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TMI Blog2012 (7) TMI 651X X X X Extracts X X X X X X X X Extracts X X X X ..... ACIT Versus Mahindra Holidays & Resorts (India) Ltd. (2010 (5) TMI 524 - ITAT, CHENNAI) followed. Expenditure on salary, rent, interest, repairs and furniture. - there is no material on record to show the entire amount of Rs. 1.6 crores are on account of revenue expenditure like salaries, interest, rent etc. and no part of the expenditure under the head ‘construction expenses pending allocation’ includes any expenditure incurred for acquiring new capital asset. In the above circumstances, in our considered view, the CIT(A) was justified in directing the Assessing Officer to allow revenue expenditure after verifying if the amounts were for salaries, rent, interest etc. Therefore, this ground of appeal of the assessee is dismissed. - ITA No.1613/Mds/2011, ITA No.1761/Mds/2011 - - - Dated:- 25-5-2012 - SHRI N.S.SAINI, SHRI VIKAS AWASTHY, JJ. Assessee by : Mr. H.P.Mahajani, C.A., Revenue by : Mr. Shaji P.Jacob, Addl. CIT O R D E R PER N.S.SAINI, ACCOUNTANT MEMBER: These are cross appeals filed by assessee and revenue against the order of the CIT(A), LTU, Chennai dated 25.08.2011 in assessment year 2005-06. 2. The first ground of appeal of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration before me in appellant s own case for A.Y. 2006-07 in ITA No.458-ITA Tr.07/10-11LTU(A) . After considering the facts of the case, submission of the appellant, decisions relied on by rival parties and other relevant materials, the ground was dismissed in ITA No.458- ITA Tr.7/10-11/LTU(A) dated 25.08.2011 for A.Y.2006-07. For the reasons stated in the above order, the ground is dismissed. 6. The learned A.R. submitted that since the issue was covered in favour of the assessee in assessee s own case by the decision of the Chennai Special Bench of the Tribunal reported at 131 TTJ 1, therefore following the same, the ground of appeal of the assessee should be allowed. He also submitted that the appeal of the revenue against the said decision of the Special Bench of the Tribunal filed by the revenue has still not been admitted by the Hon ble High Court as submitted by the learned D.R. during the course of hearing. Therefore, the order of the Special Bench which is binding on the Division Bench should be followed and the ground of appeal of the assessee should be allowed. 7. On the other hand, the learned D.R. has filed written submissions, wherein it is submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mencing from the agreed date. Under the agreement, the assessee made available the resort to the customers to provide the various amenities and facilities in the resort for a speci-fied period each year during the period of ninety-nine years. Towards the cost of providing these amenities and facilities, the assessee collected a specific sum as an advance subscription towards customer facilities such as (i) exchange facility, (ii) floating facility, (iii) split-week facility ; and (iv) accommodation facility. During the assessment year 2001-02, the assessee received sums from the customers to whom the assessee extended usership right in terms of the agreement entered into with each customer. The assessee treated the forty-five per cent. of the receipt as revenue and the remaining fifty-five per cent. as advance subscription towards customer facilities. This was offered as income in equal instalments over the number of years for which the usership right was extended to the customers. The Assessing Officer treated the fifty-five per cent. as the income of the assessee. This was confirmed by the Commissioner (Appeals). On appeal : Held, dismissing the appeal, it was not clear as to w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der:- 23. We have duly considered the rival contentions and the material on record. Thousands of litres of ink have been consumed lavishly over the past more than hundred years in discussing the concept of accrual and yet there is no end to it, and rightly so as it indicates the ever changing dynamics of business and commerce. Hospitality business, though in existence since more than hundred years, it has come into limelight recently with several variants and sale of timeshare unit is one such variant with which are concerned in the present group of appeals. 24. The dynamics of how timeshare industry works is not difficult to grasp. The company will set up several resorts at tourist places, either on its own or take such resorts on lease or may enter into arrangements with other resort owners. The company will grant membership on payment of certain amount. On payment of the amount, the member acquires membership for a specified number of years. During the currency of the membership, the member gets a right to have a holiday for one week in a year at the place of his choice from amongst the places offered by the company. The types of membership may differ depending on the type ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sident and includes all income which (a)Is received or is deemed to be received in India in such year by or on behalf of