9911796707
TMI Blog2016 (11) TMI 1054X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax Act,1961 ( hereinafter called " the Act") vide assessment orders dated 23-12-2010 , while for assessment years 2004-05 to 2007-08, the assessments were framed by the AO u/s 143(3) read with Section 147 of the Act by reopening the concluded assessments on the identical grounds as are covered by the assessment year 2008-09 vide assessment framed u/s. 143(3) of the Act. These cross appeals for the assessment year 2008-09, filed by the assessee and the Revenue, being ITA No. 7905/Mum/2011 and ITA no. 8140/Mum/2011 respectively , are directed against the appellate order dated 28th October 2011 passed by learned Commissioner of Income Tax (Appeals)- 19, Mumbai (hereinafter called "the CIT(A)"), for the assessment year 2008- 09, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 23rd December 2010 passed by the AO u/s 143(3) of the Act. The grounds of appeal raised by the assessee in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called "the Tribunal") in ITA no 7905/Mum/2011 read as under:- "1. The order passed by the learned CIT(A) is bad in law. 2. The learned CIT(A) erred in limiting relief on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mming pool, squash court, tennis court , banquet hall, party lawn, bar and restaurant etc. The assessee is earning income from the aforesaid facilities which are provided to its members. a) Club Entrance Fees: On perusal of the Balance Sheet , the AO during the course of assessment proceedings u/s. 143(3) read with Section 143(2) of the Act observed that the assessee has shown "Club Membership Enrolment fund' of Rs. 37,00,40,238/- and the assessee was asked to explain the same. From the details submitted by the assessee which are depicted vide chart in page 2 of the assessment order dated 23-12-2010 , it was observed by the AO that the members entrance fee received by the assessee during the previous year relevant to the assessment year was Rs. 4,50,90,574/- excluding refundable deposit of Rs. 12,80,142/- and Rs. 2,15,25,923/- . It was observed by the AO that the entrance fee received by the assessee was not included in income in the return of income filed with the Revenue. The said club entrance fee is not included in the income by the assessee in preceding assessment years nor in the subsequent years. The AO observed from perusal of the audit report that in notes to accounts , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refundable deposits, received on application from members. The assessee submitted that the amount received from the members as non-refundable entrance fee will be transferred to the Member's Entrance fees account and will be adjusted as income proportionately during the tenure of Membership from the year the club will become fully functional and the members are provided all the facilities agreed upon at the time of enrollment. The refundable deposits will be included under the head Current Liabilities as Member's Deposit form the year in which the club become fully functional. The assessee submitted that the aforesaid accounting treatment is followed in terms of Para 12 read with Appendix Para B-6 of the accounting standard AS-9 on Revenue Recognition issued by the ICAI. The AO rejected the contentions of the assessee and observed that the perusal of the Profit and Loss Account reveals that the assessee has already shown income from coaching of squash, income from banquet, commission on banquet sales, commission on coffee shop sales, commission on liquor sales, commission on restaurant sales etc. and hence there is not an iota of truth in the submissions of the assessee and the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est. In addition the members are obliged to pay regular membership fees to the assessee on annual basis. The assessee submitted that it started levying annual charges w.e.f. 01-01-2005. The club project is still in construction stage as at 31-03-2008 and club is yet to become functional. Since the club is under construction the members effectively have no right at all. The members presently have limited use of part facilities and hedging against the possible risk of enhancement in the entrance fees. Beyond that members have no right in the management, construction and administration of the club or the assessee company. It was submitted that the entrance fees portion of membership fees paid at the time of enrollment is capital receipt and not liable to tax. Entrance fees is precondition to membership. It is not price paid for enjoying membership but is a price paid for obtaining the membership. It was submitted that it is different from life membership which can be regarded as one time receipt in substitution of recurring receipts. Thus, it was submitted that entrance fees is capital receipt which is supported by the decision of Hon'ble Bombay High Court in the case of CIT v. WIAA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facilities which are nearing completion shall be opened in due course. The clause 3 in the agreement provided that the membership shall be for a period of twenty five years commencing from the date of inauguration of coffee shop, restaurant bar. It was provided in the agreement that the advance membership fee will be paid in advance by the members towards the enjoyment of facilities provided by the Club and / or to be provided from time to time and shall be appropriated by the assessee on time basis over the tenure of membership. The clause 4 of the agreement provided for refund of the said advance membership fees. Thus, it was submitted that there is a contractual obligation on the assessee to appropriate the said advance membership fees over the tenure