TMI Blog2012 (8) TMI 1171X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. At the time of hearing, the counsel for the assessee submitted that this issue is decided in favour of the assessee by the Chennai Special Bench of the Tribunal in the case of ACIT v. Mahindra Holidays Resorts (India) Ltd. in I.T.A. Nos. 2412 to 2416/Mds/2005 dated 26.05.2010 for the assessment years 1998-99 to 2002-03 , a copy of the same is placed at page 8 of the paper book. 4. The CIT DR submitted that this Tribunal in assessee s own case for earlier year held that the income cannot be deferred as there is no provision for deferment of income in the Income Tax Act. The counsel for the Revenue submitted that the amount deferred is not used for any services in subsequent years. The DR submits that the Chennai Special Bench of the Tribunal did not consider the decisions in the case of CIT vs. Calcutta Stock Exchange Association Ltd. [36 ITR 222] and the decision in the case of Delhi Stock Exchange Association vs. CIT [41 ITR 495] while deciding the issue of deferred income and therefore, the issue came to be decided in favour of the assessee. 5. The counsel for the assessee replying to the submission of the DR, submits that the Coordinate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubscription fees (ASF) or administrative charges. These charges generally are collected irrespective of the fact whether the member makes use of the resort or not. Further, if the member utilises the resort, he makes an additional payment towards utilities like electricity, water, air-conditioning, heater etc. There are other incidental facilities also like exchange facilities, one-up exchange, RCI exchange etc. There are certain rules pertaining to cancellation of membership also along with the rules pertaining to quantification of refund. The assessee before us initially granted membership for 33 years which was later reduced to 25 years. The entire membership fee received by the assessee is treated as revenue receipt, but the entire amount collected is not recognised as revenue and offered for taxation in the year of its receipt. During the first three years of its operation, the assessee recognised 40 per cent of the revenue as income in the year of receipt and from 4th year onwards, it started recognising 60 per cent of the receipt as income in the year of receipt. The balance amount was equally spread over the period of membership i.e., 25 or 33 years, as the case may be. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he managing agency agreement. The transfer took place on different dates during the accounting year. The accounts of the managed companies were made up at the end of the year and the commission payable was computed. The commission was paid over to the three new managing agents. The Sassoons did not include any part of the commission in their income but the commission was assessed in the hands of the three transferees. The transferees objected to the said assessment stating that the agency commission received by them should be apportioned on a proportionate basis and the transferees should be made liable to pay tax only on the commission earned by them during the period that they had worked as managing agents of the respective companies. It was argued on behalf of the Sassoons that it was a condition precedent to the earning of the remuneration that they fulfilled the terms of their employment and completed the period for which the remuneration was payable to them and the service for the particular period was a condition precedent to their earning the remuneration for that period. Since the stated period of one year was not over, no remuneration was payable to the Sassoons till the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as the Supreme Court, (Vide CIT Bombay v. Ahmedbhai Umarbhai Co., Bombay [1950] 18 ITR 472 , and CIT Madras v. K.R.M.T.T. Thiagaraja Chetty Co. [1953] 24 ITR 525 at 533). It has also been used by the Judicial Committee of the Privy Council in Commissioners of Taxation v. Kirk[1900] A.C. 588 at 592. The concept, however, cannot be divorced from that of income accruing to the assessee. If income has accrued to the assessee it is certainly earned by him in the sense that he has contributed to its production or the parenthood of the income can be traced to him. But in order that the income can be said to have accrued to or earned by the assessee it is not only necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise but he must have created a debt in his favour. A debt must have come into existence and he must have acquired a right to receive the payment. Unless and until his contribution or parenthood is effective in bringing into existence a debt or a right to receive the payment or in other words a debitum in praesenti, solvendum in futuro it cannot be said that any income has accrued to him. The mere expression earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d maintenance of its various resorts. However, we are not impressed with this argument. Separate charges are collected for maintenance and for use of utilities and therefore, the matching concept cannot be pressed into service so far as membership fee is concerned. No doubt, it will be the constant endeavour of the assessee to go on adding new resources which will be available to the existing members also. To that extent one can say that some portion of the membership fees will go to finance new properties. But membership fee is essentially a consideration for the right to occupy a resort for one week in a year for 33/25 years. But the contingency of non-availability of accommodation will always be there. Sometimes, if the assessee is not able to provide accommodation in any of its notified resorts, it will try to procure alternate accommodation. This also will entail additional expenditure on the part of the assessee over and above paying liquidated damages to the assessee. Unlike the case in Calcutta Co. Ltd. s case (supra), the liability in this case is difficult not only to quantify but also to reasonably estimate it. The liability is undoubtedly there. However, no scientific b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29. We again revert to the aspect of liability. In this connection, the judgment of the Supreme Court in the case of Rotork Controls India (P.) Ltd. (supra) is quite useful. Of course, we are conscious of the fact that that case pertained to provision for warranties, nonetheless, certain principles enunciated therein are quite apt for the case on hand as well. In the said case, the assessee had made provision for warranties. The Madras High Court in their judgment in CIT v. Rotork Controls India Ltd. [2007] 293 ITR 311 denied deduction of the provision for warranties on the ground that the liability was not certain. In fact at page 315 the High Court expressed this view by stating that considering the nature of the liability, which is yet to crystallise but loaded, with uncertainty of the event, to cause a liability, there is no justification to accept the plea of the assessee. On the other hand, the Supreme Court observed that liability is defined as a present obligation arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. It was further observed that a past event that leads to a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already observed in the preceding paragraphs that the assessee has a present obligation as a result of a past event. Thus, the first condition is satisfied. We have also observed that outflow of resources is probable to settle the obligation. The second condition is also satisfied. However, considering the nature of activity, it is the third condition which is difficult to satisfy. The demand for accommodation by the members is essentially tourism oriented. Tourism, in turn, depends on several factors. They may be social, political, climatic and so on. If wedding season is in full swing, tourism can get affected. If there is some commotion around a particular resort or if the law and order situation is not conducive, tourism can be affected. Sudden change in weather can also affect tourism. Further, availability of rail or air reservation can also affect tourism. The possibility of leave travel concession (LTC) getting lapsed can see sudden spurt in tourism. These are only a few illustrations which can affect the demand for accommodation either way. There may be many possibilities which may not come to mind but may put the assessee into tremendous pressure. All these factors are s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of any scientific basis or historical data. Therefore, the only way to minimise the distortion is to spread over a part of the income over the ensuing years. At this juncture, we may deal with one of the arguments made on behalf of the assessee and the intervener. It was argued that accounting for the whole of the income in one year would give a distorted view of the profits of the company which will be against the true and fair principle required for the annual accounts. Well, the distortion the ld. counsel talked about was vis-avis the presentation of published accounts whereas the distortion the Supreme Court talked about and which we are inclined to follow, is vis-a-vis the real taxable income for a particular year. Therefore, in view of the foregoing discussion, we accept the proposition of the assessee that it is not justifiable to tax the entire income in a single year as is the case of the department. 32. Accordingly, to answer the question posed to the Special Bench, the entire amount of timeshare membership fee receivable by the assessee up front at the time of enrolment of a member is not the income chargeable to tax in the initial year on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fee at the rate of 5% of gross revenue of the resort. Both these expenses contained together have been termed as management expenses in the books of assessee. Therefore, he submits that the management expenses payout is directly linked to resort income of the assessee. The counsel for the assessee invited our attention to page 99 of the paper book consisting of abstract taken from schedule 9 of the Annual Report for the financial year 2005-06 containing the details of revenue as under: Schedule 9 Sales Less Returns As as 31 st March 2006 As at 31 st March, 2005 Time shares and Others 97,223,256 275,701,144 Resort operations 175,169,558 166,126,138 Total 272,392814 441,827,282 13. Referring to the above table, the counsel for the assessee submits that the total income consists of both time share income and income from resort operations. The tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e excessive particularly on the ground that there is substantial reduction in income compared to last year, which is not a fact born out from the record. Therefore, we delete the disallowance of ₹ 55,49,807/- made on account of management expenses. 16. The second issue in the grounds of appeal of the assessee for the assessment year 2007-08 is that the Commissioner of Income Tax (Appeals) erred in sustaining the addition made towards reversal of income. 17. The Assessing Officer while completing the assessment made addition of ₹ 1,31,51,275/- stating that the assessee had reversed these expenses on 01.04.2007. The Assessing Officer observed that the assessee made provision for the expenses on 31.03.2007 and the same was written off subsequently on 01.04.2007. The assessee failed to produce any evidence to the fact that the same were paid by cheque, etc. except showing some journal entries in relation to these expenses. 18. It was contended before the Commissioner of Income Tax (Appeals) that out of the provision of ₹ 1,31,51,275/- made for outstanding liabilities as on 31.03.2007, the assessee made payment to the tune of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23. On appeal, the Commissioner of Income Tax (Appeals) following the Coordinate Bench of this Tribunal in the case of SPIC vs. DCIT restricted the disallowance to 2% of the dividend earned and deleted the rest of the disallowance made under section 14A of the Act. 24. Against this order of the Commissioner of Income Tax (Appeals), the assessee has come up in appeal and contended that the assessee has not earned any dividend income during the assessment year 2002-03. Therefore, restricting the disallowance to 2% of dividend income by the Commissioner of Income Tax (Appeals) is not justified. 25. The counsel for the Revenue supported the orders of lower authorities. 26. We have heard both sides, perused the materials available on record and orders of lower authorities. We see that the assessee has not received any income by way of dividend during this assessment year. Though the Commissioner of Income Tax (Appeals) restricted the disallowance to 2% of dividend income earned, since there is no dividend income received by the assessee in this year, no disallowance can be made under section 14A of the Act and therefore there is no grievance t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings to substantiate its claim. 33. The counsel for the assessee pleaded before us that the issue may be remitted back to the file of the Assessing Officer to examine afresh as the matter relates to only determining the carry forward of losses from the records. 34. The counsel for the Revenue did not seriously object for sending back the issue to the file of the Assessing Officer for determining the correct amount of carry forward losses. 35. We have heard both side, perused the materials on record. We set aside the issue to the file of the Assessing Officer to re-examine and determine the correct losses to be carried forward since it is only a reconciliation of losses as per the records. The assessee may submit the reconciliation losses to the Assessing Officer in support of its claim and the Assessing Officer shall consider the details furnished by the assessee and determine the correct losses to be carried forward. 37. In the result, the appeals of the assessee in I.T.A. Nos. 471 472/Mds/2012 are partly allowed and I.T.A. Nos. 473 160/Mds/2012 are partly allowed for statistical purposes. Order pronounced ..... X X X X Extracts X X X X X X X X Extracts X X X X
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