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TMI Blog2012 (8) TMI 1171X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 Bench of this Tribunal in the case of Mahindra Holidays and Resorts In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 case of the assessee is that though it has received the entire amount in, one year only, its obligation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmission 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 end of the year and it did not become a debt due by the companies to the Sassoons. Therefore, according to the Sassoons, no income accrued to them. On the other hand, it was urged on be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed 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" in the sense of rendering the services etc. by itself is of no avail." From the above observations, it is evident that two conditions are necessary to say that income has accrued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ressed 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 basis has been brought to our notice to quantify the same even reasonably. Just as life insurance premium or provision for encashment of leave can be quantified reasonably on actuarial basis, there is no such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scious 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 present obligation is called as an obligating event. The obligating event is an event that creates an obligation which results in an outflow of resources. It also observed that for a liability to qualif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able 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 such which are twined with the normal human life and, hence, are not only certain to occur but also makes it difficult to reasonably estimate the probable outflow of resources. Moreover, as mentioned earlier, most ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 contractual obligation that is fastened to the receipt to provide services in future over the term of contract." 7. The Coordinate Bench of this Tribunal in the case of Mahindra Holidays and Resorts India Ltd in ITA No. 1613/Mds/2011 dated 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 31st March 2006 As at 31st 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 total income as on 31.03.2006 from both these operations has reduced by ₹ 16,94,34,468/- when compared to the income of the immediate preceding year i.e. 31.03.2005. However, the resort income as on 31.03.2006 has increased by ₹ 90,43,420/- when compared to the immediate preceding year i.e. 31.03.2005. The counsel submits that since the management fee and marketing fee is directly linked with resort income, the management expenses got increased during the current assessment year because of the increase of the resort income. Therefore, he submits that the Assessing Officer and the Commissioner of Income Tax (Appeals) fell in error in calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee 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 ₹ 98,76,080/- after 01.04.2007. It was contended before the Commissioner of Income Tax (Appeals) that the assessee has incurred the expenditure to the extent of ₹ 98,76,080/- and it should be allowed as deduction. The Commissioner of Income Tax (Appeals) rejected the additional evidence furnished by the assessee and further held that creation of provision and subsequent written off in the books is an abnormal Act and deserves proper explanation and in the absence of such explanation, the disallowance made by the Assessing Officer is confirmed. 19. The counsel for the assessee submits that the company is following regular practice of making provision for expenses as on the last day of the acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to the assessee against the order of the Commissioner of Income Tax (Appeals). Therefore, we dismiss the grounds of appeal of the assessee on this issue for the assessment year 2002-03. 27. For the assessment year 2008-09, the Assessing Officer disallowed ₹ 6,09,403/- under section 14A read with Rule 8D. The assessee filed appeal before the Commissioner of Income Tax (Appeals) contending that there is no exempt income, which form part of total income for the assessment year 2008-09 and therefore no disallowance is called for under section 14A of the Act. 28. The Commissioner of Income Tax (Appeals) following the Delhi Special Bench decision of the Tribunal in the case of Cheminvest Ltd. v. ITO [124 TTJ 577 (Del)] rejected the contention of the assessee that no disallowance can be made if t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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