1985 (9) TMI 62 - HC - Income Tax

Summary

Issues Involved:
1. Whether the entrance fee received by the club at the time of entrance of new members is a receipt of revenue nature and is chargeable to tax in the hands of the club.

Summary:

Issue 1: Nature of Entrance Fee
The Income-tax Appellate Tribunal, "B" Bench, Patna, referred the question of whether the entrance fee received by the club from new members is a revenue receipt and chargeable to tax. The assessee, a club offering recreational facilities, received Rs. 25,050 as entrance fees, which the Income-tax Officer included in the club's taxable income. The Appellate Assistant Commissioner, however, viewed the entrance fees as a non-recurring, capital receipt and deleted the addition. The Tribunal upheld this view, treating the entrance fee as a capital receipt, not taxable.

Arguments and Precedents:
- Revenue's Argument: The Revenue relied on the case of Liverpool Corn Trade Association Limited v. Monks (1926) 10 TC 442 (KB), where entrance fees and subscriptions were included in the computation of profits and thus taxable.
- Supreme Court Precedents: The Revenue also cited CIT v. Calcutta Stock Exchange Association Ltd. [1959] 36 ITR 222 (SC) and Delhi Stock Exchange Association Ltd. v. CIT [1961] 41 ITR 495 (SC), where entrance fees were held to be taxable as they were considered remuneration for specific services and lacked mutuality.
- Assessee's Argument: The assessee relied on Pangal Nayak Bank Ltd. v. CIT (1964) 52 ITR 915 (Mys) and CIT v. W. I. A. A. Club Limited [1982] 136 ITR 569 (Bom), arguing that entrance fees are capital receipts, not revenue.

Court's Analysis:
The court examined the nature of the entrance fees, referencing the Supreme Court decisions which held that such fees are taxable as they are part of the business income of the club. The court found that the entrance fees received by the club are not capital receipts but revenue receipts, thus taxable.

Conclusion:
The court held that the entrance fee received by the assessee-club at the time of entrance of new members is a receipt of revenue nature and is chargeable to tax in the hands of the club. The question was answered in the affirmative, in favor of the Revenue and against the assessee. There was no order as to costs.