ACIT CIRCLE 2(3)(2), MUMBAI V. M/s. Sterling Holiday Resorts Ltd.(FORMERLY M/S.STERLING HOLIDAY RESORTS (I)LTD), CHENNAI

ITA 4611/MUM/2018

• Counselvise Citation: [2019] 113 COUNSELVISE.COM (IT) 6404 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 26-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS JACINTA ZIMIK VASHAI
• Assessee Lawyers: M VISWANATHAN
• Keywords: Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR, VP A ND SHRI SAKTIJIT DEY, JM ITA NO S . 4611 TO 4613/ MUM/ 2018 (ASSESSMENT YEAR S : 2011 - 12, 2013 - 14 & 2012 - 13 ) ACIT 2(3)(2), R. NO. 552, 5 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI 400 020 VS. M/S. STERLING HOLIDAY RESORTS LTD. (FORMERLY M/S. STERLING HOLIDAY RESORTS (INDIA) LTD.) THOMAS COOK BUILDING, DR. D. N. ROAD, FORT, MUMBAI - 400 001 PAN/GIR NO. AADCS 4841 D ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : MRS. JACINTA ZIMIK VASHAI RESPONDENT BY : SHRI M. VISWANATHAN DATE OF HEARING : 13.11.2019 DATE OF PRONOUNCEMENT : 20.11 .2019 O R D E R PER S AKTIJIT DEY, JM : THE AFORESAID APPEALS BY THE REVENUE ARISE OUT OF THREE SEPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 15 , CHENNAI (LD.CIT(A) FOR SHORT) DATED 26.04.2018 AND PERTAINS TO THE ASSESSMENT YEAR (A.Y.) 2011 - 12, 2012 - 13 AND 2013 - 14. THE FIRST COMMON ISSUE RAISED IN ALL THESE APPEALS RELATE TO DELETION OF ADDITION MADE ON ACCOUNT OF DEFERRE D INCOME. 2. BRIEFLY THE FACTS ARE , THE ASSESSEE , A RESIDENT COMPANY, IS ENGAGED IN THE BUSINESS OF RUNNING RESORTS AND HOTELS. THE ASSESSEE HAS D EVISED THE CONCEPT OF TIME SHARES WHEREIN A PERSON ACQUIRING MEMBERSHIP OF SUCH TIME SHARE IS ASSURED OF STAY FACILITY IN THE RESORTS/HOTELS OVER THE PERIOD OF MEMBERSHIP. IN THIS REGARD, THE 2 ITA NOS. 4611 TO 4613/MUM/2018 ACIT VS. M/S. STERLING HOLIDAY RESORTS LTD. COMPANY ENTERS INTO A CONTRACT WITH THE MEMBER ON RECEIPT OF MEMBERSHIP FEE AND AS PER THE TERMS OF THE CONTRACT RENDER S VAR IOUS SERVICES AND INCURS EXPENDITURE FOR FULFILLING THE OBLIGATIONS AS PER THE TERMS OF THE CONTRACT . T O FULFILL ITS OBLIGATION UNDER THE TERMS OF THE CONTRACT, THE ASSESSEE IS REQUIRED TO MAINTAIN RES ORTS A S PER COMMITTED QUALITY LEVEL WHICH INVOLVES REPL ACEMENT/RENOVATION/UPGRADATION OF THE ASSETS AT VARIOUS STAGES DURING THE TENURE OF THE CONTRACT. THIS ALSO REQUIRES INCURRING OTHER EXPENSES INCLUDING MARKETING AND SALES RELAT ED EXPENDITURE. THE MEMBERSHIP FEE FOR THE TIME SHARE UNITS IS COLLECTED EITHER IN FULL UPFRONT OR ON DEFERRED PAYMENT BASIS. AS PER THE ACCOUNTING PRINCIPLE CONSISTENTLY FOLLOWED BY THE ASSESSEE , OUT OF THE TOTAL MEMBERSHIP FEE RECEI VED DURING THE YEAR , THE AMOUNT REASONABLY ATTRIBUTABLE TOWARDS DIRECT COST REQUIRED TO SALE TIME SHA RE UNITS , WHICH IS REVISED PERIODICALLY , IS RECOGNIZED AS INCOME IN THE YEAR IN WHICH THE PURCHASER OF THE TIME SHARE UNIT BECOMES A MEMBER AND THE BALANCE AMOUNT REPRESENTING ADVANCE SUBSCRIPTION TOWARDS CUSTOMER FACILITIES IS RECOGNIZED AS TIME SHARE INC OME IN EQUAL PROPORTION OVER A PERIOD FOR WHICH THE HOLIDAY FACILITIES ARE PROVIDED , COMMENCING FRO M THE YEAR IN WHICH THE MEMBER BECOMES ENTITLED TO BENEFIT OF MEMBERSHIP UNDER THIS SCHEME. BY FOLLOWING THE AFORESAID REVENUE RECOGNITION POLICY, IN THE RET URN OF INCOME FILED FOR THE IMPUGNED ASSESSMENT YEAR S , THE ASSESSEE OFFERED INCOME OF RS.4,98,23,067/ - BEING 