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| DATE: | February 19, 2013 (Date of publication) |
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| Click here to download the judgement (groz_beckert_capital_revenue_corporate_membership.pdf) |
Expenditure on corporate membership of club is revenue expenditure
The assessee obtained corporate membership of the Golf Club on payment of Rs.6 lakhs. The AO disallowed the expenditure on the ground that it was capital expenditure. This was reversed by the CIT(A) & Tribunal which held that the expenditure was revenue in nature. The department filed an appeal to the High Court and relied on Majestic Auto Ltd where the High Court had held that expenditure on corporate membership is in the nature of capital expenditure. As the Bench was of the view that Majestic Auto was not the correct law, the issue was referred to the Full Bench. HELD by the Full Bench:
In order to decide whether the expenditure is a revenue or a capital one has to look at the expenditure from a commercial point of view. Not every advantage of enduring nature constitutes capital expenditure. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable. If the advantage consists merely in facilitating the assessee’s trading operations or enabling the management and conduct of the assessee’s business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. On facts, the corporate membership was for a limited period of 5 years. It was obtained for running the business with a view to produce profit. Such membership does not bring into existence an asset or an advantage for the enduring benefit of the business. It is an expenditure incurred for the period of membership and is not long lasting. By subscribing to the membership of a club, no capital asset is created or comes into existence. By such membership, a privilege to use facilities of a club alone, are conferred on the assessee and that too for a limited period. Such expenses are for running the business with a view to produce the benefits to the assessee. Consequently, it cannot be treated as capital asset (Otis Elevator 195 ITR 682 (Bom), Engineers India 239 ITR 237 (Del), Gujarat State Export Corp 209 ITR 649 (Guj) followed; Framatone Connector OEN 294 ITR 559 (Ker) dissented from; Majestic Auto overruled)
This is simply one more added to the long series of court decisions, in which strikingly the same and identical propositions have been repeatedly adjudicated on, time and again. What is perplexing is why such issues, require to be taken to courts simply because given item of expenditure in dispute is different. Do not the settled and well accepted propositions stand fully and finally covered by any number of the very broad principles enunciated ought to have been more than enough to cut short the appeal process, not beyond the itat, if not in the earlier two stages. It is high time the sanity behind infinite prolongation of such disputes is, from the point of view of larger public interest, and natural justice, a matter on which the concerned ministries are obligated to give a serious thought; and come out with a pragmatically ideal solution once for all.
Add-on:
One may pertinently underline the wisdom in the age-old belief that, – must be a way should there be ‘the will’. Any litigation of such a frivolous nature, even if prolonged at the instance of the Revenue, with no mindful efforts or earnest or devoted attempt at moderation by the Revenue, is, in the ultimate analysis, after all, at the cost of only the taxpayers as a community. Periodical intensive training, and impassioned counselling, of all assessing and higher officers, might be worth the attempt. Improved and updated measures aimed at continuous monitoring and appraisal of the performance of everyone of them, individually and collectively, with fixation of respective responsibility and answerability, ought to do the trick. To put it succinctly,, the guiding principle should necessarily be ‘fair play’ in the form of balanced views; as opposed to one-sided views, verging on perversion, heavily and unfairly weighted / tilted towards the Revenue.
In short, perhaps, the only solution may lie in all right -minded , also strong- willed citizens, thinking of and bringing about an effrective machinery to mobilise, and keep pursuing, the efforts towards accomplishing the desired outcome.
Now that the dream of simplification of the tax code indulged in for too long, so also the alternative speedy settlement of disputes through setting up of a national tribunal, etc., etc., have all been put in the cold storage, there is all the more the need for the enlightened people , not barring the professionals having a ‘vested’ interest, to strive for and mobilise public opinion, in the right direction, to be closely followed up by and appropriate proactive steps accelerated.
(Left open to further deliberation by those truly interested)
<looking back
Friday, August 17, 2007
REVENUE'S MINDSET
FOR KNOWING THE REVENUE'S FRAME OF MIND IN GENERAL, ONE MAY JUST READ BL , ISSUE OF AUGUST 17, – "PERIODIC MONITORING OF I-T ACT ESSENTIAL, SAYS UNION LAW SECY"(extract below).
Periodic monitoring of I-T Act essential, says Union Law Secy
For comments , ref. the Blog on the related topic @ swamilook.
Even 5 years having passsed by, one keeps wondering whether still left with hopes for a change for the better in the mindset of the Revenue !