TMI Blog2010 (9) TMI 476X X X X Extracts X X X X X X X X Extracts X X X X ..... expense of the assessee has to be bifurcated into two parts, i.e. the revenue expenditure and capital expenditure - Thereafter, as per the provisions of section 44A(3) there is further restriction for granting of deduction which has to be restricted to the extent of 50% of the total income of the association as computed before making any allowance under that section i.e. section 44A - No deduction is allowable u/s 44A(i), in the absence of any such deficiency of expenses incurred for the purpose of protection and advancement of common interest of members of the assessee - Instead of this, the assessee has claimed deduction to the extent of 50% of its gross total income without showing that it has incurred any expenditure for the purpose of protection and advancement of common interest of its members - This ground of revenue is allowed Regarding telephone expense - Ad-hoc disallowance was made by the A.O. on estimate basis without bringing any adverse material on record - This aspect is now covered in favour of the assessee by the judgment of Hon’ble High Court of Gujarat rendered in the case of Sayaji Iron Co. as reported in (2001 -TMI - 13175 - GUJARAT High Court) - ITA Nos. 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry fee is corpus receipt and hence it is includable in the income of the assessee. It is observed by the A.O. that the auditors have also not specified as to why the member entry fee is not taken in receipt/income of the assessee. He made addition of this amount in the income of the assessee by holding that it is an income and it is to be included into income irrespective of the nature of its receipt. Being aggrieved, the assessee carried the matter before Ld. CIT(A). Ld. CIT(A) has decided this issue in favour of the assessee by following the judgement of Hon ble High Court of Mumbai rendered in the case of CIT v. Diners Business Services Pvt. Ltd. as reported in 263 ITR 01. Now, the revenue is in appeal before us. Ld. D.R. supported the assessment order. 4.2 We have considered the submissions of Ld. D.R. for the revenue and have gone through the orders of authorities below. We find that the allegation of the A.O. is that the assessee did not file any evidence in support of this claim that the members entry fee is corpus receipt. Ld. CIT(A) has decided this issue in favour of the assessee by following the judgment of Hon ble High Court of Mumbai rendered in the case of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital receipt and cannot be added into income but assessee has to establish that this receipt is on account of acquiring right to avail the services or facilities extended by the assessee club. We, therefore, set aside the order of Ld. CIT(A) on this issue and restore the matter back to the file of the A.O. for a afresh decision in the light of above discussion. The assessee has to furnish evidence regarding its claim that this amount was received by the assessee as entry fee which was paid by the members to the assessee club in orders to acquire right to avail services or facilities extended by the club, then only, this judgment of Hon ble Bombay High Court can be applicable. The A.O. should also examine the provisions of by laws of the assessee club to find out what will happen if a member seizes to be member for any reason during the lifetime of the club. The applicability of the provisions of section 44A(1) should also be examined and, therefore, this issue should be decided afresh by the A.O. by keeping in view these factors and also the judgment of Hon ble Bombay High Court rendered in the case of CIT v Diners Business Services ( supra ), Ground No. 1 of the revenue s appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n his issue and restore that of the A.O. Ground No. 2 of the revenue s appeal is allowed. 4.5 In the result, this appeal of the revenue stands allowed as indicated above. 5. Now, we take up the appeal of the revenue for the Assessment Year 2005-06. 5.1 The ground No. 1 of the appeal reads as under: (1) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition ofrs.50,15,000/- made by the A.O. on account of member entry fees by treating it as revenue receipts disregarding the fact that the assessee had failed to file any documentary evidence in support of its claim. 5.2 It was submitted by the Ld. D.R. that this ground is identical to ground No. 1 in Assessment Year 2004-05. In Assessment Year 2004-05, this issue has been decided by us as per para 4.2 above and in that year, this issue was restored back to the file of the A.O. for a fresh decision. Accordingly, in this year also, the order of CIT(A) is set aside and the matter is restored back to the file of the A.O. for a fresh decision as per our direction given in Assessment Year 2004-05 as per para 4.2 above. This ground of revenue is allowed or s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y crystallized during this year but no basis is given by the Ld. CIT(A) for such observation. We, therefore, feel that this matter should go back to the file of the A.O. for a fresh decision after examining this aspect of the matter and hence we set aside the order of Ld. CIT(A) on this issue and restore the same back to the file of the A.O. for a fresh decision. The assessee has to furnish evidence before the A.O. in support of this contention that these expenses have actually crystallized during the present year. If the assessee can establish this, no disallowance in the present year is justified. The A.O. should pass necessary order as per law as per above discussion after providing adequate opportunity of being heard to the assessee. But the burden is on the assessee to establish this aspect. Ground No. 2 of the revenue is allowed for statistical purposes. 