TMI Blog2015 (7) TMI 932X X X X Extracts X X X X X X X X Extracts X X X X ..... of the agreed services by the receiver is rendered. - Following the decision of Asst. CIT v. Mahindra Holidays and Resorts (India) Ltd. (2010 (5) TMI 524 - ITAT, CHENNAI) we hold that the assessee was justified in deferring the revenue for taxation for four years. Respectfully following the above order of the ITAT, we set aside the issue as far as determination of taxability of the receipts received in this year to the file of the AO. The ld. AO shall re-work the amount out of the contribution received in this year on the basis of the Tribunal’s findings in the Asst.Year 2001-02. In other words, the receipt received by the assessee during the accounting period relevant for this assessment year is also to be spread over, over a period of five years. The total receipt cannot be assessed in this year. Enhancement made by the ld.CIT(A) is concerned, we do not find any error in the order of the ld.CIT(A), because, the assessee ought to have shown that the amount as income on the basis of claim made in earlier years, i.e. whatever amount representing the alleged 1/5th ought to be offered for taxation in this year. The ld.First Appellate Authority has rightly made the enhancement. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -09, the assessee has received contribution of ₹ 1,70,76,612/- from new members for life-time membership to avail effluent disposal facility offered by the assessee-company. 4. The issue before us is whether the contribution received from the members is to be assessed in the year of receipt or assessee is to be permitted to spread over, over a period of five years. According to the AO, the contribution is to be assessed as income of the assessee in the year of receipt, whereas, in this year, the assessee alleged that it is capital contribution and no liability can be fastened upon the assessee. 5. On appeal, the ld.First Appellate Authority has rejected the contentions of the assessee that it is capital contribution by following the order of the Tribunal in the Asstt.Year 2001-02. However, the ld.CIT(A) observed that the assessee did not follow the method as followed in earlier years. It has not spread over receipts over a period of five years. Accordingly, the ld.First Appellate Authority has confirmed the addition of ₹ 1,03,15,000/-. 6. The ld.First Appeallate Authority further found that as far as the amount received by the assessee in earlier years and spre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to tax entire receipt in the year of receipt. Hon. Special Bench referred to the decision of Hon. Supreme Court in E.D. Sassoon Co. Ltd. vs. CIT (1954) 26 ITR 27 (SC) and referred to observation of their Lordships on page 52 of 26 ITR, wherein the Hon. Apex Court observed that unless and until managing agents complete 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. Thus no remuneration or commission could therefore be said to have accrued to them at the dates of the respective transfers. Thus unless and until the agents earn their commission it will not accrue to them. But in order that the income can be said to have accrued to or earned by the assessee, it is not only necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise but he must have created a debt in his favour. A debt must have come into existence and he must have acquired a right to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar nature of the activity along with the complexity attached to it as result of which no reasonable provision for the liability can be made. Therefore, recognizing the entire receipt as income in the year of receipt can lead to distortion. Somewhat similar, though not exactly identical situation was faced by the Supreme Court in the case of Madras Industrial Investment Corporation Ltd. vs. CIT (supra). In that case, the assessee had issued debentures of ₹ 1.5 crores at a discount of 2 per cent redeemable after 12 years. At p. 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 is 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 earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. Now we refer to the user agreement which the new member signed with the assessee company. Following clauses are considered as important :- (8) CAPITAL CONTRIBUTIONS means contribution towards capital/ expenditure incurred/ lobe incurred by EFFLUENT CHANNEL PROJECT LIMITED for its activities. (9) M R CONTRIBUTION means payment of fees for the Maintenance and Repairs of the EFFLUENT CHANNEL annually. (10) TREATED EFFLUENT means Liquid Effluent discharged after treatment as per the GPCB Consent conditions into the EFFLUENT CHANNEL OF EFFLUENT CHANNEL PROJECT LIMITED. (11) COMPANY means EFFLUENT CHANNEL PROJECT LIMT1ED (ECPL) provided for the conveyance of treated effluent as per the GPCB conditions up to the safe disposal, received from the participants. (12) COMMITTED QUANTITY means the quantity of effluent per day, to be discharged by each participant as agreed and specified in his application. PERIOD OF AGREEMENT : (13) This AGREEMENT shall come into force from the date it is signed and shall remain operational for a period of 99 years. DELIVERY OF EFFLUENT : (14) That the PARTICIPANT is a private limited; public limited/ par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus it cannot be said that income has actually accrued to the assessee in one year even though it might have received it in one year. Merely receipt does not ensure accrual unless equivalent part of agreed services by the receiver is rendered. In fact by paying one time fees a part of debt is created against the assessee which has to be discharged by meeting equivalent obligation in the form of continuing to provide use of the capital structure for efficient discharge of effluent emitted by member-industries. Even accounting standard -9 provides such deferring of revenue for taxation. Accounting Standard 9 has been referred above and para 6 thereof is relevant. 13. Following the above decision of Special Bench in the case of ACIT vs. Mahindra Holidays Resorts (India) Ltd. (supra) we hold that theassessee was justified in deferring the revenue for taxation for four years. Accordingly this ground of assessee is allowed. 8. Respectfully following the above order of the ITAT, we set aside the issue as far as determination of taxability of the receipts received in this year to the file of the AO. The ld. AO shall re-work the amount out of the contribution received in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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