Appeal Details
Counselvise Citation
[2016] 131 COUNSELVISE.COM (IT) 3025 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 year(s) 1 month(s) 1 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
26-09-2016
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
A
Next Hearing Date
02-04-2015
Assessment Year
2007-2008
Appeal Filed On
24-08-2012
Judgement Text
A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.7905 /MUM/2011 ( / ASSESSMENT YEAR : 2008-09) AAKASH LAVLESH LEISURE PRIVATE LIMITED JUHU CLUB MILLENIUM A-1, GULMOHAR ROAD JVPD SCHEME, JUHU MUMBAI-400 049 / V. ITO -9(1)(1), AAYAKAR BHAVAN MUMBAI-400020 ./ PAN : AAACL6655R ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO.8140 /MUM/2011 ( / ASSESSMENT YEAR : 2008-09) ITO -9(1)(1), AAYAKAR BHAVAN MUMBAI-400020 / V. AAKASH LAVLESH LEISURE PRIVATE LIMITED JUHU CLUB MILLENIUM A-1, GULMOHAR ROAD JVPD SCHEME, JUHU MUMBAI-400 049 ./ PAN : AAACL6655R ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO.5316 /MUM/2012 ( / ASSESSMENT YEAR : 2004-05) AAKASH LAVLESH LEISURE PRIVATE LIMITED JUHU CLUB MILLENIUM A-1, GULMOHAR ROAD JVPD SCHEME, JUHU MUMBAI-400 049 / V. DCIT , RANGE 9(1), ROOM NO. 223 AAYAKAR BHAVAN M K ROAD MUMBAI-400020 ./ PAN : AAACL6655R ( / APPELLANT ) .. ( / RESPONDENT ) ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 2 ./ I.T.A. NO.5337 /MUM/2012 ( / ASSESSMENT YEAR : 2005-06) AAKASH LAVLESH LEISURE PRIVATE LIMITED JUHU CLUB MILLENIUM A-1, GULMOHAR ROAD JVPD SCHEME, JUHU MUMBAI-400 049 / V. DCIT , RANGE 9(1), ROOM NO. 223 AAYAKAR BHAVAN M K ROAD MUMBAI-400020 ./ PAN : AAACL6655R ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO.5338 /MUM/2012 ( / ASSESSMENT YEAR : 2006-07) AAKASH LAVLESH LEISURE PRIVATE LIMITED JUHU CLUB MILLENIUM A-1, GULMOHAR ROAD JVPD SCHEME, JUHU MUMBAI-400 049 / V. DCIT , RANGE 9(1), ROOM NO. 223 AAYAKAR BHAVAN M K ROAD MUMBAI-400020 ./ PAN : AAACL6655R ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO.5339 /MUM/2012 ( / ASSESSMENT YEAR : 2007-08) AAKASH LAVLESH LEISURE PRIVATE LIMITED JUHU CLUB MILLENIUM A-1, GULMOHAR ROAD JVPD SCHEME, JUHU MUMBAI-400 049 / V. DCIT , RANGE 9(1), ROOM NO. 223 AAYAKAR BHAVAN M K ROAD MUMBAI-400020 ./ PAN : AAACL6655R ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY MR. K R LAXMINARAYANAN REVENUE BY : SH A RAMACHANDRAN ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 3 / DATE OF HEARING : 28-06-2016 / DATE OF PRONOUNCEMENT : 26-09-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THESE BUNCH OF SIX APPEALS OUT OF WHICH ONE APPEAL IS FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-09 , WHILE FIVE APPEAL S ARE FILED BY THE REVENUE RELATES TO THE ASSESSMENT YEARS 2004-05 TO 2008-09 INVOLVING COMMON ISSUES AND ARE HENCE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE SHALL TAKE UP CROSS APPEALS FILED BY TH E ASSESSEE AND THE REVENUE FOR THE ASSESSMENT YEAR 2008-09 WHICH IS A LEAD YEAR WHEREIN THE ASSESSMENTS WERE FRAMED BY THE LEARNED ASSESSING OF FICER ( HEREINAFTER CALLED THE AO ) U/S. 143(3) OF THE INCOME TAX ACT,1961 ( HEREINAFTER CALLED THE ACT) VIDE ASSESSMENT ORDERS DATED 23-12-2010 , WHI LE FOR ASSESSMENT YEARS 2004-05 TO 2007-08, THE ASSESSMENTS WERE FRAMED BY THE AO U/S 143(3) READ WITH SECTION 147 OF THE ACT BY REOPENING THE CONCLU DED ASSESSMENTS ON THE IDENTICAL GROUNDS AS ARE COVERED BY THE ASSESSMENT YEAR 2008-09 VIDE ASSESSMENT FRAMED U/S. 143(3) OF THE ACT. THESE CROSS APPEALS FOR THE ASSESSMENT YEAR 2008-09 , FILED BY THE ASSESSEE AND THE REVENUE, BEING ITA NO. 7905/MUM/2011 AND IT A NO. 8140/MUM/2011 RESPECTIVELY , ARE DIRECTED AGAINST T HE APPELLATE ORDER DATED 28 TH OCTOBER 2011 PASSED BY LEARNED COMMISSIONER OF INC OME TAX (APPEALS)- 19, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR T HE ASSESSMENT YEAR 2008- 09, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CI T(A) ARISING FROM THE ASSESSMENT ORDER DATED 23 RD DECEMBER 2010 PASSED BY THE AO U/S 143(3) OF THE ACT. ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 4 THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN TH E MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI (HER EINAFTER CALLED THE TRIBUNAL) IN ITA NO 7905/MUM/2011 READ AS UNDER:- 1. THE ORDER PASSED BY THE LEARNED CIT(A) IS BAD I N LAW. 2. THE LEARNED CIT(A) ERRED IN LIMITING RELIEF ON LY TO THE EXTENT OF 40% OF ADVANCE MEMBERSHIP FEE AND DIRECTING THE A.O. TO TAX 60% OF THE ADVANCE MEMBERSHIP FEE. CIT(A) FURTHER ERRED IN NOT D ELETING ENTIRELY THE ADDITION OF RS.4,18,96,537/- MADE BY THE A.O. BEIN G ADVANCE MEMBERSHIP FEE RECEIVED DURING THE YEAR, SINCE INCO ME CANNOT BE SAID TO ARISE TO THE APPELLANT TILL THE CLUB BECOMES FULLY OP ERATIONAL WHICH IS NOT SO DURING THIS YEAR. 3. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) ER RED IN NOT TAKING INTO ACCOUNT THE FACT THAT AS PER THE TERMS OF CONTRACT W ITH MEMBERS, APPELLANT IS REQUIRED TO PROVIDE THEM CONTINUOUS CLUB S ERVICES FOR THE PERIOD OF MEMBERSHIP OF 25 YEARS AND THEREFORE ADVAN CE MEMBERSHIP FEE SHOULD BE TAXED EQUALLY EACH YEAR SPREAD OVER TH E PERIOD OF 25 YEARS. 4. THE LEARNED CIT(A) ERRED IN NOT APPLYING THE RATIO OF THE SUPREME COURTS JUDGMENT IN THE CASE OF MADRAS INDUSTRIAL INV ESTMENT CORPORATION LTD. , 225 ITR 802(SC) ALLOWING SIMILAR SPREAD OVER. 5. WITHOUT PREJUDICE IT IS PRAYED THAT THE ADVANCE MEMB ERSHIP FEE OF RS. 4,18,96,537/- MAY BE TAXED EQUALLY EACH YEAR BY SPREADING OVER THE PERIOD OF MEMBERSHIP OF 25 YEARS. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI (HER EINAFTER CALLED THE TRIBUNAL) IN ITA NO. 8140/MUM/2011 READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN TREATING 60% OF THE ADVANCE MEMBERSHIP FEES RECEIVED EVERY YEAR AS INCOME INSTEAD OF TREATING TH E ENTIRE ADVANCE MEMBERSHIP FEES AS INCOME FOR THE YEAR UNDER CONSIDE RATION. ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 5 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT(A) HAS ERRED IN TREATING NON REFUNDABLE ONE TIME E NTRANCE FEE AS CAPITAL RECEIPT OF TREATING THE SAME AS REVENUE RECEIPT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT(A) HAS ERRED IN ACCEPTING ADDITIONAL EVIDENCES DU RING THE APPELLATE PROCEEDINGS THEREBY VIOLATING RULE 46A OF THE I.T. R ULES. 4. THE APPELLATE PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTOR ED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY ENGAGED IN THE BUSINESS OF FAMILY CLUB KNOWN AS JUHU-CLUB MILLENNIUM AT JUHU AND THE CLUB IS FUNCTIONING FOR FAMILY ENTERTAINMENT. T HE CLUB IS PROVIDING VARIOUS FACILITIES AND ACTIVITIES LIKE HEALTH CENTRE, SWIMM ING POOL, SQUASH COURT, TENNIS COURT , BANQUET HALL, PARTY LAWN, BAR AND RE STAURANT ETC. THE ASSESSEE IS EARNING INCOME FROM THE AFORESAID FACILITIES WHI CH ARE PROVIDED TO ITS MEMBERS. A) CLUB ENTRANCE FEES: ON PERUSAL OF THE BALANCE SHEET , THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S. 143(3) READ WITH SECTION 143(2) OF THE ACT OBSERVED THAT THE ASSESSEE HAS SHOWN CLUB MEMBERSHIP ENROLMENT F UND OF RS. 37,00,40,238/- AND THE ASSESSEE WAS ASKED TO EXPLAI N THE SAME. FROM THE DETAILS SUBMITTED BY THE ASSESSEE WHICH ARE DEPICTE D VIDE CHART IN PAGE 2 OF THE ASSESSMENT ORDER DATED 23-12-2010 , IT WAS O BSERVED BY THE AO THAT THE MEMBERS ENTRANCE FEE RECEIVED BY THE ASSESSEE D URING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR WAS RS. 4,50,9 0,574/- EXCLUDING REFUNDABLE DEPOSIT OF RS.12,80,142/- AND RS.2,15,25 ,923/- . IT WAS OBSERVED BY THE AO THAT THE ENTRANCE FEE RECEIVED B Y THE ASSESSEE WAS NOT INCLUDED IN INCOME IN THE RETURN OF INCOME FILED WI TH THE REVENUE. THE SAID CLUB ENTRANCE FEE IS NOT INCLUDED IN THE INCOM E BY THE ASSESSEE IN PRECEDING ASSESSMENT YEARS NOR IN THE SUBSEQUENT YE ARS. THE AO ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 6 OBSERVED FROM PERUSAL OF THE AUDIT REPORT THAT IN N OTES TO ACCOUNTS , THE ASSESSEE RELIED ON ACCOUNTING STANDARD AS-9 ISSUED BY ICAI FOR REVENUE RECOGNITIONS AND STATED THAT NON-REFUNDABLE ENTRANC E FEE RECEIVED BY THE ASSESSEE WILL BE TRANSFERRED TO THE MEMBERS ENTRANC E FEE ACCOUNT AND WILL BE ADJUSTED AS INCOME PROPORTIONATELY DURING THE TE NURE OF MEMBERSHIP FROM THE YEAR THE CLUB BECOMES FULLY FUNCTIONAL AND THE MEMBERS ARE PROVIDED ALL THE FACILITIES AGREED UPON AT THE TIME OF ENROLLMENT. IT WAS STATED IN NOTES TO THE ACCOUNT THAT REFUNDABLE DEPO SITS WILL BE INCLUDED UNDER THE CURRENT LIABILITIES AS MEMBERS DEPOSIT F ROM THE YEAR IN WHICH THE CLUB BECOMES FULLY FUNCTIONAL. THE AO OBSERVED THAT THE ASSESSEE IS FOLLOWING A SE LF PROCLAIMED METHOD OF ACCOUNTING WHEREBY MEMBERSHIP ENTRANCE FEE WILL BE TREATED AS RECEIPT IN THE YEAR WHEN THE CLUB BECOMES FULLY FUNCTIONAL WHI CH IS AN ENDLESS PROCESS AS ADDITIONS, ALTERATIONS AND MODIFICATIONS KEEPS ON GOING IN THE YEARS TO COME, WHILE THE FACT IS THAT THE CLUB IS O PERATIONAL SINCE A NUMBER OF YEARS. IT WAS OBSERVED THAT THE ASSESSEE HAS ALS O SHOWN INCOME FROM OPERATIONS WHICH INTER ALIA INCLUDED INCOME FROM BA NQUET, SQUASH COACHING, SWIMMING COACHING , TENNIS COACHING , COM MISSION, GUEST ENTRANCE FEES, GYM AND HEALTH CLUB, SUBSCRIPTION IN COME ETC. .THUS , IT WAS OBSERVED BY THE AO THAT THE CLUB IS OPERATIONAL WITH ITS VARIOUS FACILITIES BEING FUNCTIONAL. THE ASSESSEE WAS ASKE D WHY THE CLUB ENTRANCE FEES SHOULD NOT BE TREATED AS INCOME OF THE ASSESSE E AS CLUB IS FULLY OPERATIONAL. THE ASSESSEE IN REPLY SUBMITTED THAT THE ASSESSEE W AS REQUIRED TO GIVE CERTAIN FACILITIES TO THE MEMBERS IN RESPECT OF CLU B MILLENNIUM JUHU ON ENROLMENT WHICH ARE AS UNDER: 1. RESTAURANT, COFFEE SHOP AND BAR ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 7 2. SWIMMING POOL 3. TENNIS COURT 4. HEALTH CLUB 5. SQUASH COURT 6. CARD ROOM 7. ACTIVITY ROOM 8. TABLE TENNIS COURT OUT OF THE ABOVE FACILITIES STILL THE FOLLOWING FAC ILITIES AS ON 31-03-2008 ARE YET TO BE PROVIDED TO MEMBERS, SINCE THE ASSESSEE IS ST ILL IN THE PROCESS OF TAKING VARIOUS PERMISSIONS FROM THE AUTHORITIES: 1. RESTAURANT, COFFEE SHOP AND BAR 2. SQUASH COURT 3. CARD ROOM 4. ACTIVITY ROOM 5. TABLE TENNIS COURT THE ASSESSEE SUBMITTED THAT WITH RESPECT TO THE MEM BERSHIP OF CLUB MILLENNIUM THE REVENUE IS RECOGNIZED BY THE ASSESSE E AS FOLLOWS: CLUB MEMBERS ENROLMENT FUND: THE AMOUNT INCLUDED UNDER HEAD CLUB ENROLMENT FUND IN THE BALANCE SHEET CONSISTS OF ENTRANCE FEES AND REFUNDABLE DEPOSITS, RECEIVED ON APPLICATION FROM MEMBERS. THE ASSESSEE SUBMITTED THAT THE AMOU NT RECEIVED FROM THE MEMBERS AS NON-REFUNDABLE ENTRANCE FEE WILL BE TRAN SFERRED TO THE MEMBERS ENTRANCE FEES ACCOUNT AND WILL BE ADJUSTED AS INCOM E PROPORTIONATELY DURING THE TENURE OF MEMBERSHIP FROM THE YEAR THE CLUB WIL L BECOME FULLY FUNCTIONAL AND THE MEMBERS ARE PROVIDED ALL THE FACILITIES AGR EED UPON AT THE TIME OF ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 8 ENROLLMENT. THE REFUNDABLE DEPOSITS WILL BE INCLUDE D UNDER THE HEAD CURRENT LIABILITIES AS MEMBERS DEPOSIT FORM THE YEAR IN WH ICH THE CLUB BECOME FULLY FUNCTIONAL. THE ASSESSEE SUBMITTED THAT THE AFORESA ID ACCOUNTING TREATMENT IS FOLLOWED IN TERMS OF PARA 12 READ WITH APPENDIX PAR A B-6 OF THE ACCOUNTING STANDARD AS-9 ON REVENUE RECOGNITION ISSUED BY THE ICAI. THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE AND OBSERVED THAT THE PERUSAL OF THE PROFIT AND LOSS ACCOUNT REVEALS THAT THE ASS ESSEE HAS ALREADY SHOWN INCOME FROM COACHING OF SQUASH, INCOME FROM BANQUET , COMMISSION ON BANQUET SALES, COMMISSION ON COFFEE SHOP SALES, COM MISSION ON LIQUOR SALES, COMMISSION ON RESTAURANT SALES ETC. AND HENCE THERE IS NOT AN IOTA OF TRUTH IN THE SUBMISSIONS OF THE ASSESSEE AND THE CLUB IS FUL LY FUNCTIONAL WITH ALMOST ALL OF ITS FACILITIES AVAILABLE TO THE MEMBERS AND THE ASSESSEE SHOULD HAVE SHOWN THE ENTRANCE FEES AS INCOME FOR THE YEAR UNDE R CONSIDERATION. IT WAS ALSO OBSERVED BY THE AO FROM THE PERUSAL OF THE PROFIT AND LOSS ACCOUNT UNDER VARIOUS HEADS TO CONCLUDE THAT SUBSTA NTIAL EXPENSES HAVE BEEN INCURRED AND CLAIMED BY THE ASSESSEE WHICH ARE REVENUE IN NATURE LAID OUT FOR DAY TO DAY RUNNING ACTIVITIES TO OFFSET THE AFORE-STATED INCOME FROM VARIOUS ACTIVITIES AS SET OUT IN PRECEDING PARA WHI CH THE ASSESSEE WAS CONTENDING THAT THESE ACTIVITIES HAVE NOT YET START ED BY THE ASSESSEE. THE AO ALSO OBSERVED THAT THE ASSESSEE CLUB IS FUNC TIONAL WHERE IN ALL THE FACILITIES AS ENLISTED AT THE TIME OF ENROLLMENT, A RE FUNCTIONAL EXCEPT TABLE TENNIS COURT WHICH IS MINISCULE /INSIGNIFICANT VIS- -VIS SERVICES/FACILITIES WHICH ARE FUNCTIONAL. THE ASSESSEE IS ALSO COLLECTI NG UTILITY CHARGES, FACILITY CHARGES AS WELL ANNUAL SUBSCRIPTION FROM ITS MEMBER S WHICH ALSO PROVES THAT FACILITIES ARE FUNCTIONAL , OTHERWISE THE MEMBERS W ILL NOT PAY THE SAID CHARGES IF THE CLUB IS NOT FUNCTIONAL. THE ASSESSEE HAS ENT ERED INTO AN AGREEMENT WITH M/S GRAND CUISINE PRIVATE LIMITED ON 23/03/2007 WHE REBY THE FOOD AND ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 9 BEVERAGE OPERATIONS OF THE RESTAURANT AND BAR HAVE BEEN HANDED OVER TO M/S GRAND CUISINE PRIVATE LIMITED ON COMMISSION BAS IS. THUS, CONTENTION OF THE ASSESSEE THAT THE CLUB IS NOT FULLY FUNCTIONAL WAS REJECTED BY THE AO AND HENCE THE CLUB IS TREATED TO BE FUNCTIONAL WHICH WO ULD RESULT IN TAXABILITY OF THE ENTRANCE FEES DURING THE YEAR UNDER CONSIDERATI ON. AS THE CLUB WAS FULLY FUNCTIONAL AS HELD BY THE AO, THE ASSESSEE WAS ASKED TO SHOW CAUSE WHY THE MEMBERSHIP RECEIPTS SHOULD NOT B E TAXED AS INCOME FOR THE YEAR UNDER CONSIDERATION AS THE CLUB IS OPERATI ONAL. THE ASSESSEE IN REPLY SUBMITTED THAT THE ASSESSEE I S A COMPANY CONSTRUCTING AND OPERATING AN EXECUTIVE GRADE CLUB WITH MODERN F ACILITIES . THE ASSESSEE IS ENROLLING MEMBERS WHO ALONE WILL BE ENTITLED TO ENT RY IN THE CLUB. THE ASSESSEE SUBMITTED THAT BROADLY TERM OF MEMBERSHIP PROVIDES THAT A PERSON DESIROUS OF BECOMING MEMBER IS REQUIRED TO PAY CERT AIN AMOUNT BY WAY OF ENTRANCE FEES , OF WHICH CERTAIN PART I.E. 4/5TH PA RT IS REFUNDABLE WITHOUT INTEREST AFTER SAY 15 TO 20 YEARS WHILE 1/5 TH PART IS NON REFUNDABLE. AT THE END OF PERIOD, THUS, THE DEPOSIT WILL BE REFUNDABLE WITHOUT ANY INTEREST. IN ADDITION THE MEMBERS ARE OBLIGED TO PAY REGULAR MEM BERSHIP FEES TO THE ASSESSEE ON ANNUAL BASIS. THE ASSESSEE SUBMITTED TH AT IT STARTED LEVYING ANNUAL CHARGES W.E.F. 01-01-2005. THE CLUB PROJECT IS STILL IN CONSTRUCTION STAGE