Jennys Residency P Ltd., CHENNAI V. DCIT, CHENNAI

ITA 1426/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90602 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 15-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 22-05-2014
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: N QUADIR HOSEYN
• Keywords: Capital receipt; Revenue expenditure

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHE NNAI , . ! ! ! ! , ' ' ' ' #$ #$ #$ #$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NOS. 1426 AND 1427/MDS/2014 ASSESSMENT YEARS : 2008-09 AND 2010-11 M/S. JENNYS RESIDENCY P. LTD., NO. 40, UNNAMALAI AMMAL STREET, T. NAGAR, CHENNAI 600 017. [PAN: AABCJ3735D] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(3), CHENNAI 600 034.. ( %& %& %& %& /APPELLANT ) ( '(%& '(%& '(%& '(%& / RESPONDENT ) %& ) * / APPELLANT BY : SHRI N. QUADIR HOSEYN, ADVOCATE '(%& ) * / RESPONDENT BY : SHRI P. RADHAKRISHNAN, JCIT ) + / DATE OF HEARING : 15.06.2015 ,-. ) + /DATE OF PRONOUNCEMENT : 30.06.2015 / / / / / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : BOTH THE APPEALS FILED BY THE SAME ASSESSEE ARE DI RECTED AGAINST THE CONSOLIDATED ORDER PASSED BY THE LD. COMMISSIONER O F INCOME TAX (APPEALS)II, CHENNAI DATED 18.03.2014 RELEVANT TO THE ASSESSMENT YEARS 2008-09 AND 2010-11. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS RUNNING A HOTEL AND MEMBERSHIP CLUB. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT ON THE MEMBERSHIP FEE COLLECTED, THE ASSESSEE HAS I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1426 & 1427 1426 & 1427 1426 & 1427 1426 & 1427/M/1 /M/1 /M/1 /M/14 44 4 2 OFFERED ONLY 10% OF THE SAME AS CURRENT YEARS INCO ME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS BROUGHT TO THE NOTIC E OF THE ASSESSEE THAT IT HAS TO AMORTIZE SUCH MEMBERSHIP FEES OVER A PERIOD OF FIVE YEARS STARTING FROM THE FINANCIAL YEARS 2003-04 TO 2007-08 AND OFF ER 20% OF SUCH FEES FOR EVERY FINANCIAL YEAR. BEFORE THE ASSESSING OFFICER, THE AR OF THE ASSESSEE APPEARED AND FURNISHED FRESH WORKING OF MEMBERSHIP FEES COLLECTED FOR THE ABOVE MENTIONED YEARS, WHEREIN HE HAS AMORTIZED SUC H FEES OVER A PERIOD OF FIVE YEARS @ 20% UPTO THE FINANCIAL YEARS 2007-0 8 (YEAR ENDED 31.03.2008. AS PER THE WORKING GIVEN BY THE AR OF T HE ASSESSEE, A SUM OF .1,27,15,198/- HAS TO BE OFFERED AS INCOME FROM MEM BERSHIP FEES FOR THE CURRENT YEAR. SINCE THE ASSESSEE HAS OFFERED ONLY .42,84,688/- THE BALANCE OF .84,30,510/- WAS ADDED TO THE INCOME OF THE ASSESSE E AND ACCORDINGLY ASSESSMENT WAS COMPLETED. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFOR E THE LD. CIT(A). IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT THE ASSESSEE H AS RECOGNIZED 10% OF MEMBERSHIP FEES COLLECTED AS ASSESSABLE INCOME OF T HE YEAR AND PLEADED THAT THE ADDITION MAY BE DELETED. THE LD. CIT(A), A FTER CONSIDERING THE EXPLANATION OF THE ASSESSEE, CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY OBSERVING AS UNDER: 4.5 I HAVE CONSIDERED THE ASSESSEE'S SUBMISSIONS C AREFULLY. IT IS TRUE THAT AMORTIZATION IS RECOGNIZED BY THE I.T. ACT IN THE CASE OF CERTAIN PRELIMINARY EXPENSES ONLY. SUCH AMORTIZATION IS NOT RECOGNIZED BY THE ACT. AT THE SAME TIME, THE UP-FRONT MEMBERSHIP FEE COLLECTED BY THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1426 & 1427 1426 & 1427 1426 & 1427 1426 & 1427/M/1 /M/1 /M/1 /M/14 44 4 3 CLUBS ON ENROLLING THE MEMBERS CERTAINLY BECOMES A REVENUE RECEIPT AND NOT A CAPITAL RECEIPT. HOWEVER, THERE IS AN OBL IGATION ON THE ASSESSEE TO CATER TO THE NEEDS OF THE SAID MEMBERS OVER A PERIOD OF THEIR MEMBERSHIP, WHICH IN MANY CASES MAY BE A LIFETIME M EMBERSHIP. IT IS ALSO IMPORTANT TO MENTION HERE THAT THE MEMBERS, IN ADDITION TO THE ENROLLMENT MEMBERSHIP FEES, HAVE TO KEEP ON PAYING ANNUAL FEES, ANY OTHER FEES FOR UTILIZING THE FACILITIES OF THE CLUB /ORGANIZATION. THUS, THERE IS ALSO AN ANNUAL IN-FLOW OF FUNDS FROM THE M EMBERS WHICH CAN TAKE CARE OF THE RECURRING EXPENSES. THUS, THE ASSE SSEE'S CLAIM OF SPREADING THE MEMBERSHIP FEE COLLECTIONS OVER A PER IOD OF 10 YEARS AND RECOGNIZING ONLY 1/10 TH OF THE MEMBERSHIP FEE RECEIPTS AS THE TAXABLE INCOME OF THE YEAR IS NOT JUSTIFIED. AT THE SAME TI ME, AS CLAIMED BY THE ASSESSEE, THE ORGANIZATION NEEDS TO CATER TO THE RE QUIREMENTS OF MEMBERS IN VARIOUS FORMS, AND SOMETIMES THE ANNUAL IN-FLOW OF THE FUNDS FROM THE MEMBERS MAY NOT BE SUFFICIENT TO MEE T THE SAID REQUIREMENTS. THUS, THE ASSESSEE HAS TO KEEP A PORT ION OF THE MEMBERSHIP FEES COLLECTED ON ENROLMENT OF THE MEMBE RS FOR FUTURE REQUIREMENTS. THUS THERE SHOULD A BALANCE BETWEEN M EMBERSHIP FEE RECEIPTS AND THE REQUIREMENT TO CATER TO THE NEEDS OF THE MEMBERS IN FUTURE. UNDER THESE CIRCUMSTANCES, THE ASSESSING OF FICER HAS REASONABLY AND RIGHTLY CONSIDERED ONLY 20% OF THE S AID RECEIPTS AS THE REVENUE OF THE YEAR AND THE BALANCE IS SPREAD OVER THE NEXT FOUR YEARS. 4.6 KEEPING THE ABOVE FACTS IN MIND, I AM OF THE OP INION THAT THE ASSESSING OFFICER'S ACTION OF SPREADING THE MEMBERS HIP FEE COLLECTIONS OVER A PERIOD OF 5 YEARS AND RECOGNIZING 1/5 TH OF THE SAME AS THE INCOME OF THE YEAR IS REASONABLE AND JUSTIFIED. THE ACTION OF THE ASSESSING OFFICER NEEDS NO INTERFERENCE AND CONFIRM ED 4. ON BEING AGGRIEVED, THE ASSESSEE CARRIED THE MA TTER IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT IN EARLIER YEARS 20% OF THE FEES COLLECTED FROM THE MEMBERS WERE OFF ERED AS INCOME. HOWEVER, FOR THE YEAR UNDER CONSIDERATION, ONLY 10% OFFERED BECAUSE OF CHANGE OF THE ACCOUNTING POLICY AND THE DECISION TA KEN BY THE MANAGEMENT I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1426 & 1427 1426 & 1427 1426 & 1427 1426 & 1427/M/1 /M/1 /M/1 /M/14 44 4 4 BOARD. HE ALSO RELIED ON THE DECISION IN THE CASE O F TAPARIA TOOLS LTD. V. JCIT [2015] 55 TAXMANN.COM 361(SC). 6. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTE D THE ORDERS OF AUTHORITIES BELOW. 7. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESS EE IS RUNNING HOTEL INDUSTRY AND ALSO MEMBERS CLUB. THE ASSESSEE HAS CO LLECTED MEMBERSHIP FEES FROM MEMBERS, WHO ARE ENROLLED IN THE CLUB. ME MBERSHIP FEES COLLECTED DURING THE FINANCIAL YEARS 2007-08 AND 2009-10 WERE .6,35,75,990/- AND .4,48,61,207/- RESPECTIVELY. THIS MEMBERSHIP FEES I S ONE-TIME PAYMENT AT THE TIME OF ENROLLING OF THE MEMBER. THE MEMBERSHIP FEE SO COLLECTED BY THE ASSESSEE WAS OFFERED FOR TAXATION @ 10%, BY SPREADI NG THE RECEIPTS OVER A PERIOD OF 10 YEARS. THE CASE OF THE ASSESSEE IS THA T THOUGH THE MEMBERSHIP FEES WAS COLLECTED AT THE TIME OF ENROLLING THE MEM BER, IT HAS TO CATER TO THE NEEDS OF THE SAID MEMBERS THROUGHOUT THEIR MEMBERSH IP PERIOD, WHICH IS PERMANENT (LIFE TIME). ACCORDINGLY, MEMBERSHIP FEES COLLECTED WAS SPREAD OVER A PERIOD OF 10 YEARS AND ACCORDINGLY RECOGNIZE D 10% OF THE RECEIPTS AS REVENUE RECEIPTS DURING THE YEAR OF RECEIPT AND OFF ERED TO TAX AND THE BALANCE WAS BEING OFFERED TO TAX IN THE SUBSEQUENT 9 YEARS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS SUBMITTED THE DETAILS OF MEMBERSHIP FEES COLLECTED AND ALSO THE BASIS FOR OFFERING ONLY 10% OF THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1426 & 1427 1426 & 1427 1426 & 1427 1426 & 1427/M/1 /M/1 /M/1 /M/14 44 4 5 MEMBERSHIP FEES COLLECTED TO TAX. IT APPEARS FROM T HE ORDER OF THE LD. CIT(A) THAT MEMBERSHIP FEES COLLECTED FROM FINANCIAL YEAR S 2003-04 TO 2007-08 AND WERE OFFERED 20% OF THE SAME. SO FAR AS THE YEA R UNDER CONSIDERATION, THE ASSESSEE HAS COLLECTED .1,27,15,198/- AGAINST WHICH ONLY .42,84,668/- WAS ADMITTED IN THE RETURN OF INCOME. THE ASSESSING OFFICER BASED ON THE EARLIER YEARS CONSIDERED AND ACCEPTED 20% MEMBERSHI P FEE SO COLLECTED AND ASSESSMENT WAS COMPLETED. THE ASSESSEES SUBMIS SION IS THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH TAMIL N ADU CORPORATION FOR DEVELOPMENT OF WOMEN LTD. AND LEASED OUT FOR A PERI OD OF 33 YEARS ON 27.10.1994 AND SUBSEQUENTLY A SUPPLEMENTARY DEED DA TED 29.02.1996. THEREFORE, THE ASSESSEE HAS CHANGED THE POLICY OF O FFERING 20% AND 10% IS OFFERED FOR TAXATION. WE FIND THAT THERE IS NO RELA TION BETWEEN THE ASSESSEES RECEIPTS AND REDUCING THE SAME FROM 20% TO 10% FOR THE AGREEMENT ENTERED INTO BY THE ASSESSEE. 