ACIT, Bhubaneswar V. TK International Ltd, Bhubaneswar

ITA 154/CTK/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4185 (ITAT-CUTTACK)
• Duration Of Justice: 2 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2010
• Appeal Filed By: Department
• Bench Allotted: DB
• Assessment Year: 2003-2004
• Appeal Filed On: 23-05-2008
• Court: TRIBUNAL
• Department Lawyers: B S SUBUDHI
• Assessee Lawyers: ABHAYA NAYAK

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE HONBLE SHRI D.K.TYAGI, JUDICIAL MEMBER. /AND HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER . / I.TA.NO . 76/CTK/2007 AND ITA NO.154/CTK/2008 / ASSESSMENT YEAR S 2002 - 03 AND 2003 - 04 ACIT, CIRCLE 2(1), BHUBANESWAR. - - - VERSUS - . T.K.INTERNATIONAL LTD., C - 40, MARKE T BUILDING, SAH ID NAGAR,BHBANES WAR 751 007 PAN AABCT 2236 P / A PPELLANT RESPONDENT FOR THE APPELLANT : SHRI B.S.SUBUDHI, DR FOR THE RESPONDENT : SHRI ABHAYA NAYAK, AR / ORDER SHRI K.K.GUPTA, ACCOUNTANT MEMBER . THESE TWO APPEALS BY THE REVENUE FOR THE AYS 2002 - 03 AND 2003 - 04 RELAT E TO A COMMON ISSUE WITH RESPECT TO TREATMENT OF TIME SHARING RECEIPTS IN THE IMPUGNED AYS ON THE BASIS OF PART THEREOF BEING HEL D AS REVENUE INCOME. 2. TH ESE APPEALS WERE KEPT PENDING ON THE BASIS OF NOTING BY THE TRIBUNAL THAT A SPECIAL BENCH IS TO HEAR THE ISSUE AND HAD BEEN CONSTITUTED AT ITAT,CHENNAI WHERE THE ASSESSEE ALSO APPEARED AS INTERVENER WAS THEREFORE KEPT PENDING TI LL SUCH DECI SION WAS RENDERED. 3 . THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE REMAINED PENDING AND NOW DECISION DELIVERED BY ITAT,CHENNAI VIDE ORDER DT.26.5.2010, WHEREIN THE ANSWER TO QUESTION POSED TO THE SPECIAL BENCH WHETHER THE EN TIRE AMOUNT OF TIME SHARE MEMBERSHIP FEES RECEIVABLE BY THE ASSESSEE WAS NOT INCOME CHARGEABLE TO TAX IN THE INITIAL YEAR ON ACCOUNT OF CONTRACTUAL OBLIGATION FOR DECISION TO I.TA.NO .76/CTK/2007 AND ITA NO.154/CTK/2008 2 THE RECEIPT OF SHARING TIME FOR FUTURE OVER THE TERMS OF CONTRACT HAD BEEN DEALT WITH. A COPY THEREOF HAS BEEN FURNISHED AS ITA NO.2412 TO 2416/MAD/2005 IN THE CASE OF ACIT V. MAHINDRA HOLIDAY RESORTS INDIA LTD. THIS ISSUE IS NOW SETTLED AS WAS CONSIDERED BY THE LEARNED CIT(A) IN THE IMPUGNED AYS IN DETAIL WHEN THE LEARNED CIT(A) THO UGHT IT FIT TO FOLLOW THE DECISION OF THE TRIBUNAL ACKNOWLEDGING THAT THE DEPARTMENT HAD PREFERRED AN APPEAL BEFORE THE HONBLE ORISSA HIGH COURT AGAINST THE EARLIER ORDER OF THE ITAT, CUTTACK BENCH AND NOTING BY THE ASSESSING OFFICER WHO HAD TREATED 100% OF THE TIMESHARE RECEIPTS AS REVENUE RECEIPTS AS AGAINST ASSESSEE INCLUDING ONLY 45% OF R ECEIPTS AS ITS INCOME AND THE BALANCE 55% WAS HELD TO BE ADJUSTED IN ACCORDANCE WITH THE TIME SHARE RECEIPT OF THE SUBSEQUENT YEAR S IN ACCORDANCE WITH TERMS OF CONTRA CT. . 4 . THE LEARNED DR, HOWEVER, INSISTED ON THE DEPARTMENTS VIEW OF REVENUE RECOGNITION IN THE IMPUGNED ASSESSMENT YEAR AS ISSUE ALIVE BEFORE THE HONBLE HIGH COURT AS HE TRIED TO PROPOSE THAT ONCE THE FIXED EXPENSES ARE IDENTIFIED , IT IS ONLY THE VARIA BLE EXPENSES WHICH NEED TO BE CONSIDERED FOR ADJUSTMENT IN THE SUBSEQUENT YEAR TO THE CORRESPONDING RECEIPTS HELD AS LIABILITY BY THE ASSESSEE THEREFORE, THE ORDER REQUIRES CONSIDERATION IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH WHICH MAY BE TAKEN NOTE OF. 5 . AFTER HEARING BOTH THE PARTIES, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE STANDS SETTLED BY THE SPECIAL BENCH IN THE CASE OF ACIT V. M/S.MAHINDRA HOLIDAYS & RESORTS (INDIA) LTD., IN