AS AT 31-03-2008 AND CLUB IS YET TO BECOME FU NCTIONAL. SINCE THE CLUB IS UNDER CONSTRUCTION THE MEMBERS EFFECTIVELY HAVE NO RIGHT AT ALL. THE MEMBERS PRESENTLY HAVE LIMITED USE OF PART FACILITIES AND H EDGING AGAINST THE POSSIBLE RISK OF ENHANCEMENT IN THE ENTRANCE FEES. BEYOND TH AT MEMBERS HAVE NO RIGHT IN THE MANAGEMENT, CONSTRUCTION AND ADMINISTRATION OF THE CLUB OR THE ASSESSEE COMPANY. IT WAS SUBMITTED THAT THE ENTRANCE FEES PORTION OF MEMBERSHIP FEES PAID AT THE TIME OF ENROLLMENT IS CAPITAL RECEIPT AND NOT L IABLE TO TAX. ENTRANCE FEES IS ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 10 PRECONDITION TO MEMBERSHIP. IT IS NOT PRICE PAID FO R ENJOYING MEMBERSHIP BUT IS A PRICE PAID FOR OBTAINING THE MEMBERSHIP. IT WA S SUBMITTED THAT IT IS DIFFERENT FROM LIFE MEMBERSHIP WHICH CAN BE REGARDE D AS ONE TIME RECEIPT IN SUBSTITUTION OF RECURRING RECEIPTS. THUS, IT WAS SU BMITTED THAT ENTRANCE FEES IS CAPITAL RECEIPT WHICH IS SUPPORTED BY THE DECISI ON OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. WIAA CLUB LIMITED (1979 ) 136 ITR 569( BOM.) WHICH VIEW IS SUPPORTED BY ACCOUNTING STANDARD AS-9 ISSUED BY ICAI WAS THE CONTENTION OF THE ASSESSEE BEFORE THE AO. WITHOUT PREJUDICE, IT WAS SUBMITTED THAT EVEN IF T HE SAID ENTRANCE FEES IS REGARDED AS REVENUE RECEIPTS, THE SAME CANNOT BE T REATED AS INCOME UNTIL THE PROMISE OF COMPLETION OF THE PROJECT WITH THE PROVI SION OF ALL FACILITIES AGREED UPON IS MADE AVAILABLE TO THE MEMBERS, AND THE ASSE SSEE CANNOT APPROPRIATE IT AS ITS OWN MONEY. THUS, IT WAS SUBMITTED THAT IN CASE OF FAILURE ON THE PART OF THE ASSESSEE TO COMPLETE ITS PART OF THE CONTRAC T OR ON ABANDONING OF THE CONTRACT , THE ASSESSEE WILL BE OBLIGED TO RETURN T HE SAID ENTRANCE FEES. FURTHER, WITHOUT PREJUDICE, IT WAS SUBMITTED THAT E VEN IF THE ENTRANCE FEE IS TREATED AS REVENUE RECEIPTS, THE SAME SHALL BE REQU IRED TO BE SPREAD OVER THE NUMBER OF YEARS OF MEMBERSHIP RIGHT COVERED BY THE CONTRACT/TENURE OF MEMBERSHIP. THE ASSESSEE RELIED UPON DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORA TION V. CIT (1997) 225 ITR 802(SC) WHEREIN HONBLE SUPREME COURT HELD THAT A R EVENUE ITEM WHICH CONTRACTUALLY BINDS THE PARTIES OVER A LONG PERIOD SHOULD BE CONSIDERED AS ACCRUING OVER THE LIFE OF THE CONTRACT AND CANNOT B E APPROPRIATED IN ANY ONE INDIVIDUAL YEAR. ADVANCE MEMBERSHIP FEES : IT WAS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE HAS INTRODUCED NEW SCHEME, WHEREBY THE ASSESSEE IS COLLECTING PRE-AGRE ED SUM AS ADVANCE MEMBERSHIP FEES IN TERMS OF AGREEMENT EXECUTED WITH THE MEMBER. THE ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 11 ASSESSEE SUBMITTED THAT AS PER TERMS OF THE SAID AG REEMENT, THE MEMBER IS REQUIRED TO PAY CERTAIN SUM AS ADVANCE MEMBERSHIP F EES WHICH SHALL BE APPORTIONED IN EQUAL INSTALLMENT OVER THE AGREED TE RM OF THE MEMBERSHIP COMMENCING FROM AGREED DATE. THE SPECIMEN COPY OF A GREEMENT DATED 16-01- 2008 EXECUTED WITH ONE MEMBER WAS PLACED ON RECORD BEFORE THE AO. IN THE SAID AGREEMENT IT WAS MENTIONED THAT CERTAIN FACILI TIES LIKE (A) SWIMMING POOL, (B) BABY SWIMMING POOL , (C) OPEN JACUZZI, (D) SQUA SH COURTS, (E) JOGGING FACILITY, (F) TENNIS COURT , (G)OPEN GROUND FOR HOL DING FUNCTIONS (H) HEALTH CLUB , GYMNASIUM ARE PRESENTLY AVAILABLE TO MEMBERS . IN A DDITION THE ASSESSEE SHALL PROVIDE FURTHER FACILITIES LIKE (A) COFFEE SH OP (B) OPEN AIR RESTAURANT (C) MULTI CUISINE RESTAURANT (D) BAR ROOM AND SUBSEQUEN TLY CARD ROOM, TABLE TENNIS ROOM, BILLIARDS ROOM FACILITIES WHICH ARE N EARING COMPLETION SHALL BE OPENED IN DUE COURSE. THE CLAUSE 3 IN THE AGREEMENT PROVIDED THAT THE MEMBERSHIP SHALL BE FOR A PERIOD OF TWENTY FIVE YEA RS COMMENCING FROM THE DATE OF INAUGURATION OF COFFEE SHOP, RESTAURANT BAR . IT WAS PROVIDED IN THE AGREEMENT THAT THE ADVANCE MEMBERSHIP FEE WILL BE P AID IN ADVANCE BY THE MEMBERS TOWARDS THE ENJOYMENT OF FACILITIES PROVIDE D BY THE CLUB AND / OR TO BE PROVIDED FROM TIME TO TIME AND SHALL BE APPROPRI ATED BY THE ASSESSEE ON TIME BASIS OVER THE TENURE OF MEMBERSHIP. THE CLAUS E 4 OF THE AGREEMENT PROVIDED FOR REFUND OF THE SAID ADVANCE MEMBERSHIP FEES. THUS, IT WAS SUBMITTED THAT THERE IS A CONTRACTUAL OBLIGATION ON THE ASSESSEE TO APPROPRIATE THE SAID ADVANCE MEMBERSHIP FEES OVER T HE TENURE OF MEMBERSHIP AND SAME CANNOT BE BROUGHT TO TAX IN ITS ENTIRETY I N THE YEAR OF RECEIPT. THUS, IT WAS SUBMITTED THAT THE ADVANCE MEMBERSHIP FEES I S RECEIVED IN ADVANCE BY THE ASSESSEE AND SHALL BE OFFERED FOR TAXATION AS I NCOME OVER THE TENURE OF THE MEMBERSHIP COMMENCING FROM THE AGREED DATE. THUS, I T WAS SUBMITTED THAT AS PER CONTRACTUAL TERMS, THE SAID ADVANCE MEMBERSH IP FEE HAS NOT ACCRUED TO THE ASSESSEE AS INCOME AND IN CASE IF THE ASSESS EE IS NOT ABLE TO PROVIDE THE AGREED SERVICES OR FAILS TO COMPLETE THE PROJEC T OR THE PROJECT IS WOUND UP, THE ASSESSEE SHALL BE LIABLE TO REFUND THE SAID ADV ANCE MEMBERSHIP FEES AS ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 12 PROVIDED IN THE AGREEMENT OF THE ASSESSEE WITH THE MEMBERS. IT WAS ALSO SUBMITTED THAT HAVING REGARD TO IMPLICIT PROVISIONS OF CONTRACT ACT THERE IS AN IMPLIED WARRANTY ON THE PART OF THE ASSESSEE TO REF UND THE AMOUNT IF THE ASSESSEE IS NOT ABLE TO PROVIDE PROMISED SERVICES. THE ASSESSEE RELIED ON DECISION OF THE HYDERABAD TRIBUNAL IN THE CASE OF TREASURE ISLAND RESORTS PRIVATE LIMITED V. DCIT (2004)84 TTJ 820(HYD. TRIB. ) WHEREIN THE TRIBUNAL ACCEPTED ASSESSEES METHOD OF RECOGNIZING REVENUE O N SPREAD OVER BASIS KEEPING IN VIEW THAT THE SCHEME DID NOT PROVIDED FO R REFUNDABILITY. THE TRIBUNAL RELYING ON THE EARLIER DECISION IN THE CAS E OF MEERA AND CEIKO PUMP PRIVATE LIMITED [IT APPEAL NO. 652 (HYD.) OF 2001 DATED 21-6-2002 F OR THE ASSESSMENT YEAR 1994-95] HELD THAT UNDER MERCANTILE SYSTEM OF ACCOUNTING, RECEIPT ENTAILING A CONTINUING LIABILITY OF RENDERI NG SERVICES IN FUTURE YEARS CAN BE SPREAD OVER YEARS. THIS PROPOSITION IS SUPPORTED BY THE HONBLE SUPREME COURT DECISION IN THE CASE OF MADRAS INDUSTRIAL INV ESTMENT CORPORATION LIMITED V. CIT , (1997) 225 ITR 802(SC). RELYING ON AS-9 ISSUED BY ICAI, THE ASSESSEE SUBMIT TED THAT THE MEMBERSHIP FEE SHOULD BE RECOGNIZED ON A SYSTEMATIC AND RATION AL BASIS HAVING REGARD TO THE TIMING AND NATURE OF SERVICES PROVIDED. WITHOUT PREJUDICE, IT WAS SUBMITTED THAT IF FULL COLLECTION OF ADVANCE MEMBER SHIP FEE IS TREATED AS INCOME OF THE INSTANT ASSESSMENT YEAR , THEN DEDUCT ION SHOULD BE ALLOWED WITH RESPECT TO THE PRESENT VALUE OF EXPENDITURE LI KELY TO BE INCURRED ON MEMBERS, WHICH PROPOSITION IS SUPPORTED BY DECISION OF HONBLE SUPREME COURT IN THE CASE OF CALCUTTA COMPANY LIMITED V. CI T (1959) 37 ITR 1(SC) AND OTHER DECISIONS. THIS PROPOSITION IT WAS SUBMITTED AS SUPPORTED BY PARA 19 OF ACCOUNTING STANDARD 18 ISSUED BY ICAI, WHICH IS CAL LED MATCHING CONCEPT WHEREBY THERE IS MATCHING OF REVENUE AND EXPENSES . ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 13 IT WAS ALSO SUBMITTED BY THE ASSESSEE THAT THE REVE NUE HAD EXAMINED AND ACCEPTED THE METHOD OF ACCOUNTING FOLLOWED BY THE A SSESSEE IN THE EARLIER YEARS WHILE FRAMING ASSESSMENTS U/S. 143(3) OF THE ACT AND ENTRANCE FEES AND ADVANCE MEMBERSHIP FEES HAD NOT BEEN TAXED IN ALL T HE EARLIER ASSESSMENT YEARS. THE AO CONSIDERED THE SUBMISSIONS OF THE ASSESSEE A ND HELD THE SAME TO BE UNTENABLE DUE TO FOLLOWING REASONS: A) IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAS REC EIVED ENTRANCE FEES AND REFUNDABLE DEPOSITS. THE ASSESSEE HAS STAT ED THAT THE CLUB HAS STARTED LEVYING ANNUAL SUBSCRIPTION FROM 01-01- 2005 AND THE CLUB IS STILL UNDER CONSTRUCTION. THE PERUSAL OF AC COUNTING POLICIES ATTACHED TO THE AUDITED FINANCIAL STATEMENTS REVEAL THAT THE ASSESSEE HAS RECEIVED ONE TIME NON REFUNDABLE ENTRANCE FEE F ROM NOMINAL MEMBERS WHICH IS TREATED AS INCOME BY THE ASSESSEE AND TRANSFERRED TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE HAS TH REE TYPES OF MEMBERSHIP SCHEMES VIZ. THE CMJ MEMBERSHIP, CMJ(NOM INAL) MEMBERSHIP AND CMJ(ADVANCE MEMBERSHIP) . THE ASSESS EE WAS TREATING NON REFUNDABLE ENTRANCE FEE UNDER NOMINAL MEMBERSHIP SCHEME AS INCOME WHILE THE ENTRANCE FEE RECEIVED UN DER THE TWO OTHER TYPES OF MEMBERSHIP SCHEMES HAD NOT BEEN SHOW N AS INCOME, WHILE THE SERVICES /FACILITIES WHICH ARE BEING AVAI LED BY THE MEMBERS OF ALL THE THREE TYPES OF SCHEMES ARE SAME AND HENC E ON THE SAME ANALOGY THE ENTRANCE FEE RECEIVED WITH RESPECT TO A LL THE THREE SCHEMES SHOULD HAVE BEEN OFFERED FOR TAXATION BY TH E ASSESSEE. B) THE AO HELD THAT THE ASSESSEES CONTENTION THAT THE ENTRANCE FEE IS A CAPITAL RECEIPT IS NOT TENABLE. THE ASSESSEE HAS RE LIED ON AS-9 PARA 12 READ WITH APPENDIX B-6. THE PERUSAL OF THE AS-9 SHOWS THAT FOR ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 14 THE ENTRANCE AND MEMBERSHIP FEES , THE REVENUE RECO GNITION IS BROADLY DIVIDED INTO TWO PARTS: I) IF THE MEMBERSHIP ENTRANCE FEES PERMITS ONLY MEMBER SHIP AND ALL OTHER SERVICES/FACILITIES ARE PAID FOR SEPA RATELY , OR IF THERE IS A SEPARATE ANNUAL SUBSCRIPTION THEN THE MEMBERSHIP ENTRANCE FEES SHOULD BE RECOGNIZED AS IN COME WHEN IT IS RECEIVED. II) IF THE MEMBERSHIP ENTRANCE FEES ENTITLES THE MEMBER TO SERVICES/FACILITIES DURING A PERIOD OF TIME THEN TH E MEMBERSHIP ENTRANCE FEES SHOULD BE RECOGNIZED AS IN COME ON A SYSTEMATIC AND RATIONAL BASIS (I.E. THE MEMBER SHIP FEES SHOULD BE DIVIDED OVER THE PERIOD OF MEMBERSHI P AND TREATED AS INCOME ACCORDINGLY) IT WAS HELD BY THE AO THAT THE ASSESSEE IS FOLLOWI NG THE FORMER METHOD WHEREBY THE ASSESSEE IS CHARGING ANNUAL SUBSCRIPTIO N AS WELL SEPARATE CHARGES FOR VARIOUS FACILITIES LIKE SQUASH, TENNIS, SWIMMING , USE OF PARTY LAWNS ETC. . HENCE IT WAS HELD BY THE AO THAT THE A SSESSEE COMPANY AS PER ACCOUNTING STANDARD RELIED UPON BY THE ASSESSEE SHO ULD DECLARE AS INCOME THE ENTIRE MEMBERSHIP ENTRANCE FEES RECEIVED BY THE ASSESSEE IN THE YEAR OF RECEIPT. THE AO DISTINGUISHED THE CASE RELIED UPON BY THE ASSESSEE DECIDED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. WIAA CLUB LIMITED (1982) 136 ITR 0569(BOM.) AND HELD THAT IN THIS CASE ENTRA NCE FEES WAS PAID BY THE MEMBERS TO THE TAX-PAYER WHICH WAS A LARGER AMOUNT AND THEREAFTER THE LIFE MEMBERS WERE NOT REQUIRED TO PAY ANY ANNUAL SUBSCRI PTION AND THEY WERE RELIEVED OF THEIR RECURRING LIABILITY TO PAY ANNUAL SUBSCRIPTION YEAR AFTER YEAR . THE HONBLE COURT HELD THAT IN CASE OF LIFE MEMBERS , PART OF THE ENTRANCE FEE IS A COMPOUNDED PAYMENT IN LIEU OF THE RECURRING PA YMENTS TO BE MADE ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 15 ANNUALLY IN THE NATURE OF ANNUAL SUBSCRIPTIONS. THU S, IT WAS HELD BY THE HONBLE COURT THAT IN RESPECT OF ASSESSMENT YEARS 1 963-64 AND 1964-65 , OUT OF THE AMOUNTS RECEIVED BY THE TAX-PAYER ON ACCOUNT OF ENTRANCE FEE FROM LIFE MEMBERS , RS. 500 SHOULD BE TREATED AS CAPITAL RECE IPTS AND THE BALANCE RS. 2000 SHOULD BE TREATED AS THE INCOME OF THE TAX-PAY ER. THUS, IT WAS HELD BY THE AO THAT THE ASSESSEES CASE IS DIFFERENT AS THE MEMBERS PAY ENTRANCE FEES AS WELL AS ANNUAL SUBSCRIPTION AND FACILITY CHARGES AND HENCE RATIO OF THE CASE LAW RELIED UPON BY THE ASSESSEE IS NOT APPLICABLE I N THE INSTANT CASE. THE AO ALSO HELD THAT AS PER AS-9 , THE ENTRANCE FE E HAS TO BE RECOGNIZED AS INCOME IN THE YEAR OF RECEIPT. THE AO ALSO DISTING UISHED THE CASE RELIED UPON BY THE ASSESSEE IN THE CASE OF MADRAS INDUSTRIAL IN VESTMENT CORPORATION V. CIT (1997) 225 ITR 802(SC) AS THE SAID CASE LAW DEA LT WITH EXPENDITURE INCURRED BY THE TAX-PAYER BY WAY OF DISCOUNT PAID T O THE PERSONS WHO HAD SUBSCRIBED TO THE DEBENTURES ISSUED. THE AO OBSERVE D THAT THE SAID DECISION IS WITH RESPECT TO EXPENDITURE WHICH IS TO BE SPREA D OVER A NUMBER OF YEARS AND THE FACTS IN THE INSTANT CASE ARE TOTALLY DIFFE RENT , THE RATIO OF DECISION OF THE HONBLE SUPREME COURT IN THE SAID CASE IS NOT A PPLICABLE TO THE INSTANT CASE. THUS, IT WAS HELD THAT AS PER AS-9, THE ENTRA NCE FEES IS TO BE TAXED IN THE YEAR OF RECEIPT. THE AO ALSO HELD THAT AS PER AS-9 ADOPTED BY THE AS SESSEE , THE ADVANCE MEMBERSHIP FEE IS TO BE BROUGHT TO TAX IN THE YEAR OF RECEIPT. THE ASSESSEE CANNOT TREAT THE ADVANCE MEMBERSHIP FEES ON A DIFFE RENT FOOTING THAN THE OTHER MEMBERSHIP SCHEMES FOR TAXATION PURPOSES. TH E ASSESSEE COMPANY IS COLLECTING ANNUAL CHARGES AS WELL AS UTILITY/FACILI TY CHARGES SEPARATELY FROM ITS MEMBERS IRRESPECTIVE OF THE SCHEME UNDER WHICH THEY HAVE TAKEN MEMBERSHIP. THUS, AS PER AO BY FOLLOWING AS-9 ISSUE D BY ICAI, THE ASSESSEE HAS TO OFFER FOR TAX ADVANCE MEMBERSHIP FEE RECEIVE D DURING THE YEAR IN THE YEAR OF RECEIPT. THE ASSESSEE RELIED ON DECISION OF HYDERABAD TRIBUNAL IN THE ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 16 CASE OF TRAESURE ISLAND RESORTS PRIVATE LIMITED V. DCIT (2004) 84 TTJ 820(HYD. TRIB.) WHICH THE AO DISTINGUISHED THAT IN THE SAID CASE THE LIFE MEMBERS AND PRIVILEGED MEMBERS WERE NOT REQUIRED TO PAY ANY MONTHLY OR ANNUAL SUBSCRIPTION TO THE TAX-PAYER AND FACILITIES AVAILED BY THEM WERE FREE AND HENCE BASED ON FACTS, THE ENTRANCE FEES WAS DIR ECTED TO BE SPREAD OVER A PERIOD OF FIVE YEARS AND TWO YEARS, WHILE IN THE CA SE OF THE ASSESSEE, THE MEMBERS HAVE TO PAY SEPARATE ANNUAL CHARGES AND FAC ILITIES CHARGES AND HENCE THE ENTRANCE FEE IS TAXABLE IN THE YEAR OF RE CEIPT AS PER AS-9, PARA 12 APPENDIX B-6. WITH RESPECT TO THE CONTENTION OF THE ASSESSEE THAT IF FULL COLLECTION IS TREATED AS INCOME, THE DEDUCTION SHOULD BE ALLOWED IN RESPE CT OF PRESENT VALUE OF EXPENDITURE LIKELY TO BE INCURRED ON A MEMBER. IT W AS HELD BY THE AO THAT SINCE THE ASSESSEE IS CHARGING ANNUAL SUBSCRIPTION AND UTILITIES/FACILITIES CHARGES FOR THE VARIOUS SERVICES OFFERED BY THE CLU B AND HENCE THE EXPENDITURE WHICH IS LIKELY TO BE INCURRED ON A MEM BER IS BEING SEPARATELY COLLECTED BY THE ASSESSEE IN THE FORM OF ANNUAL SUB SCRIPTION AND UTILITIES/FACILITIES CHARGES FOR EACH YEAR. THUS, I T WAS HELD THAT QUESTION OF APPROPRIATING THE ADVANCE MEMBERSHIP FEES OVER THE TENURE OF MEMBERSHIP DOES NOT ARISE. THE AO OBSERVED THAT IN CASE THE AS SESSEE IS REQUIRED TO REFUND THE ADVANCE MEMBERSHIP FEE AS PER THE TERMS OF AGREEMENT, THE ASSESSEE CAN ALWAYS CLAIM THE SAME AS AN EXPENDITUR E IN THE YEAR IN WHICH THE ADVANCE MEMBERSHIP FEES IS REFUNDED AS THE SAME HAD ALREADY BEEN TAXED AS INCOME IN THE YEAR OF