of membership and same cannot be brought to tax in its entirety in the year of receipt. Thus, it was submitted that the advance membership fees is received in advance by the assessee and shall be offered for taxation as income over the tenure of the membership commencing from the agreed date. Thus, it was submitted that as per contractual terms, the said advance membership fee has not accrued to the assessee as income and in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions of the assessee and held the same to be untenable due to following reasons: a) It was observed by the AO that the assessee has received entrance fees and refundable deposits. The assessee has stated that the club has started levying annual subscription from 01-01-2005 and the club is still under construction. The perusal of accounting policies attached to the audited financial statements reveal that the assessee has received one time non refundable entrance fee from nominal members which is treated as income by the assessee and transferred to the profit and loss account. The assessee has three types of membership schemes viz. The CMJ membership, CMJ(nominal) membership and CMJ(Advance membership) . The assessee was treating non refundable entrance fee under nominal membership scheme as income while the entrance fee received under the two other types of membership schemes had not been shown as income, while the services /facilities which are being availed by the members of all the three types of schemes are same and hence on the same analogy the entrance fee received with respect to all the three schemes should have been offered for taxation by the assessee. b) The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty charges and hence ratio of the case law relied upon by the assessee is not applicable in the instant case. The AO also held that as per AS-9 , the entrance fee has to be recognized as income in the year of receipt. The AO also distinguished the case relied upon by the assessee in the case of Madras Industrial Investment Corporation v. CIT (1997) 225 ITR 802(SC) as the said case law dealt with expenditure incurred by the tax-payer by way of discount paid to the persons who had subscribed to the debentures issued. The AO observed that the said decision is with respect to expenditure which is to be spread over a number of years and the facts in the instant case are totally different , the ratio of decision of the Hon'ble Supreme Court in the said case is not applicable to the instant case. Thus, it was held that as per AS-9, the entrance fees is to be taxed in the year of receipt. The AO also held that as per AS-9 adopted by the assessee , the advance membership fee is to be brought to tax in the year of receipt. The assessee cannot treat the advance membership fees on a different footing than the other membership schemes for taxation purposes. The assessee company is collecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal and hence the assessee's contention that entrance fees and advance membership fees are not taxable is not tenable. Thus, the AO held that the club is fully functional and the assessee is trying to postpone its tax liability indefinitely by showing the club as non functional. The assessee has deferred the income which was chargeable to tax and postponed taxability of income. The AO held that membership entrance fees received by the assessee in the year under consideration , has to be taxed in this assessment year. The assessee having received Rs. 4,50,90,574/- as membership entrance fees which is inclusive of advance membership fees received of Rs. 4,18,93,567/-. The AO held that advance membership fee is also of the same nature as the regular entrance fees i.e. allowing member a right to enter in the club and use its various services/facilities by paying the appropriate annual fees and services charges and hence the advance membership fee received by the assessee during the previous year relevant to the instant assessment year is also taxable in the instant assessment year. The AO relied on decision of Hon'ble Patna High Court in the case of CIT v. United Club (1986) 161 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lub (2010- 004-ITR(Trib.) 174 Ahm.) held that non refundable one time entrance fee which is charged for the enrolment from members of Rs. 31,34,037/- be treated as capital receipt and shall not form part of total income vide appellate order dated 28.10.2011 passed by learned CIT(A). With respect to advance membership fee of Rs. 4,18,96,537/- which was collected in the first year for a tenure extending up-to 25 years , it was noticed by learned CIT(A) that the advance membership fees is essentially a payment for brand image , for the capital works and future maintenance of the utilities. The learned CIT(A) observed that the assessee's club started operation from assessment year 2003-04 as operational income was disclosed from that year. It was also observed that all the facilities were not created/functional from assessment year 2003-04 and capital work in progress was continuing and that as on 31-03-2008 , the capital work in progress stood at Rs. 22.85 crores , and as on 31-03-2011 it was Rs. 7.69 crores . The learned CIT(A) observed that the assessee admitted before him that 70% of the planned utilities were completed by 31-03-2008. The learned CIT(A) held that the assessee is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase laws: a) CIT v. Diners Business Services Private Limited 263 ITR 1(Bom.) b) CIT v. W.I.A.A Club Limited 136 ITR 569(Bom.) c) ACIT v. Karnavati Club Limited 4 ITR Trib. 174-Ahd. Trib d) ACIT v. Mahindra Holidays and Resorts India Limited 59 SOT 438 (Chennai -SB) e) CIT v. Aspee Distributors Association (1994) 209 ITR 294(Bom.) The learned DR on the other hand supported the orders of the AO and relied on decision of Hon'ble Patna High Court in the case of CIT v. United Club (1986) 161 ITR 853(Pat. HC) and Hon'ble Supreme Court decisions in the case of CIT v. Calcutta Stock Exchange Association Limited (1959) 36 ITR 222(SC) and Delhi Stock Exchange Association Limited (1961) 41 ITR 495(SC) and others. 