Law: Income Tax Act, 1961

Section: 37,37(2A),40,40A(5),45,48,80,80J

(a) Income-tax---Business expenditure---Company---Subscription paid to clubs on behalf of its Directors---Finding by Tribunal that subscription had been paid to promote business of company---Amount paid as subscription was deductible---Indian Income Tax Act, 1961, S.37. Section 37 of the Income Tax Act, 1961, postulates that any expenditure laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income of the assessee. The essential requirement for claiming the deduction of the expenditure is that the expenditure should have been incurred wholly and exclusively for the purposes of business of the assessee. The question whether a particular expenditure is allowable or not has to be tested from the point of view of the person expending the same and the object with which he incurred the expenditure. The assessee-company claimed deduction of the amounts paid as subscription to three clubs as business expenditure. The Income-tax Officer disallowed the claim on the ground that the expenditure paid by way of subscription to the clubs could not be said to be incurred for the purpose of business of the assessee as the possible advantage to the business of the assessee was remote and not proximate. The Appellate Assistant Commissioner as well as the Appellate Tribunal allowed the claim of the assessee on the ground that the expenditure was incurred by the assessee for the purpose of promoting its business. On a reference: Held, that so far as the assessee was concerned the expenditure was incurred to promote and foster its business relationship. The object of the assessee was that its directors by remaining as members in some of the city clubs would give them a certain social status, and that by being members of the club, they would be able to meet various kinds of people in a calm and cool atmosphere of the club and because of the meeting they would develop business relationship, benefiting the assessee. Therefore, it could got be said that the possible advantage to the assessee was remote and far-fetched. No doubt, there may be a personal benefit enjoyed by the director by the various types of…

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