RECEIPT. THE AO ALSO HELD THAT MERELY BECAUSE A PARTICULAR V IEW HAS BEEN TAKEN IN THE EARLIER YEARS CANNOT BIND THE AO IN SUBSEQUENT YEAR AS THE FACTS MAY CHANGE FROM YEAR TO YEAR. THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH M/S GRAND CUISINES PRIVATE LIMITED ON 23-03-2007 WHEREB Y THE FOOD AND BEVERAGES OPERATIONS OF THE RESTAURANT AND BAR HAVE BEEN HANDED OVER TO THE ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 17 SAID COMPANY ON COMMISSION BASIS. THUS, IN THIS YEA R THE CLUB WAS FUNCTIONAL AND HENCE THE ASSESSEES CONTENTION THAT ENTRANCE FEES AND ADVANCE MEMBERSHIP FEES ARE NOT TAXABLE IS NOT TENA BLE. THUS, THE AO HELD THAT THE CLUB IS FULLY FUNCTIONAL AND THE ASSESSEE IS TRYING TO POSTPONE ITS TAX LIABILITY INDEFINITELY BY SHOWI NG THE CLUB AS NON FUNCTIONAL. THE ASSESSEE HAS DEFERRED THE INCOME WHICH WAS CHAR GEABLE TO TAX AND POSTPONED TAXABILITY OF INCOME. THE AO HELD THAT ME MBERSHIP ENTRANCE FEES RECEIVED BY THE ASSESSEE IN THE YEAR UNDER CONSIDER ATION , HAS TO BE TAXED IN THIS ASSESSMENT YEAR. THE ASSESSEE HAVING RECEIVED RS.4,50,90,574/- AS MEMBERSHIP ENTRANCE FEES WHICH IS INCLUSIVE OF ADVA NCE MEMBERSHIP FEES RECEIVED OF RS. 4,18,93,567/-. THE AO HELD THAT ADV ANCE MEMBERSHIP FEE IS ALSO OF THE SAME NATURE AS THE REGULAR ENTRANCE FEE S I.E. ALLOWING MEMBER A RIGHT TO ENTER IN THE CLUB AND USE ITS VARIOUS SERV ICES/FACILITIES BY PAYING THE APPROPRIATE ANNUAL FEES AND SERVICES CHARGES AND HE NCE THE ADVANCE MEMBERSHIP FEE RECEIVED BY THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE INSTANT ASSESSMENT YEAR IS ALSO TAXABLE IN THE INSTANT ASSESSMENT YEAR. THE AO RELIED ON DECISION OF HONBLE PATNA HIGH COU RT IN THE CASE OF CIT V. UNITED CLUB (1986) 161 ITR 853(PAT. HC) WHEREIN HON BLE PATNA HIGH COURT HAS HELD THAT THE ENTRANCE FEE RECEIVED BY THE TAX -PAYER CLUB AT THE TIME OF ENTRANCE OF THE NEW MEMBER IS A RECEIPT OF REVENUE NATURE AND IS CHARGEABLE TO TAX IN THE HANDS OF THE CLUB. SIMILARLY, RELIANC E WAS ALSO PLACED BY THE AO ON THE DECISION OF HONBLE SUPREME COURT IN THE CAS E OF CIT V. CALCUTTA STOCK EXCHANGE ASSOCIATION LIMITED (1959) 36 ITR 222(SC) WHEREIN HONBLE SUPREME COURT HELD THAT THE ENTRANCE FEE RECEIVED F ROM MEMBERS IS TAXABLE. THE AO ALSO RELIED ON THE DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF DELHI STOCK EXCHANGE ASSOCIATION LIMITED V. CIT (19 61) 41 ITR 495(SC) WHEREIN HONBLE SUPREME COURT HELD THAT MEMBERS ENT RANCE FEE IS TAXABLE AS INCOME OF THE TAX-PAYER ASSOCIATION. ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 18 THUS, THE AO VIDE ASSESSMENT ORDER DATED 23-12-2010 PASSED U/S 143(3) OF THE ACT HELD THAT MEMBERS ENTRANCE FEE OF RS. 4,50, 90,574/- RECEIVED BY THE ASSESSEE IS TAXABLE AS INCOME OF THE ASSESSEE FOR T HE INSTANT ASSESSMENT YEAR. 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 23-12-2 010 PASSED BY THE AO U/S. 143(3) OF THE ACT, THE ASSESSEE FILED FIRST AP PEAL WITH THE LEARNED CIT(A). 5.BEFORE THE LEARNED CIT(A), THE ASSESSEE CONTENDED THAT THE ENTRANCE FEE IS A CAPITAL RECEIPT AS HELD IN THE CASE OF CIT V. WIAA CLUB (1982)136 ITR 569(BOM.) , CIT V. DINERS BUSINESS SERVICES PRIVATE LIMITED (2003) 263 ITR 1(BOM.) AND ACIT V. KARNAVATI CLUB (2010-004-ITR(TR IB.) 174 AHM.). THE ASSESSEE ALSO SUBMITTED THAT ADVANCE MEMBERSHIP FEE RECEIVED IS FEE COLLECTED FROM MEMBERS IN ADVANCE FOR A PERIOD OF 25 YEARS AN D THE SAME CANNOT BE TREATED AS INCOME IN THE VERY FIRST YEAR AS THE ASS ESSEE IS MANDATED TO PROVIDE SERVICES TO MEMBERS FOR THE ENTIRE TENURE OF 25 YEA RS. THE ASSESSEE RELIED UPON DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN T HE CASE OF MAHINDRA HOLIDAYS AND RESORTS LIMITED (2010) 39 SOT 438(CHEN NAI)(SB) AND DECISION OF HONBLE SUPREME COURT IN THE CASE OF MADRAS INDU STRIAL INVESTMENT V.CIT (1997) 225 ITR 802(SC) TO SUBMIT THAT ADVANCE MEMBE RSHIP FEE BE SPREAD OVER 25 YEARS AND ONLY 1/25 PORTION BE BROUGHT TO T AX DURING THE IMPUGNED ASSESSMENT YEAR. IT WAS OBSERVED BY THE LEARNED CIT(A) THAT FROM PER USAL OF THE FACTS OF THE CASE AND THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. WIAA CLUB (1982) 136 ITR 569(BOM.) , CIT V. DINERS BUSINESS SERVICES PRIVATE LIMITED (2003) 263 ITR 1(BOM.) AND ACIT V. KARNAVATI CLUB (2010- 004-ITR(TRIB.) 174 AHM.) HELD THAT NON REFUNDABLE O NE TIME ENTRANCE FEE WHICH IS CHARGED FOR THE ENROLMENT FROM MEMBERS OF RS.31,34,037/- BE TREATED AS CAPITAL RECEIPT AND SHALL NOT FORM PART OF TOTAL INCOME VIDE APPELLATE ORDER DATED 28.10.2011 PASSED BY LEARNED CIT(A). ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 19 WITH RESPECT TO ADVANCE MEMBERSHIP FEE OF RS.4,18,9 6,537/- WHICH WAS COLLECTED IN THE FIRST YEAR FOR A TENURE EXTENDING UP-TO 25 YEARS , IT WAS NOTICED BY LEARNED CIT(A) THAT THE ADVANCE MEMBERSH IP FEES IS ESSENTIALLY A PAYMENT FOR BRAND IMAGE , FOR THE CAPITAL WORKS AND FUTURE MAINTENANCE OF THE UTILITIES. THE LEARNED CIT(A) OBSERVED THAT THE ASSESSEES CLUB STARTED OPERATION FROM ASSESSMENT YEAR 2003-04 AS OPERATION AL INCOME WAS DISCLOSED FROM THAT YEAR. IT WAS ALSO OBSERVED THAT ALL THE F ACILITIES WERE NOT CREATED/FUNCTIONAL FROM ASSESSMENT YEAR 2003-04 AND CAPITAL WORK IN PROGRESS WAS CONTINUING AND THAT AS ON 31-03-2008 , THE CAPITAL WORK IN PROGRESS STOOD AT RS.22.85 CRORES , AND AS ON 31-03 -2011 IT WAS RS. 7.69 CRORES . THE LEARNED CIT(A) OBSERVED THAT THE ASSES SEE ADMITTED BEFORE HIM THAT 70% OF THE PLANNED UTILITIES WERE COMPLETED BY 31-03-2008. THE LEARNED CIT(A) HELD THAT THE ASSESSEE IS REQUIRED TO RENDER CONTINUOUS SERVICES FOR THE ENTIRE PERIOD OF 25 YEARS AND THAT TAXING THE ENTIR E RECEIPT AS INCOME IN THE FIRST YEAR OF COLLECTION WOULD BE AGAINST THE MATCH ING PRINCIPLE OF ACCOUNTANCY. THE LEARNED CIT(A) KEEPING IN VIEW THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MAHINDRA HOLID AYS AND RESORTS LIMITED (SUPRA) AND ALSO KEEPING IN VIEW THAT 70% OF PLANNE D FACILITIES WERE COMPLETED AND THAT THE ASSESSEE IS REQUIRED TO MAIN TAIN THESE FACILITIES WITHOUT FURTHER MATCHING CONTRIBUTION FROM THE ENRO LLED MEMBER , DIRECTED THAT THE AO MAY TAX 60% OF THE ADVANCE MEMBERSHIP F EE I.E. RS.2,51,37,922/- (0.6 X 4,18,96,537/-) RECEIVED EVE RY YEAR VIDE APPELLATE ORDER DATED 28.10.2011 PASSED BY LEARNED CIT(A). 6.AGGRIEVED BY THE APPELLATE ORDER DATED 28.10.2011 PASSED BY LEARNED CIT(A), THE ASSESSEE AS WELL AS REVENUE FILED CROSS APPEALS WITH THE TRIBUNAL RAISING GROUNDS OF APPEAL AS SET OUT ABOVE IN PRECE DING PARAS OF THIS ORDER, WHEREIN THE ASSESSEE IS IN NUTSHELL AGGRIEVED BY TH E ORDERS OF LEARNED CIT(A) UPHOLDING TAXABILITY OF 60% OF ADVANCE MEMBERSHIP F EE IN THE INSTANT ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 20 ASSESSMENT YEAR DESPITE THE CLUB BEING NOT FULLY FU NCTIONAL IN THE INSTANT ASSESSMENT YEAR AS CONTENDED BY THE ASSESSEE AND WI THOUT PREJUDICE BRINGING TO TAX ADVANCE MEMBERSHIP FEE TO THE EXTENT OF 60% IN THE YEAR OF RECEIPT INSTEAD OF SPREADING THE SAME OVER A PERIOD OF 25 Y EARS DURING WHICH PERIOD THE SERVICES ARE TO BE PROVIDED TO THE MEMBERS BY T HE ASSESSEE , AND THE REVENUE IS AGGRIEVED BY THE ORDERS OF LEARNED CIT(A ) HOLDING ENTRANCE FEE TO BE CAPITAL RECEIPT NOT EXIGIBLE TO TAX AND ALSO HOL DING THAT ADVANCE MEMBERSHIP FEE IS TAXABLE ONLY TO THE EXTENT OF 60% IN THE YEAR OF RECEIPT INSTEAD OF HOLDING THAT 100% OF ADVANCE MEMBERSHIP FEE IS TAXABLE IN THE YEAR OF RECEIPT AND ALSO REVENUE IS AGGRIEVED WITH THE A DMISSION OF CERTAIN ADDITIONAL EVIDENCES BY LEARNED CIT(A) WITHOUT COMP LYING WITH RULE 46A OF THE INCOME TAX RULES, 1962. WE ARE TAKING THESE ISS UES RAISED BY THE ASSESSEE AND THE REVENUE TOGETHER AND DISPOSING ALL OF THEM TOGETHER VIDE THIS COMMON ORDER AS THE ISSUES ARE INTER-WOVEN AND CONNECTED CLOSELY WITH EACH OTHER. 7.BEFORE THE TRIBUNAL, LEARNED COUNSEL FOR THE ASSE SSEE REITERATED ITS SUBMISSIONS AS WERE MADE BEFORE THE AUTHORITIES BEL OW WHICH ARE NOT REPEATED FOR THE SAKE OF BREVITY . THE LEARNED COUN SEL FOR THE ASSESSEE RELIED UPON THE FOLLOWING CASE LAWS: A) CIT V. DINERS BUSINESS SERVICES PRIVATE LIMITED 263 ITR 1(BOM.) B) CIT V. W.I.A.A CLUB LIMITED 136 ITR 569(BOM.) C) ACIT V. KARNAVATI CLUB LIMITED 4 ITR TRIB. 174-AHD. TRIB D) ACIT V. MAHINDRA HOLIDAYS AND RESORTS INDIA LIMITED 59 SOT 438 (CHENNAI SB) E) CIT V. ASPEE DISTRIBUTORS ASSOCIATION (1994) 209 IT R 294(BOM.) THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDE RS OF THE AO AND RELIED ON DECISION OF HONBLE PATNA HIGH COURT IN THE CASE OF CIT V. UNITED CLUB ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 21 (1986) 161 ITR 853(PAT. HC) AND HONBLE SUPREME COU RT DECISIONS IN THE CASE OF CIT V. CALCUTTA STOCK EXCHANGE ASSOCIATION LIMIT ED (1959) 36 ITR 222(SC) AND DELHI STOCK EXCHANGE ASSOCIATION LIMITED (1961) 41 ITR 495(SC) AND OTHERS. 8.WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERU SED THE MATERIAL ON RECORD INCLUDING THE CASE LAWS RELIED UPON BY BOTH THE PARTIES. IT IS IMPORTANT TO BRIEFLY DISCUSS THE ENTIRE BACKGROUND OF THE CAS E FIRST BEFORE PROCEEDING TO DECIDE THE ISSUES. WE HAVE OBSERVED THAT THE ASSESSEE IS A PRIVATE LIM ITED COMPANY AND IS A COMPANY LIMITED BY SHARES, REGISTERED WITH REGISTRA R OF COMPANIES , MUMBAI INCORPORATED ON 27-12-1995 .THE ASSESSEE IS ENGAGED IN THE BUSINESS OF FAMILY CLUB KNOWN AS JUHU MILLENNIUM CLUB AND CLU B IS FUNCTIONING FOR FAMILY ENTERTAINMENT . IT IS AN ADMITTED POSITION T HAT THE ASSESSEE IS NOT CLAIMING EXEMPTION FROM TAXATION BASED ON DOCTRINE OF MUTUALITY AS THE BODY OF MEMBERS WHO PAID THE ENTRANCE FEES , MEMBERSHIP FEE , ANNUAL CHARGES ETC. TO AVAIL THE FACILITIES AND UTILITIES OF FAMIL Y CLUB KNOWN AS JUHU MILLENNIUM CLUB AT JUHU AND THE SHAREHOLDERS OF TH E COMPANY AMONG WHOM PROFITS/SURPLUS OF THE COMPANY WERE TO BE DISTRIBUT ED AS DIVIDENDS ARE NOT IDENTICAL AND THE ELEMENT OF MUTUALITY IS LACKING . THE ASSESSEE STARTED LEVYING ANNUAL SUBSCRIPTION CHARGES W.E.F. 01-01-20 05. THE ASSESSEE HAS ALSO NOT BEEN ABLE TO CONTROVERT BY COGENT EVIDENCES AND EXPLANATION THAT THE CLUB WAS NOT FUNCTIONAL DURING THE IMPUGNED ASSESSMENT Y EAR WHILE THE AUTHORITIES BELOW HAVE ELABORATELY DISCUSSED IN THE IR ORDERS THE OPERATIONS BEING CARRIED ON BY THE ASSESSEE W.R.T. TO FUNCTION ALITY OF THE CLUB DURING THE IMPUGNED ASSESSMENT YEAR, WHILE IT IS ALSO ADMITTED BY THE ASSESSEE BEFORE THE LEARNED CIT(A) THAT 70% OF THE CLUB FUNCTIONS W ERE IN OPERATIONS DURING THE IMPUGNED ASSESSMENT YEAR. THE CONTENTION OF THE ASSESSEE THAT IN CASE IF IT IS NOT ABLE TO COMPLETE ALL THE COMMITTED ACTIVI TIES TO THE MEMBERS, IT MAY ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 22 BE REQUIRED TO REFUND ALL FEES ETC. COLLECTED FROM MEMBERS CANNOT BE ACCEPTED AS THE PRINCIPLES OF GOING CONCERN ARE TO BE APPLI ED WHILE COMPUTING INCOME OF THE ASSESSEE RATHER THAN ON THE HYPOTHESIS THAT THE ENTITY WOULD BE WOUND UP, EXCEPT WHERE COMPELLING SITUATION SO WARRANT BA SED ON COGENT REASONS AND EVIDENCES ON RECORD TO ADOPT A DIFFERENT COURSE . THE ASSESSEE COMPANY IS COLLECTING CLUB MEMBERSHIP ENROLLMENT FUND AT THE TIME OF ADMISSION OF MEMBERS WHICH COMPOSES OF TWO PARTS , ONE REFUNDABLE DEPOSITS WHICH CONSTITUTE 80% OF CLUB MEMBERSHIP EN ROLLMENT FUND AND SECONDLY NON-REFUNDABLE ENTRANCE FEE WHICH CONSTITU TE 20% OF CLUB MEMBERSHIP ENROLLMENT FUND. WE ARE CONCERNED IN THI S APPEAL WITH ONLY CHARGEABILITY TO TAX OF NON-REFUNDABLE ENTRANCE FEE AS THE REVENUE HAS NOT BROUGHT TO TAX REFUNDABLE DEPOSITS COLLECTED BY THE ASSESSEE BEING PART OF CLUB MEMBERSHIP ENROLLMENT FUND AT THE TIME OF ADMI SSION OF MEMBERS. SECONDLY, THE ASSESSEE COMPANY IS ALSO CHARGING ADV ANCE MEMBERSHIP FEE FROM MEMBERS FOR A PERIOD OF 25 YEARS WHICH IS PAID UP-FRONT BY THE MEMBERS AFTER BEING ADMITTED TO MEMBERSHIP OF THE CLUB. THI RDLY, THE ASSESSEE COMPANY IS CHARGING ANNUAL SUBSCRIPTION CHARGES FRO M MEMBERS WHICH ARE PAID ANNUALLY FOR AVAILING VARIOUS SERVICES OF CLUB WHICH STARTED FROM 01-01- 2005. FOURTHLY, THE ASSESSEE IS ALSO COLLECTING CH ARGES FROM MEMBERS FOR AVAILING VARIOUS SERVICES SUCH AS FOOD, BEVERAGES, BANQUET , SWIMMING COACHING, SQUASH COACHING, GYM AND HEALTH CLUB, COM MISSION, GUEST ENTRANCE FEE, ETC.. THERE IS NO DISPUTE WITH RESPECT TO CHAR GEABILITY TO TAX OF ANNUAL SUBSCRIPTION CHARGES AS WELL CHARGES COLLECTED BY T HE ASSESSEE COMPANY FOR FOOD, BEVERAGES, BANQUET, SWIMMING COACHING, SQUASH COACHING, GYM AND HEALTH CLUB, COMMISSION, GUEST ENTRANCE FEE AND OTH ER FACILITIES / AMENITIES AVAILED BY THE MEMBERS WHICH ARE ACCEPTED BY THE AS SESSEE COMPANY TO BE EXIGIBLE TO TAX. SIMILARLY, REVENUE HAS NOT BROUGH T TO TAX REFUNDABLE DEPOSIT COMPONENT OF ENTRANCE FEE WHICH IS AN UNDISPUTED IS SUE IN THE INSTANT APPEAL. THUS, THE DISPUTE NARROWS DOWN TO CHARGEAB ILITY TO TAX OR OTHERWISE ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 23 OF NON-REFUNDABLE ENTRANCE FEE CHARGED BY THE ASSES SEE COMPANY FROM ITS MEMBERS AT THE TIME OF THEIR ADMISSION AS MEMBER OF THE CLUB , AND AS WELL ABOUT CHARGEABILITY TO TAX OF ADVANCE MEMBERSHIP FE E RECEIVED BY THE ASSESSEE FROM ITS MEMBERS FOR A PERIOD OF 25 YEARS IN THE YE AR OF RECEIPT ITSELF OR TO SPREAD IT OVER THE YEARS TO WHICH IT PERTAINS. A) NON-REFUNDABLE ENTRANCE FEE RECEIVED BY THE ASSESSE E:- BEFORE , WE MOVE FURTHER IT IS IMPORTANT TO DISCUSS IMPORTANT JUDICIAL PRONOUNCEMENTS HAVING BEARING ON THE DECISION ON TH E CHARGEABILITY TO TAX OF NON-REFUNDABLE COMPONENT OF ENTRANCE FEE TO CLUB RE CEIVED BY THE ASSESSEE COMPANY FROM ITS MEMBERS. (A) HONBLE BOMBAY HIGH COURT DECISION IN THE CASE OF N ATIVE SHARE AND STOCK BROKERS ASSOCIATION V. CIT (1946) 14 ITR 628(BOM.) MORE COMMONLY KNOWN AS BOMBAY STOCK EXCHANGE. THE ASSOCIATION WAS RECOGNIZED BY THE GOVERNMENT UNDER THE BOMBAY SECURITIES CONTRACTS CO NTROL ACT, 1925 AND RULES WERE FRAMED BY THE ASSOCIATION FOR THE RE GULATION AND CONTROL OF TRANSACTIONS IN SECURITIES , SO THAT IT BECOMES WHA T IS REFERRED TO IN THE ACT AS A RECOGNIZED STOCK EXCHANGE . BEING A MUTUAL A SSOCIATION NOT FORMED FOR THE PURPOSE OF MAKING PROFITS IT DOES NOT PAY I NCOME-TAX UNLESS ITS ACTIVITIES COME WITHIN SECTION 10(6) OF INCOME TAX ACT,1922 (ACT OF 1922) WHICH READS AS FOLLOWS:- A TRADE, PROFESSIONAL OR SIMILAR ASSOCIATION PERF ORMING SPECIFIC SERVICES FOR ITS MEMBERS FOR REMUNERATION DEFINITEL Y RELATED TO THOSE SERVICES SHALL BE DEEMED FOR THE PURPOSE OF T HIS SECTION TO CARRY ON BUSINESS IN RESPECT OF THOSE SERVICES , AN D THE PROFITS AND GAINS THEREFROM SHALL BE LIABLE TO TAX ACCORDINGLY. ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 24 THE ISSUE IN THIS APPEAL BEFORE THE HONBLE BOMBAY HIGH COURT WAS WITH RESPECT TO TAXABILITY OF SUM OF RS.1,22,600/- REPRE SENTING 1226 FEES OR SUBSCRIPTION OF RS.100 EACH PAID IN RESPECT OF THE AUTHORIZATION BY THE ASSOCIATION OF 1226 CLERKS OR REMISIERS BELONGING T O SOME 475 FIRMS WHICH ADMIT THEM TO CERTAIN PRIVILEGES OR RIGHTS IN THE E XCHANGE BUILDING WHICH OTHERWISE THEY COULD NOT ENJOY UNDER THE RULES OF A SSOCIATION . THE SHORT QUESTION BEFORE THE HONBLE BOMBAY HIGH COURT WAS W HETHER THE ASSOCIATION IS PERFORMING SPECIFIC SERVICES FOR ITS MEMBERS FOR REMUNERATION DEFINITELY RELATED TO THESE SERVICES. IT WAS ARGUED BY SIR JAMSHEDJI KANGA ON BEHALF OF T HE ASSOCIATION THAT THE SUM OF RS.100 IS THE LICENSE FEE PAID BY A MEMBER F OR THE GRANTING OF FACILITIES WHICH THE MEMBER WOULD NOT OTHERWISE ENJOY AND THIS IS NOT PERFORMING SERVICES BY THE ASSOCIATION WHO GRANTS THE LICENSE. THE FACILITY GRANTED IS MERELY ADMISSION OF CLERKS AND REMISIERS OF THE MEM BERS OF THE EXCHANGE BUILDING AND THERE ARE NO SERVICES PERFORMED BY THE ASSOCIATION FOR ITS MEMBERS. IN THE ALTERNATIVE IT WAS SUBMITTED THAT I F ANY SERVICES ARE PERFORMED THEY ARE PERFORMED FOR ALL THE MEMBERS AN D NOT ONLY FOR THOSE MEMBERS WHO PAY THE FEES OF RS.100 AND THAT THEREFO RE THE REMUNERATION DOES NOT DEFINITELY RELATE TO ANY SERVICE RENDERED TO THE MEMBER PAYING THEM. ON THE OTHER HAND, MR. SETALVAD ON BEHALF OF THE CO MMISSIONER SUBMITTED THAT THE ANSWER IS TO BE FOUND BY ASKING THE QUESTI ON , FOR THE REMUNERATION PAID, WHAT, IF ANY ,ARE THE SERVICES PERFORMED? THE ATTENTION OF HONBLE BOMBAY HIGH COURT WAS DRAWN TO SOME OF THE RULES WH ICH SHOWED A DEFINITE SCHEME FOR THE ADMISSION AND SUPERVISION OF THE AUT HORIZED CLERKS WHICH CONFERS DEFINITE ADVANTAGES TO THE MEMBERS WHO PAY THE FEES. SIR LEONARD STONE, CHIEF JUSTICE WRITING A SEPARATE JUDGMENT HELD THAT THESE RULES LAY DOWN A DEFINITE SCHEME AND PROVIDE AN ORG ANIZED ARRANGEMENT, CONTROLLED AND SUPERVISED BY THE ASSOCIATION FOR TH E BENEFIT OF ITS MEMBERS. IT ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 25 WAS HELD THAT THE CARRYING OF THEIR SCHEME INTO EFF ECT IS PERFORMING SERVICES FOR ITS MEMBERS OF THE ASSOCIATION. IT WAS HELD BY SIR LEONARD STONE, CHIEF JUSTICE OF HONBLE BOMBAY HIGH COURT THAT NO DOUBT THE BENEFIT WILL REDOUND TO THE BENEFIT OF ALL MEMBERS SINCE ALL WOULD HAVE THE ADVANTAGE OF DISCIPLINED SUPERVISION EXERCISED OVER THE AUTHORIZED CLERKS AN D REMISIERS OF THE OTHERS. IT WAS HELD THAT SERVICES PERFORMED ARE SPECIFIC BE CAUSE THEY PROVIDE AN IDENTIFIABLE SCHEME LAID DOWN WITH SUFFICIENT CLARI TY AND THE REMUNERATION IS DEFINITELY RELATED TO THE SERVICES AND IS FOR THE B ENEFIT OF THE MEMBERS OF THE ASSOCIATION AND THE AMOUNT WAS HELD TO BE EXIGIBLE TO TAX WITHIN PROVISION OF SECTION 10(6) OF THE ACT OF 1922. HONBLE KANIA, JUSTICE(AS HE THEN WAS) WROTE A SEPA RATE AND CONCURRING JUDGMENT AGREEING WITH SIR LEONARD STONE, CHIEF JUS TICE. IT WAS HELD BY HONBLE KANIA, JUSTICE THAT IT IS CLEAR THAT THE SC HEME TAKEN AS A WHOLE IS BASED ON INSTITUTION OF THE AUTHORIZED CLERKS AND T HEIR WORK FOR THE MEMBERS WHO EMPLOY THEM. FOR THAT THE ASSOCIATION HAS TO RE NDER SERVICES AND THESE ARE CLEARLY SPECIFIC SERVICES RENDERED BY THE ASSOC IATION FOR ITS MEMBERS WHO DESIRE TO EMPLOY AUTHORIZED CLERKS. THE ASSOCIATION HAS UNDERTAKEN CERTAIN OBLIGATIONS BY THE RULES TOWARDS ITS MEMBERS IN ACC EPTING THESE FEES. BY THE RULES THE BOARD AND THE SECRETARY HAVE TO PERFORM C ERTAIN DUTIES AS PRESCRIBED BY THE RULES IN RESPECT OF AUTHORIZED CL ERKS AND IT IS FUTILE TO CONTEND THAT THEY AMOUNT MERELY TO FACILITIES AND D O NOT CONSTITUTE PERFORMANCE OF SERVICES BY THE ASSOCIATION. IT WAS HELD THAT IT IS TRUE THAT SEVERAL OF THE SERVICES TO BE RENDERED MAY BE HELPF UL TO THE OTHER MEMBERS FOR THEIR BUSINESS. TAKEN AS A WHOLE IT WAS HELD THAT A S A PERFORMANCE OF SERVICES BY THE ASSOCIATION FOR THE BENEFIT, OF MORN BETS WH O PAY THE REMUNERATION. SECONDLY , IT WAS ALSO HELD THAT ON THE PAYMENT OF RS.100/- THE AUTHORIZED CLERKS COMES INTO EXISTENCE AND ALL THE SERVICES W HICH THE ASSOCIATION HAS THEREAFTER TO RENDER ARE IN RESPECT OF THE AUTHORIZ ED CLERKS IN RESPECT OF WHOM THE SPECIFIC SERVICES ARE DEFINITELY RELATED . THUS , IN OPINION OF HONBLE KANIA, ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 26 JUSTICE THE TWO REQUISITES OF THE SECTION ARE FULFI LLED UNDER THE RULES OF THE ASSOCIATION AND THE AMOUNTS WERE HELD TO BE EXIGIBL E TO TAX U/S 10(6) OF THE ACT OF 1922. B)HONBLE SUPREME COURT JUDGMENT IN THE CASE OF CIT V. CALCUTTA STOCK EXCHANGE ASSOCIATION LIMITED (1959) 36 ITR 222(SC)- THE FACTS OF THIS CASE IS THAT RESPONDENT IS A LIMITED LIABILITY COMPANY INCO RPORATED ON 07-06-1933 WITH A VIEW TO TAKEOVER THE ASSETS AND LIABILITIES OF UNINCORPORATED ASSOCIATION CALLED THE CALCUTTA STOCK EXCHANGE ASSOCIATION AN D TO CARRY ON THE AFFAIRS OF THE STOCK EXCHANGE WHICH HAD BEEN FOUNDED BY THA T ASSOCIATION. IN VIEW OF THAT OBJECTIVE, THE COMPANY HAD TO MAKE RULES AND B YE-LAWS , REGULATING THE MODE AND THE CONDITIONS IN , AND SUBJECT TO , WHICH THE BUSINESS OF THE STOCK EXCHANGE HAD TO BE TRANSACTED. THE COMPANY IS COMPO SED OF MEMBERS WHO EXCEPT THOSE WHO WERE MEMBERS OF UNINCORPORATED ASS OCIATION HAVE TO BE ELECTED AS SUCH, AND UPON SUCH ELECTIONS HAVE TO AC QUIRE A SHARE OF THE COMPANY AND PAY AN ENTRANCE FEE. THE MEMBERS HAVE T O PAY A MONTHLY SUBSCRIPTION ACCORDING TO THE BY-LAWS OF THE COMPAN Y. UNDER THE BY-LAWS OF THE RESPONDENT COMPANY, MEMBERS WITH A CERTAIN STAN DING , ARE ALLOWED TO HAVE AUTHORIZED ASSISTANTS WHO ARE PERMITTED TO U SE OF THE PREMISES OF THE ASSOCIATION AND TO TRANSACT BUSINESS THEREIN IN THE NAMES AND ON BEHALF OF THE MEMBERS EMPLOYING THEM. THE MEMBERS HAVE TO PAY AN ADMISSION FEE FOR SUCH AUTHORIZED ASSISTANTS ACCORDING TO PRESCRIBED SCALES. IT WAS OBSERVED BY THE HONBLE APEX COURT THAT THE RULES RELATING TO T HE ADMISSION OF MEMBERS ASSISTANTS , CONFER THE BENEFIT UPON THOSE MEMBERS ONLY WHO ARE QUALIFIED ACCORDING TO THE BY-LAWS TO HAVE SUCH ASSISTANTS , AND WHO HAVE PAID ADMISSION FEES AND PAY A MONTHLY SUBSCRIPTION FOR E ACH OF THEM, BESIDES THEIR OWN DUES, TO THE COMPANY. THE BY-LAWS ALSO PROVIDED THAT AN AUTHORIZED ASSISTANT SHALL NOT ENTER INTO ANY CONTRACTS ON HIS OWN BEHALF AND ALL CONTRACTS MADE BY HIM SHALL BE MADE IN THE NAME OF THE MEMBER EMPLOYING HIM AND SUCH MEMBER SHALL BE ABSOLUTELY RESPONSIBLE FOR THE DUE FULFILLMENT ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 27 OF ALL SUCH CONTRACTS AND FOR ALL TRANSACTIONS ENTE RED INTO BY THE AUTHORIZED ASSISTANTS ON HIS BEHALF. IT IS ALSO PROVIDED BY TH E BY-LAWS THAT TICKETS ARE TO BE ISSUED TO THE AUTHORIZED ASSISTANTS , BESIDES TH E MEMBERS TICKETS. THE BY- LAWS ALSO PROVIDED THAT MEMBER SHALL GIVE NOTICE IN WRITING TO THE ASSOCIATION OF THE TERMINATION OF THE EMPLOYMENT OF THE AUTHORI ZED ASSISTANT AND ON SUCH TERMINATION SUCH AUTHORIZED ASSISTANT SHALL HAVE NO RIGHT TO TRANSACT BUSINESS IN THE NAME AND ON BEHALF OF THE MEMBER AN D RIGHT OF THE ASSISTANT TO USE THE ROOMS OF THE ASSOCIATION SHALL CEASE. THE RESPONDENT-CALCUTTA STOCK EXCHANGE ASSOCIATION LIMITED DURING THE ACCOUNTING YEAR 1944-45(ASSESSMENT YEAR 1945-46) RE CEIVED FROM ITS MEMBERS THE SUM OF RS. 60,750/- AS ENTRANCE FEES AN D THE SUM OF RS.15687/- AS SUBSCRIPTION IN RESPECT OF AUTHORIZED ASSISTANT, BOTH THE PAYMENTS BEING RECEIVED FROM MEMBERS OF THE ASSOCIA TION IN RESPECT OF THEIR AUTHORIZED ASSISTANTS. THE COMPANY ALSO RECEIVED RS .16000/- AS FEES FROM MEMBERS FOR PUTTING THE NAMES OF COMPANIES ON QUOTA TION LIST. THE HONBLE APEX COURT OBSERVED THAT IT IS MANIFEST THAT UNLESS THE RESPONDENT COMPANY IS BROUGHT WITHIN THE TERMS OF SUBSECTION (6) OF SE CTION 10 OF ACT OF 1922, THE THREE ITEMS OF INCOME COMING INTO HANDS OF THE ASSO CIATION, WOULD NOT BE CHARGEABLE TO TAX. THE SUB-SECTION(6) OF SECTION 10 OF ACT OF 1922 IS REPRODUCED HEREUNDER: (6) A TRADE, PROFESSIONAL OR SIMILAR ASSOCIATION P ERFORMING SPECIFIC SERVICES FOR ITS MEMBERS FOR REMUNERATION DEFINITEL Y RELATED TO THOSE SERVICES SHALL BE DEEMED FOR THE PURPOSE OF THIS; S ECTION TO CARRY ON BUSINESS IN RESPECT OF THOSE SERVICES, AND THE, PRO FITS, AND GAINS THEREFROM, SHALL BE LIABLE TO TAX ACCORDINGLY. THE HONBLE APEX COURT OBSERVED THAT THE WORDS PER FORMING SPECIFIC SERVICES MEAN IN THE CONTEXT , CONFERRING PARTICULAR BENEFI TS ON THE MEMBERS. THE ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 28 WORD SERVICES IS A TERM OF A VERY WIDE IMPORT, BU T IN CONTEXT OF SECTION 10 OF ACT OF 1922 , ITS USE EXCLUDES ITS THEOLOGICAL OR A RTISTIC USAGE. THUS, IT WAS HELD THAT IN REFERENCE TO A TRADE, PROFESSIONAL OR SIMILAR ASSOCIATION, THE PERFORMING OF SPECIFIC SERVICES MUST MEAN CONFERRIN G ON ITS MEMBERS SOME TANGIBLE BENEFIT WHICH OTHERWISE WOULD NOT BE AVAIL ABLE TO THEM AS SUCH, EXCEPT FOR PAYMENT RECEIVED BY THE ASSOCIATION IN R ESPECT OF THOSE SERVICES. THE SUB-SECTION FURTHER REQUIRES THAT REMUNERATION SHOULD BE DEFINITELY RELATED TO THE SPECIFIC SERVICES . THE WORD REMUN ERATION IT WAS HELD IS A WORD OF MUCH WIDER IMPORT INCLUDING RECOMPENSE , REWARD , PAYMENT ETC.. THUS, IT WAS HELD THAT IT SHOULD BE SHOWN THA T THOSE SERVICES WOULD NOT BE AVAILABLE TO THE MEMBERS OR SUCH OF THEM AS WISH TO AVAIL THEMSELVES OF THOSE SERVICES, BUT FOR SPECIFIC PAYMENTS CHARGED BY THE ASSOCIATION AS A FEE FOR PERFORMING THOSE SERVICES. IT WAS HELD BY THE HONBLE APEX COURT THAT THE ENTR ANCE FEE IS , THUS, A PRICE PAID FOR THE SERVICES OF THE ASSOCIATION IN MAKING SUITABLE ARRANGEMENTS FOR AN ABSENTEE MEMBER TO TRANSACT BUSINESS ON HIS BEHA LF AND IN HIS NAME BY HIS REPRESENTATIVE OR AGENT . THE ENTRANCE FEE IN Q UESTION , THEREFORE, CANNOT BUT BE ASCRIBED TO THE SPECIFIC SERVICES RENDERED B Y THE ASSOCIATION IN RESPECT OF AUTHORIZED ASSISTANT WHO THUS BECOME COMPETENT T O TRANSACT BUSINESS ON BEHALF OF THEIR PRINCIPAL. COMING NEXT TO SUM OF RS.15,687/- WHICH WAS REALIZE D FROM THE MEMBERS BY WAY OF SUBSCRIPTION IN RESPECT OF THEIR AUTHORIZED ASSISTANTS, IT WAS OBSERVED BY THE APEX COURT THAT THIS SUM CONSISTS OF THE CON TRIBUTION SEVERALLY MADE BY THE MEMBERS PERIODICALLY , SO AS TO CONTINUE TO HAVE THE BENEFITS CONFERRED BY THE ASSOCIATION OF HAVING THE USE OF THEIR REPRE SENTATIVE OR AGENT EVEN DURING ABSENCE WHICH IS A SUBSTANTIAL BENEFIT TO TH E MEMBER. ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 29 LASTLY, THE SUM OF RS.16000/- REPRESENTED THE FEES RECEIVED FROM MEMBERS FOR ALLOWING THEIR APPLICATION FOR ENLISTING THE NAME O F COMPANIES NOT ALREADY ON QUOTATION LIST, SO THAT SHARES AND STOCKS OF THESE COMPANIES MAY BE PLACED ON STOCK MARKET. THIS FEES HAS NOT TO BE PAID BY COMPA NY CONCERNED DIRECTLY BUT BY THE MEMBER WHO INITIATES THE PROPOSAL AND , APP ARENTLY , FINDS IT WORTHWHILE TO PAY THAT PRESCRIBED FEE TO THE ASSOCI ATION. APPARENTLY, SUCH A MEMBER IS INTERESTED IN PLACING THE STOCKS OF THAT COMPANY ON THE MARKET. THUS, IT WAS OBSERVED BY HONBLE APEX COURT THAT TH E SUM OF MONEY IS DEFINITELY RELATED TO THE SPECIFIC SERVICES PERFORM ED BY THE ASSOCIATION , NAMELY, TO PERMIT TRANSACTIONS IN RESPECT OF THE SH ARES OF THE COMPANY CONCERNED , WHICH SERVICES WOULD NOT BE OTHERWISE A VAILABLE TO THE MEMBERS AS A BODY OR TO THE INDIVIDUAL MEMBER OR MEMBERS IN TERESTED IN THAT COMPANY. THE HONBLE APEX COURT HELD THAT EACH ONE OF THREE SOURCES OF INCOME TO THE ASSOCIATION ACCRUES TO IT ON ACCOUNT OF ITS PERFORM ING THESE SPECIFIC SERVICES IN ACCORDANCE WITH ITS RULES AND BY-LAWS. IT WAS HELD THAT EACH ONE OF THE THREE DISTINCT SOURCES OF REVENUE TO THE ASSOCIATION IS S PECIFICALLY ATTRIBUTABLE TO THE DISTINCT SERVICES PERFORMED BY THE ASSOCIATION FOR ITS MEMBERS OR SUCH OF THEM AS AVAIL THEMSELVES OF THOSE BENEFITS. IT WAS HELD THAT EACH ONE OF THEM IS SEPARATELY CHARGES FOR , ACCORDING TO THE RATE O R SCHEDULE LAID DOWN BY THE RULES AND BY-LAWS OF THE ASSOCIATION AND THEREFORE, HONBLE APEX COURT HELD THAT REQUIREMENTS OF SECTION 10(6) OF THE ACT OF 19 22 HAVE BEEN FULFILLED IN THIS CASE. THE HONBLE APEX COURT CONCURRED WITH TH E FINDINGS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF NATIVE SHARE AND S TOCK BROKERS ASSOCIATION V. CIT (1946) 14 ITR 628(BOM.) TO ARRIV E AT ABOVE CONCLUSIONS. THE HONBLE APEX COURT ALSO REFERRED TO DECISION OF HONBLE HIGH COURT OF TRAVANCORE IN THE CASE OF CIT V. CHAMBER OF COMMERC E, ALLEPPEY (1955) 27 ITR 535(COCH.) WHEREIN HONBLE SUPREME COURT OBSERV ED THAT THE FACTS OF THE CASE ARE NOT SIMILAR BUT THE RATIO DECIDENDI OF THE CASE IS RELEVANT. THE CASE ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 30 REFERRED TO ALLEPPEY CHAMBER OF COMMERCE. THE CHAMB ER INAUGURATED A PRODUCE SECTION WITH THE OBJECT OF PROMOTING THE IN TEREST OF MERCHANTS IN GENERAL , AND OF THOSE ENGAGED IN THE PRODUCE TRADE , IN PARTICULAR; OF ACTING AS ARBITRATORS AND COLLECTING AND PUBLISHING INFORMATI ON RELATING TO THE PRODUCE TRADE. MEMBERS WERE ADMITTED TO THE PRODUCE SECTION ON PAYMENT OF ADMISSION FEES, MONTHLY FEES AND CONTRIBUTIONS AT C ERTAIN RATES. THE QUESTION WHICH WAS REFERRED TO THE HONBLE HIGH COURT WAS WH ETHER THE RECEIPTS BY WAY OF FEES AND CONTRIBUTIONS COULD BE CHARGEABLE U /S. 10(6) OF THE ACT OF 1922, AND IT WAS ANSWERED IN THE AFFIRMATIVE. THE HONBLE SUPREME COURT REFERRED TO THE DECISIONS RENDERED BY COURTS IN ENGLAND AND OBSERVED THAT THOUGH CASES IN ENGLAND, BY WAY OF PRECEDENT FOR THE DECISION OF THE CASE IN HAND, HAVE NOT BEEN CITED AT THE BAR, APPAR ENTLY BECAUSE THE SCHEME OF THE INCOME-TAX LAW IN ENGLAND IS DIFFEREN T AND THE WORDS OF THE STATUTE ARE NOT IN PARI MATERIA, YET THERE ARE SOME CASES WHICH THROW SOME LIGHT ON THE CONTROVERSY BEFORE US. FOR EXAMPL E, THE CASE OF CARLISLE AND SILLOTH GOLF CLUB V. SMITH [1912] 6 TAX CAS 48 RELATED TO A GOLF CLUB WHICH WAS NOT INCORPORATED. IT WAS ADMITTEDLY A BON A FIDE MEMBERS' CLUB, BUT UNDER ONE OF THE TERMS OF ITS LEASE, IT H AD TO ADMIT NON-MEMBERS TO PLAY ON ITS COURSE ON PAYMENT OF 'GREEN FEES' AT CERTAIN PRESCRIBED RATES. THOSE FEES WERE PAID BY NON-MEMBERS. RECEIPT S FROM THOSE FEES WERE ENTERED IN THE GENERAL ACCOUNTS OF THE CLUB, T HUS SHOWING AN ANNUAL EXCESS OF RECEIPTS OVER EXPENDITURE OF THE CLUB AS A WHOLE. IT WAS HELD BY HAMILTON, J. (AS HE THEN WAS), THAT THE CLUB CARRIE D ON A CONCERN OR BUSINESS IN RESPECT OF WHICH IT RECEIVED REMUNERATI ON WHICH WAS ASSESSABLE TO INCOME-TAX. HE POINTED OUT THAT THE R ECEIPTS FROM NON- MEMBERS WENT TO AUGMENT THE FUNDS OF THE CLUB, AND THE REVENUE THUS RECEIVED WAS APPLIED FOR THE PURPOSES OF THE CLUBT OWARDS ITS GENERAL ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 31 EXPENDITURE. THE CASE WAS TAKEN UP TO THE COURT OF APPEAL, AND THE DECISION OF THAT COURT IS REPORTED IN THE SAME VOLU ME AT PAGE 198. THE COURT OF APPEAL AFFIRMED THE DECISION AND DISMISSED THE APPEAL. THE JUDGMENT OF THE KING'S BENCH DIVISION IN LIVERP OOL CORN TRADE ASSOCIATION LIMITED V. MONKS [1926] 10 TAX CAS 442, WAS BASED ON FACTS WHICH ARE SIMILAR TO THE FACTS OF THE PRESENT CASE. IN THAT CASE, THE LIVERPOOL CORN TRADE ASSOCIATION LIMITED WAS AN INC ORPORATED BODY UNDER THE COMPANIES ACT, WITH THE OBJECT, INTER ALI A, OF PROTECTING THE INTERESTS OF THE CORN TRADE, AND OF PROVIDING A CLE ARING HOUSE, A MARKET, AN EXCHANGE, AND ARBITRATION AND OTHER FACILITIES T O THE TRADE. MEMBERSHIP OF THE ASSOCIATION WAS CONFINED TO PERSO NS ENGAGED IN THE CORN TRADE. EACH MEMBER WAS REQUIRED TO HAVE ONE SH ARE IN THE COMPANY, AND HAD TO PAY AN ENTRANCE FEE AND AN ANNU AL SUBSCRIPTION. NON-MEMBERS COULD ALSO BECOME SUBSCRIBERS. PAYMENTS WERE MADE TO THE ASSOCIATION BY MEMBERS AND OTHERS FOR SERVICES RENDERED THROUGH THE CLEARING HOUSE, ETC. THE ASSESSEE WAS TAXED ON THE EXCESS OF ITS RECEIPTS OVER EXPENDITURE. ON APPEAL TO THE SPECIAL COMMISSI ONER'S, THEY UPHELD THE ASSESSMENT. ONE OF THE POINTS RAISED BEFORE THE SPECIAL COMMISSIONERS WAS THAT TRANSACTIONS WITH ITS MEMBER S WERE MUTUAL ONES, AND THAT ANY SURPLUS ARISING FROM SUCH TRANSA CTIONS WAS NOT A PROFIT ASSESSABLE TO INCOME-TAX. ON APPEAL, THE HIG H COURT AGREED WITH THE DETERMINATION OF THE SPECIAL COMMISSIONERS, AND HELD THAT ANY PROFIT ARISING FROM THE ASSOCIATION'S TRANSACTIONS WITH ME MBERS WAS ASSESSABLE TO INCOME-TAX AS PART OF THE PROFITS OF BUSINESS, AND THAT THE ENTRANCE FEES AND SUBSCRIPTIONS RECEIVED FROM MEMBE RS MUST BE INCLUDED IN THE COMPUTATION OF SUCH PROFITS. IT WAS SUGGESTED THAT THE SERVICE IN THIS CASE, IF ANY, WAS EXTREMELY TRIVIAL AND THE REMUNERATION WHICH WAS LARGE WAS FO R THAT REASON NOT DEFINITELY RELATED TO THE SERVICE. IT WAS HELD BY U PJOHN, J., INBRADBURY (H. ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 32 M. INSPECTOR OF TAXES) V. ARNOLD [1957] 37 TAX CAS 665,669, THAT THE EXTENT OF THE SERVICES WAS OF NO MATERIALITY. THERE , THE QUESTION WAS BEING DEALT WITH UNDER CASE VI OF SCHEDULE D OF THE INCOME TAX ACT, 1918. THE LEARNED JUDGE OBSERVED: 'THERE IS NO DOUBT THAT A CONTRACT FOR SERVICES MAY , AND CLEARLY DOES, FORM A MATTER FOR ASSESSMENT UNDER CASE VI OF SCHEDULE D, AND NOT THE LESS SO THAT THE SERVICES TO BE RENDERE D ARE TRIVIAL OR THAT THEY ARE TO BE RENDERED ONCE AND FOR ALL SO TH AT THE REMUNERATION MAY BE REGARDED AS A CASUAL PROFIT ARI SING OUT OF A SINGLE AND ISOLATED TRANSACTION.' THE SAME VIEW WAS EXPRESSED BY HARMAN, J., IN HOUSD EN (INSPECTOR OF TAXES) V. MARSHALL [1958] 3 ALL ER 639. IN THAT CAS E, A WELL-KNOWN JOCKEY CONTRACTED WITH A NEWSPAPER COMPANY TO MAKE AVAILAB LE TO ITS NOMINEE 'REMINISCENCES OF HIS LIFE AND EXPERIENCES ON THE T URF FOR THE PURPOSE OF WRITING A SERIES OF FOUR ARTICLES', AND TO PROVIDE PHOTOGRAPHS, PRESS CUTTINGS, ETC. HE WAS PAID 750. THE QUESTION WAS WHETHER THIS AMOUNTED TO SALE OF PROPERTY, OR WAS A PAYMENT FOR SERVICES RENDERED. IT WAS HELD THAT IT WAS THE LATTER, AND THAT IT DID NO T MATTER IF THE SERVICE RENDERED WAS TRIVIAL. THUS, THE HONBLE SUPREME COURT HELD IN THE CASE OF CALCUTTA STOCK EXCHANGE ASSOCIATION LIMITED(SUPRA) THAT THE NATURE OF THE SERVICE WHICH THE ASSOCIATION PERFORMED IN RESPECT OF THE ASSISTANTS, THE PAYMENT OF THE ADMISSION /ENTRANCE FEE WAS DEFINITELY RELATED TO T HAT SERVICE. IT WAS HELD THAT THE CASE FELL WITHIN SECTION 10(6) OF THE ACT OF 19 22 AND IS EXIGIBLE TO TAX . (C).THE HONBLE SUPREME COURT JUDGMENT IN THE CASE OF DELHI STOCK EXCHANGE ASSOCIATION LIMITED V. CIT (1961) 41 ITR 495(SC). T HE FACTS OF THE CASE ARE THAT THE APPELLANT COMPANY IN THIS CASE WAS INCORP ORATED IN THE YEAR 1947 ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 33 WITH AN OBJECTS, INTER-ALIA, TO ACQUIRE GOING CONCE RN ACTIVITIES, FUNCTIONS AND BUSINESS OF THE DELHI STOCK & SHARE EXCHANGE LIMITE D AND THE DELHI STOCK AND SHARE BROKERS ASSOCIATION LIMITED AND TO PROMOT E AND REGULATE THE BUSINESS OF EXCHANGE OF STOCKS AND SHARES , DEBENT URES AND DEBENTURE STOCKS GOVERNMENT SECURITIES , BONDS AND EQUITIES O F ANY DESCRIPTION AND WITH A VIEW THERETO, TO ESTABLISH AND CONDUCT STOCK EXCH ANGE IN DELHI AND/OR ELSEWHERE. THE RULES WERE MADE BY THE APPELLANT COM PANY FOR THE CONDUCT OF BUSINESS OF SALE AND PURCHASE OF SHARES IN THE EXCH ANGE PREMISES. THE APPELLANT EARNED INCOME OF RS. 29,363/- DURING THE YEAR 1947-48 OUT OF WHICH A SUM OF RS. 15,975/- SHOWN AS ADMISSIONS FEE S WAS DEDUCTED AND RETURNED INCOME WAS RS.13,388/- . THE APPELLANT SHO WED INCOME OF RS.9,000/- ON ACCOUNT OF MEMBERS ADMISSION FEE AND RS.6,875/- ON ACCOUNT OF AUTHORISED ASSISTANTS ADMISSION FEE IN THE PROF IT AND LOSS ACCOUNT. THE REVENUE ADDED THE MEMBERS ADMISSION FEE AND AUTHORI SED ASSISTANTS ADMISSION FEE TO THE INCOME OF THE ASSESSEE. THE TR IBUNAL HELD IN FAVOUR OF THE TAX-PAYER BY HOLDING THAT THE AMOUNTS RECEIVED AS ENTRANCE FEE WERE INTENDED TO BE AND WERE IN FACT TREATED AS CAPITAL RECEIPTS AND WERE THEREFORE EXCLUDED FROM ASSESSMENT AS THERE WAS NO REQUISITE PERIODICITY , THESE AMOUNT WERE NOT TAXABLE. THE HONBLE HIGH COURT HELD THAT THE ADMISSION FEE OF MEMBERS OR AUTHORISED ASSISTANTS RECEIVED BY THE TAX-PAYER IS TAXABLE IN ITS HANDS.IT WAS HELD THAT THE TAX-PAYER IS NOT MUTUAL SOCIETY AND THEREFORE N OT EXEMPT FROM PAYMENT OF INCOME-TAX;THAT IT HAD A SHARE CAPITAL ON WHICH DIV IDEND COULD BE EARNED AND ANY PERSON COULD BECOME A SHAREHOLDER OF THE TAX-PA YER COMPANY BY PURCHASING A SHARE BUT EVERY SHAREHOLDER COULD NOT BECOME A MEMBER UNLESS HE WAS ENROLLED, ADMITTED OR ELECTED AS A MEMBER AN D PAID A SUM OF RS. 250 AS ADMISSION FEE. ON BECOMING A MEMBER HE WAS ENTIT LED TO EXERCISE ALL RIGHTS AND PRIVILEGES OF MEMBERSHIP. IT WAS FOUND THAT THE REAL OBJECT OF THE TAX- PAYER COMPANY WAS TO CARRY ON BUSINESS AS A STOCK E XCHANGE AND THE EARNING ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 34 OF PROFITS. IT WAS HELD THAT THE ADMISSION FEES FEL L WITHIN THE AMBIT OF THE EXPRESSION PROFIT AND GAINS OF BUSINESS , PROFESSI ON OR VACATION. THE HONBLE SUPREME COURT HELD THAT MEMBERSHIP ADMI SSION FEE PAID BY THE MEMBERS ON ACCOUNT OF AUTHORISED ASSISTANTS IS COVE RED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT V. CALCUTT A STOCK EXCHANGE ASSOCIATION LIMITED (1959) 36 ITR 222(SC). THE HON BLE SUPREME COURT HELD THAT MEMBERS' ADMISSION FEES PAID BY THE MEMBERS FOR THE IR OWN ADMISSION, HAS TO BE DECIDED IN ACCORDANCE WITH THE NATURE OF THE BUSINESS OF THE APPELLANT COMPANY, ITS MEMORANDUM AND ARTICLES OF A SSOCIATION AND THE RULES MADE FOR THE CONDUCT OF BUSINESS. IT WAS OBSERVED B Y HONBLE SUPREME COURT THAT THE TAX-PAYER COMPANY WAS AN ASSOCIATION WHICH CARRIED ON A TRADE AND ITS PROFITS WERE DIVISIBLE AS DIVIDEND AMONGST THE SHAREHOLDERS. THE OBJECT WITH WHICH THE COMPANY WAS FORMED WAS TO PROMOTE AN D REGULATE THE BUSINESS IN SHARES, STOCKS AND SECURITIES ETC., AND TO ESTABLISH AND CONDUCT THE BUSINESS OF A STOCK EXCHANGE IN DELHI AND TO FA CILITATE THE TRANSACTION OF SUCH BUSINESS. IT WAS OBSERVED BY HONBLE SUPREME C OURT THAT THE BUSINESS WAS MORE LIKE THAT IN LIVERPOOL CORN TRADE ASSOCIATION V. MONKS [1926] 2 KB 110 AND OBSERVED AS UNDER:- IN THAT CASE AN ASSOCIATION WAS FORMED WITH THE OB JECT OF PROMOTING THE INTEREST OF CORN TRADE WITH A SHARE CAPITAL UPON WH ICH THE ASSOCIATION WAS EMPOWERED TO DECLARE A DIVIDEND. THE ASSOCIATIO N PROVIDED A CORN EXCHANGE MARKET, NEWSROOM AND FACILITIES FOR CARRYI NG ON BUSINESS AND MEMBERSHIP WAS CONFINED TO PERSONS ENGAGED IN THE C ORN TRADE AND EVERY MEMBER WAS REQUIRED TO BE A SHAREHOLDER AND H AD TO PAY AN ENTRANCE FEE. THE ASSOCIATION ALSO CHARGED THE MEMB ERS AND EVERY PERSON MAKING USE OF FACILITIES A SUBSCRIPTION WHIC H VARIED ACCORDING TO THE USE MADE BY THEM. THE BULK OF THE RECEIPTS OF T HE ASSOCIATION WAS DERIVED FROM ENTRANCE FEES AND SUBSCRIPTIONS. IT WA S, THEREFORE, CONTENDED THAT THE ASSOCIATION DID NOT CARRY ON A T RADE AND THAT IT WAS A ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 35 MUTUAL ASSOCIATION AND ENTRANCE FEES AND SUBSCRIPTI ONS SHOULD BE DISREGARDED IN COMPUTING ASSESSMENT OF THE ASSESSAB LE PROFITS. IT WAS HELD THAT IT WAS NOT A MUTUAL ASSOCIATION WHOSE TRA NSACTIONS WERE INCAPABLE OF PRODUCING A PROFIT; THAT IT CARRIED ON A TRADE AND THE ENTRANCE FEE PAID BY MEMBERS OUGHT TO BE INCLUDED I N THE ASSOCIATION'S RECEIPTS FOR PURPOSES OF COMPUTING THE PROFIT. ROWL ATT, J., SAID AT PAGE 121: 'I DO NOT SEE WHY THAT AMOUNT IS NOT A PROFIT. THE COMPANY HAS A CAPITAL UPON WHICH DIVIDENDS MAY BE EARNED, AND THE COMPANY HAS ASSETS WHICH CAN BE USED FOR THE PURPOSE OF OBT AINING PAYMENTS FROM ITS MEMBERS FOR THE ADVANTAGES OF SUC H USE, AND ONE IS TEMPTED TO ASK WHY A PROFIT IS NOT SO MADE E XACTLY ON THE SAME FOOTING AS A PROFIT IS MADE BY A RAILWAY COMPA NY WHO ISSUES A TRAVELLING TICKET AT A PRICE TO ONE OF ITS OWN SH AREHOLDERS, OR AT ANY RATE AS MUCH A PROFIT AS A PROFIT MADE BY A COM PANY FROM A DEALING WITH ITS OWN SHAREHOLDERS IN A LINE OF BUSI NESS WHICH IS RESTRICTED TO THE SHAREHOLDERS.' IN COMMISSIONER OF INCOME-TAX V. ROYAL WESTERN INDI A TURF CLUB LTD. [1953] 24 ITR 551 . THIS COURT REJECTED THE APPLICABILITY OF THE PRINCIPLE OF MUTUALITY BECAUSE THERE WAS NO MUTUAL DEALING BETWEEN MEMBERS INTER SE. THERE WAS NO PUTTING UP A COMMON FUND FOR DISCHARGING A COMMON OBLIGATION UNDERTAKEN BY THE C ONTRIBUTORS FOR THEIR MUTUAL BENEFIT AND FOR THIS REASON THE CASE DECIDED BY THE HOUSE OF LORDS IN STYLES V. NEW YORK LIFE INSURANCE COMPANY [1889] 2 TAX CAS. 460 WAS HELD NOT APPLICABLE. IN THE INSTANT CASE OF DELHI STOCK EXCHANGE ASSOCI ATION LIMITED IT WAS OBSERVED BY THE HONBLE SUPREME COURT THAT THE MEMO RANDUM OF ASSOCIATION SHOWS THAT THE OBJECT WITH WHICH THE COMPANY WAS FO RMED WAS TO PROMOTE AND REGULATE THE BUSINESS OF EXCHANGE OF STOCKS, SH ARES, DEBENTURES, ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 36 DEBENTURE STOCKS ETC. THE INCOME, IF ANY, WHICH ACC RUED FROM THE BUSINESS OF THE APPELLANT COMPANY WAS DISTRIBUTABLE AMONGST THE SHAREHOLDERS LIKE IN EVERY JOINT STOCK COMPANY. ACCORDING TO THE ARTICLE S OF ASSOCIATION THE MEMBERS INCLUDED SHAREHOLDERS AND MEMBERS OF THE EX CHANGE AND ACCORDING TO THE RULES AND BYE-LAWS OF THE APPELLANT COMPANY 'MEMBER' MEANS AN INDIVIDUAL, BODY OF INDIVIDUALS, FIRMS, COMPANIES, CORPORATIONS OR ANY CORPORATE BODY AS MAY BE ON THE LIST OF WORKING MEM BERS OF THE STOCK EXCHANGE FOR THE TIME BEING. IN THE ARTICLES OF ASS OCIATION, CLAUSES 7 AND 8, PROVISION WAS MADE FOR THE ELECTION OF MEMBERS BY T HE BOARD OF DIRECTORS AND RULES 9 AND 10 LAID DOWN THE PROCEDURE FOR THE ELEC TION OF THESE MEMBERS. THE ENTRANCE FEES WERE PAYABLE BY THE TRADING MEMBERS E LECTED UNDER THE RULES AND BYE-LAWS OF THE ASSOCIATION, WHO ALONE WITH THE IR ASSOCIATES, COULD TRANSACT BUSINESS IN STOCKS AND SHARES IN THE ASSOC IATION. THEREFORE, THE BODY OF TRADING MEMBERS WHO PAID THE ENTRANCE FEES, AND THE SHAREHOLDERS AMONG WHOM THE PROFITS WERE DISTRIBUTED WERE NOT IDENTICA L AND THUS THE ELEMENT OF MUTUALITY WAS LACKING. IT IS THE NATURE OF THE BUSI NESS OF THE COMPANY AND THE PROFITS AND THE DISTRIBUTION THEREOF WHICH ARE THE DETERMINING FACTORS AND IN THIS CASE IT HAS NOT BEEN SHOWN THAT THE APPELLA NT'S BUSINESS WAS IN ANY WAY DIFFERENT FROM THAT WHICH WAS CARRIED ON IN THE CASE REPORTED AS LIVERPOOL CORN TRADE ASSOCIATION V. MONKS [1962] 2 KB 110 . THUS, THE HONBLE SUPREME COURT APPROVED THE JUDGME NT OF HONBLE HIGH COURT AND HELD THAT THE MEMBERSHIP ADMISSION F EE PAID BY THE MEMBERS FOR THEIR OWN ADMISSION AS WELL ADMISSION O F THEIR AUTHORISED ASSISTANTS IS EXIGIBLE TO TAX UNDER THE ACT OF 1922 . (D) THE NEXT JUDGMENT IS CIT V. W.I.A.A. CLUB LIMIT ED (1982) 136 ITR 569(BOM.HC) DECIDED BY HONBLE BOMBAY HIGH COURT. I N THIS REFERENCE WHICH WAS MADE AT THE INSTANCE OF REVENUE, THE TAX-PAYER WAS A CLUB WHICH WAS INCORPORATED UNDER THE INDIAN COMPANIES ACT ON 10-0 9-1947. IT WAS AN ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 37 UNDISPUTED POSITION THAT THE TAX-PAYER CLUB WAS A T RADING COMPANY. THE CLUB HAS SIX CATEGORIES OF MEMBERS (A) HONORARY MEMBERS, (B)LIFE MEMBERS, (C) ORDINARY MEMBERS, (D) TEMPORARY MEMBERS,(E) SERVICE MEMBERS,(F) ASSOCIATE MEMBERS. UNDER THE ARTICLES OF ASSOCIATION, THE ENT RANCE FEE WERE PAYABLE BY THE LIFE MEMBERS AND ORDINARY MEMBERS OF SUCH AMOUN T AS DETERMINED BY EXECUTIVE COMMITTEE. DURING THE IMPUGNED ASSESSMENT YEAR, THE ENTRANCE FEE PAYABLE FOR LIFE MEMBERS WAS RS.2,500/- AND THE ENT RANCE FEE PAYABLE FOR ORDINARY MEMBER WAS RS.500/-. AN ORDINARY MEMBER CA N BECOME A LIFE MEMBER ON PAYMENT OF FEES PRESCRIBED FOR LIFE MEMBE RS . AN ORDINARY MEMBER HAS TO PAY AN ANNUAL SUBSCRIPTION IN ADVANCE ON ELE CTION AND ON THE 1ST DAY OF APRIL IN EACH YEAR THEREAFTER. LIFE MEMBERS, SER VICE MEMBERS AND TEMPORARY MEMBERS ARE, HOWEVER, NOT LIABLE TO PAY A NY ANNUAL SUBSCRIPTION UNDER ARTICLE 38. UNDER THE ARTICLES, TEMPORARY, HO NORARY, SERVICE AND ASSOCIATE MEMBERS ARE SUBJECT TO THE MEMORANDUM AND ARTICLES OF ASSOCIATION AND THE RULES AND BYE-LAWS OF THE CLUB FOR THE TIME BEING IN FORCE, BUT THEY ARE NOT ENTITLED TO RECEIVE NOTICE OF OR T O ATTEND OR TO VOTE AT THE GENERAL MEETING OF THE CLUB OR TO BE ELECTED MEMBER S OF THE EXECUTIVE COMMITTEE OF THE CLUB OR OF ANY SUB-COMMITTEE OF TH E CLUB OR TO STAND FOR ELECTION OR TO HOLD ANY OFFICE OF THE CLUB OR TO PA RTICIPATE IN THE DISTRIBUTION OF ANY ASSETS OF THE CLUB. GENERALLY, THE RIGHTS OF TH E LIFE MEMBERS AND THE ORDINARY MEMBERS, SO FAR AS THE ENJOYMENT OF THE FA CILITIES PROVIDED BY THE CLUB ARE CONCERNED, ARE