TMI Blog2004 (7) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee filed revised return in which it offered 45 per cent of the total time share receipt as income and the balance 55 per cent was kept as reserve to be amortized in 99 years. It was submitted that since the original return had been filed considering the credit comprising of the time share sale as income for the year, a revised return was filed to give effect to the real and prudent concept of accounting of time share sales. It was also explained that a member buying the time share was entitled to stay in the Hotel without any further payment of room charges for the aforesaid entire period of 99 years in the allotted slot of time in a year. It was further stated that since this was the time share sales of the company, the entire amount received against the time share sale was not income of the year of receipt, the assessee therefore, filed revised return in which 45 per cent of such receipt was offered as income liable to tax during the respective year under consideration. The Assessing Officer accepted the assessee's revised return and assessment order was passed in which 50 per cent of such receipts was brought to tax in place 45 percent offered by the assessee. 4. In its o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation was in sesin of the matter under section 263, who has passed his order on 24-3-2003. 6. From the record we find that in the assessment year 1996-97, against the order of the Assessing Officer for taking 50 per cent of time share income instead of 45 per cent offered by the assessee, the assessee approached to the Ld. CIT(A) for not accepting the assessee's contention for taking 45 per cent of the time share income. Before the Ld. CIT(A), it was contended by the assessee that time share unit sale price arrived at after estimating the capital cost involved in construction, furnishing, decorating the unit, the cost of maintenance for 99 years and the cost of marketing and administration for the unit. Based on this, the sale price has been bifurcated into 45 per cent and 55 per cent for recognition of income. 55 per cent has been considered as deferred revenue income and amortized in 99 years by considering 99th part of it as sale in each year. It was further submitted that the agreement entered between the customer and the assessee defines the lime share as a right to stay in the holiday resort and enjoyed all the amenities during the holiday week subject to the terms and cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year and the balance 55 per cent is accounted as income over a period of 99 years. This type of accounting treatment has also been made by the other Resorts engaged in the time share sales like Sterling Holiday Resorts India Ltd., Chennai, in support of which the appellant has produced copies of published documents of Sterling Holiday Resorts India Ltd. in respect of the accounting treatment of the time share sales. Considering that a similar reputed holiday resorts bifurcated the income at 45 per cent and 55 per cent, it can be treated as an Industry norms. It was further held by the Ld. CIT(A) that apportionment made by the assessee should not be disturbed unless there is a specific reason in support of the fact that the above apportionment is factually and substantially incorrect. 8. While arguing for the appeals filed against the order passed under section 263, the Ld. A.R. argued that the order passed by the Assessing Officer was not erroneous in so far as prejudicial to the interest of the revenue. He further submitted that the Assessing Officer has not blindly accepted the assessee's contention for taking 45 per cent as revenue receipt, but deliberated upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, entire amount received from the members under time share scheme constituted the income of the year of receipt. The Assessing Officer in the course of assessment under section 143(3) failed to bring 100 per cent receipt under time share scheme as income thereby causing loss to the revenue and making the order erroneous. He, therefore, submitted that the order passed by the Assessing Officer was erroneous in so far as prejudicial to the interest of the revenue and the CIT was perfectly justified in passing order under section 263 and thereby directing the Assessing Officer to bring 100 per cent of the receipt on account of time share scheme as income of the assessee. 11. We have considered the rival contentions, carefully gone through the orders of the authorities below and also the order passed by the CIT(A) for the assessment years 1996-97 and 1997-98. From the record we find that the assessee company is engaged in the business of hoteliering and setting up of resorts at different tourist destinations. The assessee was undertaking two commercial activities in the hotels. The first activity is selling the rooms to the drive in guests for shorter or longer duration, according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviding uninterrupted services to the customers over a period of 99 years is the prepaid income received in the first year for a period of 99 years. Thus according to the nature of the cost involved to arrive at the selling cost of time share unit, the assessed company had recognized the selling price of each time share unit as combination of revenue income and deferred revenue income. The revenue income is attributable to product cost and marketing cost, whereas the deferred revenue income is the portion attributable to the advance subscription from the customers for providing facilities to them in the future 99 years. The assessee has, therefore, treated 45 per cent portion as income of the year of receipt on account of sale of time share unit, whereas 55 per cent portion was transferred to reserve account and reckoned as a deferred revenue income. 1/99th of the same is credited to the profit and loss account each year and in 99 years the entire amount shall be recognized as the income. This is done in order to take care of maintenance expenditure of the resorts for the period for which the assessee was under obligation to provide such services to the customers of time share sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ributed to the selling administrative cost and the product cost of the time share unit sold. There is no dispute to the fact that 1/99th share of 55 per cent of time share receipt was brought to tax in every subsequent years. Against crediting of 1/99th share of such 55 per cent time share receipt, the assessee was to incur expenditure for maintenance of tourist destinations, etc. which the assessee company was under contractual obligation to provide uninterpretedly for the 99 years. No material has been brought on record by the CIT to controvert the fact that the assessee company was not under contractual obligation to provide services and facilities to the time share unit holders for further 99 years. 14. As per our considered view every receipt is not an income. Only those receipts which partake the character of the income of the current year will only be taxable during the current year, whereas the portion of receipt which is though in the nature of income but not the income of the current year, cannot be brought to tax during the current year. In construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer erroneous in so far as prejudicial to the interest of the revenue while not considering 100 per cent receipt as income of the assessee for the year of receipt. Hon'ble Supreme Court in the case of Malabar Industries Co. Ltd v. CIT [2000] 243 ITR 83 observed that the provisions of section 263 cannot be invoked to correct each type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous that the section will be attracted. It was further observed that an ITO adopting one of the course permissible in law and it has resulted in loss of revenue or where two views are possible and the ITO has taken one view with which the CIT does not agree it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the ITO is unsustainable in law. 16. As per our considered view section 263 does not visualize a case of substitution of judgment of the Commissioner for that of the ITO who passed the order unless the decision is held to be erroneous. It is because the ITO has exercised the quasi judicial powers vested in him in accordance with the law and arrived at a conclusion and such a conclusion cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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