8. SO FAR AS ANOTHER ARGUMENT OF THE ASSESSEE IS C ONCERNED, CHANGING OF ACCOUNTING POLICY. THE ASSESSEE HAS NOT ABLE TO PLA CE ANY MATERIAL TO SHOW THAT THE ACCOUNTING PRINCIPLES OF THE COMPANY HAS B EEN CHANGED, BUT ONLY WE FIND FROM THE MATERIAL FILED BY THE ASSESSEE, TH E BOARD RESOLUTION DATED 30.09.2006, WHEREIN THE BOARD HAS DECIDED TO OFFER ONLY 10%. THIS BOARD RESOLUTION IS NOT AT ALL A BASIS FOR REDUCING 20% T O 10% WHEN THE ASSESSEE IS CONTINUOUSLY FOLLOWING BY OFFERING 20% REVENUE RECE IPTS COLLECTED FROM THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1426 & 1427 1426 & 1427 1426 & 1427 1426 & 1427/M/1 /M/1 /M/1 /M/14 44 4 6 MEMBERS AND OFFERED FOR TAXATION. IN VIEW OF THE AB OVE FACTS AND CIRCUMSTANCES, WE FIND THAT THE LD. CIT(A) HAS CORR ECTLY CONFIRMED THE ORDER PASSED BY THE ASSESSING OFFICER AND FIND NO INFIRMI TY IN THE ORDER PASSED BY THE LD. CIT(A). 9. SO FAR AS CASE LAW RELIED ON BY THE ASSESSEE IN THE CASE OF TAPARIA TOOLS LTD. V. JCIT (SUPRA), THE HONBLE SUPREME COU RT HAS OBSERVED THAT THUS, THE FIRST THING WHICH IS TO BE NOTICED IS TH AT THOUGH THE ENTIRE EXPENDITURE WAS INCURRED IN THAT YEAR, IT WAS THE A SSESSEE WHO WANTED TO SPREAD OVER. THE COURT WAS CONSCIOUS OF THE PRINCIP LE THAT NORMALLY REVENUE EXPENDITURE IS TO BE ALLOWED IN THE SAME YEAR IN WH ICH IT IS INCURRED, BUT AT THE INSTANCE OF THE ASSESSEE, WHO WANTED SPREADING OVER, THE COURT AGREED TO ALLOW THE ASSESSEE THAT BENEFIT WHEN IT WAS FOUN D THAT THERE WAS A CONTINUING BENEFIT TO THE BUSINESS OF THE COMPANY O VER THE ENTIRE PERIOD. IN THE PRESENT CASE, THE ASSESSEE HAS RECEIVED LUMP-SU M AMOUNT FROM ITS MEMBERS. THE MEMBERS IN ADDITION TO THE ABOVE ENROL LMENT FEES, HAVE TO KEEP ON PAYING ANNUAL FEES, ANY OTHER FEES FOR UTIL IZING THE FACILITIES OF THE CLUB/ORGANIZATION. THUS, THERE IS ALSO AN ANNUAL IN -FLOW OF FUNDS FROM THE MEMBERS WHICH CAN TAKE CARE OF THE RECURRING EXPENS ES. WE FIND THAT THE ASSESSEE'S CLAIM OF SPREADING THE MEMBERSHIP FEE CO LLECTIONS OVER A PERIOD OF 10 YEARS AND RECOGNIZING ONLY 1/10 TH OF THE MEMBERSHIP FEE RECEIPTS AS I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1426 & 1427 1426 & 1427 1426 & 1427 1426 & 1427/M/1 /M/1 /M/1 /M/14 44 4 7 THE TAXABLE INCOME OF THE YEAR IS NOT JUSTIFIED. TH EREFORE, THE CASE LAW RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE HAS NO APPLI CATION. 10. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) AND ACCORDINGLY, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. 11. SO FAR AS APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2010- 11 IS CONCERNED, THE FACTS AND THE ISSUE RAISED BEF ORE THE TRIBUNAL ARE IDENTICAL AND ACCORDINGLY, BY FOLLOWING THE ABOVE D ECISION OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2008-09, WE DISMISS THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2010-11 ALSO. 12. IN THE RESULT, BOTH THE APPEALS FILED BY THE A SSESSEE ARE DISMISSED. ORDER PRONOUNCED ON TUESDAY, THE 30 TH OF JUNE, 2015 AT CHENNAI. SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER CHENNAI, DATED, THE 30.06.2015 VM/- / ) ''+01 21.+ /COPY TO: 1. %& / APPELLANT, 2. '(%& / RESPONDENT, 3. 3 ( ) /CIT(A), 4. 3 /CIT, 5. 14 ''+' /DR & 6. 5! 6 /GF.