Contact us   Feedback   Annual Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (11) TMI 1054 - ITAT MUMBAI

2016 (11) TMI 1054 - ITAT MUMBAI - TMI - Non-refundable entrance fee received by the assessee in the instant case based on factual matrix of the case is chargeable to tax as revenue receipts in the hand of the assessee . - Advance Membership fee - Held that:- 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 assess .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the AO for de-novo determination of the issue on merits in accordance with law to work out spread/rollover of advance membership fee collected for a period of 25 years spread over period of time based on reasonable scientific method keeping in view business matrix and model of the assessee worked out after study of the above parameters as cited by us and also of any other relevant parameter having impact and bearing on computation of correct income of the assessee chargeable to tax. - I .T.A. N .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

led by the Revenue relates to the assessment years 2004-05 to 2008-09 involving common issue s and are hence disposed of by this common order for the sake of convenience. 2. First we shall take up cross appeals filed by the assessee and the Revenue for the assessment year 2008-09 which is a lead year wherein the assessments were framed by the learned Assessing Officer ( hereinafter called the AO ) u/s. 143(3) of the Income Tax Act,1961 ( hereinafter called the Act ) vide assessment orders dated .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 un .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

this year. 3. Without prejudice to the above, the learned CIT(A) erred in not taking into account the fact that as per the terms of contract with members, appellant is required to provide them continuous club services for the period of membership of 25 years and therefore advance membership fee should be taxed equally each year spread over the period of 25 years. 4. The learned CIT(A) erred in not applying the ratio of the Supreme Court s judgment in the case of Madras Industrial Investment Corp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e Ld. CIT(A) has erred in treating 60% of the advance membership fees received every year as income instead of treating the entire advance membership fees as income for the year under consideration. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in treating non refundable one time entrance fee as capital receipt of treating the same as revenue receipt. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in accepting .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

swimming 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 ₹ 37,00,40,238/- and the assessee was asked to explain the same. From the de .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

venue. 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 , the assessee relied on accounting standard AS-9 issued by ICAI for revenue recognitions and stated that non-refundable entrance fee received by the assessee will be transferred to the members entrance fee account and will be adjusted as income proportionately during the tenure of mem .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

b becomes fully functional which is an endless process as additions, alterations and modifications keeps on going in the years to come, while the fact is that the club is operational since a number of years. It was observed that the assessee has also shown income from operations which inter alia included income from banquet, squash coaching, swimming coaching , tennis coaching , commission, guest entrance fees, Gym and health club, subscription income etc. .Thus , it was observed by the AO that .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

8. Table Tennis Court Out of the above facilities still the following facilities as on 31-03-2008 are yet to be provided to Members, since the assessee is still in the process of taking various permissions from the authorities: 1. Restaurant, Coffee Shop and Bar 2. Squash Court 3. Card Room 4. Activity Room 5. Table Tennis Court The assessee submitted that with respect to the Membership of Club Millennium the Revenue is recognized by the assessee as follows: Club Member s Enrolment Fund: The amo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t 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 t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

AO from the perusal of the Profit and Loss Account under various heads to conclude that substantial expenses have been incurred and claimed by the assessee which are revenue in nature laid out for day to day running activities to offset the afore-stated income from various activities as set out in preceding para which the assessee was contending that these activities have not yet started by the assessee. The AO also observed that the assessee club is functional where in all the facilities as en .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

/03/2007 whereby the food and beverage operations of the Restaurant and Bar have been handed over to M/s Grand Cuisine Private Limited on commission basis. Thus, contention of the assessee that the club is not fully functional was rejected by the AO and hence the club is treated to be functional which would result in taxability of the entrance fees during the year under consideration. As the club was fully functional as held by the AO, the assessee was asked to show cause why the membership rece .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