8.We have considered the rival contentions and perused the material on record including the case laws relied upon by both the parties. It is important to briefly discuss the entire background of the case first before proceeding to decide the issues. We have observed that the assessee is a Private Limited Company and is a company limited by shares, registered with Registrar of Companies , Mumbai incorporated on 27-12-1995 .The assessee is engaged in the business of family club ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee company is charging annual subscription charges from members which are paid annually for availing various services of club which started from 01-01- 2005. Fourthly, the assessee is also collecting charges from members for availing various services such as food, beverages, banquet , swimming coaching, squash coaching, gym and health club, commission, guest entrance fee, etc.. There is no dispute with respect to chargeability to tax of annual subscription charges as well charges collected by the assessee company for food, beverages, banquet, swimming coaching, squash coaching, gym and health club, commission, guest entrance fee and other facilities / amenities availed by the members which are accepted by the assessee company to be exigible to tax. Similarly, Revenue has not brought to tax refundable deposit component of entrance fee which is an undisputed issue in the instant appeal. Thus, the dispute narrows down to chargeability to tax or otherwise of non-refundable entrance fee charged by the assessee company from its members at the time of their admission as member of the Club , and as well about chargeability to tax of advance membership fee received by the assessee from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers of the exchange building and there are no services performed by the Association for its members. In the alternative it was submitted that if any services are performed they are performed for all the members and not only for those members who pay the fees of Rs. 100 and that therefore the remuneration does not definitely relate to any service rendered to the member paying them. On the other hand, Mr. Setalvad on behalf of the Commissioner submitted that the answer is to be found by asking the question , " for the remuneration paid, what, if any ,are the services performed? The attention of Hon'ble Bombay High Court was drawn to some of the rules which showed a definite scheme for the admission and supervision of the authorized clerks which confers definite advantages to the members who pay the fees. Sir Leonard Stone, Chief Justice writing a separate judgment held that these rules lay down a definite scheme and provide an organized arrangement, controlled and supervised by the Association for the benefit of its members. It was held that the carrying of their scheme into effect is performing services for its members of the Association. It was held by Sir Leonard Stone, Chief Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6-1933 with a view to takeover the assets and liabilities of unincorporated association called "The Calcutta Stock Exchange Association" and to carry on the affairs of the stock exchange which had been founded by that association. In view of that objective, the company had to make rules and bye-laws , regulating the mode and the conditions in , and subject to , which the business of the stock exchange had to be transacted. The company is composed of "members" who except those who were members of unincorporated association have to be elected as such, and upon such elections have to acquire a share of the company and pay an entrance fee. The members have to pay a monthly subscription according to the by-laws of the company. Under the by-laws of the respondent company, members with a certain standing , are allowed to have "authorized assistants" who are permitted to use of the premises of the association and to transact business therein in the names and on behalf of the members employing them. The members have to pay an admission fee for such authorized assistants according to prescribed scales. It was observed by the Hon'ble Apex Court that the rules relating to the admission of memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word "services" is a term of a very wide import, but in context of Section 10 of Act of 1922 , its use excludes its theological or artistic usage. Thus, it was held that in reference to a trade, professional or similar association, the performing of specific services must mean conferring on its members some tangible benefit which otherwise would not be available to them as such, except for payment received by the association in respect of those services. The sub-section further requires that remuneration should be "definitely related" to the specific services . The word "remuneration" it was held is a word of much wider import including "recompense" , "reward" , "payment" etc.. Thus, it was held that it should be shown that those services would not be available to the members or such of them as wish to avail themselves of those services, but for specific payments charged by the association as a fee for performing those services. It was held by the Hon'ble Apex court that the entrance fee is , thus, a price paid for the services of the association in making suitable