITED THE DECISION OF CO-ORDINATE BENCH OF THIS TRI BUNAL IN THE CASE OF SHRI SHAH RUKH 4 ITA 4961/M/09, SSKI CORPORATE FINANCE P. LTD. KHAN VS. DCIT RENDERED VIDE ITS ORDER DTD. 23.7.09 PASSED IN ITA NO. 1489/M/06. IN THE SAID CASE, THE DISALLOWANCE OF ` 15 LACS MADE ON ACCOUNT OF ENTRANCE FEES PAID BY T HE ASSESSEE TO BECOME A MEMBER OF OTTERS CLUB WAS SOU GHT TO BE SUPPORTED BY THE LD. D.R. RELYING ON THE DECISION OF HONBLE KERALA HIGH COUR T IN THE CASE OF CONNECTOR OVEN LTD. (SUPRA) WHEREAS THE CLAIM OF THE ASSESSEE FOR DEDUC TION ON ACCOUNT OF ENTRANCE FEES PAID TO THE CLUB WAS SUPPORTED BY THE LD. COUNSEL FOR TH E ASSESSEE RELYING ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT S TATE EXPORT CORPORATION LTD. (SUPRA). AFTER TAKING NOTE OF BOTH THE JUDGMENTS OF HONBLE KERALA HIGH COURT AND HONBLE GUJARAT HIGH COURT EXPRESSING A DIFFERENT VIEW ON A SIMILAR ISSUE, THE TRIBUNAL PREFERRED TO FOLLOW THE VIEW TAKEN BY THE HONBLE GUJARAT HIG H COURT IN THE CASE OF GUJARAT STATE EXPORT CORPORATION LTD. (SUPRA) BEING IN FAVOUR OF THE ASSESSEE FOLLOWING THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF VEGETABLE PROD UCTS REPORTED IN 88 ITR 192 AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. RESPE CTFULLY FOLLOWING THE SAID DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SHAH RUKH KHAN (SUPRA) AND ADOPTING THE SAME STAND AS TAKEN THEREIN, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) DELETING THE DISALLOWANCE MADE BY THE A.O. O N ACCOUNT OF EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS PAYMENT OF ENTRANCE FEES FO R CLUB MEMBERSHIP OF CCI AND DISMISS THIS APPEAL FILED BY THE REVENUE. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON 24 TH NOVEMBER, 2010. SD/- SD/- (D. MANMOHAN) (P.M. JAGTAP) VICE PRESIDENT ACCOUN TANT MEMBER MUMBAI, DATED 24 TH NOVEMBER , 2010. RK 5 ITA 4961/M/09, SSKI CORPORATE FINANCE P. LTD. COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CENTRAL IV- MUMBAI 4. THE CIT- CENTRAL -II MUMBAI 5. THE DR BENCH, I 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI 6 ITA 4961/M/09, SSKI CORPORATE FINANCE P. LTD. DATE INITIALS 1. DRAFT DICTATED 26.10.10, 3.11.10, 16.11.10 SR.P.S./P.S. 2. DRAFT PLACED BEFORE AUTHOR 2.11.10, 3.11.10, 16.11.10 SR.P.S./P.S. 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER. - J.M./A.M. 4.DRAFT DISCUSSED/ APPROVED BY SECOND MEMBER. J.M./A.M. 5. APPROVED DRAFT COMES TO THE SR.P.S./P.S. 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 OF WHICH FILE GOES TO THE HEAD CLERK. 9. DATE OF DISPATCH OF ORDER.