2017 (9) TMI 725 - AT - Income Tax

Life Membership Fee received - revenue receipt or capital receipt for a trust - corpus donations u/s 11 (1)(d) - Held that - I find that the facts of this case indicate that the assessee has been capitalizing the life membership fee receipt since beginning and it has been so accepted by the Revenue earlier. The lump sum payment was dissected into two parts. One being entrance fee and other part commuted payment in liew of annual subscriptions. It was expounded that the element of entrance fee was to maintain parity with ordinary members, and the same was of return for investing the right of membership and hence it was the capital receipt, the other element was the consolidation of the revenue receipt and hence taxable. From this it follows that treatment of life membership fee depends upon its objective/attribution. The assessee has made submissions before the learned CIT(A) that part of life membership fee is attributed towards subscription of magazine, which is otherwise charged to normal members. In such circumstances, in my considered opinion, prima facie the entire life membership fee in this case cannot be attributed to revenue receipt. However, the necessary facts towards objective/attribution of the life membership fee need to be brought on record. Hence, deem it appropriate to remit the issue to the file of the assessing officer. The assessing officer is directed to obtain the necessary information regarding the objective/ attribution of life membership fee and, thereafter, decide as per the above case law from jurisdictional High Court in the case of WIAA Club vs. CIT 1979 (1) TMI 5 - BOMBAY High Court . The issue raised is remitted to the file of the assessing officer

Issues:
1. Tax treatment of Life Membership Fee received by a trust.
2. Application of relevant case law in determining the nature of the receipt.
3. Consistency in treatment of receipts across assessment years.
4. Jurisdictional High Court decisions influencing assessment.

Issue 1: Tax treatment of Life Membership Fee received by a trust

The appeal concerns the tax treatment of Life Membership Fee received by a trust, totaling &8377; 9,73,800, as a revenue receipt. The Assessing Officer (A.O.) treated this fee as a revenue receipt, not as corpus donations under section 11(1)(d) of the Income Tax Act. The trust argued that the fee should be considered as corpus, given the benefits provided to life members. However, the A.O. rejected this argument, citing the lack of voluntary contribution for a specific purpose. The trust's contention that its accounting system aligns with the Bombay High Court decision in the WIAA Club case was also dismissed. The Commissioner (CIT-A) upheld the A.O.'s decision, leading to an appeal before the ITAT.

Issue 2: Application of relevant case law in determining the nature of the receipt

The trust relied on various legal principles and case laws to support its argument that the Life Membership Fee should be treated as corpus. However, the CIT-A was not convinced, emphasizing the lack of documentary evidence to counter the A.O.'s observations. The CIT-A referenced the Bombay High Court decision in the WIAA Club case, stating that it applied directly to the trust's situation. The ITAT, after considering both parties' submissions, concluded that the trust needed to provide more information regarding the objective and attribution of the Life Membership Fee to determine its tax treatment accurately.

Issue 3: Consistency in treatment of receipts across assessment years

The trust highlighted the consistency in its treatment of Life Membership Fees across assessment years, pointing out that no additions were made in the previous year despite a similar scenario. However, the ITAT clarified that each assessment year is separate, and past decisions do not bind future assessments. The ITAT emphasized that legal issues, such as the nature of receipts, do not fall under the principle of res judicata. Therefore, the trust's argument for consistency based on previous assessments was not accepted.

Issue 4: Jurisdictional High Court decisions influencing assessment

The ITAT considered the jurisdictional High Court decision in the WIAA Club case, dissecting the elements of the Life Membership Fee to determine its tax treatment. The ITAT acknowledged the binding nature of High Court decisions on subordinate courts and tribunals. The ITAT directed the assessing officer to gather additional information on the objective and attribution of the fee and make a decision in line with the High Court's precedent. The trust was granted an opportunity to present its case during the reassessment process.

In conclusion, the ITAT allowed the appeal for statistical purposes, remitting the issue back to the assessing officer for further examination based on the High Court's decision. The trust was advised to provide necessary information to determine the tax treatment of the Life Membership Fee accurately.

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