arrangements for an absentee member to transact business on his behalf and in his name by his representative or agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Stock Brokers' Association v. CIT (1946) 14 ITR 628(Bom.) to arrive at above conclusions. The Hon'ble Apex Court also referred to decision of Hon'ble High Court of Travancore in the case of CIT v. Chamber of Commerce, Alleppey (1955) 27 ITR 535(Coch.) wherein Hon'ble Supreme Court observed that the facts of the case are not similar but the ratio decidendi of the case is relevant. The case referred to Alleppey Chamber of Commerce. The Chamber inaugurated a produce section with the object of promoting the interest of merchants in general , and of those engaged in the produce trade, in particular; of acting as arbitrators and collecting and publishing information relating to the produce trade. Members were admitted to the produce section on payment of admission fees, monthly fees and contributions at certain rates. The question which was referred to the Hon'ble High Court was whether the receipts by way of fees and contributions could be chargeable u/s. 10(6) of the Act of 1922, and it was answered in the affirmative. The Hon'ble Supreme Court referred to the decisions rendered by Courts in England and observed that" " Though cases in England, by way of precedent for the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t transactions with its members were mutual ones, and that any surplus arising from such transactions was not a profit assessable to income-tax. On appeal, the High Court agreed with the determination of the Special Commissioners, and held that any profit arising from the association's transactions with members was assessable to income-tax as part of the profits of business, and that the entrance fees and subscriptions received from members must be included in the computation of such profits. It was suggested that the service in this case, if any, was extremely trivial and the remuneration which was large was for that reason not definitely related to the service. It was held by Upjohn, J., inBradbury (H. M. Inspector of Taxes) v. Arnold [1957] 37 Tax Cas 665,669, that the extent of the services was of no materiality. There, the question was being dealt with under Case VI of Schedule D of the Income Tax Act, 1918. The learned Judge observed: "There is no doubt that a contract for services may, and clearly does, form a matter for assessment under Case VI of Schedule D, and not the less so that the services to be rendered are trivial or that they are to be rendered once and for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax-payer by holding that the amounts received as entrance fee were intended to be and were in fact treated as capital receipts and were therefore excluded from assessment as there was no requisite periodicity , these amount were not taxable. The Hon'ble High court held that the admission fee of members or authorised assistants received by the tax-payer is taxable in its hands.It was held that the tax-payer is not mutual society and therefore not exempt from payment of income-tax;that it had a share capital on which dividend could be earned and any person could become a shareholder of the tax-payer company by purchasing a share but every shareholder could not become a member unless he was enrolled, admitted or elected as a member and paid a sum of Rs. 250 as admission fee. On becoming a member he was entitled to exercise all rights and privileges of membership. It was found that the real object of the taxpayer company was to carry on business as a stock exchange and the earning of profits. It was held that the admission fees fell within the ambit of the expression "profit and gains of business , profession or vacation". The Hon'ble Supreme Court held that membership admission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which can be used for the purpose of obtaining payments from its members for the advantages of such use, and one is tempted to ask why a profit is not so made exactly on the same footing as a profit is made by a railway company who issues a travelling ticket at a price to one of its own shareholders, or at any rate as much a profit as a profit made by a company from a dealing with its own shareholders in a line of business which is restricted to the shareholders." In Commissioner of Income-tax v. Royal Western India Turf Club Ltd. [1953] 24 ITR 551 . this court rejected the applicability of the principle of mutuality because there was no mutual dealing between members inter se. There was no putting up a common fund for discharging a common obligation undertaken by the contributors for their mutual benefit and for this reason the case decided by the House of Lords in Styles v. New York Life Insurance Company [1889] 2 Tax Cas. 460 was held not applicable." In the instant case of Delhi Stock Exchange Association Limited it was observed by the Hon'ble Supreme Court that the Memorandum of Association shows that the object with which the company was formed was to promote and regulate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry members of such amount as determined by executive committee. During the impugned assessment year, the entrance fee payable for life members was Rs. 2,500/- and the entrance fee payable for ordinary member was Rs. 500/-. An ordinary member can become a life member on payment of fees prescribed for life members . An ordinary member has to pay an annual subscription in advance on election and on the 1st day of April in each year thereafter. Life members, service members and temporary members are, however, not liable to pay any annual subscription under article 38. Under the articles, temporary, honorary, service and