2010 (7) TMI 574 - HC - Income Tax

Reopening - Income escaping assessment - Capital or revenue income - Life time membership fees - The writ petitioner has in these writ petitions challenged the validity of the impugned notices mainly on two grounds that the assessment is already deemed to be completed and the same cannot be reassessed on the ground of escaped assessment under Section 147 of the Income Tax Act - whether the life membership fee collected is to be treated as capital or revenue is the issue pending adjudication before the appellate authority in the appeals filed in respect of the earlier assessment years and pending appeal proceedings the assessment proceedings in respect of same disputed issue cannot be permitted to go on whether the Assessing Officer can proceed with the assessment proceedings relating to the issue in respect of serious dispute pending adjudication before the appellate authority - As rightly argued by the learned counsel for the petitioner any adjudication rendered in the appeal by the appellate authority on the same issue will have greater bearing on the present assessment proceedings for the subsequent years - Decided in the favour of the assessee by way of remand

Summary

Issues Involved:
Challenge to validity of impugned notices for reopening assessment under Section 147 of the Income Tax Act for assessment years 2006-2007 to 2008-2009. Whether lifetime membership fee collected by the club should be treated as capital or revenue income. Can assessment proceedings proceed while a similar issue is pending adjudication before the appellate authority.

Analysis:

Issue 1: Challenge to Validity of Impugned Notices
The petitioner challenged the validity of the notices issued under Section 147 of the Income Tax Act for reopening assessment for the assessment years 2006-2007 to 2008-2009. The petitioner contended that the assessments were already deemed to be completed and could not be reassessed for escaped assessment. The department argued that no assessment was done under Section 143 for the years in question, and the notices issued were for original assessment under Section 147. The court held that the notices were for assessment under Section 147 read with Section 143, as the returns were processed but no assessment was made due to discrepancies in the income reported by the assessee.

Issue 2: Treatment of Lifetime Membership Fee
The main dispute revolved around whether the lifetime membership fee collected by the club should be treated as capital or revenue income. The petitioner treated the fee as capital, while the Assessing Officer proposed to treat it as revenue income based on certain judgments. The appellate authority had similar appeals pending for earlier assessment years on the same issue. The court noted that any determination made by the appellate authority on this issue would impact the assessment proceedings for subsequent years. Referring to previous judgments, the court held that the department could proceed with the assessment but could not enforce any recovery pending the appellate authority's decision on the issue.

Conclusion:
The court allowed the respondents to proceed with the assessment proceedings for the assessment years in question but prohibited any recovery actions until the appellate authority decided on the issue of the lifetime membership fee. The Commissioner of Income Tax (Appeals) was directed to dispose of all appeals related to earlier assessment years within 12 weeks. The court emphasized that while assessment proceedings could continue, any final decision on the disputed amount should await the appellate authority's ruling.