part i.e. 4/5th part is refundable without interest after say 15 to 20 years while 1/5th part is non refundable. At the end of period, thus, the deposit will be refundable without any interest. 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 und .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. 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 Club Limited (1979) 136 ITR 569( Bom.) which view is supported by Accounting Standard AS-9 issued by ICAI was t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ng of the contract , the assessee will be obliged to return the said entrance fees. Further, without prejudice, it was submitted that even if the entrance fee is treated as revenue receipts, the same shall be required to be spread over the number of years of membership right covered by the contract/tenure of membership. The assessee relied upon decision of the Hon ble Supreme Court in the case of Madras Industrial Investment Corporation v. CIT (1997) 225 ITR 802(SC) wherein Hon ble Supreme Court .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ber is required to pay certain sum as advance membership fees which shall be apportioned in equal installment over the agreed term of the Membership commencing from agreed date. The specimen copy of agreement dated 16-01- 2008 executed with one member was placed on record before the AO. In the said agreement it was mentioned that certain facilities like (a) swimming pool, (b) baby swimming pool , (c) open Jacuzzi, (d) squash courts, (e) jogging facility, (f) tennis court , (g)open ground for hol .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 appropria .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e is not able to provide the agreed services or fails to complete the project or the project is wound up, the assessee shall be liable to refund the said advance membership fees as provided in the agreement of the assessee with the members. It was also submitted that having regard to implicit provisions of Contract Act there is an implied warranty on the part of the assessee to refund the amount if the assessee is not able to provide promised services. The assessee relied on decision of the Hyde .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ipt 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). Relying on AS-9 issued by ICAI, the assessee submitted that the membership fee should be recognized on a systematic and rational basis having regard to the timing and nature of services provided. Without prejudice, it was submitted th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

oncept whereby there is matching of revenue and expenses . It was also submitted by the assessee that the Revenue had examined and accepted the method of accounting followed by the assessee in the earlier years while framing assessments u/s. 143(3) of the Act and entrance fees and advance membership fees had not been taxed in all the earlier assessment years. The AO considered the submissions of the assessee and held the same to be untenable due to following reasons: a) It was observed by the AO .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

es 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 t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

here is a separate annual subscription then the membership entrance fees should be recognized as income when it is received. ii) If the membership entrance fees entitles the member to services/facilities during a period of time then the membership entrance fees should be recognized as income on a systematic and rational basis (i.e. the membership fees should be divided over the period of membership and treated as income accordingly) It was held by the AO that the assessee is following the former .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

v. WIAA Club Limited (1982) 136 ITR 0569(Bom.) and held that in this case entrance fees was paid by the members to the tax-payer which was a larger amount and thereafter the life members were not required to pay any annual subscription and they were relieved of their recurring liability to pay annual subscription year after year . The Hon ble Court held that in case of life members , part of the entrance fee is a compounded payment in lieu of the recurring payments to be made annually in the nat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ear 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 annual charges as well as utility/facility charges separately from its members irrespective of the scheme under which they have taken membership. Thus, as per AO by following AS-9 issued by ICAI, the assessee has to offer for tax advance membership fee received during the year in the year of receipt. The assessee .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

have to pay separate annual charges and facilities charges and hence the entrance fee is taxable in the year of receipt as per AS-9, para 12 appendix B-6. With respect to the contention of the assessee that if full collection is treated as income, the deduction should be allowed in respect of present value of expenditure likely to be incurred on a member. It was held by the AO that since the assessee is charging annual subscription and utilities/facilities charges for the various services offer .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

an expenditure in the year in which the advance membership fees is refunded as the same had already been taxed as income in the year of receipt. The AO also held that merely because a particular view has been taken in the earlier years cannot bind the AO in subsequent year as the facts may change from year to year. The assessee has entered into an agreement with M/s Grand Cuisines Private Limited on 23-03-2007 whereby the food and beverages operations of the restaurant and bar have been handed o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e fees received by the assessee in the year under consideration , has to be taxed in this assessment year. The assessee having received ₹ 4,50,90,574/- as membership entrance fees which is inclusive of advance membership fees received of ₹ 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 servi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he hands of the club. Similarly, reliance was also placed by the AO on the decision of Hon ble Supreme Court in the case of CIT v. Calcutta Stock Exchange Association Limited (1959) 36 ITR 222(SC) wherein Hon ble Supreme Court held that the entrance fee received from members is taxable. The AO also relied on the decision of Hon ble Supreme Court in the case of Delhi Stock Exchange Association Limited v. CIT (1961) 41 ITR 495(SC) wherein Hon ble Supreme Court held that members entrance fee is tax .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ee is a capital receipt as held in the case of CIT v. WIAA Club (1982)136 ITR 569(Bom.) , CIT v. Diners Business Services Private Limited (2003) 263 ITR 1(Bom.) and ACIT v. Karnavati Club (2010-004-ITR(Trib.) 174 Ahm.). The assessee also submitted that advance membership fee received is fee collected from members in advance for a period of 25 years and the same cannot be treated as income in the very first year as the assessee is mandated to provide services to members for the entire tenure of 2 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ecision of Hon ble Bombay High Court in the case of CIT v. WIAA Club (1982) 136 ITR 569(Bom.) , CIT v. Diners Business Services Private Limited (2003) 263 ITR 1(Bom.) and ACIT v. Karnavati Club (2010- 004-ITR(Trib.) 174 Ahm.) held that non refundable one time entrance fee which is charged for the enrolment from members of ₹ 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 advanc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eated/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 ₹ 22.85 crores , and as on 31-03-2011 it was ₹ 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 required to render continuous services for the entire period of 25 years and that taxing the ent .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