associate members are subject to the memorandum and articles of association and the rules and bye-laws of the club for the time being in force, but they are not entitled to receive notice of or to attend or to vote at the general meeting of the club or to be elected members of the Executive Committee of the club or of any sub-committee of the club or to stand for election or to hold any office of the club or to participate in the distribution of any assets of the club. Generally, the rights of the life members and the ordinary members, so far as the enjoyment of the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and that is the sole consideration for electing a person as an honorary member. Life members, service members and temporary members are not liable to pay any annual subscription and the liability to pay annual subscription is only on the ordinary members. In addition to the annual subscription, the ordinary members, who are ordinarily resident within the local area, have to pay annually, in advance, a local subscription of such amount as may from time to time be determined by the executive committee. The temporary members, service members and associate members form, by the very nature of the incidents of their membership, an independent class of persons who are not entitled to take part in the management of the club though, in other respects, all of them are entitled to enjoy the same privileges as other members. Their membership is entirely of a temporary nature and its duration is controlled by the appropriate articles. They cannot, therefore, be compared with either life members or ordinary members. If a person wants to avail of the facilities afforded by a club and exercise the rights which are available to an ordinary member, he has to pay an entrance fee plus an annual sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bvious to us that the entrance fees includes within it a compounded payment in lieu of the annual subscription which a member would have been required to pay as an ordinary member. We have, therefore, no doubt in our mind that in the case of life members when the entrance fee is paid, it is a consolidated amount, part of which must be treated as entrance fees and part of it as a compounded payment in lieu of the recurring payments to be made annually in the nature of annual subscriptions. When the amount paid by a life member, which is styled as entrance fee, is so split, it will not be correct to say that this would result in rewriting the constitution or articles of association of the assessee. As already pointed out, the real question which has to be determined is the nature of the receipt in the hands of the assessee and if a discussion of the nature of the receipt is not foreclosed by any nomenclature adopted by the assessee, it would be perfectly open to the I.T. authorities to scrutinise the nature of the receipt and to classify it as either capital receipt or a revenue receipt or partly of one kind and partly of another. **** **** The argument that there is no apparent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Mr. Joshi on behalf of the revenue is that even that part of the consolidated amount of entrance fees which could be classified as entrance fees should be treated as income. We must first decide what part of the entrance fees paid by a life member should be treated as a capital receipt. Now, so far as the year in question is concerned, the entrance fees for an ordinary member prevalent was Rs. 500. It would, therefore, be reasonable, while dissecting the consolidated entrance fees of Rs. 2,500 into entrance fee as such and a commuted payment on account of annual subscription, to treat Rs. 500 out of Rs. 2,500 as entrance fees and the rest of it is in the nature of a consolidated payment by way of annual subscriptions and, therefore, as income. With regard to this entrance fee of Rs. 500 it is contended that this must also be treated as income in the hands of the assessee and our attention has been invited to a passage from Halsbury's Laws of England, 3rd Edn., Vol. 20, para. 8, under Pt. 1, Sec. 1, at p. 13. It reads as follows: "Factors considered in determining quality of receipt.-In the decided cases the courts have had regard to various factors in determining whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 (KB). The question there was whether the Liverpool Corn Trade Association Ltd. was a mutual association or was a trading company. The association, which was a limited company under the Companies Act, was formed for the purpose of protecting the interests of the corn trade and for providing a clearing house, a market, an exchange and arbitration and other facilities for the persons engaged in that trade. Membership of the association was confined to persons engaged in the corn trade as principals. Each member had to acquire one share (of GBP 150 nominal value) in the company and had to pay an entrance fee and an annual subscription. Non-members could also become subscribers. Payments were made to the association by members and others for services rendered through the clearing house, etc. The association had the power to declare a dividend out of its profits, though it had not done so since 1906. The association had been assessed to income-tax on the excess of receipts over its expenditure. The association had contended before the Special Commissioners that it did not carry on a trade, etc., the profits of which were assessable under Case I of Sch. D and that so far as concerns tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as such. The decision seems to have proceeded on the footing that the association may profit from receiving the entrance fee and the subscription for the various facilities