2011 (10) TMI 767 - AT - Income Tax

Summary

Issues involved: Whether entrance fees collected from non-voting members are capital in nature and not liable for taxation.

Summary:

Issue 1: Nature of entrance fees from non-voting members

The appeal was filed by the Revenue against the order of the Commissioner of Income-tax (Appeals)-III at Chennai for the assessment year 2006-07 under sec.143(3) of the Income-tax Act, 1961. The main issue was whether entrance fees collected from non-voting members like corporate members and service members could be considered capital in nature and not taxable. The Revenue argued that such fees were revenue in nature as non-voting members did not have the same rights and privileges as voting members.

Issue 2: Rights and privileges of non-voting members

The Tribunal agreed with the Revenue that non-voting members, such as corporate members and service members, had limited privileges and were not part of the mutuality principle of the assessee club. Unlike voting members, non-voting members did not have a right to claim a share in the corpus fund of the club. Therefore, the entrance fees paid by non-voting members were considered revenue in nature and should be treated as part of the income of the club.

Issue 3: Treatment of entrance fees

The Tribunal held that the entrance fees paid by non-voting members were fees collected by the club to confer permissive rights for a limited period and did not contribute to the corpus fund or assets of the club. In case of emergencies, only regular voting members would be called upon to contribute, not non-voting members. Thus, the fees paid by non-voting members were deemed to be revenue receipts and not capital in nature.

Conclusion:

In conclusion, the Tribunal found that the Commissioner of Income-tax (Appeals) erred in holding that entrance fees from non-voting members were capital in nature. Therefore, the order of the assessing authority was restored, and the appeal filed by the Revenue was allowed.