Case Law Details
RELEVANT PARAGRAPH
13. We have heard both the parties and perused the orders of the revenue authorities as well as above cited judgment of the jurisdictional High Court in the case of Otis Elevator Co (India) Ltd (supra). The case of the assessee is that the said subscription of Rs 3 lakhs is wholly and exclusively for the business purpose. On the other hand, the case of the revenue is that the unlike in company, the membership of a working partners should be seen in a different context as the firm has more than one partners, who are equal in matters of running of the business of the firm. The payment of Rs 3 lakhs to the NSCI is a for personal enjoyment as discussed in para 6 of the assessment order.
14. Undisputedly, the membership of the NSCI Club is held in the name of Sri Rajesh D Shah and the amount of Rs 3 lakhs is paid by the assessee firm. Further, it is a fact that the no amount was spent on use of the club during the year but membership was used and an amount was spent in the subsequent years. The ratio decidendi in the case of Otis Elevators Co (India) Ltd (supra) was decided in the context of the provisions of section u/s 40(a)(v) and in connection with the expenditure incurred on club subscriptions of the employees. Whereas, the present issue is whether the said expenditure of 3 lakhs paid by the firm on behalf of Sri Rajesh D Shah for club subscription is wholly and exclusively for business purposes of the firm and the same is allowable u/s 37(1) of the Act or not.
15. Section 37(1) refers to the phrase `—expended wholly and exclusively for the purposes of the business or profession’. NO personal expenditure is allowable as deduction under these provisions. Further, it is a settled law that the expenditure `expended wholly and exclusively for the purposes of the business or profession’, is only allowable as deduction under section 37 of the Act. Further, it is also settled that the adverb, `wholly’ refers to the quantum of the expenditure, the sum of money spent and the second adverb ‘exclusively’ has reference to the purpose behind the expenditure and not the motive or object of expenditure as held by the apex court in the case of Sasoon J David & Co P Ltd v CIT (118 ITR 261)(SC). Considering the fact that the said subscription is held in the name Rajesh D Shah and not in the name of the firm, it is natural for the AO to suspect the purpose of the said expenditure. Further, considering the above analysis of the Apex Court, for allowing the claim u/s 37 of the Act, the expending of Rs 3 lakhs must be for whole and exclusive purposes of the business. We have examined if the said purpose is defeated when the partner, who held the firm’s club membership in his name, avails club facility for having a cup of coffee in the club using said membership and we are of the opinion that the answer is negative.
16. The objections of the revenue includes that (i) the partner holding the membership, (ii) failure the incur expenditure during the year, and (iii) citation relied on by the assessee are in the context of the corporate cases. All these objections have to be analysed in the context of the commercial environment and under the macroscopic lens of business perspective as well as also the business world of a partner of a firm. It is a common observation that the partners of the firm and senior level employees of the undertaking have no personal lives and their lives are business-centric and employment-centric, as the case may be. Further, it is not the case of the AO that assessee utilized the said facility of club membership only for the personal use. AO has not brought out a single instance or single bill or single purchase etc to demonstrate the personal use of the partner either in the instant year or in the later years. Certain disallowances made by the AO in the later years are only on the basis of estimation and not on facts. Further, the linkage of this membership to the aspect of the turnover is misplaced as such facility has limited use in terms of facilitation and not decision taking processes. Further also, we find that the name appearing in the records of the club or for that matter contents of any documentation, is not the determining factor and what is important is who incurred the expenditure, from whose account the money is spent and for what purpose it is spent. There can be many reasons for Sri Rajesh D Shah to have a membership in his name and not in the name of the firm. As seen from para 4.5 of the impugned order that it is a undisputed fact that the assessee has taken the customers of the firm to the club for business purposes. Once commercial angle is established, we do not find any difference in the corporate membership or a membership of working partner in a club. In these circumstances, the failure to incur expenditure in the instant year does not make any difference. In principle, the Bombay High Court judgment in the case of Otis Elevators Co (India) Ltd (supra) hold relevant for the instant issue too. Accordingly, second issue raised by the assessee is allowed.
