2010 (9) TMI 476 - AT - Income Tax

Revenue receive or capital receipt - receipt from members of society as membership fee - Held that the assessee did not file any evidence in support of this claim that this entry fee is corpus receipt - This aspect has also to be examined as to what will happen if a member seizes to be a member for any reason although the assessee club remains in operation - The applicability of the provisions of section 44A(1) should also be examined and, therefore, this issue should be decided afresh by the A.O Appeal is allowed by way of remand Festival expense and Swimming Pool expenses - There is no such claim lodged by the assessee before the A.O. that these expenses actually crystallized during the present year - The assessee has to furnish evidence before the A.O. in support of this contention that these expenses have actually crystallized during the present year Decided in the favour of the revenue by way of remand Regarding dedication u/s 44A(3)- principal of Mutuality - From the reading of section 28(iii) and section 44A, the receipt of assessee has to be bifurcated into two parts - Similarly, the expense of the assessee has to be bifurcated into two parts, i.e. the revenue expenditure and capital expenditure - Thereafter, as per the provisions of section 44A(3) there is further restriction for granting of deduction which has to be restricted to the extent of 50% of the total income of the association as computed before making any allowance under that section i.e. section 44A - No deduction is allowable u/s 44A(i), in the absence of any such deficiency of expenses incurred for the purpose of protection and advancement of common interest of members of the assessee - Instead of this, the assessee has claimed deduction to the extent of 50% of its gross total income without showing that it has incurred any expenditure for the purpose of protection and advancement of common interest of its members - This ground of revenue is allowed Regarding telephone expense - Ad-hoc disallowance was made by the A.O. on estimate basis without bringing any adverse material on record - This aspect is now covered in favour of the assessee by the judgment of Hon ble High Court of Gujarat rendered in the case of Sayaji Iron Co. as reported in (2001 -TMI - 13175 - GUJARAT High Court)

Issues Involved:
1. Deletion of addition on account of member entry fees.
2. Deletion of addition on account of festival expenses.
3. Deletion of addition on account of swimming pool expenses.
4. Deduction under Section 44A(3) of the Income Tax Act.
5. Deletion of addition on account of telephone expenses.
6. Applicability of the principle of mutuality.

Detailed Analysis:

1. Deletion of Addition on Account of Member Entry Fees:
The revenue challenged the deletion of additions made by the Assessing Officer (A.O.) on account of member entry fees for the Assessment Years 2004-05, 2005-06, 2006-07, and 2007-08. The A.O. had included these fees in the income of the assessee, stating that no evidence was provided to support the claim that these were corpus receipts. The CIT(A) had deleted these additions by following the judgment of the Hon'ble High Court of Mumbai in the case of CIT v. Diners Business Services Pvt. Ltd. However, the Tribunal found that no evidence was furnished by the assessee to establish that these amounts were received as members' entry fees. The Tribunal set aside the order of the CIT(A) and restored the matter back to the file of the A.O. for fresh decision, directing the assessee to provide evidence regarding its claim.

2. Deletion of Addition on Account of Festival Expenses:
For the Assessment Year 2004-05, the A.O. had disallowed Rs. 1,00,000/- claimed as festival expenses, stating that the expenditure was not relevant to the year under consideration. The CIT(A) had deleted the disallowance, treating it as a bad debt allowable under Section 36(1)(vii) of the Income Tax Act. The Tribunal reversed the order of the CIT(A), stating that the conditions under Section 36(2) were not fulfilled, as the amount was not taken into account in the computation of income in any year. The Tribunal restored the A.O.'s disallowance.

3. Deletion of Addition on Account of Swimming Pool Expenses:
For the Assessment Year 2005-06, the A.O. disallowed Rs. 2,12,808/- on account of swimming pool expenses, stating that these expenses pertained to earlier years. The CIT(A) deleted the disallowance, claiming that the expenses crystallized in the year under consideration. The Tribunal found no basis for the CIT(A)'s observation and restored the matter back to the file of the A.O. for fresh decision, directing the assessee to furnish evidence that the expenses actually crystallized during the present year.

4. Deduction Under Section 44A(3) of the Income Tax Act:
For the Assessment Years 2005-06, 2006-07, and 2007-08, the A.O. disallowed deductions claimed under Section 44A(3), stating that the assessee did not fulfill the statutory conditions. The CIT(A) allowed the deductions. The Tribunal reversed the CIT(A)'s order, stating that the assessee did not show that it incurred any expenditure solely for the protection and advancement of common interest of its members, as required under Section 44A(1). The Tribunal held that no deduction is allowable under Section 44A(1) or Section 44A(3) in the absence of such expenses.

5. Deletion of Addition on Account of Telephone Expenses:
For the Assessment Year 2005-06, the A.O. disallowed Rs. 34,483/- out of telephone expenses, suspecting personal use. The CIT(A) deleted the disallowance, stating it was made on an ad-hoc basis without any material evidence. The Tribunal upheld the CIT(A)'s order, following the judgment of the Hon'ble High Court of Gujarat in the case of Sayaji Iron Co., which ruled out ad-hoc disallowances without material evidence.

6. Applicability of the Principle of Mutuality:
For the Assessment Year 2007-08, the CIT(A) observed that the income of the club was not taxable based on the principle of mutuality. The Tribunal found this observation uncalled for, as the assessee had declared an income of Rs. 49.87 lacs and did not claim exemption based on mutuality before the A.O. The Tribunal expunged the CIT(A)'s remark regarding the principle of mutuality.

Conclusion:
In conclusion, the Tribunal allowed the revenue's appeals for statistical purposes on certain grounds, restored matters back to the A.O. for fresh decisions on specific issues, and upheld the CIT(A)'s order on the deletion of telephone expenses. The principle of mutuality was not applicable as per the Tribunal's findings.

← Previous Next →