In a recent ruling, the Bombay High Court has declared that admission fees paid to a club for corporate membership are considered wholly and exclusively for business purposes, thus categorizing them as revenue expenses. The court's decision was reached in a writ petition case brought by Swiss Re Services India Pvt. Ltd.
Brief Facts of the Case:
Swiss Re Services India Pvt. Ltd. filed a writ petition in the Bombay High Court. The case stemmed from a reassessment notice issued by the income tax department, alleging that the petitioner's income had escaped assessment. The notice was based on two items: entrance and subscription fees paid to Willington Sports Club (WSC). The petitioner argued that these expenses were incurred wholly and exclusively for the purpose of their business, making them eligible for deduction as revenue expenditure.
Contentions of the Parties:
The petitioner contended that the entrance and subscription fees paid to WSC were legitimate business expenses. They argued that these expenses were incurred entirely for the purpose of their business and should be considered revenue expenditure. The petitioner pointed out that these expenses facilitated the efficient operation of their business but did not contribute to the profit-earning apparatus of the company. They relied on previous decisions from various high courts and the Supreme Court, which consistently classified club membership fees as business expenses.
The income tax department argued that the expenses in question were not revenue in nature. They contended that these expenses provided an enduring benefit to the petitioner, as club membership's benefits extended over several years. The department asserted that these expenses should be considered capital expenditures, rather than deductible revenue expenditures. They cited certain decisions and legal interpretations to support their claim that such expenses were capital in nature.
Observations by the Court:
The Bombay High Court rejected the revenue department's argument, emphasizing that these expenses were essential for the efficient operation of the business but did not contribute to the business's profit-earning apparatus. The court also pointed out that the club membership fee for employees is a legitimate business expense, making it deductible under Section 37 of the Income Tax Act.
This ruling aligns with various decisions from other high courts, which consistently classify club membership fees as business expenses. The court found no valid reason to change this interpretation, ultimately dismissing the revenue department's claims.
Case Name: Swiss Re Services India Pvt. Ltd. Vs Deputy Commissioner Of Income-Tax
Coram: Justice K.R. Shriram and Justice Rajesh S. Patil
Case No.: WRIT PETITION NO. 1323 OF 2012
Advocates of the Petitioners: Mr. Niraj Sheth a/w Mr. Gunjan Kakad i/b Mr. Atul K Jasani for Petitioner.
Advocates of the Respondent: Mr. Suresh Kumar for Respondents.
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