embership fee i.e. ₹ 2,51,37,922/- (0.6 X 4,18,96,537/-) received every year vide appellate order dated 28.10.2011 passed by learned CIT(A). 6.Aggrieved by the appellate order dated 28.10.2011 passed by learned CIT(A), the Assessee as well as Revenue filed cross appeals with the Tribunal raising grounds of appeal as set out above in preceding para s of this order, wherein the assessee is in nutshell aggrieved by the orders of learned CIT(A) upholding taxability of 60% of advance membership .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

le to tax and also holding that advance membership fee is taxable only to the extent of 60% in the year of receipt instead of holding that 100% of advance membership fee is taxable in the year of receipt and also revenue is aggrieved with the admission of certain additional evidences by learned CIT(A) without complying with Rule 46A of the Income Tax Rules, 1962. We are taking these issue s raised by the assessee and the Revenue together and disposing all of them together vide this common order .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 4 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

known as Juhu Millennium Club and club is functioning for family entertainment . It is an admitted position that the assessee is not claiming exemption from taxation based on doctrine of mutuality as the body of members who paid the entrance fees , membership fee , annual charges etc. to avail the facilities and utilities of family Club known as Juhu Millennium Club at Juhu and the shareholders of the company among whom profits/surplus of the company were to be distributed as dividends are not i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

by the assessee before the learned CIT(A) that 70% of the club functions were in operations during the impugned assessment year. The contention of the assessee that in case if it is not able to complete all the committed activities to the members, it may be required to refund all fees etc. collected from members cannot be accepted as the principles of going concern are to be applied while computing income of the assessee rather than on the hypothesis that the entity would be wound up, except whe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ble entrance fee as the revenue has not brought to tax refundable deposits collected by the assessee being part of club membership enrollment fund at the time of admission of members. Secondly, the assessee company is also charging advance membership fee from members for a period of 25 years which is paid up-front by the members after being admitted to membership of the club. Thirdly, the assessee company is charging annual subscription charges from members which are paid annually for availing v .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ub, 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 , a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y from its members. (a) Hon ble Bombay High Court decision in the case of Native Share and Stock Brokers Association v. CIT (1946) 14 ITR 628(Bom.) more commonly known as Bombay Stock Exchange. The association was recognized by the Government under the Bombay Securities Contracts Control Act, 1925 and rules were framed by the association for the regulation and control of transactions in securities , so that it becomes what is referred to in the Act as a Recognized Stock Exchange . Being a mutual .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cordingly. The issue in this appeal before the Hon ble Bombay High Court was with respect to taxability of sum of ₹ 1,22,600/- representing 1226 fees or subscription of ₹ 100 each paid in respect of the authorization by the Association of 1226 clerks or remisiers belonging to some 475 firms which admit them to certain privileges or rights in the exchange building which otherwise they could not enjoy under the rules of association . The short question before the Hon ble Bombay High Co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 ₹ 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 q .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on 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 Justice of Hon ble Bombay High Court that no doubt the benefit will redound to the benefit of all members since all would have the advantage of disciplined supervision exercised over the authorized clerks and remisiers of the others. It was held that services performed are specific because they provide an i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

titution of the authorized clerks and their work for the members who employ them. For that the Association has to render services and these are clearly specific services rendered by the Association for its members who desire to employ authorized clerks. The Association has undertaken certain obligations by the rules towards its members in accepting these fees. By the rules the Board and the Secretary have to perform certain duties as prescribed by the rules in respect of authorized clerks and it .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and all the services which the Association has thereafter to render are in respect of the authorized clerks in respect of whom the specific services are definitely related . Thus, in opinion of Hon ble Kania, Justice the two requisites of the section are fulfilled under the rules of the Association and the amounts were held to be exigible to tax u/s 10(6) of the Act of 1922. b)Hon ble Supreme Court judgment in the case of CIT v. Calcutta Stock Exchange Association Limited (1959) 36 ITR 222(SC)- .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 associatio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sides their own dues, to the company. The by-laws also provided that an authorized assistant shall not enter into any contracts on his own behalf and all contracts made by him shall be made in the name of the member employing him and such member shall be absolutely responsible for the due fulfillment of all such contracts and for all transactions entered into by the authorized assistants on his behalf. It is also provided by the by-laws that tickets are to be issued to the authorized assistants .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

