2005 (7) TMI 290 - AT - Income Tax

Summary

Issues:
1. Adjustment of non-refundable 'time sharing membership fee' towards the written down value of block assets.
2. Taxability of 'time sharing membership fee' and treatment of pre-operative expenses and deferred revenue expenditure.
3. Addition on account of interest not charged on advances given to sister concern.

Analysis:

Adjustment of non-refundable 'time sharing membership fee':
The Revenue appealed against the CIT(A)'s order concerning the adjustment of 45% of the non-refundable 'time sharing membership fee' towards the written down value of the block of assets. The AO had reduced this amount from the written down value, citing an agreement from a previous year. The CIT(A) held in favor of the assessee, stating that the AO's reduction was not justified, and the income should not be enhanced as proposed. The Tribunal upheld the CIT(A)'s decision, emphasizing the valid agreement between the time shareholders and the company. The Tribunal also referred to a previous year's decision where the issue was resolved in favor of the assessee, rejecting the Revenue's appeal.

Taxability of 'time sharing membership fee' and treatment of expenses:
Regarding the taxability of the 'time sharing membership fee,' the AO had reduced a portion from the total receipts, which was challenged by the assessee. The CIT(A) ruled in favor of the assessee, stating that the reduction was not justified. However, in terms of pre-operative expenses and deferred revenue expenditure, the CIT(A) allowed a portion of these expenses, considering the unity of management and control and the bona fide nature of the claims. The Tribunal upheld the treatment of pre-operative expenses as capital expenditure but directed the AO to allow only a proportionate amount of deferred revenue expenditure based on the period of lease with subscribers.

Addition on account of interest not charged on advances:
The AO had made an addition on account of interest not charged on advances given to a sister concern. The CIT(A) deleted this addition, stating that the assessee had been paying interest to banks on short-term borrowings while advancing interest-free amounts to the sister concern on a long-term basis. The Tribunal partly allowed the Revenue's appeal, directing the AO to consider the interest charged on advances to the sister concern in accordance with the decision of the Allahabad High Court.

This comprehensive analysis covers the issues raised in the legal judgment, detailing the arguments, decisions, and reasoning provided by the authorities involved.