By TIOL News Service

MUMBAI, MAY 08, 2018: THE ISSUE IS - Whether if club and hotel membership fee is paid by the assessee company on behalf of its Director, the same is to be treated as capital expenditure. NO IS THE ANSWER.

Facts of the case:

The assessee company, engaged in the business of providing Corporate Finance Services, Bid Support Services and Vendor Assistance filed its return for relevant AY. The AO during assessment found that the assessee had received certain professional fee. After calling for the details, AO observed, the assessee was providing due diligence services to various corporate entities and private equity clients across industries. The activity of the assessee required substantial time to complete work and submit the reports to its clients. Therefore, according to the AO, the professional income received by the assessee in the month of April 2008 had to be considered as the value of work done during the FY 2007–08. The AO called upon the assessee to explain why the income shown in April 2008 should not be treated as income of the FY 2007–08. In response, it was submitted by the assessee that the bills for the professional income received in April 2008 were raised in the said FY on the basis of completion of work by the company and it was also accounted for in the said FY. Therefore, it could not be treated as income of FY 2007-08. However, the AO did not find merit in the submissions of the assessee. He was of the view that the assessee could not have completed the work in such short period to raise the bill and receive payment in April 2008. Accordingly, the AO added back the amount of professional fee to the income of the assessee for FY 2007-08. On appeal, CIT(A) deleted the addition made by the AO.

Tribunal held that,

++ as regard to professional fee, the AO assessed the said income in the impugned FY 2007-08 on the presumption that the work relating to such professional fee was completed in the impugned year. Whereas, it was the stand of the assessee that the bills relating to such professional income was not only raised in the subsequent financial year but the assessee has also received the professional income in the subsequent AY. Therefore, assessee has accounted for such income and offered it to tax in the subsequent assessment year. Notably, on a perusal of the orders passed by the Co–ordinate Bench in assessee's own case for assessment years 2009–10, 2010–11 and 2011–12, it is seen that identical issue has been decided in favour of the assessee considering the fact that the assessee has accounted for the income in the assessment year, wherein, the bills were raised and income was received. Moreover, the Supreme Court in case of CIT v/s Excel Industries Ltd. has held when the tax rate applicable in both the years are same there is no loss to the Revenue if the income is assessed in the subsequent assessment year. Thus, it was decided to upheld the order of CIT(A).

(See 2018-TIOL-668-ITAT-MUM )