as will be clear from the manner in which the case has been approached in the following paragraph (p. 452): "Now, the question is here, whether, so far as this company makes a profit out of what the members pay to it, that is taxable income of the business which they undoubtedly carry on. That alleged profit consists of the amount by which the entrance fees of the members and their subscriptions for the various facilities, if I may use that general word, exceed the amount which is to be taken to be the cost of keeping up the buildings and affording the facilities." The judgment in Liverpool Corn Trade Association's case [1926] 10 TC 442 (KB) does not indicate that it was ever disputed in that case that the entrance fees constituted the income of the association. That decision cannot, with respect, be taken as an authority laying down that the entrance fees and the annual subscription must always be treated on the same footing for the purpose of deciding whether the entrance fees could be treated as incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to participate without paying monthly subscription. The AAC held that this fee was in nature of share capital of the company and was a capital receipt in the hands of club not exigible to tax. The Tribunal on appeal held it to be capital receipt following its own decision in ITA no. 1653 to 1655(Patna) of 1972-73 dated 10-12-1973 in the case of Beldih Club of Jamshedpur. The Hon'ble Patna High observed that the assessee-club is offering various recreational facilities to its members most of whom are Tata Employees. The club has provision for games like tennis, badminton, table-tennis, basket ball, billiards etc. beside having its own swimming pool , library and exhibition of film shown in the club. The Hon'ble High Court observed that now undisputed and settled position is that the assessee is not exempt on the basis of mutuality. The Revenue relied on the judgment of the High Court of Justice (King's Bench Division) in the case of Liverpool Corn Trade Association Limited v. Monks (1926) 10 TC 442 (KB) to contend that in this case the appellantassociation was incorporated under the Companies Act, as a limited company with the objects, inter alia, of protecting the interests of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal subscription for continuing the service of such assistants in addition to the subscription payable by each member for his membership, every member who wished to have the name of any company included in the quotations list so that its shares or stock may be placed on the stock market, had to make an application in that behalf with a fee of Rs. 1,000. The assessee received during the accounting year Rs. 60,750 as entrance fees and Rs. 15,687 as subscription in respect of the authorized assistants and a sum of Rs. 16,000 as application fees from the members for including new companies in the quotations list. In those circumstances it was held that each of the aforesaid sums of money accrued to the assessee on account of its performing specific services for its members, that these sums were remuneration definitely related to distinct services performed by the assessee for its members or such of them as availed themselves of such services and the same sums were, accordingly, assessable to the income-tax under section 10(6) of the Act of 1922 as profits and gains derived from carrying on business. It was also held in this decision that the words 'performing specific services' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taxable in its hands. It appears from this decision at pages 496 and 497 that the total income of the assessee for the year 1947-48 was Rs. 29,363 out of which a sum of Rs. 15,975 shown as admission fees was deducted and the income return was Rs. 13,388. In the profit and loss account of that year members' admission fees were shown as Rs. 9,000 and on account of the authorized assistants' admission fees as Rs. 6,875. The ITO who made the assessment for the year 1947-48 disallowed this deduction. The return for the following year also was made on a similar basis but the return for the years 1949-50 and 1950-51 did not take into account the admission fees received but in the director's report the amounts so received were shown as having been taken directly into the balance sheet. The ITO, however, disallowed and added back the amount so received to the income returned by the appellant. The Tribunal ultimately decided all the appeals in favour of the appellant and it held that the amounts received as entrance fees were intended to be and were in fact treated as capital receipts and were, therefore, excluded from assessment and it was also held that as there was no requis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stants. In this case no reference was made to the decision in Delhi Stock Exchange Association Ltd.'s case (supra) where admission fees were received from the members as entrance fees although certain amounts were also received from the members of authorized assistants. In view of the Hon'ble Supreme Court decision in Delhi Stock Exchange Association Ltd.'s case (supra) the decision of the Mysore High Court cannot be followed , as was held by Hon'ble Patna High Court. The assessee also relied on the case of Hon'ble Bombay High Court CIT v. WIAA Club Ltd. [1982] 136 ITR 569(Bom). In this decision it has been held by the Hon'ble Bombay High Court that the entrance fee is paid by the members only once and it is this payment which has to be considered whether it is in the nature of income or a capital receipt. It has also been held in this decision that from the articles of association of the assessee-club, it is clear that in order to avail of the rights of