2011 (8) TMI 1221 - AT - Income Tax

Nature of receipt - Membership fee received from the members was treated as revenue receipt liable to tax

Summary

Issues Involved:
1. Nature of Life Membership Fee: Whether the Life Membership Fee received by the assessee-club is to be treated as a capital receipt or a revenue receipt.
2. Validity of Proceedings under Sections 147 and 148: Whether the initiation of proceedings under Sections 147 and 148 of the Income Tax Act is justified.
3. Limitation and Delay: Whether the delay of 51 days in filing the appeals should be condoned.

Detailed Analysis:

1. Nature of Life Membership Fee:
The primary issue is whether the Life Membership Fee received by the assessee-club should be treated as a capital receipt or a revenue receipt. The assessee-club, a private limited company, argued that the Life Membership Fee is a capital receipt used for creating infrastructure and not a revenue receipt. The Assessing Officer, however, treated the Life Membership Fee as a revenue receipt, relying on the decisions of the Hon'ble Patna High Court in the cases of CIT vs Beldih Club and CIT vs United Club, which held that entrance fees received by a club are revenue receipts and taxable. The Tribunal concluded that the Life Membership Fee is indeed a revenue receipt, emphasizing that the fee is non-refundable and non-transferable, and thus, it cannot be treated as a liability or capital receipt. The Tribunal also referenced the Hon'ble Supreme Court's decisions in CIT vs Calcutta Stock Exchange Association Ltd and Delhi Stock Exchange Association Ltd vs CIT, which supported the view that such fees are revenue receipts.

2. Validity of Proceedings under Sections 147 and 148:
The assessee contended that the initiation of proceedings under Sections 147 and 148 of the Income Tax Act was based on a mere change of opinion and lacked new discovery of facts. The Tribunal, however, did not specifically address this contention in detail in the judgment. The focus remained on the nature of the Life Membership Fee and its taxability.

3. Limitation and Delay:
The appeals were filed with a delay of 51 days, which the assessee attributed to following incorrect legal advice to file a writ petition before the Hon'ble Supreme Court. The Tribunal found this delay to be neither willful nor wanton but caused by a bona fide reason. Despite the Department's protest, the Tribunal chose to condone the delay, allowing the appeals to be admitted as maintainable.

Conclusion:
The Tribunal upheld the decision of the Assessing Officer and the CIT(A), concluding that the Life Membership Fee received by the assessee-club is a revenue receipt and taxable. The appeals were dismissed, and the order was pronounced in the open court on 8.8.2011.