such person; or (b)Accrues or arises or is deemed to accrue or arise to him in India during such year; or (c)Accrues or arises to him outside India during such year. As per section 29 of the Act, the profits and gains of business or profession have to be computed in accordance with the provisions contained in sections 30 to 43D of the Act which in nutshell means that it is the net income which is taxable and not the gross income. Net income has to be arrived at after allowing all deductions permissible under the Act. In the backdrop of these facts and statutory provisions, we have to examine whether the income received by the assessee has really accrued to it or not. The most enlightening judgment in this regard and which has also been the bedrock of subsequent decisions, is that of the Supreme Court in the case of E.D. Sassoon Co. Ltd. (supra). 26. The assessee in that case (the Sassoons for short) were the managing agents for three companies. They were entitled to receive as their remu-neration, a commission of certain per cent per annum on the ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved that the Sassoons had no doubt rendered services as managing agents of the companies for the broken periods. But unless and until they completed their performance, viz., the completion of the definite period of service of a year which was a condition precedent to their being entitled to receive the remuneration or commission stipulated thereunder no debt payable by the companies was created in their favour and they had no right to receive any payment from the companies. No remuneration or commission could, therefore, be said to have accrued to them at the dates of the respective transfers. In the present case, of course, the fees are payable on the execution of the contract between the company and the prospective member. Once a person agrees to become member the fees are immediately payable to the company. It becomes a debt payable by the person to the company. In that sense income has arisen to the company. However, the question is whether it has accrued to the company or not. In this connection, the Supreme Court has explained the meaning of the word earned and we reproduce the relevant observation below (pages 51 52 of 26 ITR) : "The word "earned" even though it doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o availability. In other words, if the resort requested for is not available, the member would be deprived of the holiday. If the assessee confirms the reservation but is not able to provide the allotted or the alternate accommodation, assessee is liable to pay liquidated damages to the member. It is worth noting that the assessee is liable to pay liquidated damages only if it is not in a position to provide accommodation as per confirmed reservation. But it is not liable to pay any damages if it is not able to provide an accommodation on account of non-availability. Under such circumstances, the only recourse for the member is to approach the Consumer Forum which will term it as deficiency in services and direct the assessee to pay damages. The point we are trying to drive home is that the matter does not end on signing of the agreement and on a person becoming a member. There is a continuing liability on the part of the assessee not only to provide accommodation but also to provide other incidental services attached with the accommodation. This is an important aspect of the matter. 28. It has been argued on behalf of the assessee that the main reason to spread the balance amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact, the Supreme Court has also used the words "contingent liability" for warranty expense and allowed deduction in the case of Rotork Controls India (P.) Ltd. v. CIT [2009] 314 ITR 62 1. Therefore, coming back to the point of making provision, even if the assessee had chosen to provide for the liability in every year to comply with the matching concept, it would have been wholly unscientific and arbitrary. At this juncture, when we are making the observation that the assessee has incurred a liability to provide accommodation, it would be appropriate to deal with the argument of the department in connection with be affidavit filed by the assessee before the service tax authorities. The department is banking on the averment in the affidavit to the effect that once the agreement is signed, there is no service left to be rendered by the assessee. This argument has to be rejected. The department itself admits, that the assessee is bound to provide accommodation for one week in a year during the tenure of the membership. Secondly, by saying that no service is left to be rendered, what the assessee means to say is that there is no taxable event under the Service Tax laws once a person b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, i.e. during vacation in schools and this can put a lot of pressure on the assessee to satisfy each and every member. It will have to disappoint certain members for non-availability of accommodation and this may invite outflow of resources. There may be a demand for a particular resort but the assessee may not be able to provide it if the same is under some major repairs or renovation. These types of contingencies will always entail outflow of resources for the assessee in future. Therefore, we are of the view that there is every possibility of an obligating event arising which will result in an outflow of resources. 30. A question may be raised that if the obligating event is sure to arise, the assessee could have made reasonable provision every year which would meet the matching concept also. Let us see how it is not possible. In the case of Rotork Controls (supra), the Supreme Court has observed that a provision is recognised when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Industrial Investment Corpn. Ltd. (supra). In that case, the assessee had issued debentures of Rs. 1.5 crores at a discount of 2 per cent redeemable after 12 years. At page 813 of the report, the court observed that ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. It is this distortion we have talked about in the earlier part of this paragraph. The only difference is that in the case of Madras Industrial Investment Corpn. (supra), the distortion was supposed to be on account of expenditure, in the present case the distortion is on account of the entire income being accounted in the year of receipt. Earlier, we have also discussed as to how difficult it is to estimate the liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (India) Ltd. has to be followed. We find that the decision of the Special Bench being a decision of Larger Bench, the same has to be followed by us and therefore we do not find any merit in the argument of the learned D.R. In support of his contentions, the learned D.R. relied on the following case laws:- 1. Gopal Saran Narain Singh Vs. CIT., 31 ITR 237, 2. Ashoka Viniyoga Ltd.Vs. CIT., 84 ITR 264 (SC) 3. Chowrangee Sales Bureau Pvt. Ltd., 87 ITR 542 (SC) 12. The issue in the present appeal is that whether the amount received on account of time sharing units is to be taxed in the year of receipt when it is a fact that services are to be rendered by the assessee in subsequent years also. It was submitted that in the case of Gopal Saran Narain Singh Vs. CIT., 31 ITR 237, it is held that anything which can be properly described as income is taxable under the Income Tax Act unless expressly exempted . It was also submitted that in the case of Ashoka Viniyoga Ltd.Vs. CIT., 84 ITR 264 (SC), it is held that the mode or system of book keeping cannot override the substantial character of a transaction. It was further submitted that in the case of Chowrangee Sales Bureau Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort is in continuation of the existing business and hence treated as revenue expenditure. Common resources are deployed for carrying on the project/construction/acquisition at all the existing and proposed locations and the expenses of these resources like salary, travel rent constitute the expenses. Since these resources are common it will be difficult to monitor the expenses incurred in the books project-wise and hence providing break-up of these expenses at project level is not feasible. Similar items claimed by the company for the assessment year 1998-99 has been disallowed by the department during the course of assessment on the ground that the same has to be capitalized. The CIT(A) has upheld the company s treatment on the ground that there is unity of control as far as the projects that have come up for which expenditure under consideration has been made and expenses incurred are for expansion of the existing business and not for a separate line of business. The Tribunal has upheld the order of the CIT(A) when the department has gone on appeal against the order of CIT(A). The Assessing Officer after considering the submissions observed that on the direction of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at when the CIT(A) has allowed the claim for expenditure of the assessee following the order of the Tribunal for the assessment year 2006-07 and restored the issue back to the file of the Assessing Officer for verification, there was no grievance to the assessee against the order of the CIT(A). Therefore, appeal of the assessee is liable to be dismissed. He submitted that the revenue is against the direction of the CIT(A) to allow the deduction of expenditure like furniture which is a capital expenditure. 16. On the other hand, learned A.R. of the assessee submitted that CIT(A) was not justified in restoring the matter back to the file of Assessing Officer but should have allowed the appeal of the assessee. 17. After hearing the submissions of both the parties, we find that the CIT(A) in deciding the issue under consideration has followed the order of the Tribunal passed in the case of the assessee itself in the assessment year 1998-99. The learned D.R could not point out that the order of the Tribunal was varied by any higher authority on appeal or there was no distinguishable facts in the present case than the facts involved in the assessment year 1998-99. Therefore, we do no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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