a member and the facilities and the services provided by the assessee-club, it is not enough for a person merely to pay the annual subscription, and that as a matter of fact a person cannot exercise the rights and privileg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business in construction and sale of property. Since it had a paucity of funds, it chose to raise the funds by seeking nonrefundable deposits from its members. These deposits, proportionate to the floor area required by each member were to be permanently held by the assessee-company as long as the member/ shareholder was in occupation of the floor area allotted to him. Though it was said that these deposits would fetch an interest as may be determined by the Board of Directors of the assessee-company, the said fact is not determinative of the character of the deposits as was held by the Hon'ble Bombay High Court. The deposits were to be held by the assessee-company as long as the member continued to occupy floor area allotted to him and, in the event of the member transferring or alienating his occupancy rights to another, with the approval of the Board of Directors, the amount standing to the credit of the member would be transferred in the books to the credit of the new transferee. There was no event or contingency contemplated in which the shareholder could demand repayment of the deposit. Though the said amount might have been shown as liability in the balance sheet of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facilities available in the "executive centres" is not exigible to tax. (g) Hon'ble Bombay High Court decision in the case of CIT v. Aspee Distributors Association (1994) 209 ITR 294(Bom. HC) held in context of chargeability of membership fee to tax in the hands of the taxpayerassociation that looking at the facts set out above, it is clear that the taxpayer-association is not a trading association. It does not carry on any activities in the nature of trade. Its purpose is basically to encourage fellowship amongst its members who are all distributors of one concern, viz., American Spring & Pressing Works (P.) Ltd. Undoubtedly each member of the association carries on trading activities, but the taxpayerassociation itself does not carry on any trading activity. The aims and objects of the taxpayer-association also make it clear that no trading activities are being carried on by the association. It was also found by the Tribunal that during the relevant assessment years, the taxpayer-association did not carry on any trading activity. Hence, the Hon'ble Bombay High Court held that the Tribunal was right in coming to the conclusion that the taxpayer-association was merely a trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce fee . The dispute is regarding the chargeability to tax of nonrefundable entrance fee received by the assessee from its members at the time of admission. The Hon'ble Bombay High Court vide its judgment delivered on 13-10-1944 in the case of Native Share and Stock Brokers' Association v. CIT (supra) held that admission fee received from members for admitting and supervision of the authorized assistants was held to be exigible to tax as revenue receipt. Thereafter vide judgment delivered on 26-03-1959 , the Hon'ble Supreme Court in CIT v. Calcutta Stock Exchange Association Limited(supra) in similar matter took note of decision of Hon'ble Bombay High Court in the case of Native Share and Stock Brokers' Association (supra) and several English decisions and Hon'ble Supreme Court affirmed the decision of Hon'ble Bombay High Court in the case of Native Share and Stock Brokers' Association (supra) and held that entrance fees and subscription received from members in respect of authorized assistants is exigible to tax and also fee received from members for enlisting names of newly floated companies on stock exchange is also exigible to tax . Thereafter vide judgment delivered on 30-11- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court in the case of Delhi Stock Exchange Association Limited v. CIT(supra) , and Hon'ble Patna High court following above Supreme Court decisions in CIT v. Calcutta Stock Exchange Association Limited(supra) Delhi Stock Exchange Association Limited v. CIT(supra) held that entrance fee received by the club is a revenue receipts exigible to tax and not a capital receipts. Again Hon'ble Bombay High Court decided the issue of taxability of entrance fee in the year 2003 vide decision rendered on 17-04-2003 in the case of CIT v. Diners Business Services Private Limited (2003) 263 ITR 1(Bom.) whereby it was held by Hon'ble Bombay High Court following the decision of Hon'ble Bombay High Court in the case of CIT v. WIAA Club Limited( Supra) that non-refundable entrance fee is not exigible to tax being a capital receipts.The Hon'ble Bombay High Court in the case of CIT v. Shree Nirmal Commercial Limited(supra) held that non-refundable interest bearing deposits received by the tax-payer from the shareholders for allotting occupancy rights are chargeable to tax as revenue receipts, The said decision of Hon'ble Bombay High Court in 193 ITR 694 in the case of Shree Nirmal Commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se proximity and nexus to the specific services performed by the assessees' club to its members which are being made available by the assessee club to members only on obtaining of membership of the club and is covered by the provisions of Section 28(i) and 28(iii) of the Act and is a revenue receipt in the hands of the assessee exigible to tax, while refundable deposit constituting bulk of payment being 80% of club membership enrollment fund appears to have close nexus with payment made for obtaining club membership