45% OF THE TOTAL AMOUNT RECEIVED OF RS.10,79,94,361/ - . T HE BALANCE 55% TRANSLATING TO INCOME OF RS.6,08,94,861/ - WAS DEFERRED TO FUTURE YEARS. IN C OURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THE AFORESAID REVENUE RECOGNITION METHOD ADOPTED BY THE ASSESSEE CALLED UPON THE ASSESSEE TO EXPLAIN WHY 3 ITA NOS. 4611 TO 4613/MUM/2018 ACIT VS. M/S. STERLING HOLIDAY RESORTS LTD. THE ENTIRE AMOUNT RECEIVED DURING THE YEAR SHOULD NOT BE TREATED AS INCOME. THOUGH , THE ASSESSEE FURNISHED ITS REPLY OBJECTING TO THE PROPOSED ADDITION, HOWEVER, THE A.O. REJECTING THE SUBMISSION OF THE ASSESSEE PROCEEDED TO TREAT THE ENTIRE AMOUNT OF RS.10,79,94,361/ - AS INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. WHILE DOI NG SO, THE A.O. ALSO DID NOT FOLLOW THE DECISION OF THE TRIBUNAL ON IDENTICAL ISSUE IN ASSESSEES OWN CASE IN A.YS. 2002 - 03, 2006 - 07 AND 2008 - 09 ON THE PLEA THAT THE DEPARTMENT HAS CONTESTED THE DECISION OF THE TRIBUNAL BY F ILI NG APPEALS BEFORE THE HON'BLE HIGH COURT. THE ASSESSEE HAVING OFFERED THE AMOUNT OF RS.4,98,23,061/ - AS INCOME, THE BALANCE AMOUNT OF RS.6,08,94,861/ - WAS ADDED BACK TO THE INCOME OF THE ASSESSEE IN A.Y. 2011 - 12 . 3. SIMILAR ADDITIONS WERE ALSO MADE IN THE OTHER ASSESSMENT YEARS IN APPEAL. BEING AGGRIEVED WITH THE AFORESAID ADDITIONS MADE BY THE A.O., THE ASSESSEE PREFERRED APPEAL S BEFORE LD. CIT(A). 4. HAVING TAKEN NOTE OF THE FACT THAT IN ASSESSEES OWN CASE, IN A.YS. 200 2 - 03 TO 2010 - 11, THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE , LD. CIT(A) FOLLOWED THE SAME AND DELETED THE ADDITION S MADE BY THE A.O. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. FROM THE FACTS ON RECORD, IT IS EVIDENT THAT AS PER THE CONSISTENTLY FOLLOWED ACCOUNTING METHOD AND REVENUE RECOGNITION POLICY, THE ASSESSEE OFFERS REASONABLY ATTRIBUTABLE TIME SHARE INCOME IN THE YEAR IN WHICH THE PURCHASER OF TIME SHARE UNITS BECOMES A 4 ITA NOS. 4611 TO 4613/MUM/2018 ACIT VS. M/S. STERLING HOLIDAY RESORTS LTD. MEMBER AND THE BALANCE AMOU NT OF THE MEMBERSHIP FEE , THOUGH , IS RECOGNIZED AS TIME SHARE INCOME, HOWEVER, IT IS OFFERED AS INCOME IN EQUAL PR OPORTION OVER A PERIOD FOR WHICH THE HOLIDAY FACILITIES ARE PROVIDED TO THE MEMBER COMMENCING FROM THE YEAR IN WHICH THE MEMBER IS ENTITLED TO BENEFITS OF MEMBERSHIP UNDER TH E SCHEME. ACCORDINGLY, THE ASSESSEE OFFERS 45% AS MEMBERSHIP FEE AS INCOME AND DEFER S THE BALANCE 55% TO SUBSEQUENT YEARS. THIS METHOD OF REVENUE RECOGNITION IS BEING FOLLOWED BY THE ASSESSEE CONSISTENTLY FROM PAST SEVERAL Y EARS. IT IS ALSO EVIDENT , WHETHER THE DEFERRED INCOME IS TO BE TREATED AS INCOME OF THE ASSESSEE IN THE YEAR OF RECEIPT, IS A SUBJECT MATTER OF DISPUTE IN THE PAST YEARS AND THE T RIBUNAL WHILE DECIDING THE ISSUE IN AYS. 2002 - 03, 2006 - 07, 2007 - 08 AND 2008 - 0 9 IN ITA NO. 471/MDS/2012 AND OTHERS VIDE ORDER DATED 30.08.2012 , AFTER FOLLOWING THAT THE DECISION OF CHENNAI SPECIAL BENCH IN THE CASE OF M/S. MAH I NDRA HO LIDAY & RESORTS (INDIA) LIMITED ( SUPRA) IN ITA NO. 2412 TO 2416/MUM/2005 DATED 26.05.2010 HAS DELETED THE ADDITION MADE BY THE A.O. ON ACCOUNT OF TIME SHARE INCOME. SAME VIEW WAS EXPRESSED BY THE TRIBUNAL WHILE DECIDING REVENUES APPEAL IN ASSESSEES OWN CASE IN A.Y. 2010 - 11 IN ITA NO. 29 56/MDS/2016 DATED 05.05.2017. AS COULD BE SEEN, THE A.O. HAS MADE THE ADDITION BY NOT APPLYING