45-46) received from its members the sum of ₹ 60,750/- as entrance fees and the sum of ₹ 15687/- as subscription in respect of authorized assistant, both the payments being received from members of the association in respect of their authorized assistants. The company also received ₹ 16000/- as fees from members for putting the names of companies on quotation list. The Hon ble Apex court observed that it is manifest that unless the respondent company is brought within the terms .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rom, shall be liable to tax accordingly. The Hon ble Apex Court observed that the words performing specific services mean in the context , conferring particular benefits on the members. The 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 tan .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

emselves 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 agent . The entrance fee in question , therefore, cannot but be ascribed to the specific services rendered by the association in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ing absence which is a substantial benefit to the member. Lastly, the sum of ₹ 16000/- represented the fees received from members for allowing their application for enlisting the name of companies not already on quotation list, so that shares and stocks of these companies may be placed on stock market. This fees has not to be paid by company concerned directly but by the member who initiates the proposal and , apparently , finds it worthwhile to pay that prescribed fee to the association. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e of three sources of income to the association accrues to it on account of its performing these specific services in accordance with its rules and by-laws. It was held that each one of the three distinct sources of revenue to the association is specifically attributable to the distinct services performed by the association for its members or such of them as avail themselves of those benefits. It was held that each one of them is separately charges for , according to the rate or schedule laid do .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e, 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 ad .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ave not been cited at the bar, apparently because the scheme of the income-tax law in England is different and the words of the statute are not in pari materia, yet there are some cases which throw some light on the controversy before us. For example, the case of Carlisle and Silloth Golf Club v. Smith [1912] 6 Tax Cas 48 related to a golf club which was not incorporated. It was admittedly a bona fide members' club, but under one of the terms of its lease, it had to admit non-members to play .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ent to augment the funds of the club, and the revenue thus received was applied for the purposes of the club-towards its general expenditure. The case was taken up to the Court of Appeal, and the decision of that court is reported in the same volume at page 198. The Court of Appeal affirmed the decision and dismissed the appeal. The judgment of the King's Bench Division in Liverpool Corn Trade Association Limited v. Monks [1926] 10 Tax Cas 442, was based on facts which are similar to the fac .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

al 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 assessee was taxed on the excess of its receipts over expenditure. On appeal to the Special Commissioner's, they upheld the assessment. One of the points raised before the Special Commissioners was that transactions with its members were mutual ones, and that any surplus arising from such transactions was not a prof .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 tha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ting a series of four articles", and to provide photographs, press cuttings, etc. He was paid £ 750. The question was whether this amounted to sale of property, or was a payment for services rendered. It was held that it was the latter, and that it did not matter if the service rendered was trivial. Thus, the Hon ble Supreme Court held in the case of Calcutta Stock Exchange Association Limited(supra) that the nature of the service which the association performed in respect of the assi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the Delhi Stock & Share Exchange Limited and the Delhi Stock and Share Brokers Association Limited and to promote and regulate the business of exchange of stocks and shares , debentures and debenture stocks government securities , bonds and equities of any description and with a view thereto, to establish and conduct stock exchange in Delhi and/or elsewhere. The rules were made by the appellant company for the conduct of business of sale and purchase of shares in the exchange premises. T .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nal held in favour of the 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

change 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 fee paid by the members on account of authorised assistants is covered by the decision of Hon ble Supreme Court in the case of CIT v. Calcutta Stock Exchange Association Limited (1959) 36 ITR 222(SC). The Hon ble Supreme Court held that members' admission fees paid by the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and securities etc., and to establish and conduct the business of a stock exchange in Delhi and to facilitate the transaction of such business. It was observed by Hon ble Supreme Court that the business was more like that in Liverpool Corn Trade Association v. Monks [1926] 2 KB 110 and observed as under:- In that case an association was formed with the object of promoting the interest of corn trade with a share capital upon which the association was empowered to declare a dividend. The associati .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

that the association did not carry on a trade and that it was a mutual association and entrance fees and subscriptions should be disregarded in computing assessment of the assessable profits. It was held that it was not a mutual association whose transactions were incapable of producing a profit; that it carried on a trade and the entrance fee paid by members ought to be included in the association's receipts for purposes of computing the profit. Rowlatt, J., said at page 121: "I do no .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ealing 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e 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 t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ent of mutuality was lacking. It is the nature of the business of the company and the profits and the distribution thereof which are the determining factors and in this case it has not been shown that the appellant's business was in any way different from that which was carried on in the case reported as Liverpool Corn Trade Association v. Monks [1962] 2 KB 110 . Thus, the Hon ble Supreme Court approved the judgment of Hon ble High Court and held that the membership admission fee paid by the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

es of members (a) honorary members, (b)life members, (c) ordinary members, (d) temporary members,(e) service members,(f) associate members. Under the articles of association, the entrance fee were payable by the life members and ordinary members of such amount as determined by executive committee. During the impugned assessment year, the entrance fee payable for life members was ₹ 2,500/- and the entrance fee payable for ordinary member was ₹ 500/-. An ordinary member can become a li .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 facilities provided by the club are concerned, are the same, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s are entitled to use the club house and to bring guests with them. There are facilities for accommodation in the club's residential room on a daily, weekly or monthly basis available to all members; sport facilities are also provided for playing tennis, badminton, billiards; members can avail of the facility of the card room and the swimming pool. These are some of the facilities provided by the club. The tax-payer club received ₹ 2500 as entrance fees from life member, while entrance .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

whether the entrance fees paid by a life member should be treated as income in the hands of the assessee or as being in the nature of a capital receipt, neither the nomenclature used by the assessee nor the manner in which the receipt has been treated by the assessee for the purposes of its accounts would be conclusive. The articles of association of the assessee no doubt provide for different categories of members. Out of these categories of members, we must leave out of consideration the hono .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

able 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 independe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ember, he has to pay an entrance fee plus an annual subscription if he wants to become an ordinary member. If a person wants to become a life member, he pays an amount which is styled as entrance fees which comparatively is a much larger amount than the entrance fees paid by ordinary members. The only effect of the life members paying the entrance fees at a larger amount is that they are relieved of their recurring liability to pay the annual subscription year after year. It is obvious that the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ghts and privileges which are enjoyed by the life members and the ordinary members are the same and if for the purposes of enjoying these rights and privileges the ordinary member has to pay not only an entrance fee but also an annual subscription, it is obvious that when the articles of association of the assessee-club required the life members to pay a larger amount which was described as entrance fees, it was intended to commute the amount of annual subscription which a member would otherwise .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the annual subscription which a member would otherwise be required to pay. It is difficult to imagine that those who founded the club and framed the articles of association could have intended that while ordinary members would be allowed to exercise member's rights and avail of the facilities available in the club on payment of the annual subscription, the same facilities would be available to the life members free of any cost and it appears obvious to us that the entrance fees includes .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

led 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 cl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d. It cannot be disputed that in a given case a person may continue to be a life member for a long time and if he had become an ordinary member and paid annual subscription, the club would have received a much larger amount by way of annual subscription than what was received by the club by way of a consolidated payment. Such uncertainties are, however, inherent in the nature of the fee that is fixed in such a case. The possible length of the period during which a life member would take advantag .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s of the club only after a very brief period. The crucial question is whether it was intended that the services which had to be availed of by ordinary members on the payment of an annual subscription could be availed of by life members without any charge or was such charge intended to be recovered in a lump sum at the beginning itself. We are thus mainly concerned with the character of the payment and if the character is such that a part of it is in lieu of recurring annual payments, then the po .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eceipt of the assessee. What is, however, argued by 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 ₹ 500. It would, therefore, be reasonable, while .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

age 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 the proper nature of an item of receipt is income. If an item recurs or is likely to recur annually or repeatedly to form a series, that is an indication of its quality of income." Mr. Joshi contended that entrance fee is in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ered whether it is in the nature of income or a capital receipt. If we look at 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. As a matter of fact a person cannot exercise the rights and privileges of a member merely by volunteering to pay the annual subscription. What a member has to acquire first i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ent of the entrance fee, a member does not get any return in the form of any services or amenities. All that he gets is a right to avail of the amenities or facilities provided by the club on a payment of the annual subscription. This right can be exercised by him as long as the membership is not determined as provided by article 44. This receipt of ₹ 500 received by the club is a return for vesting a right of membership in the member and, therefore, in our view, the entrance fee would cle .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

et, 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 £ 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 associati .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

was not a profit assessable to income-tax. The Special Commissioners confirmed the assessments. On a case being stated for the opinion of the King's Bench Division of the High Court, Rowlatt J. held that any profit arising from the association's transactions with members was assessable to income-tax as part of the profits under Case I of Sch. D and that the entrance fees and subscriptions received from members must be included in the computation of such profits. Rowlatt J. made the foll .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

se that word, which opens the door to subscriptions, there is no reason at all for saying that you are to neglect the incorporation, or that you can regard otherwise than as profits the difference which is obtained by dealings between that corporation and people who happen to be its members." According to Mr. Joshi, Rowlatt J. has described the entrance fee as a sort of overriding subscription and, therefore, according to him, the entrance fee must be treated on the same footing as subscrip .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hat the main question which fell for determination before Rowlatt J. was whether the association in question was a mutual association or it was a trading company and the question was whether the profits obtained as a result of dealings between the corporation and its members should be regarded as profits 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 trea .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

was ₹ 500 an amount of ₹ 500 out of the entrance fees paid by a life member will have to be treated as a capital receipt in the hands of the assessee and ₹ 2,000 as income of the assessee. **** **** Accordingly, the question referred to us is answered as follows: In respect of the assessment years 1963-64 and 1964-65, out of the amounts received on account of entrance fee from life members, ₹ 500 should be treated as a capital receipt and the balance of ₹ 2,000 sho .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the facts and in the circumstances of the case, the entrance fee received by the club at the time of entrance of the new members is a receipt of revenue nature and is chargeable to tax in the hands of the club? The relevant facts of the case are that the taxpayer is a club in Jamshedpur offering various recreational facilities to its members. The club receipts constituted in the shape of membership fee from its members and it derives income from bar and restaurant and other connected activities. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ellantassociation was incorporated under the Companies Act, as a limited company with the objects, inter alia, of protecting the interests of the corn trade and of providing a clearing house, a market, an exchange, and arbitration and other facilities for the persons engaged in that trade. Membership of the Association is confined to the persons engaged in that trade. Membership of the Association is confined to the persons engaged in the corn trade as principals. Each member must acquire one sh .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d to the Special Commissioner, contending, inter alia, (i) that it did not carry on a trade, etc., the profits of which were assessable under Case I of Schedule D, and (ii) that so far as concern's transactions with its members, the association was a mutual one and that any surplus arising from such transactions was not a profit assessable to income-tax. The Special Commissioner, however, confirmed the assessment. In those circumstances it was held that any profit arising from the associatio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ta Stock Exchange Association Ltd. [1959) 36 ITR 222(SC) which is a decision of their Lordships of the Supreme Court. In this case the assessee-Calcutta Stock Exchange Co. Ltd. was a company formed to facilitate transaction of business on the Calcutta Stock Exchange under its bye-laws, members with a certain standing were allowed to have six authorized assistants to transact business on the stock exchange in their names and on their behalf. Members appointing such assistants had to pay an entran .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

687 as subscription in respect of the authorized assistants and a sum of ₹ 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 su .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nefits and that the word 'remuneration' is a term of much wider import than 'wages' and includes 'recompense', 'reward' or 'payment'.Thus, it is evident that the amount of ₹ 60,750 received from the members as entrance fees were held to be taxable as held by Hon ble Apex Court. The Revenue also relied on the case of Delhi Stock Exchange Association Ltd. v. C1T [1961] 41 ITR 495(SC). This is also a decision of their Lordships of the Hon ble Supreme Co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ized assistants, could transact business in stocks and shares in the company. The question was whether the admission fees received by the company from the members and the authorized assistants were taxable in the hands of the company. In those circumstances, it was held by their Lordships of the Supreme Court that it was not how the assessee treated any monies received, but what was the nature of the receipts in the question that was decisive of their taxability ; and, therefore, the fact that t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

entical and the element of mutuality was lacking, the company carried on a business whose profits were taxable and, therefore, the admission fees received from members were 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 ₹ 29,363 out of which a sum of ₹ 15,975 shown as admission fees was deducted and the income return was ₹ 13,388. In the profit and loss account of that year members' adm .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

