Case Law Details
Grasim Industries Ltd Vs CIT (ITAT Mumbai)
Conclusion: In present facts of the case, the Hon’ble Tribunal held that expenses made pertaining to Club Membership fees shall be allowed as business expenditure. Further, on the issue of taxability of the dividend received from the Egyptian company, it was held that as per the DTAA with Egypt, the dividend income received by the assessee from Egypt entity is to be excluded while computing the taxable income of the assessee in India.
Facts: The present cross appeal has been filed challenging the impugned order dated 21/05/2004, passed under section 250 of the Income Tax Act, 1961 for the assessment year 2003–04. The brief facts of the case, as emanating from the record, are: For the year under consideration, the assessee filed its return declaring a total income of Rs.458,45,81,926. The return of income filed by the assessee was selected for scrutiny and statutory notices under section 143(3) as well as under section 142(1) of the Act were issued and served on the assessee. The assessee is engaged in the production and sales of Viscose Staple Fibre, Chemicals, Cement, and the production of Sponge Iron and Textile. The AO vide order dated 26/03/2004, passed u/s 143(3) of the Act, assessed the total income of the assessee at Rs.494,59,33,333, after making certain additions/disallowances to the income declared by the assessee. The learned CIT(A), vide impugned order granted partial relief to the assessee.
In the said case, various issues were decided by the Hon’ble Tribunal which are as follows:
A) The issue pertaining to the disallowance of Club Membership fees, wherein the assessee paid Club Membership fees of Rs.11,32,074, towards membership fees to various Clubs. The assessee was asked as to why this amount should not be treated as capital expenditure. In response thereto, the assessee submitted that the payments have been made to various Clubs for enrolling its senior officials as members for the purpose of promoting the business of the assessee. For developing business relationships benefiting the assessee company. The assessee also submitted that in commercial work, the contact with right persons is vital for efficient business organization and, therefore, the expenditure should be allowed as business expenditure. The AO, vide order passed under section 143(3) of the Act, did not agree with the submissions of the assessee and held that the payments made for obtaining membership is not allowable expenditure. The learned CIT(A), vide impugned order, granted partial relief to the assessee and directed the A.O. to disallow only the entrance fees as capital in nature and allow all other expenditures as revenue expenditure.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
Author Bio