ITA NOS.2412 TO 2416/MADS/2005 DT.26.5.2010, COPY OF WHICH HAS BEEN FURNISHED BY THE LEARNED COUNSEL FOR THE ASSESSEE WHO HAS ALSO WAS INTERVEN ED IN THE SAID APPEAL. THE MATTER HAS BEEN KEPT OPEN TO THE EXTENT THAT THE WHOLE OF RECEIPTS IN THE IMPUGNED ASSESSMENT YEAR CAN NOT BE SUBJECTED TO TAX I.TA.NO .76/CTK/2007 AND ITA NO.154/CTK/2008 3 SPECIFICALLY WHEN T IME SHARING RESERVE INDICATES THAT THE INCOME WILL BE ADJUSTED AGAINST A FUTURE EXPENSE S BELONGING TO THAT PARTICULAR SOURCE OF RECEIPT HAS TO BE MAINTAINED BY THE ASSESSEE. THE LEARNED CIT(A) FOLLOWING THE DECISION OF THE TRIBUNAL HAD THEREFORE ALLOWED TH E ASSESSEES CONTENTION OF DECLARING 45% OF THE REVENUE RECEIPT AS INCOME IN THE IMPUGNED ASSESSMENT YEAR S AGAINST WHICH NO CONTROVERTING MATERIAL HAS BEEN BROUGHT ON RECORD . IN SO FAR AS THE LEARNED DR HAS ONLY OPINED THAT THE FIXED EXPENSES THAT ARE BOU ND TO BE BORNE BY MEMBERS OF SHARING TIME CANNOT BE POSTPONED TO FUTURE YEARS WHEN NON - MEMBERS ALSO AVAIL HOLIDAYS ON TIME SHARING BASIS. THIS ISSUE THEREFORE BECOMES AN OFF SHOOT TO THE MAIN ISSUE REQUIRES CONSIDERATION BY THE ASSESSING OFFICER AT THE TIM E THE EXPENSES ARE CLAIMED AGAINST THE PARTICULAR INCOME THEREFORE CANNOT BE ADDRESSED AT THIS STAGE. 6 . THEREFORE ON THE ISSUE OF REVENUE RECOGNISATION OF THE MEMBERSHIP RECEIPTS FOR TIME SHARING STANDS COVERED IN FAVOUR OF THE ASSESSEE AS NOTED BY THE LE ARNED CIT(A) REQUIRES NO FURTHER DELIBERATION, TILL SUCH TIME THE APPEAL BY THE REVENUE BEFORE THE HONBLE HIGH COURT SETTLES THE ISSUE. THE GROUND IS DISMISSED. 7 . FOR THE ASSESSMENT YEAR 2002 - 03, THE REVENUE HAS RAISED ANOTHER GROUND WITH RESPECT TO THE LEARNED CIT(A) HAVING ERRED IN LAW AS WELL AS ON FACTS BY DELETING THE ADDITION OF RS. 4 LAKHS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEEMED PROFIT U/S.80HHD(5) FOR CLAIMING DEDUCTION . 8 . WE HAVE HEARD THE RIVAL CONTENTIONS AND ARE INCLINED TO HOLD TH AT THE LEARNED DR HAS RIGHTLY POINTED OUT THAT THE SAID DEDUCTION AS GOVERNED BY CHAPTER VIA OF THE ACT WOULD NOT BE AVAILABLE TO THE ASSESSEE TILL SUCH INCOME HAS BEEN INDICATED IN THE RETURN WHEN THE AMOUNT OF DEDUCTION HAS BEEN SOUGHT TO BE CLAIMED FROM THE RESERVES WITHDRAWN. THE LEARNED COUNSEL HAS NOT BEEN ABLE TO EXPLAIN AS TO HOW THE RUNNING I.TA.NO .76/CTK/2007 AND ITA NO.154/CTK/2008 4 ACCOUNT AGAINST FLUCTUATION RESERVE IN FOREIGN EXCHANGE COULD ENTITLE DEDUCTIO N U/S.80HHD(5) IN THE IMPUGNED YEAR IN COMPLIANCE AS NOTED BY THE ASSESSING OFFICE R. THE LEARNED CIT(A) HAD ALLOWED THE SAME BY HOLDING THAT THE OMISSION OF PASSING A JOURNAL E NTRY TO DEDUCTION FROM THE SAID RESERVE ACCOUNT IS A TECHNICAL MISTAKE THEREFORE DOES NOT ENTITLE THE ASSESSEE TO MAKE A HYPOTHETICAL CLAIM. I N VIEW THEREOF, THE DECISION OF THE LEARNED CIT(A) ON THIS ISSUE IS REVERSED AND THAT OF THE LEARNED ASSESSING OFFICER IS UPHELD. 9 . IN CONCLUSION, APPEAL OF THE REVENUE FOR THE AS SESSMENT YEAR 2003 - 04 IS DISMISSED AND THE APPEAL FOR THE ASSESSMENT YEAR 2002 - 03 IS PARTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 27.07.2010 SD/ - SD/ - ( ), D.K.TYAGI JUDICIA L MEMBER (K.K.GUPTA), ACCOUNTANT MEMBER. DATE: 27.07.2010 - COPY OF THE ORDER FORWARDED TO : / THE APPELLANT : ACIT, CIRCLE 2(1), BHUBANESWAR. / THE RESPONDENT : T.K.INTERNATIONAL LTD., C - 40, MARKET BUILDING, SAHID NAGAR,BHBANESWAR THE CIT, THE CIT(A), DR, CUTTACK B ENCH GUARD FILE TRUE COPY , BY ORDER , [ ] SENIOR PRIVATE SECRETARY ( /) H.K.PADHEE SENIOR.PRIVATE SECRETARY.