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TMI Blog2013 (9) TMI 672X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year under appeal. The assessee is engaged in the business of running holiday homes on time share basis. Members are admitted as time shareholders and they are provided stay in the holiday homes maintained by the assessee for a specified number of days in a year. Whenever new members/customers subscribe to the membership of the assessee's holiday home plan, the assessee collects membership fees from them. The assessee provides holiday home facility for its members for a period of 25 years. A member is entitled to come and stay in the holiday home for a specified number of days in a particular year. While collecting membership fees from time shareholders, the assessee-company offers 60 per cent. of such membership collection as income of the year of collection. The balance 40 per cent. of the membership fees is treated as deferred income to be spread over the remaining period of holiday share owned by a member. In a 25 year plan, the 60 per cent. membership fees is treated as income of the assessee for the first year and the balance 40 per cent. is to be treated as income of the remaining 24 years on a pro rata basis. This method of recognising the income was not ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee-company is collecting such annual subscription charges as well as actual utilisation charges so as to meet the recurring expenses in connection with maintenance and management of the resort, the assessee is not offering the entire membership fees as its income for taxation. Only 60 per cent. of the membership fees is recognised as the income of the year and the balance 40 per cent. is spread over the remaining period of membership. The Commissioner of Income-tax (Appeals) has agreed with the assessing authority that the matching principle of accountancy is not observed and, therefore, the division of membership fee made by the assessee between 60 per cent. and 40 per cent., is not acceptable for the purposes of income-tax. The assessee, on the other hand, relied on the decision of the Incometax Appellate Tribunal, Chennai "B" Special Bench rendered in the assessee's own case in Asst. CIT v. Mahindra Holidays and Resorts (India) Ltd. [2010] 3 ITR (Trib) 600 (Chennai). In the said Special Bench decision, the Tribunal has held that two conditions are necessary to say that income has accrued to or earned by the assessee. They are : (i) it is necessary that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of CIT v. Calcutta Stock Exchange Association Ltd. [1959] 36 ITR 222 (SC) and in the case of Delhi Stock Exchange Association Ltd. v. CIT [1961] 41 ITR 495 (SC). The Commissioner of Income-tax (Appeals) observed that the above two judgments of the hon'ble Supreme Court were not placed before the Special Bench of the Tribunal when the matter was heard. Ultimately, the Commissioner of Income-tax (Appeals) followed the abovestated judgments of the hon'ble Supreme Court and held that the assessee is not justified in treating 40 per cent. of the membership collection as deferred to be spread over the currency of membership enjoyed by a time shareholder. The Commissioner of Income-tax (Appeals) upheld the finding of the assessing authority that the entire hundred per cent. of the membership fees is in the nature of income of the year of collection. Shri R. Vijayaraghavan, learned counsel appearing for the assessee, submitted that the issue stands covered by the decision of the Income-tax Appellate Tribunal, Special Bench, in the assessee's own case as reported in Asst. CIT v. Mahindra Holidays and Resorts (India) Ltd. [2010] 3 ITR (Trib) 600 (Chennai) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s like power, water, etc. The funds necessary for the annual services rendered by the assessee-company to its members are thus annually collected from the members themselves. Therefore, such expenses need not be reserved from the membership fee collected from the members at the time of admission. Further, the holiday home property owned by the assessee-company is not maintained for a particular member. The property remains that of the assessee and the assessee has to maintain the property as its business asset irrespective of the number of new members admitted and the number of members remaining in the list for their unexpired period. There is no nexus between a particular member and the maintenance of the holiday home owned by the assessee. Further, it is the explanation of the assessee that whenever a member is not provided with accommodation as reserved for the assessee-company is liable to pay liquidated damages to the member and it is necessary for the assessee-company to provide for such liabilities as well. But it should be seen that those liabilities are not in the nature of ascertained liabilities. They are only contingent liabilities. Such situation may or may no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult to agree with the contention of the assesseecompany that the revenue model of apportioning the membership collection between 60 per cent. and 40 per cent. is justified. We find that the revenue model adopted by the assessee is based on hypothesis and not on facts. On the other hand, the revenue model of treating the entire membership fee collection as income of the year of collection proposed by the Assessing Officer is more justified. It may be in the above context that another Bench of the Income-tax Appellate Tribunal, Chennai has held in the case of Sterling Holiday Resorts (India) Ltd. v. Asst. CIT [2007] 295 ITR (AT) 162 (Chennai) that the concept of deferred income is alien to the Income-tax Act. Income on its coming into existence attracts tax. The obligation to use the income in a particular manner does not remove it from the category of income even if the obligation is part of the original contract giving rise to the income. The income that is received or deemed to be received in the previous year is exigible to tax. But, in spite of the views expressed above, we find that we are bound to follow the judgment of the Income-tax Appellate Tribunal, Chennai "B" Special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee (amalgamated company). This ground is dismissed as not pressed. The assessee is partly successful in its appeal filed for the assessment year 2006-07. Next we will consider the appeal filed by the Revenue for the assessment year 2006-07 in I. T. A. No. 1762(Mds)/2011. The first issue raised in this appeal filed by the Revenue is that the Commissioner of Income-tax (Appeals) has erred in directing the Assessing Officer to verify the expenditure incurred by the assessee during construction and allow the same if it was incurred on furniture. It is the case of the Revenue that the Commissioner of Income-tax (Appeals) has failed to appreciate that the expenditure on furniture is clearly a capital expenditure, which would not be allowable as revenue expenditure. It is the further case of the Revenue that the furniture procured during the construction period were not put to use and not even eligible for depreciation. In fact, this issue was decided in the assessee's appeal considered for the very same assessment year. The Commissioner of Income-tax (Appeals) has in fact remitted the issue to the Assessing Officer to verify whether the expenditure totalling to R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership fees deferred by the assessee for future assessment years. In the light of our order for the earlier assessment year 2006-07, this issue is decided in favour of the assessee and the ground is allowed. Accordingly, the addition of Rs.98,21,25,733 is deleted. The second ground raised by the assessee is that the Commissioner of Income-tax (Appeals) has erred in directing the Assessing Officer to verify the expenditure of Rs. 72,72,750 and allow it if the same was incurred on salaries, rent, repairs, interest and furniture. As held for the earlier assessment year 2006-07, this ground raised by the assessee is dismissed. The third ground raised by the assessee is that the Commissioner of Income-tax (Appeals) has erred in confirming the disallowance of market research expenditure of Rs. 85,28,395 holding it to be capital in nature. The assessee had incurred Rs. 85,28,395 towards market research expenses for launching a new holiday concept called "zest". The expenditure was incurred in making payment to M/s. IDEO, which provides design, conceptualisation and market research to help the assessee to launch the new business concept. The Commissioner of Income-tax (Appeals), in agree ..... X X X X Extracts X X X X X X X X Extracts X X X X
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