Club Membership Used for Business Allowable to Proprietor: Mumbai ITAT

Avirat Rajendra Sonpal Vs DCIT (ITAT Mumbai)

Club Membership In Proprietor’s Individual Name—Mumbai ITAT Takes A Favourable View Despite An Earlier Contrary Decision

Summary: The Mumbai Bench of the Income-tax Appellate Tribunal has held that club membership and subscription fees paid by an individual carrying on a proprietary business are allowable u/s 37(1) where the membership is used for meeting customers, promoting the business and developing business connections.

The decision is important because the membership was necessarily held in the proprietor’s individual name. However, an earlier coordinate Bench in Balrajsingh Jagjitsingh Kharbanda v. ADIT, CPC ITA No. 797/MUM/2023 dt 7.6.23 [2023 taxguru.in 4299] had taken a contrary view in relation to a one-time entrance fee paid fee paid for individual club membership.

Facts of the case

The assessee was an individual carrying on carrying on business as a sole proprietor. During AY 2018-19, he he paid ₹25,49,449 towards membership and subscription fees and claimed the expenditure as a deduction u/s 37(1).

In clause 21(a) of Form 3CD, the tax auditor reported the amount under the column requiring disclosure of expenditure debited to the profit and loss account in the nature of capital, personal, advertisement, advertisement expenditure, etc.

While processing the return u/s 143(1), the CPC treated the amount as capital expenditure and disallowed the claim. Although the assessee objected and explained the business purpose of the expenditure, the adjustment was made. The Commissioner (Appeals) upheld it by treating the expenditure as capital as well as personal in nature.