TMI Blog2013 (9) TMI 672X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, it is very difficult to agree with the contention of the assessee company 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 - But in view of the decision of special bench in ACIT Versus Mahindra Holidays & Resorts (India) Ltd. [2010 (5) TMI 524 - ITAT, CHENNAI] - Decided in favour of assessee. Expenditure on procurement of furniture - whether revenue expenditure in nature - Held that:- Furniture is a capital asset. Rules have provided separate rate of depreciation in the case of furniture and fixtures. They are distinct block of assets. Therefore, the expenses incurred for procuring furniture cannot be allowed as a deduction in the nature of revenue expenditure. As the furniture was not used for the purpose of the business, depreciation also cannot be granted. Therefore, the direction of the Commissioner of Income-tax (Appeals), as far a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 accepted by the Assessing Officer. The Assessing Officer found that even if a time shareholder is entitled to enjoy the privilege of staying in the holiday homes of the assessee for a period of 25 years, the assessee-company is not incurring any expenditure in the subsequent years for providing such facilities to the members. In addition to the membership fees collected by the assesseecompany, the assessee is also collected upkeep and maintenance charges from the membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 assessee must have contributed to its accruing or arising by rendering services or otherwise, and (ii) a debt must have come into existence and he must have acquired a right to receive the payment. In the present case, a debt is created in favour of the assessee immediately on execution of the agreement. However, it cannot be said that the assessee has fully contributed to its accruing by rendering services. The assessee is bound to provide accommodation to the members for one w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) and, therefore, the Commissioner of Income-tax (Appeals) has erred in upholding the decision of the assessing authority on this issue. He contended that the decision of the Special Bench passed in the assessee's own case is binding on the Commissioner of Income-tax (Appeals) and he ought to have allowed the contention of the assessee by following the said decision of the Special Bench. Shri Shaji P. Jacob, the learned Commissioner of Income-tax appearing for the Revenue, supported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 not arise. The liability is to be settled only if such situation arises. The connected expenses also can be recognised only at that point of time. Therefore, there is not much force in the argument of the assessee that some portion of the membership fee collection should be reserved for meeting such future contingent liabilities. From the accountancy point of view also, the 60 per cent. and 40 per cent. division made by the assessee is very cumbersome and perpetually indefinite. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 Bench rendered in the assessee's own case for the assessment years 1998-99 to 2002-03. In the said decision rendered in the case of Asst. CIT v. Mahindra Holidays and Resorts (India) Ltd. [2010] 3 ITR (Trib) 600 (Chennai), the Special Bench has held that 40 per cent. of deferment of membership fee resorted to by the assessee is justified. The said decision of the Special Bench is rendered in the assessee's own case in exactly similar circumstances. Therefore, the rule of precedenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Rs. 3,12,77,264 was incurred on salaries, rent, interest, repairs and furniture and if so proved, deduction to be allowed thereon. In this context the Revenue is aggrieved on the direction pertaining to that of furniture. Expenses relating to salaries, rent, interest and repairs are revenue in nature. But it is the case of the Revenue that the expenditure for the purpose of procuring furniture cannot be revenue expenditure. We agree with the argument of the Revenue. Furniture is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alaries, 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 agreement with the Assessing Officer, found that these expenses related to setting up of another business, different from the business of selling time share units carried on by the assessee-company. Therefore, he relied on the judgment of the hon'ble Bombay High Court in the case of CIT v. J. K. Chemicals Ltd. [1994] 207 ITR 985 (Bom) and held that those expenses were in fact capital in nature. He accordingly confirmed the disallowance. We agree with the lower authorities that the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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