2011 (8) TMI 1372 - AT - Income Tax

Summary

Issues Involved:
The appeal against the order of the Commissioner of Income-tax (Appeals)-I, Baroda dated 17.8.2009 arising out of the order of the Assessing Officer u/s 143(3) of the Income Tax Act, 1961.

Issue 1: Capital Contribution Treatment
The only ground raised in the appeal was the addition of Rs.12,44,005/- as capital contribution received treated as revenue income in the year of receipt itself.

The ITAT considered the facts of the case where the assessee company, a co-operative venture sponsored by the State Government, provided effluent disposal services to member-industries. The company received one-time capital contributions from new members, offering 1/5th of the amount for tax in the year of receipt and spreading the rest over five years. The Assessing Officer treated the entire receipt as taxable in the year under consideration.

Referring to a previous decision for A.Y.2001-02, the ITAT held that the one-time membership fee was not in return for services rendered in one year but for obligations to be fulfilled over 99 years. The fee created a debt against the assessee, which had to be discharged by providing the use of capital structure for effluent discharge. Following the decision, the ITAT allowed the assessee's appeal, deleting the addition made by the AO.

Therefore, based on the previous decision and the nature of the capital contributions, the ITAT allowed the appeal and deleted the addition made by the Assessing Officer.