2021 (12) TMI 1427 - HC - Income Tax

Characterization of receipts - entrance fees received from its member - capital receipts or revenue receipts - whether facilities that are made available to the members are done in normal course of its business as the assessee is engaged in the business of race course? - HELD THAT - ITAT held that there is no dispute to the fact that right from practically the date of incorporation i.e., 1925 onwards, the entrance fee from the members was treated as capital in nature and majority of these orders were passed under Section 143(3) of the Income Tax Act, 1961 - ITAT also relied upon the judgment of this court in CIT vs. Diners Business Services Pvt. Ltd 2003 (4) TMI 56 - BOMBAY HIGH COURT and held that any sum paid by a member to acquire the rights of a club is a capital receipt. The ITAT has relied upon various receipts and loopholes that the view of the Assessing Officer to treat the entrance fee as revenue receipt and not capital receipt was incorrect. Tribunal has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that question as pressed raises any substantial question of law.

Summary

Issues:
1. Characterization of entrance fees as capital or revenue receipts.

Analysis:
The case involved the characterization of entrance fees received by the Royal Western India Turf Club Ltd. as either capital or revenue receipts for the assessment year 2009-10. The appellant contested the treatment of entrance fees amounting to Rs.7,51,05,500/- as capital receipts by the Hon'ble Tribunal, arguing that the facilities provided to members were part of the normal course of business as the club operated a race course.

The Assessing Officer initially disallowed the amount and added it to the income as revenue receipts. However, the CIT (Appeals) referred to a previous appellate order for a different assessment year where entrance fees were considered capital receipts. Following the principle of judicial consistency, the CIT (Appeals) allowed the appellant's appeal, considering the entrance fees as capital receipts.

The Revenue challenged this decision before the Income Tax Appellate Tribunal (ITAT), which dismissed the appeal. The ITAT noted that historically, entrance fees had been treated as capital in nature since the club's incorporation in 1925. Citing relevant case law, including CIT vs. Diners Business Services Pvt. Ltd., the ITAT reaffirmed that amounts paid by members to acquire club rights constitute capital receipts. The ITAT also highlighted errors in the Assessing Officer's view regarding the nature of entrance fees.

Upon review, the High Court upheld the ITAT's decision, finding no perversity or incorrect application of principles. The Court agreed that the entrance fees should be treated as capital receipts based on historical practices and legal precedents. Consequently, the appeal was dismissed for lacking merit, with no order as to costs.