1979 (1) TMI 5 - HC - Income Tax

Summary

Issues Involved:
1. Classification of entrance fees as capital or revenue receipts.
2. Differentiation between life members and ordinary members regarding entrance fees.
3. Treatment of entrance fees paid by widows of life members.

Issue-Wise Detailed Analysis:

1. Classification of Entrance Fees as Capital or Revenue Receipts:
The primary issue was whether the sums of Rs. 8,000 and Rs. 22,000 received by the assessee-club as life members' entrance fees for the assessment years 1963-64 and 1964-65, respectively, should be classified as capital receipts or revenue receipts. The Income Tax Officer (ITO) treated these amounts as revenue receipts, arguing that the entrance fees paid by life members constituted a consolidated amount in lieu of recurring annual subscriptions. This view was confirmed by the Assistant Appellate Commissioner (AAC). However, the Income Tax Appellate Tribunal held that the entrance fees were capital receipts, reasoning that the fees were related to the status of the members rather than the facilities provided by the club.

2. Differentiation Between Life Members and Ordinary Members Regarding Entrance Fees:
The court examined the nature of the payments made by life members and ordinary members. It was noted that life members paid a larger entrance fee (Rs. 2,500) compared to ordinary members (Rs. 500), and life members did not have to pay annual subscriptions. The court concluded that the entrance fees paid by life members included two elements: a part as entrance fees and another part as a consolidated payment in lieu of annual subscriptions. The court held that Rs. 500 should be treated as entrance fees (capital receipt) and the remaining Rs. 2,000 as a commuted payment for annual subscriptions (revenue receipt).

3. Treatment of Entrance Fees Paid by Widows of Life Members:
The court also addressed the treatment of entrance fees paid by widows of life members. Under the relevant articles of association, widows of life members could become life members by paying an entrance fee of Rs. 500. The court determined that this amount should be dissected similarly to the entrance fees paid by life members. Rs. 150 out of Rs. 500 should be treated as a capital receipt, and the balance of Rs. 350 as income.

Conclusion:
The court concluded that for the assessment years 1963-64 and 1964-65, out of the entrance fees received from life members, Rs. 500 should be treated as a capital receipt and Rs. 2,000 as income. In the case of an ordinary member becoming a life member, the entire amount of Rs. 2,000 should be treated as income. For widows of life members becoming life members, Rs. 150 out of Rs. 500 should be treated as a capital receipt, and Rs. 350 as income. The parties were ordered to bear their own costs.