O, 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 requisite periodicity, those amounts were not taxable. The question referred to the High Court was as follows : &qu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ecided 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. It was observed by Hon ble Apex Court that it is not in dispute that the income of the assessee before the Court is taxable and is not exempt on the ground of mutuality. It was held that this clearly means that the assessee-club is carrying on business and in view of this decision the members' entrance fee is taxable as inco .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he rate of 8 annas per share in respect of new shares that were issued and it was held that the sum of ₹ 10,000, thus, collected was a capital receipt and not a revenue receipt at any rate it was a casual and non-recurring receipt not arising from business contemplated by section 4(3)(vii) and was not assessable to income-tax. It was observed by Hon ble Patna High Court that in this case reference was made to the decision of the Supreme Court In Calcutta Stock Exchange Association Ltd.' .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and privileges of a member merely by volunteering to pay the annual subscription. What a member has to acquire first is the right of membership of the club. It has also been held in this decision that a person has first to get elected as a life or ordinary member, as the case may be, in the manner provided in the articles of association, and it is only after a person is elected that he is required to pay the subscription and entrance fee within fourteen days of notice of the election. It has al .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

termined. The Hon ble Bombay High Court held that this receipt of ₹ 500 received by the club is a return for vesting a right of membership in the member and, therefore, the entrance fee would clearly be in the nature of a capital receipt in the hands of the assessee. It was held by Hon ble Patna High Court that the Hon ble Bombay High Court has referred Liverpool Corn Trade Association Ltd.'s case (supra) but no reference was made to the Hon ble Supreme Court cases in Calcutta Stock Ex .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ers is a receipt of revenue nature and is chargeable to tax in the hands of the tax-payer club. (e) Hon ble Bombay High Court in the case of Shree Nirmal Commercial Limited v. CIT in (1992) 193 ITR 694(Bom.HC) held that non-refundable interest bearing deposits received by assessee-company from its shareholders for allotting occupancy rights were assessee's trading receipts . The assessee was a company out to do business in construction and sale of property. Since it had a paucity of funds, i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 dema .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eir occupancy rights by sale of shares and the purpose for which the compensation was charged, the whole transaction, it appears to us, is in reality of sale of floor space by the assessee-company to its shareholders. The assessee-company had kept with itself only the right of the management of property as a whole, the compensation being charged by way of reimbursement of the expenses which were likely to be incurred. It was observed by Hon ble Bomaby High court that that is why there was a prov .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s was in the nature of sale proceeds for sale of floor space area and legitimately ought to be treated as trading receipts. The said decision in 193 ITR 694 was later reiterated by the Full Bench decision of Hon ble Bombay High Court in the case of this tax-payer for subsequent assessment years in CIT v. Shree Nirmal Commercial Limited (1995) 213 ITR361(Bom.)(FB). In a recent judgment, Hon ble Supreme court approved the ratio of the said decision in 193 ITR 694 , in the case of G S Homes and Hot .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ible to avail of 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 bas .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 association and not a trading association.Under section 28(iii) any income derived by a trade, professional or similar association from specific services performed for its members is chargeable to income-tax under the head 'Profits and gains of business or profession'. In t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

bership fees received by the taxpayer-association were not related to any specific services rendered by it to its members. The taxpayer-association was merely a trade association. Hence, the membership fees were not taxable under section 28(iii) as held by Hon ble Bombay High Court. The question referred to the Hon ble High Court of Bombay was, accordingly, answered in favour of the assessee and against the revenue. Thus, the above case is distinguishable and not applicable for deciding the issu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

order. With the above background now we proceed to adjudicate the issue of exigibility of non refundable entrance fee in the hands of the assessee. It is well established principles of taxing statute that the nomenclature of entries in the books of accounts are not determinative of the chargeability to tax rather it is the true nature and character of receipt which shall be decisive of bringing the same to chargeability to tax as income exigible to tax. The assessee has received club membership .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

horized 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 Asso .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

mited(supra) held that admission fees received in respect of admission of authorized assistants as well for admission fee received for admission of members are exigible to tax as revenue receipts. The Hon ble Bombay High court vide judgment delivered on 31-01-1979, thereafter , in WIAA Club Limited(supra) took a view that entrance fee received by the club is not exigible to tax as the same is paid for obtaining membership and is a capital receipt. The judgments of Hon ble Bombay High Court in th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