in the instant case. It is not important that services rendered or performed are trivial or immaterial so long specific services are being performed by the assessee to its members being made available on becoming member of the club which are only available to the members of the club on being admitted as member of the club. In our considered view, the Hon'ble Bombay High Court in the case of WIAA Club Limited (supra) has correctly segregated the life membership fee into two segments i.e. one towards capital receipts being paid for obtaining membership of the club which has no proximity to services being performed to its members and is merely a price paid for obtaining me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee treats any monies received but what is the nature of the receipts which is decisive of its being taxable. These amounts were received by the appellant as membership admission fees and as admission fees paid by the members on account of authorised assistants. As far as the latter payment is concerned that would fall within the decision of this court in Commissioner of Incometax v. Calcutta Stock Exchange Association Ltd. [1959] 36 ITR 222 and therefore is taxable income. The former, i.e., members' admission fees, has to be decided in accordance with the nature of the business of the appellant company, its memorandum and articles of association and the rules made for the conduct of business. The appellant company was an association which carried on a trade and its profits were divisible as dividend amongst the shareholders. The object with which the company was formed was to promote and regulate the business in shares, stocks and securities etc., and to establish and conduct the business of a stock exchange in Delhi and to facilitate the transaction of such business. The business was more like that in Liverpool Corn Trade Association v. Monks [1926] 2 KB 110. In that case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egulate the business of exchange of stocks, shares, debentures, debenture stocks etc. The income, if any, which accrued from the business of the appellant company was distributable amongst the shareholders like in every joint stock company. According to the articles of association the members included shareholders and members of the exchange and according to the rules and bye-laws of the appellant company "member" means an individual, body of individuals, firms, companies, corporations or any corporate body as may be on the list of working members of the stock exchange for the time being. In the articles of association, clauses 7 and 8, provision was made for the election of members by the board of directors and rules 9 and 10 laid down the procedure for the election of these members. The entrance fees were payable by the trading members elected under the rules and bye-laws of the association, who alone with their associates, could transact business in stocks and shares in the association. Therefore, the body of trading members who paid the entrance fees, and the shareholders among whom the profits were distributed were not identical and thus the element of mutuality was lacking. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Mahendra Holidays and Resorts Limited (2010) 39 SOT 438(Chennai)(SB) has held that 60% of the advance membership fee received shall be brought to tax in the year of receipt as the assessee has to maintain the facilities in subsequent years for which it would be required to incur expenditure without matching contribution from members based on concept of matching principles' of revenue and expenditure and also considering that 70% of the facilities are completed by the end of the previous year as admitted by the assessee . We are agreeable that assessee having received advance membership fee for 25 years , concept of matching principles are to be applied while computing income under the Act and the entire amount of revenue received by the assessee cannot be brought to tax in the year of receipt itself as the assessee will be required to render services and maintain facilities in subsequent years for which expenditure will have to be necessarily incurred as per contractual obligations of the assessee with its members and hence rollover of revenue has to be undertaken which is required to be based on peculiar facts and circumstances of the case keeping in view factual matrix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that under mercantile system of accounting, receipt entailing a continuing liability of rendering services in future years can be spread over years. This proposition is supported by the Hon'ble Supreme Court decision in the case of Madras Industrial Investment Corporation Limited v. CIT , (1997) 225 ITR 802(SC) . In our considered view, a reasonable and fair estimate under these circumstances has to be made based on reasonable scientific method keeping in view business matrix and model of the assessee after study of the by-laws, rules and regulations governing the assessees' club , memorandum and articles of association, terms and conditions for the grant of membership , terms and conditions under which advance membership fee was received by the assessee, conditions for refund of membership fee, empirical experiences and a scientific working , which need to be carried out keeping in view peculiar business model and matrix of the assessee and also with respect of the assessees' club. We are , therefore, inclined to set aside and restore the matter to the file of the AO for de-novo determination of the issue on merits in accordance with law to work out spread/rollover of advance mem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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