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2022 (4) TMI 1388 - AT - Income TaxRevision u/s 263 - Taxability being entrance fees received from the members treating the same to be a revenue receipt and taxable income of the Appellant - HELD THAT - Since the assessee has been validated that from AY 2004-05, he has been receiving entrance membership, which has never been brought to tax as revenue receipts in the hands of the assessee, even on the principles of consistency, the Ld. Pr. Ld. CIT(A), in our view, has erred in revising the order passed u/s 263 of the Act, without bringing on record any material change in facts from the previous years. In the result, we are of the view that in light of the discussion above, Ld. Pr. CIT has erred in facts and in law, erred in initiating proceedings u/s 263 of the Act and setting aside the assessment order on the ground that it is erroneous and prejudicial to the interests of the Revenue. - Decided in favour of assessee.
Issues Involved:
1. Legality of the CIT's order under section 263 of the Income Tax Act. 2. Merits of the taxability of entrance fees received by the assessee. Detailed Analysis: I. On Legality: 1. Erroneous and Prejudicial Order: The CIT held that the assessment order dated 21-12-17 under section 143(3) was erroneous and prejudicial to the interest of the revenue. The CIT directed further inquiries to examine the taxability of ?8,63,92,930/- received as entrance fees, treating it as a revenue receipt and taxable income of the appellant. 2. Lack of Personal Hearing: The assessee contended that the CIT passed the order without giving a chance of personal hearing. The AO had already examined the nature and character of the entrance fees during the assessment proceedings and considered it a capital receipt, hence not taxable. 3. Merger of AO's Order with CIT(A)'s Order: The assessee argued that the AO's order had merged with the CIT(A)'s order on the identical issue of taxability of subscription received from members, which are not taxable on principles of mutuality. 4. Cancellation of CIT's Order: The assessee requested the cancellation of the CIT's order, reinstating the AO's order. II. On Merits: 1. Nature of Entrance Fees: The CIT held that ?8,63,92,930/- received as entrance fees from members is a revenue receipt and hence taxable as income. The assessee argued that as per the Companies Act, Accounting Standards, and the accounting practice adopted since 1966-67, the entrance fees were treated as capital receipts. 2. Principles of Mutuality: The assessee contended that even if the entrance fees were considered revenue receipts, they are not taxable on the principles of mutuality. The fees were contributed by members who are also participators, a principle established by the Supreme Court, Gujarat High Court, and ITAT in the assessee's own case since 1966-67. 3. Past Treatment of Entrance Fees: The assessee highlighted that for the past 12 years, the entrance fees received were treated as capital receipts and not taxed as revenue receipts. This treatment was accepted by the Revenue. 4. Supporting Case Laws: The assessee relied on several decisions, including ACIT vs. Karnavati Club Ltd., CIT vs. W.I.A.A. Club Ltd., and CIT vs. Diners Business Services, which held that entrance fees charged by the club as a one-time fee for enrolment, which was non-refundable, were capital receipts. Tribunal's Findings: 1. Condonation of Delay: The tribunal condoned the 43-day delay in filing the appeal due to the nationwide lockdown on account of Covid-19. 2. Assessment of Entrance Fees: The tribunal noted that the principle of mutuality has been upheld by the Supreme Court in the case of State of West Bengal v. Calcutta Club Ltd., applicable to incorporated clubs. The CIT(A) had also accepted the assessee's view on non-taxation of certain receipts on mutuality principles. 3. Consistency in Treatment: The tribunal emphasized the principle of consistency, noting that the Revenue had accepted the treatment of entrance fees as capital receipts in previous years. The tribunal found no cogent reason provided by the CIT for disregarding the jurisdictional ITAT's decision in the case of ACIT vs. Karnavati Club Ltd. 4. Distinction from Delhi Stock Exchange Case: The tribunal distinguished the assessee's case from the Delhi Stock Exchange case, noting that the latter involved a trade association, whereas the assessee is a members' club governed by mutuality principles. 5. Erroneous Initiation of Section 263 Proceedings: The tribunal concluded that the CIT erred in initiating proceedings under section 263 and setting aside the assessment order, as it was neither erroneous nor prejudicial to the interests of the Revenue. Conclusion: The tribunal allowed the appeal of the assessee, setting aside the CIT's order under section 263 and reinstating the AO's assessment order. The tribunal emphasized the principles of mutuality, consistency in treatment, and the distinction from trade associations in its judgment.
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