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Chennai Corporate Club (P) Ltd. Versus ACIT, Company Circle I (3) , Chennai

2011 (8) TMI 1221 - ITAT CHENNAI

Nature of receipt - Membership fee received from the members was treated as revenue receipt liable to tax - I.T.A Nos. 2076 to 2080/Mds/2010 - Dated:- 8-8-2011 - Dr. O. K. Narayanan (Vice-President) And Hari Om Maratha (Judicial Member) For the Appellant : R. L. Ramani, Hema Muralikrishnan, Advocates For the Respondent : K. E. B Rengarajan, Jr. Standing ORDER Hari Om Maratha (Judicial Member) This is a bunch of five appeals, for assessment years 2001-02 to 2005-06, filed by the same assessee, vi .....

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year 2001-02 specifically, the club filed its return of income admitting total loss of ₹ 20,850/- on 27.10.2003. The assessee has been receiving Life Membership Fee and in this year this amount was ₹ 21,01,000/-. This amount is not refundable to the members even after the termination of life period of the members. But the Club has not offered this amount as income of the year, therefore, notice u/s 148 dated 28.3.2008 was issued. In response, the assessee has requested to treat the .....

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years. The assessee-club has received certain amount towards Life Membership Fee in each year but has not offered the same as its income of that year. Obviously, the amount of Life Membership Fee differs in each year. Thus, except for the amount of Life Membership Fee, all other facts are common in all these years. 3. After considering the version of the assessee -club, the Assessing Officer has taxed Life Membership Fee as a revenue receipt of the year. The ld. CIT(A) has also approved this con .....

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cts and on a mere change of opinion. 3. The amount of 21,01,000/- collected by the appellant towards life membership fees was capitalised by the appellants and clearly shown in the balance sheet. These returns were also accepted and assessment file closed. The judgments quoted by the Assistant Commissioner, namely judgment reported in 161 ITR 861 and 161 ITR 853 were very much available even at the time of original assessment when the returns were accepted and assessment files closed. Therefore .....

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held the revision to be bad in law. 5. The CIT (Appeals) ought to have seen that in the judgments reported in 295 ITR 333(Bom), 294 ITR 310(Del), 197 ITR 593(Bom), the High Courts have held that where the figures were reflected in the returns and returns accepted, then subsequent revision on the very same turnover by citing a different reason amounts to a change of opinion and such revision cannot be sustained. 6. The CIT (Appeals) ought to have seen that the officer was wrong in treating the a .....

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wards corpus fund is only a one time payment from each member and is non-recurring in nature. 9. The CIT (Appeals) erred in ignoring the fact that the appellant receives monthly/annual subscription from its members for the services/facilities offered by the appellant. It is only this receipt that is recurring in nature. 10. The CIT (Appeals) ought to have seen that the officer was wrong in proceeding on the footing that the liability ceases to exist after the termination of the life membership p .....

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o any service, facilities or advantages provided by the appellant is a clear pointer to the fact that there is no quid-pro-quo against such receipt. Therefore, such receipts are only capital receipts in the hands of the appellant. 12. The CIT (Appeals) erred in following the judgments of the Patna High Court in the case of CIT vs Beldih Club and CIT vs United Club reported in 161 ITR 861 and 161 ITR 853 in this connection. 13. The CIT (Appeals) failed to understand that in the case of CIT vs Cal .....

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er turns to profit by keeping it in his own possession and circulating capital is what he makes profit of by parting with it and letting it change masters (John Smith vs Moore 12 TC 266). 15. In the present case, the appellants have not parted with the corpus of the Life Membership Fee and have utilized it for creating the capital assets. The appellants have not parted with such corpus for the purpose of daily use. This itself clearly shows that the receipt of life membership fee is only capital .....

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ence, the authorities below have erred in treating the amount of Rs. 29,97,275/- received by the appellant towards its corpus fund as income and therefore, the computation of total income of Rs. 27,01,725/- for the assessment year 2005-06 is liable to be set aside. 4. We have carefully heard the rival submissions and have given our anxious thought to the facts and evidence available on record. Before we proceed to decide the main issue as to what is the nature of this receipt, it was noticed tha .....

