Expenditure incurred on membership fees and annual subscription to club: Allowance/ disallowance under section 37
- The Assessee electronically filed its return of income declaring an income of Rs. 276.37 crore on 29.11.2016 which was processed under section 143(1) of the Income Tax Act, 1961 on 13.12.2016. Later on the case was selected for scrutiny. The Assessee Company was engaged in the business of manufacturing of Heavy Engineering Goods such as setting up of Boilers, Sugar Plants & Captive Plants. The Assessee had also undertaken erection of these projects on turnkey basis both in domestic market and foreign markets.
- During the course of assessment proceedings the Assessing Officer noticed that in Column No. 21(a) of Form No. 3CD of the Tax Audit Report it was mentioned that the Assessee Company had debited expenses of Rs. 1.67 lakhs under the head ‘Club Services’ which were of personal nature and not allowable under section 37(1) of the Act. The Assessing Officer confronted the Assessee on this issue, in compliance, it was stated that those expenses were incurred for entertaining the guest of the Assessee Company to promote the business interest. However the Assessing Officer did not accept the explanation of the Assessee and made the disallowance of Rs. 1.67 lakhs.
- Reliance was placed on the decision of the Hon’ble Supreme Court in the case of CIT Vs. United Glass Mfg., wherein it was concluded that club membership fees for employees incurred by the Assessee was business expense under Section 37 of the Income Tax Act, 1961. In the facts of the present case also the Assessee had incurred the expenses on account of club membership fees for the employees and to entertain customers, so, these were business expenses under section 37(1) of the Act and accordingly allowable as deduction under the provisions of the Income Tax Act.