CIT and Another vs Falcon Tyres Ltd.

K.L. Manjunath, J.—The Revenue has come up in this appeal challenging the order passed by the Commissioner of income tax (Appeals) which has been further affirmed by the income tax Appellate Tribunal, Bangalore, in I. T. A. No. 1253/Bang/2002, dated 4-7-2005 for the assessment year 1997-98.

The appeal was admitted to answer the following substantial questions of law :

(1) Whether the Tribunal was correct in holding that the sales tax and excise duty collected during the assessment year should not form part of the total turnover before computing the deduction for the purpose of computing deduction u/s 80HHC of the Act ?

(2) Whether the appellate authorities were correct in not taking into consideration the Explanation to section 80HHC read with section 80AB which clearly enunciates that for the purpose of computation of deduction u/s 80HHC of the total turnover including all expenses should be taken into consideration ?

(3) Whether the appellate authorities were correct in holding that amounts paid to clubs for obtaining membership should be treated as a revenue expenditure and was allowable deduction and not a capital expenditure as held by the Assessing Officer ?

We have heard the learned counsel for the parties.

The learned counsel for both the parties did not dispute that questions Nos. 1 and 2 are answered against the Revenue by the honble Supreme Court in Commissioner of Income Tax, Coimbatore Vs. Lakshmi Machine Works, In view of the same, the said questions are answered against the Revenue and in favour of the assessee.

So far as the last point is concerned, the question that has to be considered by us is whether the membership fee payable to the club has to be treated as revenue expenditure and an allowable deduction and not a capital expenditure. In a similar matter in I.T.A. No. 53 of 2004 dated 23-11-2009 ( Commissioner of Income Tax and Another Vs. Wipro Systems, this court has passed a detailed order how the club membership expenditure incurred in connection with the club membership has to be considered by the Assessing Officer.

Therefore we are of the view that the said question has to be reconsidered by the Assessing Officer by looking into the facts and circumstances of the assessee for the relevant assessment year by strictly following the observations made by this court in I.T.A. No. 53 of 2004 dated 23-11-2009 ( Commissioner of Income Tax and Another Vs. Wipro Systems, . Accordingly, we answer the said question.

Accordingly, the appeal is disposed of without answering the last question and the matter is remanded to the Assessing Officer only to consider point No. 3 based on the facts of the case.