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on the reasoning that statutory appellate remedy was available against the order of the ld. CIT(A). Thus, after the dismissal of the petition by the Hon'ble Supreme Court, the assessee filed the present appeals before the Tribunal. The appeals against the ld. CIT(A) s order ought to have been filed on or before 17.10.2010, but were filed after 51 days because of the route taken by the assessee on the basis of wrong advice. We find that this delay is neither willful or wanton but has occurred .....

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on the Club is in second appeal before us. We have extensively heard on this issue being a complex one. Before we understand the view point of the ld.AR as advanced before us, we would like to narrate some more facts to understand the exact nature of this receipt. Any person who would like to become a Member of the Club and wants to utilize the facilities available therein, is required to pay a Membership Fee to become its permanent member. On payment, the applicant shall be allotted Membership .....

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ed is utilized towards basic infrastructure which includes building, gum, playground and play items, maintaining cricket/football play grounds etc. Thus, according to the assessee, the main object of the Membership Fund is to create assets to be used by the Members for life time. In this way, this receipt has been excluded from revenue receipt and has been given the nomenclature of capital revenue. Contrary to this, the case of the Revenue is that the entrance fee which is called by the assessee .....

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Officer has finally concluded that this receipt has to be taxed in the hands of the Club in the respective years as a revenue receipt. 6. After cogitating in depth the rival stands, the answer to the question raised in these appeals is not very simple and direct. Instead of jumping to the judicial pronouncements, we have to first cull out the correct facts of this case. There is no doubt that the assessee is a Private Limited Company and in such cases, one has to dive deep to discern the exact n .....

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nd again repeated that the monthly subscription are only subscription collected from members but to avail the vivid activities of the Club have been treated as revenue receipt and reflected in the Profit & Loss Account would not decide the fate of the other receipt. This receipt has been correctly treated by the Club as revenue receipt but the entrance fee collected for one time to become the member of the club, even if it is of non-refundable nature, cannot be treated as a capital receipt o .....

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and Delhi Stock Exchange Association Ltd vs CIT, 41 ITR 495. The Hon'ble Patna High Court in the case of United Club (supra) has held as under: The Bombay High Court referred to Liverpool Corn Trade Association Ltd. vs Monks[1926] 10 TC 442(KB) but no reference was made to the Supreme Court cases reported in CIT v. Calcutta Stock Exchange Association Ltd. [1959] 36 ITR 222 and Delhi Stock Exchange Association Ltd. v CIT [1961]41 ITR 495 and so it is difficult to follow the decision of the B .....

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nue nature and is chargeable to tax in the hands of the club. 8. On the other hand, the ld.AR has relied, rather heavily, on the decision of Hon'ble Bombay High Court rendered in the case of CIT vs W.I.A.A. Club Ltd, 136 ITR 569. In that case it has been held that the entrance fee itself had two portions - one relatable to acquiring the right for availing the services and facilities extended by the club and the other towards annual subscription. In these circumstances, the first part has bee .....

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e facts of the Hon'ble Bombay High Court and the given facts are not resembling with each other. So, the decision of the Hon'ble Bombay High Court (supra) would not apply to the facts of this case rather it goes against the main contention of the ld.AR. The decision of Hon'ble Supreme Court rendered in the case of Delhi Stock Exchange Association Ltd vs CIT (supra) whose relevant portion has been reproduced by the ld. CIT(A) in para 7.5 of his order is of immense importance and we al .....

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d any monies received, but what was the nature of the receipts in question that was decisive of their taxability; and, therefore, the fact that the appellant company showed the admission fees as capital in its books was not decisive on the question of their taxability. (ii) that the amounts received as admission fees from the authorized assistants fell within the principle of the decision of the Supreme Court in Commissioner of Income tax, v. Calcutta Stock Exchange Association Ltd,[1959] 36 ITR .....

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as a revenue receipt chargeable to tax in its hands and not as a capital receipt as has been claimed. 10. We have also gone through the other decisions relied on before us. The facts in the case of Hon'ble Patna High Court s decision in the case of United Club(supra) states that the assessee club did not seek exemption on the principle of mutuality and this point was not raised before the Tribunal. Thus, the membership fee received from the members was treated as revenue receipt liable to ta .....

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