High Court Of Kerala
Framatone Connector OEN Ltd. vs. DCIT
Section 37(1)
K.S. Radhakrishnan & V. Ramkumar, JJ.
IT Appeal No. 119 of 2000
7th July, 2006
Counsel Appeared
Anil D. Nair, for the Appellant : P.K.R. Menon & George K. George, for the Respondent
JUDGMENT
K.S. Radhakrishnan, J. :
Assessee is the appellant. This is an appeal filed under s. 260A of the IT Act, 1961, aggrieved by the order of the Tribunal, Cochin Bench in ITA No. 826/Coch/1995. Following is the question of law raised :
“Whether, on the facts and circumstances of the case, was the Tribunal justified in holding that the amount of Rs. 45,000 paid by the assessee for taking institutional membership in the Cochin Yacht Club is a capital expenditure not allowable as business expenditure under the IT Act ?”
Assessee is engaged in the manufacture of multipin connectors. Assessee has stated that it had paid an amount of Rs. 45,000 to Cochin Yacht Club towards institutional membership fee. AO disallowed the claim of Rs. 45,971 being payment effected by the assessee to club on the ground that it was not connected with the business of the assessee. However, on appeal, CIT(A) allowed the assessee’s claim. Aggrieved by the same Revenue took up the matter before the Tribunal. Tribunal however took the view that the expenditure incurred by the assessee for taking membership in the club is capital expenditure and consequently the order passed by the CIT(A) was reversed and confirmed the disallowance made by the AO. Aggrieved by the same this appeal has been preferred. We are in agreement with the view of the Tribunal that the expenditure effected by the assessee is capital in nature. Once the assessee pays the amount to a club for membership, it is a payment once and for all, resulting in an enduring benefit to the institution.
The mere fact that the assessee’s representative, like the managing director’s participation in the club, promotes the assessee’s business does not change the character of the payment which was made once and for all. The apex Court in Punjab State Industrial Development Corporation Ltd. vs. CIT (1997) 140 CTR (SC) 594 : (1997) 225 ITR 792 (SC) held that when an expenditure is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, there is a very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital. we are of the view that the above principle would squarely apply in a case where the company has made an expenditure for getting institutional membership in a club and it is an expenditure as properly attributable not to revenue but to capital. We, therefore, answer the question in favour of the Revenue and against the assessee. Consequently this appeal is dismissed.
[Citation : 294 ITR 559]
