2017 (2) TMI 329 - AT - Income Tax

Entrance fee received from members - capital receipts or revenue receipt - facilities that are made available to the members are done in the normal course of its business as the assessee is engaged in the business of race course - 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. As explained by the learned counsel that majority of the orders were passed under section 143(3) of the Act. We have noted the facts of the assessment year 2005-06, the order passed by the learned Commissioner of Income-tax (Appeals), wherein, vide ground No. 2 (page-2 onwards), entrance fee, received from its members held that the one-time entrance fees, received from its members is in the nature of lifetime membership fees, hence, it cannot be treated as annual subscription as the same is collected once in lifetime, therefore, it is a capital receipt. The hon ble jurisdictional High Court in CIT v. Diners Business Services P. Ltd. 2003 (4) TMI 56 - BOMBAY High Court held that any sum paid by a member to acquire the rights of a club is a capital receipt. We further note that for the assessment year 2003-04, while framing the assessment under section 143(3) of the Act and also for the assessment year 2001-02, identically the claim of the assessee was allowed. No contrary material was brought to our notice. It is also noted that even the revisional jurisdiction under section 263 was invoked by the Department and, finally, the entrance fees was treated as capital receipt, therefore, we find force in the contention of the assessee. If this issue is analysed on the principle of consistency, we note that in earlier years, identically the claim of the assessee was decided in favour of the assessee by accepting the entrance fees as capital receipt, therefore, we are of the view that unless and until contrary facts are brought on record by the Revenue, no U-turn is permissible - Decided in favour of assessee Receipt of interest-free deposits - capital receipts or revenue receipt - Held that - As per the agreement, the first security deposit of ₹ 10 crores stand forfeited, as liquidity damages if due to any reason, the work related to new development is not completed by M/s. Pegasus Resorts and Hotels Pvt. Ltd. Since the new development could not be started due to inability of M/s. Pegasus Resorts and Hotels Pvt. Ltd., the aforesaid amount was forfeited by the assessee. We are of the view that since the amount of ₹ 10 crores was in the nature of deposits, i.e., capital receipts, in the hands of the assessee, the forfeiture of the same cannot change the nature of receipt, therefore, it is capital receipt. - Decided in favour of assessee

Summary

Issues:
1. Appeal by Revenue for assessment years 2007-08, 2008-09, and 2009-10.
2. Treatment of entrance fee as capital or revenue receipt.
3. Treatment of amount received from Pegasus Resorts and Hotels Pvt. Ltd.
4. Disallowance under section 14A of the Act.

Issue 1: Appeal by Revenue for assessment years 2007-08, 2008-09, and 2009-10:
The Revenue appealed against orders of the first appellate authority for the respective assessment years. For 2007-08, the main issue was the treatment of entrance fee as capital or revenue receipt. The Revenue contended it was revenue, while the Assessee argued it was capital based on past practices. The Tribunal noted that historically, the entrance fee had been treated as capital, supported by various orders and legal precedents. The principle of consistency favored the Assessee. For 2008-09, the Tribunal found no issue with the first appellate authority's decision regarding the entrance fee. In 2009-10, the Revenue's appeal on entrance fees was also dismissed based on the same reasoning.

Issue 2: Treatment of entrance fee as capital or revenue receipt:
The Tribunal analyzed the nature of the entrance fee received by the Assessee, who was engaged in the business of conducting horse races and providing hospitality services. The Assessing Officer treated the entrance fee as revenue, but the first appellate authority considered it capital. The Tribunal observed a long history of treating the entrance fee as capital, with no contrary evidence presented by the Revenue. Legal precedents and the principle of consistency supported the Assessee's position, leading to the dismissal of the Revenue's appeal on this issue.

Issue 3: Treatment of amount received from Pegasus Resorts and Hotels Pvt. Ltd.:
Regarding the amount of ?10 crores received as interest-free deposit from Pegasus Resorts and Hotels Pvt. Ltd., the Tribunal found it to be a capital receipt. Even though the amount was forfeited due to non-completion of a development project, it did not change the nature of the receipt. Legal precedents and the absence of contrary facts supported the Assessee's argument, leading to the dismissal of the Revenue's appeal on this issue.

Issue 4: Disallowance under section 14A of the Act:
The Assessee's appeal regarding the disallowance of ?4,82,028 under section 14A of the Act was not pressed due to the small amount involved. The Tribunal dismissed this ground as not pressed, considering the insignificance of the sum. Consequently, the appeal of the Assessee was dismissed.

In conclusion, the Tribunal dismissed the appeals of both the Revenue and the Assessee after thorough analysis of the issues related to the treatment of entrance fees, capital receipts, and disallowances under the Income Tax Act. The judgments were based on legal precedents, consistency in treatment, and the absence of contrary evidence or significant amounts involved in certain disallowances.