l Corn Trade Association Limited v. Monks (1926) 10 TC 442(KB) , and the Hon ble Bombay High Court distinguished the said judgment on the grounds that the main question in the said case was to determine whether the association in question was a mutual association or a trading company and the question was whether the profits obtained as a result of dealing between the corporation and its members should be regarded as profits as such . The Hon ble Bombay High Court in the case of WIAA Club(supra) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ct that Hon ble Bombay High Court while deciding WIAA Club Limited(Supra) did not took note of decisions of Hon ble Supreme Court in the case of CIT v. Calcutta Stock Exchange Association Limited(supra) and decision of 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) he .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rance 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 Commercial Limited(supra) was later reiterated by the Full Bench decision of Hon ble Bom .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ortant case laws on the issue in hand, we have observed that the assessee is not governed by the doctrine of mutuality which is settled and undisputed position between the rival parties in the instant case. The assessee is a company and shareholders in their capacity as shareholders are distinct from members of the club who are entitled to avail the facilities and amenities offered by the club and hence complete identity between shareholders of the company and members of the club is lacking. The .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ember at the time of admission , as well refundable deposits at the time of admission of member which constitute bulk being 80% of the club membership enrollment fund. The assessee is also receiving membership fee from its members, annual charges and also charges for various facilities and amenities provided to its members such as food, beverages, swimming pool etc. . The said refundable deposit received by the assessee at the time of admission being bulk amount i.e. 80% of club membership enrol .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

bership 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 asses .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

for obtaining membership of the club which is capital receipts not exigible to tax, and secondly for the consolidated annual subscription included in the life membership fees which is revenue receipt which is exigible to tax being charged for making available services by the club which are only available to members of the club on obtaining membership of the club. In the instant case , there are two components of the amount paid by the members at the time of seeking admission for becoming member .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ade available to members immediately on obtaining the membership of the club and also the assessee being a trading company whereby profits are distributable to shareholders where there is a lack of identity between shareholders of the company and members of the club and doctrine of mutuality is not invoked , hence , the non-refundable entrance fee is revenue receipts which is exigible to tax. The membership fee, annual charges and payments for availing services are undoubtedly revenue receipts i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

mongst shareholders the same is trading receipts exigible to tax relying on decision of Kings Bench of the High Court in the case of Liverpool Corn Trade Association v. Monks(1962) 2 KB 110, wherein it was held by the Hon ble Apex court as under: It is wholly immaterial in the circumstances of the present case to take into consideration as to how the appellant treated the amounts in question. It is not how an assessee treats any monies received but what is the nature of the receipts which is dec .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

usiness 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 bu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ad to pay an entrance fee. The association also charged the members and every person making use of facilities a subscription which varied according to the use made by them. The bulk of the receipts of the association was derived from entrance fees and subscriptions. It was, therefore, contended that the association did not carry on a trade and that it was a mutual association and entrance fees and subscriptions should be disregarded in computing assessment of the assessable profits. It was held .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 reje .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d was to promote and regulate 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, c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tocks 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. It is the nature of the business of the company and the profits and the distribution thereof which are the determining factors and in this case it has not been shown that the appellant's business was in any way different from that which was carried on in the case r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

supra), decision of Hon ble Supreme Court in the case of Delhi Stock Exchange Association Limited, decision of Hon ble Patna High Court in the case of United Clubs(supra) , decision of Hon ble Bombay High Court in the case of Shree Nirmal Commercial Limited(supra) which was later reiterated in Full Bench decision of Hon ble Bombay High Court in the case of Shree Nirmal Commercial Limited (supra) and which was recently affirmed by Hon ble Supreme Court in the decision of G.S. Homes and Hotels Pri .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cted from members additionally for use of various amenities/facilities by its members such as food , beverages, swimming pool etc.. There is no dispute between the rival parties that the said amount of advance membership fee received by the assessee is exigible to tax but the dispute is with respect to the year of taxability i.e. whether the same is chargeable to tax in the year of receipt or is to be spread over number of years. The AO brought to tax 100% of the receipt of advance membership fe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

atching 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 ser .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

while in subsequent years when the assesses stop enrolling members, there will be huge losses reported by the assessee as then the assessee will be required to maintain facilities in subsequent years for which expenditure will have to be necessarily incurred with no matching inflows from members as the membership fee is collected in advance and the assessee being bound by contractual obligations undertaken while collecting membership fee will have to maintain the facilities and incur necessary .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

es which will also enable the assessee to have regular stream of revenue in the years to come to enable it to incur expenditure for maintaining the facilities/amenities in the years to come. But, this is also undisputed position between the rival parties that the advance membership fee is collected by the assessee from its members for a period of 25 years in advance. The learned CIT(A) had based on decision of Special Bench of Chennai Tribunal in the case of Mahendra Holidays and Resorts India L .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t the scheme did not provided for refundability. The Tribunal relying on the earlier decision in the case of Meera and Ceiko Pump Private Limited [IT Appeal No. 652 (Hyd.) of 2001 dated 21-6-2002 for the assessment year 1994-95] held 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 Corpo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

onditions 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 membership fee collected for a period of 25 years spread over period of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version