THE DECISIONS OF THE TRIBUNAL SIMPLY ON THE PLEA THAT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION OF THE TRIBUNAL. IN OUR VIEW , THIS CANNOT BE A VALID REASON FO R NOT F OLLOWING THE DECISION OF THE TRIBUNAL RENDERED IN THE ASSESSEES OWN CASE. IN OUR CONSIDERED OPINION , THE ISSUE AT HAND STAND S FULLY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AS REFERRED TO ABOVE. NO CONTRARY DECISION HAS BEEN B ROUGHT TO OUR NOTICE BY THE LD. DEPARTMENTAL REPRESENTATIVE (LD. 5 ITA NOS. 4611 TO 4613/MUM/2018 ACIT VS. M/S. STERLING HOLIDAY RESORTS LTD. DR FOR SHORT). ACCORDINGLY, RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH IN ASSESSEES OWN CASE AS REFERRED AB OVE, WE UPHOLD THE DECISION OF LD. CIT(A) ON THIS ISSUE. GROUNDS RAISED ARE DISMISSED . 6. THE NEXT COMMON ISSUE IN THESE APPEALS RELATE TO THE DELETION OF DISALLOWANCE OF EMPLOYEE STOCK O PTION PLAN (ESOP ) EXPENSE/COST. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS DEBITED ESOP EXP ENSES TO THE PROFIT AND LOSS ACCOUNT. WHEN THE A.O. CALLED UPON THE ASSESSEE TO JUSTIFY THE CLAIM, THE ASSESSEE RELIED UPON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF PVP VENTURES VS. CIT ( IN TC(A) NO. 1023 OF 2005 VIDE ORDER DATED 19.06.2012 ). THE A.O. HOWEVER DID NOT ACCEPT THE CLAIM OF THE ASSESSEE. HE OBSERVED , THE ASSESSEE HAS AMORTIZED THE ESOP COST IN CONTRAVENTION TO SEBI GUIDELINES. FURTHER , HE OBSERVED , IN CASE OF RANBAXY LABORATORIES LTD VS. ADDL. CIT (2009) ( 124 TTJ (DEL) 771 ) AND VIP INDUSTRIES LTD. VS DCIT ( 2010 - TIOL - 654 - ITAT - MUM) , THE TRIBUNAL HAS UPHELD THE DISALLOWANCE OF ESOP EXPENDITURE ON THE REASONING THAT THE ISSUE OF SHARES AT A PRICE BELOW MARKET PRICE DOES NOT RESULT IN INCURRING OF ANY EXPENDITURE . R ATHER IT RESULT S I N SHORT RECEIPT OF PREMIUM WHICH THE ASSESSEE IS OTHERWISE ENTITLED TO. ACCORDINGLY, HE DISALLOWED THE ESOP EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT. 7. BEING AGGRIEVED, THE ASSESSEE PREFERRED APPEAL S BEFORE LD. CIT(A). 8. HAVING FOUND THAT THE ISSUE IS COVERED BY THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF PVP VENTURES (SUPRA), LD. CIT( A) DELETED THE DISALLOWANCE S MADE BY THE A.O. 6 ITA NOS. 4611 TO 4613/MUM/2018 ACIT VS. M/S. STERLING HOLIDAY RESORTS LTD. 9. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. IT I S EVIDENT , THE ESOP EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT REPRESENTS THE DIFFERENCE BETWEEN THE FAIR MARKET VALUE AND THE ISSUE PRICE OF THE STOCKS. IT IS ALSO EVIDENT THAT THE ASSESSEE HAS PROVIDED FOR SUCH COST IN TERMS WITH SEBI GUIDELINES . T HE HONBLE MADRAS HIGH COURT IN THE CASE OF PVP VENTURES (SUPRA) HAS ALLOWED SIMILAR EXPENDITURE CLAIMED BY THE ASSESSEE. IN FACT, IN CASE OF BIOCON L IMITED VS. D Y. CIT IN ITA NO. 248/BANG/2010 VIDE ORDER DATED 16.07.2013 THE ITAT (SPECIAL BENCH), BANGA LORE HAS ALSO ALLOWED ESOP EXPENDITURE/COST . R ESPECTFULLY FOLLOWING THE AFORESAID JUDICIAL PRECEDE NTS, WE UPHOLD THE DECISION OF LD. CIT(A). ACCORDINGLY, GROUNDS ARE DISMISSED. 10. IN THE RESULT, ALL THE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OP EN COURT ON 20.11.2019 SD/ - SD/ - ( PRAMOD KUMAR ) (S AKTIJIT DEY ) VICE PRESIDENT JUDICIAL MEMBER MUMBAI ; DATED : 20.11.2019 ROSHANI , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD FILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI