Membership & Subscription charges deductible as preliminary expenditure

Phillip (India) Pvt. Ltd. Vs ACIT (ITAT Mumbai)

Conclusion: Service fees and membership & subscription fees were incurred for the purpose of business and to set up a transaction meant for overseas capital market, therefore, this expenditure could be treated preliminary expenditure for the purpose of business.

Held: During the assessment proceeding, AO observed that assessee had debited an amount under the head service fees and membership & subscription fees respectively and the expenditure debited by assessee in this heads amounted to 44.45% of the total expenditure debited to the Profit & Loss Account. Therefore, AO treated this expenditure as capital expenditure. Assessee submitted that the expenditure debit to profit and loss account were wholly and exclusively for the purpose of business and these expenditures did not provide any enduring benefit to assessee and it did not fall in any of the nature of expenditure described in section 32 & 36. Therefore, this expenditure would invariably fall u/s 30 or 37 of the Act as revenue expenditure. It was held that these expenditure was incurred in order to facilitate the clients in India and it had direct relevance to the business carried on by assessee, but however there was no assets installed by the assessee except facilitating the installation to the clients. It might look capital in nature, but it was the cost incurred by assessee to facilitate the transactions between the clients and group concerns. There was no direct enduring benefit to assessee, it could be termed as incurred for the purpose of business and to set up a transaction meant for overseas capital market. Therefore, this expenditure could be treated preliminary expenditure for the purpose of business and therefore this transaction might increase the business/ trade for the assessee in the subsequent year. Accordingly, AO was directed to allow one fifth (1/5^th) of the expenditure in this assessment year and balance in the next 4 assessment years treating this similar to the treatment as preliminary expenditure.

FULL TEXT OF THE ITAT JUDGEMENT

The present appeal has been filed by the assessee against the order of Ld. Commissioner of Income Tax (Appeals)-12 Mumbai, in short `Ld. CIT(A)’ dated 29.01.13 for AY 2009-10.

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