5.7 Ground No. 3 of the appeal reads as under: On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts New Delhi in law in allowing deduction of Rs. 4,08.693/- claimed u/s 44A(3) of the I. T. Act, 1961 even though the assessee had failed to fulfil the conditions laid down u/s 44A(3) for cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that sub-section (3) to section 44A restricts the allowable deduction u/s 44A(1) to 50% of total income of such association as computed before making any allowance u/s 44A (1) and hence no deduction can be allowed on the basis of sub-section (3) of section 44A until and unless the conditions prescribed u/s 44A(1) are fulfilled. 5.10 We have considered the submissions of Ld. D.R. and have gone through the orders of authorities below. We find that it has been noted by the A.O. that the assessee has claimed deduction to the extent of 50% of gross total income. We feel that for the purpose of deciding this issue the provisions of section 28(iii) and the provisions of section 44A are relevant and hence, we reproduce the same herein below: 28(iii):- Income derived by a trade, professional or similar association for specific services performed for its members Section 44A:- (1) Notwithstanding anything to the contrary contained in this Act where the amount received during a previous year by any trade, professional or similar associate (other than an association or institution referred to in clause 23A) of section 19 from its members, whether by way of subscription or o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n computation of income under any other provisions of this Act and those expenses, which are incurred solely for the purpose of protection and advancement of common interest of its members. Expenses of the first type are eligible for deduction against those receipt which are considered to be income as per section 28(iii). For the remaining expenditure, not being incurred for rendering any specific services to members has to be deducted from such other receipts not affected by section 28(iii) and if there is any deficiency on this account, deduction has to be allowed on account of such deficiency in computation of the income of association for the relevant Assessment Year under any other head. Thereafter, as per the provisions of section 44A(3) there is further restriction for granting of deduction which has to be restricted to the extent of 50% of the total income of the association as computed before making any allowance under that section i.e. section 44A. In the present case, deduction has been claimed by the assessee to the extent of 50% of the gross total income without showing that it had incurred any expenditure solely for the purpose of protection and advancement of common ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at assessee did not furnish any detail for the calls made for the business purpose of the club. After making these observations, the A.O. made disallowance to the extent of l/6th of the telephone expenses by treating it for personal purpose by the employees. In this manner, he made disallowance of Rs. 34,483/-. Being aggrieved, the assessee carried the matter in appeal before Ld. CIT(A) who had deleted the disallowance by. holding that disallowance was made by the A.O. on ad-hoc basis without any material on record which is not sustainable. Now, the revenue is in appeal before us. 5.13 Ld. D.R. for the revenue supported the assessment order. 5.14 We have considered the submissions of Ld. D.R. for the revenue and have gone through the orders of authorities below. We find that ad-hoc disallowance was made by the A.O. on estimate basis without bringing any adverse material on record. As per the A.O., use of telephone for personal purposes of employees, cannot be ruled out. This aspect is now covered in favour of the assessee by the judgment of Hon ble High Court of Gujarat rendered in the case of Sayaji Iron Co. as reported in 253 ITR 749 (Guj). By respectfully following thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. This ground of revenue is allowed. 6.4 In the result, this appeal of the revenue stand allowed in terms as indicated above. 7. Now, we take up the appeal of the revenue for the Assessment Year 2007-08. The grounds of appeal read as under: (1) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 36,29,000/- made by the A.O. on account of members entry fee of the club treating it as revenue receipt even though the assessee had failed to furnish any cogent evidence in support of its claim that the entrance fee received by the club during the-year is of capital nature and not liable to be added in the income of the assessee as revenue receipts. (2) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in allowing deduction u/s 44A(3) of the I. T. Act, 1961 even though the assessee had failed to fulfil the conditions laid down u/s 44A(4) for claiming such deduction. (3) On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in holding that the activities of the club are governed under mutual consent, any surplus, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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