THE SAME, THOUGH THERE IS S OME DIFFERENCE BETWEEN THEIR RIGHTS IN RELATION TO THE SHARE IN THE PROPER TY OF THE CLUB IN THE CASE OF WINDING-UP OR DISSOLUTION OF THE CLUB. A LIFE MEMBE R HAS AN EQUAL SHARE IN THE PROPERTY OF THE CLUB IRRESPECTIVE OF THE PERIOD FOR WHICH HE HAS BEEN A LIFE MEMBER, WHILE AN ORDINARY MEMBER IS ELIGIBLE FOR TH E SHARE IN THE CLUB PROPERTY ONLY IF HE HAS BEEN A MEMBER OF NOT LESS T HAN FIVE YEARS' STANDING. UNDER THE BYE-LAWS THE CLUB PROVIDES SEVERAL FACILI TIES AND THE MEMBERS ARE ENTITLED TO USE THE CLUB HOUSE AND TO BRING GUESTS WITH THEM. THERE ARE FACILITIES FOR ACCOMMODATION IN THE CLUB'S RESIDENT IAL ROOM ON A DAILY, WEEKLY ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 38 OR MONTHLY BASIS AVAILABLE TO ALL MEMBERS; SPORT FA CILITIES ARE ALSO PROVIDED FOR PLAYING TENNIS, BADMINTON, BILLIARDS; MEMBERS CAN A VAIL OF THE FACILITY OF THE CARD ROOM AND THE SWIMMING POOL. THESE ARE SOME OF THE FACILITIES PROVIDED BY THE CLUB. THE TAX-PAYER CLUB RECEIVED RS.2500 AS ENTRANCE FEE S FROM LIFE MEMBER, WHILE ENTRANCE FEE FROM ORDINARY MEMBER WAS RS.500.THE RE VENUE SPLIT THE ENTRANCE FEE RECEIVED FROM LIFE MEMBERS INTO TWO PA RT WHEREBY RS.500 WAS TREATED AS ENTRANCE FEE WHILE RS 2000 WAS TREATED A S CONSOLIDATED ANNUAL SUBSCRIPTION. THE COURT OBSERVED AS UNDER: COMING TO THE MAIN QUESTION, IN ORDER TO ARRIVE AT A PROPER DECISION OF THE QUESTION REFERRED TO US WE ARE REQUIRED TO CONS IDER THE REAL NATURE OF THE PAYMENT WHICH IS MADE BY A LIFE MEMBER ON ACCOU NT OF ENTRANCE FEES. IN ORDER TO DECIDE WHETHER THE ENTRANCE FEES PAID B Y A LIFE MEMBER SHOULD BE TREATED AS INCOME IN THE HANDS OF THE ASS ESSEE OR AS BEING IN THE NATURE OF A CAPITAL RECEIPT, NEITHER THE NOMENC LATURE USED BY THE ASSESSEE NOR THE MANNER IN WHICH THE RECEIPT HAS BE EN TREATED BY THE ASSESSEE FOR THE PURPOSES OF ITS ACCOUNTS WOULD BE CONCLUSIVE. THE ARTICLES OF ASSOCIATION OF THE ASSESSEE NO DOUBT PR OVIDE FOR DIFFERENT CATEGORIES OF MEMBERS. OUT OF THESE CATEGORIES OF M EMBERS, WE MUST LEAVE OUT OF CONSIDERATION THE HONORARY MEMBERS WHO ARE NOT REQUIRED TO PAY ANY ENTRANCE FEES OR SUBSCRIPTION. IT IS WELL K NOWN THAT WHEN A BODY LIKE A CLUB ELECTS AN HONORARY MEMBER, THAT IS DONE BY WAY OF HONOUR MORE TO THE CLUB THAN TO CONFER ANY ADDITIONAL BENE FIT ON THE MEMBER HIMSELF. NORMALLY, A CLUB WANTS TO BE PROUD OF HAVI NG SOME PROMINENT AND DISTINGUISHED PERSONS AS ITS MEMBERS AND THAT I S THE SOLE CONSIDERATION FOR ELECTING A PERSON AS AN HONORARY MEMBER. LIFE MEMBERS, SERVICE MEMBERS AND TEMPORARY MEMBERS ARE NOT LIABLE TO PAY ANY ANNUAL SUBSCRIPTION AND THE LIABILITY TO PAY AN NUAL SUBSCRIPTION IS ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 39 ONLY ON THE ORDINARY MEMBERS. IN ADDITION TO THE AN NUAL SUBSCRIPTION, THE ORDINARY MEMBERS, WHO ARE ORDINARILY RESIDENT WITHI N THE LOCAL AREA, HAVE TO PAY ANNUALLY, IN ADVANCE, A LOCAL SUBSCRIPT ION OF SUCH AMOUNT AS MAY FROM TIME TO TIME BE DETERMINED BY THE EXECUTIV E COMMITTEE. THE TEMPORARY MEMBERS, SERVICE MEMBERS AND ASSOCIATE ME MBERS FORM, BY THE VERY NATURE OF THE INCIDENTS OF THEIR MEMBERSHI P, AN INDEPENDENT CLASS OF PERSONS WHO ARE NOT ENTITLED TO TAKE PART IN THE MANAGEMENT OF THE CLUB THOUGH, IN OTHER RESPECTS, ALL OF THEM ARE ENTITLED TO ENJOY THE SAME PRIVILEGES AS OTHER MEMBERS. THEIR MEMBERSHIP IS ENTIRELY OF A TEMPORARY NATURE AND ITS DURATION IS CONTROLLED BY THE APPROPRIATE ARTICLES. THEY CANNOT, THEREFORE, BE COMPARED WITH EITHER LIFE MEMBERS OR ORDINARY MEMBERS. IF A PERSON WANTS TO AVAIL OF THE FACILITIES AFFORDED BY A CLUB AND EXERCISE THE RIGHTS WHICH ARE AVAILABLE TO AN ORDINARY MEMBER, HE HAS TO PAY AN ENTRANCE FEE PLUS AN ANNUA L SUBSCRIPTION IF HE WANTS TO BECOME AN ORDINARY MEMBER. IF A PERSON WAN TS TO BECOME A LIFE MEMBER, HE PAYS AN AMOUNT WHICH IS STYLED AS ENTRAN CE FEES WHICH COMPARATIVELY IS A MUCH LARGER AMOUNT THAN THE ENTR ANCE FEES PAID BY ORDINARY MEMBERS. THE ONLY EFFECT OF THE LIFE MEMBE RS PAYING THE ENTRANCE FEES AT A LARGER AMOUNT IS THAT THEY ARE R ELIEVED OF THEIR RECURRING LIABILITY TO PAY THE ANNUAL SUBSCRIPTION YEAR AFTER YEAR. IT IS OBVIOUS THAT THE LIFE MEMBERS ARE NOT REQUIRED TO P AY THE ANNUAL SUBSCRIPTION YEAR AFTER YEAR BECAUSE THEY HAVE ALRE ADY PAID A LARGE AMOUNT WHICH WAS STYLED AS ENTRANCE FEES. NOW, IF W E COMPARE THE RIGHTS AND PRIVILEGES OF THE LIFE MEMBERS AND THE O RDINARY MEMBERS, THERE IS HARDLY ANY SUBSTANTIAL DIFFERENCE BETWEEN THE TW O, AND, AS ALREADY POINTED OUT, THE ONLY SUBSTANTIAL DIFFERENCE BETWEE N THE TWO CLASSES OF MEMBERS IS THAT THERE IS NO LIABILITY TO PAY ANNUAL SUBSCRIPTION IN THE CASE OF LIFE MEMBERS. IF THE RIGHTS AND PRIVILEGES WHICH ARE ENJOYED BY THE LIFE MEMBERS AND THE ORDINARY MEMBERS ARE THE S AME AND IF FOR THE PURPOSES OF ENJOYING THESE RIGHTS AND PRIVILEGES TH E ORDINARY MEMBER HAS ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 40 TO PAY NOT ONLY AN ENTRANCE FEE BUT ALSO AN ANNUAL SUBSCRIPTION, IT IS OBVIOUS THAT WHEN THE ARTICLES OF ASSOCIATION OF TH E ASSESSEE-CLUB REQUIRED THE LIFE MEMBERS TO PAY A LARGER AMOUNT WH ICH WAS DESCRIBED AS ENTRANCE FEES, IT WAS INTENDED TO COMMUTE THE AM OUNT OF ANNUAL SUBSCRIPTION WHICH A MEMBER WOULD OTHERWISE BE REQU IRED TO PAY. THE AMOUNT WHICH IS PAID BY LIFE MEMBERS AND IS STYLED AS ENTRANCE FEES HAS, IN OUR VIEW, OBVIOUSLY TWO ELEMENTS IN IT. A P ART OF THE AMOUNT PAID PARTAKES OF THE NATURE OF ENTRANCE FEES WHICH IS A FEE PAID TO THE CLUB WITH A VIEW TO ACQUIRE THE RIGHT TO AVAIL OF THE SE RVICES AND THE FACILITIES MADE AVAILABLE TO THE CLUB ON ANNUAL SUBSCRIPTION A ND OTHER RIGHTS PROVIDED UNDER THE ARTICLES AND THE BYE-LAWS. THE O THER PART OF THE AMOUNT IS A CONSOLIDATED COMMUTED PAYMENT IN LIEU O F THE ANNUAL SUBSCRIPTION WHICH A MEMBER WOULD OTHERWISE BE REQU IRED TO PAY. IT IS DIFFICULT TO IMAGINE THAT THOSE WHO FOUNDED THE CLU B AND FRAMED THE ARTICLES OF ASSOCIATION COULD HAVE INTENDED THAT WH ILE ORDINARY MEMBERS WOULD BE ALLOWED TO EXERCISE MEMBER'S RIGHTS AND AV AIL OF THE FACILITIES AVAILABLE IN THE CLUB ON PAYMENT OF THE ANNUAL SUBS CRIPTION, THE SAME FACILITIES WOULD BE AVAILABLE TO THE LIFE MEMBERS F REE OF ANY COST AND IT APPEARS OBVIOUS TO US THAT THE ENTRANCE FEES INCLUD ES WITHIN IT A COMPOUNDED PAYMENT IN LIEU OF THE ANNUAL SUBSCRIPTI ON WHICH A MEMBER WOULD HAVE BEEN REQUIRED TO PAY AS AN ORDINARY MEMB ER. WE HAVE, THEREFORE, NO DOUBT IN OUR MIND THAT IN THE CASE OF LIFE MEMBERS WHEN THE ENTRANCE FEE IS PAID, IT IS A CONSOLIDATED AMOUNT, PART OF WHICH MUST BE TREATED AS ENTRANCE FEES AND PART OF IT AS A COMPOU NDED PAYMENT IN LIEU OF THE RECURRING PAYMENTS TO BE MADE ANNUALLY IN TH E NATURE OF ANNUAL SUBSCRIPTIONS. WHEN THE AMOUNT PAID BY A LIFE MEMBER, WHICH IS STY LED AS ENTRANCE FEE, IS SO SPLIT, IT WILL NOT BE CORRECT TO SAY THAT THI S WOULD RESULT IN REWRITING ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 41 THE CONSTITUTION OR ARTICLES OF ASSOCIATION OF THE ASSESSEE. AS ALREADY POINTED OUT, THE REAL QUESTION WHICH HAS TO BE DETE RMINED IS THE NATURE OF THE RECEIPT IN THE HANDS OF THE ASSESSEE AND IF A D ISCUSSION OF THE NATURE OF THE RECEIPT IS NOT FORECLOSED BY ANY NOMENCLATUR E ADOPTED BY THE ASSESSEE, IT WOULD BE PERFECTLY OPEN TO THE I.T. AU THORITIES TO SCRUTINISE THE NATURE OF THE RECEIPT AND TO CLASSIFY IT AS EIT HER CAPITAL RECEIPT OR A REVENUE RECEIPT OR PARTLY OF ONE KIND AND PARTLY OF ANOTHER. **** **** THE ARGUMENT THAT THERE IS NO APPARENT CONNECTION B ETWEEN THE COMPOUNDED PAYMENT AND THE LENGTH OF THE PERIOD FOR WHICH A LIFE MEMBER WOULD AVAIL OF THE FACILITIES OF THE CLUB AN D WOULD HAVE BEEN REQUIRED TO PAY THE ANNUAL SUBSCRIPTION AND, THEREF ORE, THERE WAS NO JUSTIFICATION FOR SPLITTING UP THE AMOUNT OF ENTRAN CE FEE DOES NOT, IN OUR VIEW, AFFECT THE CONCLUSION WHICH WE HAVE REACHED. IT CANNOT BE DISPUTED THAT IN A GIVEN CASE A PERSON MAY CONTINUE TO BE A LIFE MEMBER FOR A LONG TIME AND IF HE HAD BECOME AN ORDINARY MEMBER AND PA ID ANNUAL SUBSCRIPTION, THE CLUB WOULD HAVE RECEIVED A MUCH L ARGER AMOUNT BY WAY OF ANNUAL SUBSCRIPTION THAN WHAT WAS RECEIVED BY TH E CLUB BY WAY OF A CONSOLIDATED PAYMENT. SUCH UNCERTAINTIES ARE, HOWEV ER, INHERENT IN THE NATURE OF THE FEE THAT IS FIXED IN SUCH A CASE. THE POSSIBLE LENGTH OF THE PERIOD DURING WHICH A LIFE MEMBER WOULD TAKE ADVANT AGE OF THE FACILITIES OF THE CLUB CAN NEVER BE PREDICTED WITH ANY CERTAIN TY. FINALISATION OF SUCH FEES IS FOUND TO HAVE AN ELEMENT OF ARBITRARINESS I N THEIR DETERMINATION. WHAT AMOUNT SHOULD BE FIXED BY WAY OF ENTRANCE FEES FOR LIFE MEMBERS WAS A MATTER SQUARELY WITHIN THE DISCRETION OF THE ASSESSEE. JUST AS, IN A GIVEN CASE, A PERSON MIGHT TAKE ADVANTAGE OF THE FA CILITIES OF THE CLUB FOR ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 42 A LONG PERIOD IT MAY ALSO BE THAT, IN A GIVEN CASE, A LIFE MEMBER MAY CEASE TO TAKE ADVANTAGE OF THE FACILITIES OF THE CL UB ONLY AFTER A VERY BRIEF PERIOD. THE CRUCIAL QUESTION IS WHETHER IT WAS INTE NDED THAT THE SERVICES WHICH HAD TO BE AVAILED OF BY ORDINARY MEMBERS ON T HE PAYMENT OF AN ANNUAL SUBSCRIPTION COULD BE AVAILED OF BY LIFE MEM BERS WITHOUT ANY CHARGE OR WAS SUCH CHARGE INTENDED TO BE RECOVERED IN A LUMP SUM AT THE BEGINNING ITSELF. WE ARE THUS MAINLY CONCERNED WITH THE CHARACTER OF THE PAYMENT AND IF THE CHARACTER IS SUCH THAT A PART OF IT IS IN LIEU OF RECURRING ANNUAL PAYMENTS, THEN THE POSSIBLE ADVANTAGE OR DIS ADVANTAGE EITHER TO THE MEMBER OR TO THE CLUB WOULD NOT AFFECT THE NATU RE OF THE PAYMENT. THAT BRINGS US TO THE SECOND ASPECT OF THE CASE ARG UED BY MR. JOSHI FOR THE REVENUE. ONCE A PART OF THE ENTRANCE FEES PAID BY A LIFE MEMBER IS HELD TO BE A COMPOUNDED PAYMENT FOR ANNUAL SUBSCRIP TIONS, THERE IS NO DIFFICULTY IN HOLDING THAT THAT PART OF IT WOULD BE INCOME IN THE HANDS OF THE ASSESSEE. SO FAR AS THE REMAINING AMOUNT IS CON CERNED, IT WOULD BE IN THE NATURE OF A CAPITAL RECEIPT OF THE ASSESSEE. WHAT IS, HOWEVER, ARGUED BY MR. JOSHI ON BEHALF OF THE REVENUE IS THA T EVEN THAT PART OF THE CONSOLIDATED AMOUNT OF ENTRANCE FEES WHICH COULD BE CLASSIFIED AS ENTRANCE FEES SHOULD BE TREATED AS INCOME. WE MUST FIRST DECIDE WHAT PART OF THE ENTRANCE FEES PAID BY A LIFE MEMBER SHO ULD BE TREATED AS A CAPITAL RECEIPT. NOW, SO FAR AS THE YEAR IN QUESTION IS CONCERNED, T HE ENTRANCE FEES FOR AN ORDINARY MEMBER PREVALENT WAS RS. 500. IT WOULD, TH EREFORE, BE REASONABLE, WHILE DISSECTING THE CONSOLIDATED ENTRA NCE FEES OF RS. 2,500 INTO ENTRANCE FEE AS SUCH AND A COMMUTED PAYMENT ON ACCOUNT OF ANNUAL SUBSCRIPTION, TO TREAT RS. 500 OUT OF RS. 2,500 AS ENTRANCE FEES AND THE REST OF IT IS IN THE NATURE OF A CONSOLIDATED PAYME NT BY WAY OF ANNUAL ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 43 SUBSCRIPTIONS AND, THEREFORE, AS INCOME. WITH REGAR D TO THIS ENTRANCE FEE OF RS. 500 IT IS CONTENDED THAT THIS MUST ALSO BE T REATED AS INCOME IN THE HANDS OF THE ASSESSEE AND OUR ATTENTION HAS BEEN IN VITED TO A PASSAGE FROM HALSBURY'S LAWS OF ENGLAND, 3RD EDN., VOL. 20, PARA. 8, UNDER PT. 1, SEC. 1, AT P. 13. IT READS AS FOLLOWS: 'FACTORS CONSIDERED IN DETERMINING QUALITY OF RECEI PT.IN THE DECIDED CASES THE COURTS HAVE HAD REGARD TO VARIOUS FACTORS IN DETERMINING WHETHER THE PROPER NATURE OF AN ITEM OF RECEIPT IS INCOME. IF AN ITEM RECURS OR IS LIKELY TO RECUR ANN UALLY OR REPEATEDLY TO FORM A SERIES, THAT IS AN INDICATION OF ITS QUAL ITY OF INCOME.' MR. JOSHI CONTENDED THAT ENTRANCE FEE IS IN THE NAT URE OF A RECURRING RECEIPT IN THE HANDS OF THE ASSESSEE AND SINCE ENTR ANCE FEE IS RECEIVED FROM TIME TO TIME, THE TEST LAID DOWN ABOVE IS SATI SFIED. NOW, IT IS IMPORTANT TO BEAR IN MIND THAT THOUGH EN TRANCE FEE IS RECEIVED BY THE ASSESSEE FROM TIME TO TIME, IT IS RECEIVED F ROM DIFFERENT PERSONS AND IT IS NOT ONE OF THOSE PAYMENTS WHICH ARE MADE BY THE SAME PERSON BY VIRTUE OF ANY RECURRING LIABILITY. ENTRANCE FEE IS PAID BY A MEMBER ONLY ONCE AND IT IS THIS PAYMENT WHICH HAS TO BE CONSIDE RED WHETHER IT IS IN THE NATURE OF INCOME OR A CAPITAL RECEIPT. IF WE LO OK AT THE ARTICLES OF ASSOCIATION OF THE ASSESSEE-CLUB, IT IS CLEAR THAT IN ORDER TO AVAIL OF THE RIGHTS OF A MEMBER AND THE FACILITIES AND THE SERVI CES PROVIDED BY THE ASSESSEE-CLUB, IT IS NOT ENOUGH FOR A PERSON MERELY TO PAY THE ANNUAL SUBSCRIPTION. AS A MATTER OF FACT A PERSON CANNOT E XERCISE THE RIGHTS AND PRIVILEGES OF A MEMBER MERELY BY VOLUNTEERING TO PA Y THE ANNUAL SUBSCRIPTION. WHAT A MEMBER HAS TO ACQUIRE FIRST IS THE RIGHT OF MEMBERSHIP OF THE CLUB. A PERSON HAS FIRST TO GET E LECTED AS A LIFE OR ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 44 ORDINARY MEMBER, AS THE CASE MAY BE, IN THE MANNER PROVIDED IN THE ARTICLES OF ASSOCIATION. IT IS ONLY AFTER A PERSON IS ELECTED THAT HE IS REQUIRED TO PAY THE SUBSCRIPTION AND ENTRANCE FEE W ITHIN FOURTEEN DAYS OF NOTICE OF HIS ELECTION UNDER ARTICLE 31. THE ACQUIS ITION OF RIGHT AS AN ORDINARY MEMBER IS DONE BY THE PAYMENT OF THE ENTRA NCE FEE OF RS. 500 IN THE RELEVANT ASSESSMENT YEARS. IN LIEU OF THIS P AYMENT OF THE ENTRANCE FEE, A MEMBER DOES NOT GET ANY RETURN IN THE FORM O F ANY SERVICES OR AMENITIES. ALL THAT HE GETS IS A RIGHT TO AVAIL OF THE AMENITIES OR FACILITIES PROVIDED BY THE CLUB ON A PAYMENT OF THE ANNUAL SUB SCRIPTION. THIS RIGHT CAN BE EXERCISED BY HIM AS LONG AS THE MEMBERSHIP I S NOT DETERMINED AS PROVIDED BY ARTICLE 44. THIS RECEIPT OF RS. 500 REC EIVED BY THE CLUB IS A RETURN FOR VESTING A RIGHT OF MEMBERSHIP IN THE MEM BER AND, THEREFORE, IN OUR VIEW, THE ENTRANCE FEE WOULD CLEARLY BE IN THE NATURE OF A CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEE. MR. JOSHI HAS HEAVILY RELIED ON THE DECISION IN LIV ERPOOL CORN TRADE ASSOCIATION LTD. V. MONKS [1926] 10 TC 442 (KB). TH E QUESTION THERE WAS WHETHER THE LIVERPOOL CORN TRADE ASSOCIATION LTD. W AS A MUTUAL ASSOCIATION OR WAS A TRADING COMPANY. THE ASSOCIATI ON, WHICH WAS A LIMITED COMPANY UNDER THE COMPANIES ACT, WAS FORMED FOR THE PURPOSE OF PROTECTING THE INTERESTS OF THE CORN TRADE AND FOR PROVIDING A CLEARING HOUSE, A MARKET, AN EXCHANGE AND ARBITRATION AND OT HER FACILITIES FOR THE PERSONS ENGAGED IN THAT TRADE. MEMBERSHIP OF THE AS SOCIATION WAS CONFINED TO PERSONS ENGAGED IN THE CORN TRADE AS PR INCIPALS. EACH MEMBER HAD TO ACQUIRE ONE SHARE (OF 150 NOMINAL V ALUE) IN THE COMPANY AND HAD TO PAY AN ENTRANCE FEE AND AN ANNUA L SUBSCRIPTION. NON-MEMBERS COULD ALSO BECOME SUBSCRIBERS. PAYMENTS WERE MADE TO THE ASSOCIATION BY MEMBERS AND OTHERS FOR SERVICES RENDERED THROUGH THE CLEARING HOUSE, ETC. THE ASSOCIATION HAD THE POWER TO DECLARE A DIVIDEND ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 45 OUT OF ITS PROFITS, THOUGH IT HAD NOT DONE SO SINCE 1906. THE ASSOCIATION HAD BEEN ASSESSED TO INCOME-TAX ON THE EXCESS OF RE CEIPTS OVER ITS EXPENDITURE. THE ASSOCIATION HAD CONTENDED BEFORE T HE SPECIAL COMMISSIONERS THAT IT DID NOT CARRY ON A TRADE, ETC ., THE PROFITS OF WHICH WERE ASSESSABLE UNDER CASE I OF SCH. D AND THAT SO FAR AS CONCERNS TRANSACTIONS WITH ITS MEMBERS, THE ASSOCIATION WAS A MUTUAL ONE, AND THAT ANY SURPLUS ARISING FROM SUCH TRANSACTIONS WAS NOT A PROFIT ASSESSABLE TO INCOME-TAX. THE SPECIAL COMMISSIONERS CONFIRMED THE ASSESSMENTS. ON A CASE BEING STATED FOR THE OPINION OF THE KING'S BENCH DIVISION OF THE HIGH COURT, ROWLATT J. HELD THAT AN Y PROFIT ARISING FROM THE ASSOCIATION'S TRANSACTIONS WITH MEMBERS WAS ASSESSA BLE TO INCOME-TAX AS PART OF THE PROFITS UNDER CASE I OF SCH. D AND T HAT THE ENTRANCE FEES AND SUBSCRIPTIONS RECEIVED FROM MEMBERS MUST BE INC LUDED IN THE COMPUTATION OF SUCH PROFITS. ROWLATT J. MADE THE FO LLOWING OBSERVATIONS ON WHICH MR. JOSHI RELIED (P. 453): 'BUT IN A CASE OF THIS KIND, WHERE THERE IS A SHARE CAPITAL, WITH A CHANCE OF DIVIDENDS, A CHANCE OF A RIGHT TO DIVIDEN DS IF DECLARED, UPON THE SHARE CAPITAL, AND TO ONE SIDE OF THAT A D EALING WITH PEOPLE WHO HAPPEN TO BE THE OWNERS OF THE SHARE CAP ITAL, AFFORDING BENEFITS TO THOSE PEOPLE ONE BY ONE INDIVIDUALLY, F OR WHICH THEY PAY MONEY BY WAY OF SUBSCRIPTIONS AND BY WAY OF ENT RANCE FEES AS A SORT OF OVERRIDING SUBSCRIPTION, IF I MAY USE THAT WORD, WHICH OPENS THE DOOR TO SUBSCRIPTIONS, THERE IS NO REASON AT ALL FOR SAYING THAT YOU ARE TO NEGLECT THE INCORPORATION, OR THAT YOU CAN REGARD OTHERWISE THAN AS PROFITS THE DIFFERENCE WHICH IS O BTAINED BY DEALINGS BETWEEN THAT CORPORATION AND PEOPLE WHO HA PPEN TO BE ITS MEMBERS.' ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 46 ACCORDING TO MR. JOSHI, ROWLATT J. HAS DESCRIBED TH E ENTRANCE FEE AS A SORT OF OVERRIDING SUBSCRIPTION AND, THEREFORE, ACC ORDING TO HIM, THE ENTRANCE FEE MUST BE TREATED ON THE SAME FOOTING AS SUBSCRIPTION. SINCE SUBSCRIPTION WAS A PART OF THE INCOME OF THE ASSESS EE, THE OVERRIDING SUBSCRIPTION ALSO, ACCORDING TO MR. JOSHI, MUST BE TREATED SIMILARLY. NOW, THERE IS NO DOUBT THAT THE ENTRANCE FEE HAS BE EN DESCRIBED BY ROWLATT J. AS 'AS A SORT OF OVERRIDING SUBSCRIPTION '. WHAT HAS, HOWEVER, TO BE BORNE IN MIND IS THAT THERE IS NO REASONING I N THE JUDGMENT AS TO WHY THE ENTRANCE FEE AND THE SUBSCRIPTION WERE TREA TED AS HAVING THE SAME CHARACTER OF PAYMENT. IT MUST ALSO BE APPRECIA TED THAT THE MAIN QUESTION WHICH FELL FOR DETERMINATION BEFORE ROWLAT T J. WAS WHETHER THE ASSOCIATION IN QUESTION WAS A MUTUAL ASSOCIATION OR IT WAS A TRADING COMPANY AND THE QUESTION WAS WHETHER THE PROFITS OB TAINED AS A RESULT OF DEALINGS BETWEEN THE CORPORATION AND ITS MEMBERS SHOULD BE REGARDED AS PROFITS AS SUCH. THE DECISION SEEMS TO HAVE PROC EEDED ON THE FOOTING THAT THE ASSOCIATION MAY PROFIT FROM RECEIVING THE ENTRANCE FEE AND THE SUBSCRIPTION FOR THE VARIOUS FACILITIES AS WILL BE CLEAR FROM THE MANNER IN WHICH THE CASE HAS BEEN APPROACHED IN THE FOLLOWING PARAGRAPH (P. 452): 'NOW, THE QUESTION IS HERE, WHETHER, SO FAR AS THIS COMPANY MAKES A PROFIT OUT OF WHAT THE MEMBERS PAY TO IT, THAT IS TAXABLE INCOME OF THE BUSINESS WHICH THEY UNDOUBTEDLY CARRY ON. THAT ALLEGED PROFIT CONSISTS OF THE AMOUNT BY WHICH THE ENTRANCE FEES O F THE MEMBERS AND THEIR SUBSCRIPTIONS FOR THE VARIOUS FACILITIES, IF I MAY USE THAT GENERAL WORD, EXCEED THE AMOUNT WHICH IS TO BE TAKE N TO BE THE COST OF KEEPING UP THE BUILDINGS AND AFFORDING THE FACILITIES.' ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 47 THE JUDGMENT IN LIVERPOOL CORN TRADE ASSOCIATION'S CASE [1926] 10 TC 442 (KB) DOES NOT INDICATE THAT IT WAS EVER DISPUTE D IN THAT CASE THAT THE ENTRANCE FEES CONSTITUTED THE INCOME OF THE ASSOCIA TION. THAT DECISION CANNOT, WITH RESPECT, BE TAKEN AS AN AUTHORITY LAYI NG DOWN THAT THE ENTRANCE FEES AND THE ANNUAL SUBSCRIPTION MUST ALWA YS BE TREATED ON THE SAME FOOTING FOR THE PURPOSE OF DECIDING WHETHER TH E ENTRANCE FEES COULD BE TREATED AS INCOME OR NOT. WE ARE, THEREFORE, INCLINED TO TAKE THE VIEW THAT T HE AMOUNT OF RS. 2,500 WHICH IS DESCRIBED AS ENTRANCE FEES PAID BY A LIFE MEMBER MUST BE DISSECTED AND A SUM OF RS. 500 OUT OF THE TOTAL AMO UNT PAID BY WAY OF ENTRANCE FEES BY A LIFE MEMBER, MUST BE TREATED AS A CAPITAL RECEIPT AND THE BALANCE MUST BE TREATED AS INCOME. CONSEQUENTLY, FOR THE YEARS 1963-64 AND 1964-65 WHE N THE ENTRANCE FEES FOR LIFE MEMBERS WAS RS. 2,500 AND THE ENTRANC E FEES FOR ORDINARY MEMBERS WAS RS. 500 AN AMOUNT OF RS. 500 OUT OF THE ENTRANCE FEES PAID BY A LIFE MEMBER WILL HAVE TO BE TREATED AS A CAPIT AL RECEIPT IN THE HANDS OF THE ASSESSEE AND RS. 2,000 AS INCOME OF THE ASSE SSEE. **** **** ACCORDINGLY, THE QUESTION REFERRED TO US IS ANSWERE D AS FOLLOWS: IN RESPECT OF THE ASSESSMENT YEARS 1963-64 AND 1964 -65, OUT OF THE AMOUNTS RECEIVED ON ACCOUNT OF ENTRANCE FEE FROM LI FE MEMBERS, RS. 500 SHOULD BE TREATED AS A CAPITAL RECEIPT AND THE BALANCE OF RS. 2,000 SHOULD BE TREATED AS THE INCOME OF THE ASSESSEE. IN CASE AN ORDINARY MEMBER BECOMES A LIFE MEMBER ON PAYMENT OF RS. 2,00 0, THE ENTIRE ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 48 AMOUNT OF RS. 2,000 SHOULD BE TREATED AS THE INCOME OF THE ASSESSEE. ***** ****. (D) THE NEXT JUDGMENT IS OF HONBLE PATNA HIGH COUR T IN THE CASE OF CIT V. UNITED CLUBS (1986) 161 ITR 853(PATNA HC). THE STAT EMENT OF THE CASE WAS SUBMITTED BY ITAT U/S. 256(1) OF THE ACT OF 1961 RE FERRING THE FOLLOWING QUESTION OF LAW FOR THE OPINION OF THE COURT : WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ENTRANCE FEE RECEIVED BY THE CLUB AT THE TIME OF EN TRANCE OF THE NEW MEMBERS IS A RECEIPT OF REVENUE NATURE AND IS CHARG EABLE TO TAX IN THE HANDS OF THE CLUB? THE RELEVANT FACTS OF THE CASE ARE THAT THE TAXPAYE R IS A CLUB IN JAMSHEDPUR OFFERING VARIOUS RECREATIONAL FACILITIES TO ITS MEM BERS. THE CLUB RECEIPTS CONSTITUTED IN THE SHAPE OF MEMBERSHIP FEE FROM ITS MEMBERS AND IT DERIVES INCOME FROM BAR AND RESTAURANT AND OTHER CONNECTED ACTIVITIES. THE CLUB RECEIVED RS.25,050/- WHICH REPRESENTED ENTRANCE FEE S RECEIVED FROM ITS NEW MEMBERS DURING ASSESSMENT YEAR 1966-67 WHICH WAS IN CLUDED BY THE REVENUE IN THE INCOME COMPUTED OF THE CLUB UNDER TH E ACT. THE TAX-PAYER CLUB DIRECTLY CAPITALISED THE SAID ENTRANCE FEES IN THE BALANCE SHEET. ON APPEAL BEFORE THE AAC , IT WAS NOTED BY THE AAC THA T THE INITIAL ADMISSION FEES CONFERRED THE RIGHT OF MEMBERSHIP BUT DID NOT ENTITLE THE MEMBER TO PARTICIPATE WITHOUT PAYING MONTHLY SUBSCRIPTION. TH E AAC HELD THAT THIS FEE WAS IN NATURE OF SHARE CAPITAL OF THE COMPANY AND W AS A CAPITAL RECEIPT IN THE HANDS OF CLUB NOT EXIGIBLE TO TAX. THE TRIBUNAL ON APPEAL HELD IT TO BE CAPITAL RECEIPT FOLLOWING ITS OWN DECISION IN ITA NO. 1653 TO 1655(PATNA) OF 1972-73 DATED 10-12-1973 IN THE CASE OF BELDIH CLUB OF JAMS HEDPUR. ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 49 THE HONBLE PATNA HIGH OBSERVED THAT THE ASSESSEE-C LUB IS OFFERING VARIOUS RECREATIONAL FACILITIES TO ITS MEMBERS MOST OF WHOM ARE TATA EMPLOYEES. THE CLUB HAS PROVISION FOR GAMES LIKE TENNIS, BADMINTON , TABLE-TENNIS, BASKET BALL, BILLIARDS ETC. BESIDE HAVING ITS OWN SWIMMING POOL , LIBRARY AND EXHIBITION OF FILM SHOWN IN THE CLUB. THE HONBLE HIGH COURT OBSE RVED THAT NOW UNDISPUTED AND SETTLED POSITION IS THAT THE ASSESS EE IS NOT EXEMPT ON THE BASIS OF MUTUALITY. THE REVENUE RELIED ON THE JUDGMENT OF THE HIGH COUR T OF JUSTICE (KINGS BENCH DIVISION) IN THE CASE OF LIVERPOOL CORN TRADE ASSOCIATION LIMITED V. MONKS (1926) 10 TC 442 (KB) TO CONTEND THAT IN THIS CASE THE APPELLANT- ASSOCIATION WAS INCORPORATED UNDER THE COMPANIES AC T, AS A LIMITED COMPANY WITH THE OBJECTS, INTER ALIA, OF PROTECTING THE INTERESTS OF THE CORN TRADE AND O F PROVIDING A CLEARING HOUSE, A MARKET, AN EXCHANGE, AND ARBITRATION AND OTHER FACILITIES FOR THE PERSONS ENGAGED IN THAT TRADE. M EMBERSHIP OF THE ASSOCIATION IS CONFINED TO THE PERSONS ENGAGED IN THAT TRADE. M EMBERSHIP OF THE ASSOCIATION IS CONFINED TO THE PERSONS ENGAGED IN T HE CORN TRADE AS PRINCIPALS. EACH MEMBER MUST ACQUIRE ONE SHARE OF 150 NOMINAL VALUE IN THE COMPANY, AND MUST PAY AN ENTRANCE FEE AND AN ANNUAL SUBSCRIPTION. NON- MEMBERS MAY ALSO BECOME SUBSCRIBERS. PAYMENTS ARE A LSO MADE TO THE ASSOCIATION BY MEMBERS AND OTHERS FOR SERVICES REND ERED THROUGH THE CLEARING HOUSE, ETC. THE ASSOCIATION HAS POWER TO DECLARE A DIVIDEND OUT OF ITS PROFITS BUT HAS NOT DONE SO SINCE THE YEAR 1906. THE ASSOCI ATION HAVING BEEN ASSESSED TO INCOME-TAX UNDER SCHEDULE D ON THE EXCE SS OF ITS RECEIPTS OVER ITS EXPENDITURE, APPEALED TO THE SPECIAL COMMISSIONER, CONTENDING, INTER ALIA, ( I ) THAT IT DID NOT CARRY ON A TRADE, ETC., THE PROFITS OF WHICH WERE ASSESSABLE UNDER CASE I OF SCHEDULE D, AND ( II ) THAT SO FAR AS CONCERN'S TRANSACTIONS WITH ITS MEMBERS, THE ASSOCIATION WAS A MUTUAL ONE AND THAT ANY SURPLUS ARISING FROM SUCH TRANSACTIONS WAS NOT A PROFIT ASSESSABLE TO INCOME-TAX. THE SPECIAL COMMISSIONER, HOWEVER, CONF IRMED THE ASSESSMENT. ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 50 IN THOSE CIRCUMSTANCES IT WAS HELD THAT ANY PROFIT ARISING FROM THE ASSOCIATION'S TRANSACTIONS WITH MEMBERS WAS ASSESSA BLE TO INCOME-TAX AS THE PART OF THE PROFITS OF ITS BUSINESS UNDER CASE I OF SCHEDULE D AND THAT THE ENTRANCE FEES AND SUBSCRIPTIONS RECEIVED FROM THE M EMBERS MUST BE INCLUDED IN THE COMPUTATION OF SUCH PROFITS. THUS, IT IS EVI DENT THAT IN VIEW OF THIS DECISION THE ENTRANCE FEES AND SUBSCRIPTION RECEIVE D FROM THE MEMBERS MUST BE INCLUDED IN THE COMPUTATION OF THE PROFITS OF TH E CLUB. THE REVENUE ALSO RELIED ON THE JUDGMENT IN THE CASE OF CIT V. CALCUTTA STOCK EXCHANGE ASSOCIATION LTD. [1959) 36 ITR 222(SC) WHICH IS A DECISION OF THEIR LORDSHIPS OF THE SUPREME COURT. IN THIS CASE THE AS SESSEE-CALCUTTA STOCK EXCHANGE CO. LTD. WAS A COMPANY FORMED TO FACILITAT E TRANSACTION OF BUSINESS ON THE CALCUTTA STOCK EXCHANGE UNDER ITS BYE-LAWS, MEMBERS WITH A CERTAIN STANDING WERE ALLOWED TO HAVE SIX AUTHORIZED ASSIST ANTS TO TRANSACT BUSINESS ON THE STOCK EXCHANGE IN THEIR NAMES AND ON THEIR B EHALF. MEMBERS APPOINTING SUCH ASSISTANTS HAD TO PAY AN ENTRANCE F EE FOR EACH ASSISTANT AND ALSO A PERIODICAL SUBSCRIPTION FOR CONTINUING THE S ERVICE OF SUCH ASSISTANTS IN ADDITION TO THE SUBSCRIPTION PAYABLE BY EACH MEMBER FOR HIS MEMBERSHIP, EVERY MEMBER WHO WISHED TO HAVE THE NAME OF ANY COM PANY INCLUDED IN THE QUOTATIONS LIST SO THAT ITS SHARES OR STOCK MAY BE PLACED ON THE STOCK MARKET, HAD TO MAKE AN APPLICATION IN THAT BEHALF WITH A FE E OF RS. 1,000. THE ASSESSEE RECEIVED DURING THE ACCOUNTING YEAR RS. 60 ,750 AS ENTRANCE FEES AND RS. 15,687 AS SUBSCRIPTION IN RESPECT OF THE AUTHOR IZED ASSISTANTS AND A SUM OF RS. 16,000 AS APPLICATION FEES FROM THE MEMBERS FOR INCLUDING NEW COMPANIES IN THE QUOTATIONS LIST. IN THOSE CIRCUMST ANCES IT WAS HELD THAT EACH OF THE AFORESAID SUMS OF MONEY ACCRUED TO THE ASSES SEE ON ACCOUNT OF ITS PERFORMING SPECIFIC SERVICES FOR ITS MEMBERS, THAT THESE SUMS WERE REMUNERATION DEFINITELY RELATED TO DISTINCT SERVICE S PERFORMED BY THE ASSESSEE FOR ITS MEMBERS OR SUCH OF THEM AS AVAILED THEMSELV ES OF SUCH SERVICES AND ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 51 THE SAME SUMS WERE, ACCORDINGLY, ASSESSABLE TO THE INCOME-TAX UNDER SECTION 10(6) OF THE ACT OF 1922 AS PROFITS AND GAINS DERIV ED FROM CARRYING ON BUSINESS. IT WAS ALSO HELD IN THIS DECISION THAT TH E WORDS 'PERFORMING SPECIFIC SERVICES' IN SECTION 10(6) OF THE ACT OF 1922 MEAN 'CONFERRING PARTICULAR BENEFITS', THAT IS, CONFERRING ON THE MEMBERS SOME TANGIBLE BENEFIT WHICH WOULD NOT BE AVAILABLE TO THEM UNLESS THEY PAID THE SPECIFIC FEES CHARGED FOR SUCH SPECIAL BENEFITS AND THAT THE WORD 'REMUNERATI ON' IS A TERM OF MUCH WIDER IMPORT THAN 'WAGES' AND INCLUDES 'RECOMPENSE' , 'REWARD' OR 'PAYMENT'.THUS, IT IS EVIDENT THAT THE AMOUNT OF RS . 60,750 RECEIVED FROM THE MEMBERS AS ENTRANCE FEES WERE HELD TO BE TAXABLE AS HELD BY HONBLE APEX COURT. THE REVENUE ALSO RELIED ON THE CASE OF DELHI STOCK EXCHANGE ASSOCIATION LTD. V. C1T [1961] 41 ITR 495(SC). THIS IS ALSO A DECISION OF T HEIR LORDSHIPS OF THE HONBLE SUPREME COURT. IN THIS CASE, THE APPELL ANT-COMPANY WAS FORMED WITH THE OBJECT OF PROMOTING AND REGULATING THE BUS INESS IN SHARES, STOCKS AND SECURITIES AND OF ESTABLISHING AND CONDUCTING T HE BUSINESS OF A STOCK EXCHANGE. ITS CAPITAL WAS RS. 5 LAKHS DIVIDED INTO 250 SHARES OF RS. 2,000 EACH ON WHICH DIVIDENDS COULD BE EARNED. THE COMPAN Y CHARGED FEES FOR THE ADMISSION OF MEMBERS AND THEIR AUTHORIZED ASSISTANT S. TRADING MEMBERS HAD TO BE ELECTED AND PAY ENTRANCE FEES AND THEY ALONE WITH THEIR AUTHORIZED ASSISTANTS, COULD TRANSACT BUSINESS IN STOCKS AND S HARES IN THE COMPANY. THE QUESTION WAS WHETHER THE ADMISSION FEES RECEIVED BY THE COMPANY FROM THE MEMBERS AND THE AUTHORIZED ASSISTANTS WERE TAXABLE IN THE HANDS OF THE COMPANY. IN THOSE CIRCUMSTANCES, IT WAS HELD BY THE IR LORDSHIPS OF THE SUPREME COURT THAT IT WAS NOT HOW THE ASSESSEE TREA TED ANY MONIES RECEIVED, BUT WHAT WAS THE NATURE OF THE RECEIPTS I N THE QUESTION THAT WAS DECISIVE OF THEIR TAXABILITY ; AND, THEREFORE, THE FACT THAT THE APPELLANT-COMPANY SHOWED THE ADMISSION FEES AS CAPI TAL IN ITS BOOKS WAS ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 52 NOT DECISIVE ON THE QUESTION OF THEIR TAXABILITY ; THAT THE AMOUNTS RECEIVED AS ADMISSION FEES FROM THE AUTHORIZED ASSI STANTS FELL WITHIN THE PRINCIPLE OF THE DECISION OF THE SUPREME COURT IN CALCUTTA STOCK EXCHANGE ASSOCIATION LTD.'S CASE ( SUPRA ) AND WERE TAXABLE ; AND THAT AS THE BODY OF TRADING MEMBERS WHO PAID THE ENTRANCE F EES AND THE SHAREHOLDERS AMONG WHOM THE PROFITS OF THE COMPANY WERE DISTRIBUTED WERE NOT IDENTICAL AND THE ELEMENT OF MUTUALITY WAS LACKING, THE COMPANY CARRIED ON A BUSINESS WHOSE PROFITS WERE TA XABLE AND, THEREFORE, THE ADMISSION FEES RECEIVED FROM MEMBERS WERE TAXAB LE IN ITS HANDS. IT APPEARS FROM THIS DECISION AT PAGES 496 AND 497 THA T THE TOTAL INCOME OF THE ASSESSEE FOR THE YEAR 1947-48 WAS RS. 29,363 OUT OF WHICH A SUM OF RS. 15,975 SHOWN AS ADMISSION FEES WAS DEDUCTED AND THE INCOME RETURN WAS RS. 13,388. IN THE PROFIT AND LOSS ACCOUNT OF THAT YEAR MEMBERS' ADMISSION FEES WERE SHOWN AS RS. 9,000 AND ON ACCOUNT OF THE AUTHO RIZED ASSISTANTS' ADMISSION FEES AS RS. 6,875. THE ITO WHO MADE THE A SSESSMENT FOR THE YEAR 1947-48 DISALLOWED THIS DEDUCTION. THE RETURN FOR T HE FOLLOWING YEAR ALSO WAS MADE ON A SIMILAR BASIS BUT THE RETURN FOR THE YEAR S 1949-50 AND 1950-51 DID NOT TAKE INTO ACCOUNT THE ADMISSION FEES RECEIV ED BUT IN THE DIRECTOR'S REPORT THE AMOUNTS SO RECEIVED WERE SHOWN AS HAVING BEEN TAKEN DIRECTLY INTO THE BALANCE SHEET. THE ITO, HOWEVER, DISALLOWED AND ADDED BACK THE AMOUNT SO RECEIVED TO THE INCOME RETURNED BY THE APPELLANT . THE TRIBUNAL ULTIMATELY DECIDED ALL THE APPEALS IN FAVOUR OF THE APPELLANT AND IT HELD THAT THE AMOUNTS RECEIVED AS ENTRANCE FEES WERE INTENDED TO BE AND W ERE IN FACT TREATED AS CAPITAL RECEIPTS AND WERE, THEREFORE, EXCLUDED FROM ASSESSMENT AND IT WAS ALSO HELD THAT AS THERE WAS NO REQUISITE PERIODICIT Y, THOSE AMOUNTS WERE NOT TAXABLE. THE QUESTION REFERRED TO THE HIGH COURT WA S AS FOLLOWS : 'WHETHER THE ADMISSION FEES OF THE MEMBERS OR AUTHO RIZED ASSISTANTS RECEIVED BY THE ASSESSEE IS TAXABLE INCOME IN ITS HANDS ?' ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 53 IN THOSE CIRCUMSTANCES THEIR LORDSHIPS OF THE HONB LE SUPREME COURT GAVE FINDINGS AS MENTIONED ABOVE. THEIR LORDSHIPS HAVE C LEARLY LAID DOWN THAT THE AMOUNTS WERE RECEIVED BY THE APPELLANT AS MEMBERSHI P ADMISSION FEES AND AS ADMISSION FEES PAID BY THE MEMBERS ON ACCOUNT OF AUTHORIZED ASSISTANTS AND THE MATTER RELATING TO THE MEMBERS' ADMISSION F EES HAD TO BE DECIDED IN ACCORDANCE WITH THE NATURE OF THE BUSINESS OF THE A PPELLANT-COMPANY, ITS MEMORANDUM AND ARTICLES OF ASSOCIATION AND THE RULE S MADE FOR THE CONDUCT OF BUSINESS. IT WAS OBSERVED BY HONBLE APEX COURT THAT IT IS NOT IN DISPUTE THAT THE INCOME OF THE ASSESSEE BEFORE THE COURT IS TAXABLE AND IS NOT EXEMPT ON THE GROUND OF MUTUALITY. IT WAS HELD THAT THIS C LEARLY MEANS THAT THE ASSESSEE-CLUB IS CARRYING ON BUSINESS AND IN VIEW O F THIS DECISION THE MEMBERS' ENTRANCE FEE IS TAXABLE AS INCOME OF THE A SSESSEE. THE ASSESSEE ON THE OTHER HAND RELIED ON THE DECISI ON OF PANGALNAYAK BANK LIMITED V. CIT (1964) 52 ITR 915(MYS.) WHICH IS DEC ISION OF HONBLE MYSORE HIGH COURT. IN THIS CASE THE ARTICLES OF ASSOCIATIO N OF A BANKING COMPANY CONTAINED A PROVISION THAT NO PERSON SHALL BE CONSI DERED AS A SHAREHOLDER UNTIL HE HAS PAID THE PRESCRIBED ENTRANCE FEE AND P REMIUM, IF ANY, FIXED PER SHARE. THE COMPANY RESOLVED TO ISSUE NEW SHARES AND COLLECTED A SUM OF RS. 10,000 AS ENTRANCE FEE AT THE RATE OF 8 ANNAS PER S HARE IN RESPECT OF NEW SHARES THAT WERE ISSUED AND IT WAS HELD THAT THE SU M OF RS. 10,000, THUS, COLLECTED WAS A CAPITAL RECEIPT AND NOT A REVENUE R ECEIPT AT ANY RATE IT WAS A CASUAL AND NON-RECURRING RECEIPT NOT ARISING FROM B USINESS CONTEMPLATED BY SECTION 4(3)( VII ) AND WAS NOT ASSESSABLE TO INCOME-TAX. IT WAS OBSE RVED BY HONBLE PATNA HIGH COURT THAT IN THIS CASE REFERENC E WAS MADE TO THE DECISION OF THE SUPREME COURT IN CALCUTTA STOCK EXCHANGE ASSOCIATION LTD.'S CASE ( SUPRA ) BUT REFERENCE WAS MADE ONLY TO THE AMOUNT OF RS. 16 ,000 WHICH WAS REALISED IN CONSIDERATION OF PUTTING THE NAMES OF C ERTAIN COMPANIES ON THE QUOTATION LIST, BUT NO REFERENCE WAS MADE OF RS. 60 ,750 AS ENTRANCE FEES FROM ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 54 THE MEMBERS WHICH WAS RECEIVED AS ENTRANCE FEES FOR THE AUTHORIZED ASSISTANTS. IN THIS CASE NO REFERENCE WAS MADE TO T HE DECISION IN DELHI STOCK EXCHANGE ASSOCIATION LTD.'S CASE ( SUPRA ) WHERE ADMISSION FEES WERE RECEIVED FROM THE MEMBERS AS ENTRANCE FEES ALTHOUGH CERTAIN AMOUNTS WERE ALSO RECEIVED FROM THE MEMBERS OF AUTHORIZED ASSISTANTS. IN VIEW OF THE HONBLE SUPREME COURT DECISION IN DELHI STOCK EXCHANGE ASSOCIATION LTD.'S CASE ( SUPRA ) THE DECISION OF THE MYSORE HIGH COURT CANNOT BE FOL LOWED , AS WAS HELD BY HONBLE PATNA HIGH COURT. THE ASSESSEE ALSO RELIED ON THE CASE OF HONBLE BOMBAY HIGH COU RT CIT V. WIAA CLUB LTD. [1982] 136 ITR 569(BOM). IN THIS DECISION IT HAS BE EN HELD BY THE HONBLE BOMBAY HIGH COURT THAT THE ENTR ANCE FEE IS PAID BY THE MEMBERS ONLY ONCE AND IT IS THIS PAYMENT WHICH HAS TO BE CONSIDERED WHETHER IT IS IN THE NATURE OF INCOME OR A CAPITAL RECEIPT. IT HAS ALSO BEEN HELD IN THIS DECISION THAT FROM THE ARTICLES OF ASSOCIAT ION OF THE ASSESSEE-CLUB, IT IS CLEAR THAT IN ORDER TO AVAIL OF THE RIGHTS OF A MEM BER AND THE FACILITIES AND THE SERVICES PROVIDED BY THE ASSESSEE-CLUB, IT IS NOT E NOUGH FOR A PERSON MERELY TO PAY THE ANNUAL SUBSCRIPTION, AND THAT AS A MATTER O F FACT A PERSON CANNOT EXERCISE THE RIGHTS AND PRIVILEGES OF A MEMBER MERE LY BY VOLUNTEERING TO PAY THE ANNUAL SUBSCRIPTION. WHAT A MEMBER HAS TO ACQUI RE FIRST IS THE RIGHT OF MEMBERSHIP OF THE CLUB. IT HAS ALSO BEEN HELD IN TH IS DECISION THAT A PERSON HAS FIRST TO GET ELECTED AS A LIFE OR ORDINARY MEMB ER, AS THE CASE MAY BE, IN THE MANNER PROVIDED IN THE ARTICLES OF ASSOCIATION, AND IT IS ONLY AFTER A PERSON IS ELECTED THAT HE IS REQUIRED TO PAY THE SU BSCRIPTION AND ENTRANCE FEE WITHIN FOURTEEN DAYS OF NOTICE OF THE ELECTION. IT HAS ALSO BEEN HELD IN THIS DECISION THAT THE ACQUISITION OF RIGHT AS AN ORDINA RY MEMBER IS DONE BY THE PAYMENT OF THE ENTRANCE FEE OF RS. 500 IN THE RELEV ANT ASSESSMENT YEAR, AND IN LIEU OF THIS PAYMENT OF THE ENTRANCE FEE A MEMBE R DOES NOT GET ANY RETURN IN THE FORM OF ANY SERVICES OR AMENITIES, AND ALL T HAT HE GETS IS A RIGHT TO AVAIL ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 55 OF THE AMENITIES OR FACILITIES PROVIDED BY THE CLUB ON A PAYMENT OF THE ANNUAL SUBSCRIPTION. THIS RIGHT CAN BE EXERCISED BY HIM AS LONG AS THE MEMBERSHIP IS NOT DETERMINED. THE HONBLE BOMBAY HIGH COURT HELD THAT THIS RECEIPT OF RS. 500 RECEIVED BY THE CLUB IS A RETURN FOR VESTING A RIGHT OF MEMBERSHIP IN THE MEMBER AND, THEREFORE, THE ENTRANCE FEE WOULD CLEAR LY BE IN THE NATURE OF A CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEE. IT WAS HELD BY HONBLE PATNA HIGH COURT THAT THE HONBLE BOMBAY HIGH COURT HAS R EFERRED LIVERPOOL CORN TRADE ASSOCIATION LTD.'S CASE ( SUPRA ) BUT NO REFERENCE WAS MADE TO THE HONBLE SUPREME COURT CASES IN CALCUTTA STOCK EXCHANGE ASSOCIATION LTD.'S CASE ( SUPRA ) AND DELHI STOCK EXCHANGE ASSOCIATION LTD.'S CASE ( SUPRA ) AND SO IT IS DIFFICULT TO FOLLOW THE DECISION OF THE BOMBAY HIGH COURT . THE HONBLE PATNA HIGH COURT FOLLOWING THE DECISION S OF HONBLE SUPREME COURT IN CIT V. CALCUTTA STOCK EXCHANGE ASSOCIATION LIMITED(1959) 36 ITR 222(SC) AND DELHI STOCK EXCHANGE ASSOCIATION LIMITE D V. CIT (1961) 41 ITR 495(SC) , HELD THAT THE ENTRANCE FEES RECEIVED BY T HE UNITED CLUB AT THE TIME OF ENTRANCE OF THE NEW MEMBERS IS A RECEIPT OF REVE NUE NATURE AND IS CHARGEABLE TO TAX IN THE HANDS OF THE TAX-PAYER CLU B. (E) HONBLE BOMBAY HIGH COURT IN THE CASE OF SHREE NIRMAL COMMERCIAL LIMITED V. CIT IN (1992) 193 ITR 694(BOM.HC) HELD T HAT NON-REFUNDABLE INTEREST BEARING DEPOSITS RECEIVED BY ASSESSEE-COMP ANY FROM ITS SHAREHOLDERS FOR ALLOTTING OCCUPANCY RIGHTS WERE ASSESSEE'S TRAD ING RECEIPTS . THE ASSESSEE WAS A COMPANY OUT TO DO BUSINESS IN CONSTRUCTION AN D SALE OF PROPERTY. SINCE IT HAD A PAUCITY OF FUNDS, IT CHOSE TO RAISE THE FU NDS BY SEEKING NON- REFUNDABLE DEPOSITS FROM ITS MEMBERS. THESE DEPOSIT S, PROPORTIONATE TO THE FLOOR AREA REQUIRED BY EACH MEMBER WERE TO BE PERMA NENTLY HELD BY THE ASSESSEE-COMPANY AS LONG AS THE MEMBER/ SHAREHOLDER WAS IN OCCUPATION OF ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 56 THE FLOOR AREA ALLOTTED TO HIM. THOUGH IT WAS SAID THAT THESE DEPOSITS WOULD FETCH AN INTEREST AS MAY BE DETERMINED BY THE BOARD OF DIRECTORS OF THE ASSESSEE-COMPANY, THE SAID FACT IS NOT DETERMINATIV E OF THE CHARACTER OF THE DEPOSITS AS WAS HELD BY THE HONBLE BOMBAY HIGH COU RT. THE DEPOSITS WERE TO BE HELD BY THE ASSESSEE-COMPANY AS LONG AS THE MEMB ER CONTINUED TO OCCUPY FLOOR AREA ALLOTTED TO HIM AND, IN THE EVENT OF THE MEMBER TRANSFERRING OR ALIENATING HIS OCCUPANCY RIGHTS TO ANOTHER, WITH TH E APPROVAL OF THE BOARD OF DIRECTORS, THE AMOUNT STANDING TO THE CREDIT OF THE MEMBER WOULD BE TRANSFERRED IN THE BOOKS TO THE CREDIT OF THE NEW T RANSFEREE. THERE WAS NO EVENT OR CONTINGENCY CONTEMPLATED IN WHICH THE SHAR EHOLDER COULD DEMAND REPAYMENT OF THE DEPOSIT. THOUGH THE SAID AMOUNT MI GHT HAVE BEEN SHOWN AS LIABILITY IN THE BALANCE SHEET OF THE ASSESSEE-COMP ANY, IT DID REALLY PARTAKE OF THE CHARACTER OF A LOAN OR AN AMOUNT WHICH HAD TO B E RETURNED. HAVING REGARD TO THE MANNER IN WHICH THE NON-REFUNDABLE DEPOSITS WERE TAKEN FROM THE SHAREHOLDERS, THE SHAREHOLDERS WERE ALLOTTED FLOOR SPACE AREA WHICH THEY WERE NOT ONLY ENTITLED TO OCCUPY BUT WERE ALSO ENTITLED TO ASSIGN TO OTHERS ON PAYMENT OF COMPENSATION AND TO TRANSFER THEIR OCCUP ANCY RIGHTS BY SALE OF SHARES AND THE PURPOSE FOR WHICH THE COMPENSATION W AS CHARGED, THE WHOLE TRANSACTION, IT APPEARS TO US, IS IN REALITY OF SAL E OF FLOOR SPACE BY THE ASSESSEE-COMPANY TO ITS SHAREHOLDERS. THE ASSESSEE- COMPANY HAD KEPT WITH ITSELF ONLY THE RIGHT OF THE MANAGEMENT OF PROPERTY AS A WHOLE, THE COMPENSATION BEING CHARGED BY WAY OF REIMBURSEMENT OF THE EXPENSES WHICH WERE LIKELY TO BE INCURRED. IT WAS OBSERVED BY HON BLE BOMABY HIGH COURT THAT THAT IS WHY THERE WAS A PROVISION IN THE AGREEMENT FOR INCREASE OF COMPENSATION FROM TIME TO TIME. NOTWITHSTANDING THE DESCRIPTION OF THESE AMOUNTS IN THE BOOKS OF THE ASSESSEE AND ITS RECORD S AS 'DEPOSITS', THE HONBLE BOMBAY HIGH COURT WAS OF THE VIEW THAT THE TRIBUNAL WAS RIGHT IN HOLDING THAT THESE DEPOSITS WERE IN ESSENCE THE CON SIDERATION PAID BY THE SHAREHOLDER FOR ALLOTMENT OF THE FLOOR SPACE. THE H ONBLE BOMBAY HIGH COURT HELD THAT THE AAC AND THE TRIBUNAL WERE, THEREFORE, RIGHT IN TAKING THE VIEW ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 57 THAT THIS WAS IN THE NATURE OF SALE PROCEEDS FOR SA LE OF FLOOR SPACE AREA AND LEGITIMATELY OUGHT TO BE TREATED AS TRADING RECEIPT S. THE SAID DECISION IN 193 ITR 694 WAS LATER REITERATED BY THE FULL BENCH DEC ISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF THIS TAX-PAYER FOR SUBSEQ UENT ASSESSMENT YEARS IN CIT V. SHREE NIRMAL COMMERCIAL LIMITED (1995) 213 I TR361(BOM.)(FB). IN A RECENT JUDGMENT, HONBLE SUPREME COURT APPROVED THE RATIO OF THE SAID DECISION IN 193 ITR 694 , IN THE CASE OF G S HOMES AND HOTELS PRIVATE LIMITED V. DCIT IN CIVIL APPEAL NO 7379-7380 OF 201 6 VIDE JUDGMENT DATED 09- 08-2016. (F) THE DECISION OF HONBLE BOMBAY HIGH COURT IN TH E CASE OF CIT V. DINERS BUSINESS SERVICES PRIVATE LIMITED (2003) 263 ITR 1( BOM), WHEREIN HONBLE BOMBAY HIGH COURT FOLLOWING THE DECISION OF CIT V. W.I.A.A. CLUB LIMITED (1982) 136 ITR 569(BOM.) HELD THAT THE ONE-TIME NON -REFUNDABLE ENTRANCE FEE CHARGED BY THE TAX-PAYER FOR ENROLMENT OF ITS CUSTO MERS AS MEMBERS OF THE EXECUTIVE CENTRE TO BECOME ELIGIBLE TO AVAIL OF T HE FACILITIES AVAILABLE IN THE EXECUTIVE CENTRES IS NOT EXIGIBLE TO TAX. (G) HONBLE BOMBAY HIGH COURT DECISION IN THE CASE OF CIT V. ASPEE DISTRIBUTORS ASSOCIATION (1994) 209 ITR 294(BOM. HC ) HELD IN CONTEXT OF CHARGEABILITY OF MEMBERSHIP FEE TO TAX IN THE HANDS OF THE TAXPAYER- ASSOCIATION THAT LOOKING AT THE FACTS SET OUT ABOVE, IT IS CLEAR THA T THE TAXPAYER-ASSOCIATION IS NOT A TRADING ASSOCIATION. IT DOES NOT CARRY ON ANY ACTIVITIES IN THE NATURE OF TRADE. ITS PURPOSE IS B ASICALLY TO ENCOURAGE FELLOWSHIP AMONGST ITS MEMBERS WHO ARE ALL DISTRIBU TORS OF ONE CONCERN, VIZ., AMERICAN SPRING & PRESSING WORKS (P.) LTD. UNDOUBTE DLY EACH MEMBER OF THE ASSOCIATION CARRIES ON TRADING ACTIVI TIES, BUT THE TAXPAYER- ASSOCIATION ITSELF DOES NOT CARRY ON ANY TRADING AC TIVITY. THE AIMS AND OBJECTS OF THE TAXPAYER-ASSOCIATION ALSO MAKE IT CLEAR THAT NO TRADING ACTIVITIES ARE ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 58 BEING CARRIED ON BY THE ASSOCIATION. IT WAS ALSO FO UND BY THE TRIBUNAL THAT DURING THE RELEVANT ASSESSMENT YEARS, THE TAXPAYER- ASSOCIATION DID NOT CARRY ON ANY TRADING ACTIVITY. HENCE, THE HONBLE BOMBAY HIGH COURT HELD THAT THE TRIBUNAL WAS RIGHT IN COMING TO THE CONCLUSION THAT THE TAXPAYER-ASSOCIATION WAS MERELY A TRADE ASSOCIATION AND NOT A TRADING AS SOCIATION.UNDER SECTION 28( III ) ANY INCOME DERIVED BY A TRADE, PROFESSIONAL OR SI MILAR ASSOCIATION FROM SPECIFIC SERVICES PERFORMED FOR ITS MEMBERS IS CHAR GEABLE TO INCOME-TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON'. IN THE PRESENT CASE, THE MEMBERSHIP FEE IS NOT TAKEN BY THE TAXPAYER-ASSOCIA TION FOR ANY SPECIFIC SERVICES PERFORMED BY IT TO ITS MEMBERS. THE TRIBUN AL HAS COMMENTED THAT THE TAXPAYER-ASSOCIATION DOES NOT RENDER ANY SPECIF IC SERVICES TO ITS MEMBERS. IN VIEW OF THIS FACT, AS FOUND BY THE TRIBUNAL, IT CANNOT BE SAID THAT THE MEMBERSHIP FEES ARE RELATABLE TO ANY SPECIFIC SERVI CES WHICH ARE RENDERED BY THE TAXPAYER-ASSOCIATION TO ITS MEMBERS. IN THE PRE MISES, THE QUESTION IS ANSWERED AS FOLLOWS: THE MEMBERSHIP FEES RECEIVED BY THE TAXPAYER-ASSOCI ATION WERE NOT RELATED TO ANY SPECIFIC SERVICES RENDERED BY IT TO ITS MEMBERS . THE TAXPAYER-ASSOCIATION WAS MERELY A TRADE ASSOCIATION. HENCE, THE MEMBERSH IP FEES WERE NOT TAXABLE UNDER SECTION 28( III ) AS HELD BY HONBLE BOMBAY HIGH COURT. THE QUESTION REFERRED TO THE HONBLE HIGH COURT OF BOMBAY WAS, ACCORDINGLY, ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THUS, THE ABOVE CASE IS DISTINGUISHABLE AND NOT APP LICABLE FOR DECIDING THE ISSUE IN PRESENT APPEAL AS TO EXIGIBILITY OF ENTRAN CE FEE RECEIVED BY THE ASSESSEE AS THE ASSESSEE IN THE INSTANT CASE IS A T RADING COMPANY WHOSE INCOME UNDER THE PROVISIONS OF THE ACT IS EXIGIBLE TO TAX WHICH IS AN ADMITTED POSITION AND ALSO THE ASSESSEE HAS NOT INVOKED PRIN CIPLES OF MUTUALITY . ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 59 THERE ARE SOME DECISIONS OF THE TRIBUNAL ALSO CITED BY LEARNED COUNSEL FOR THE ASSESSEE WHICH WE HAVE STATED IN PRECEDING PARAS A ND THE SAME ARE DULY CONSIDERED BY US WHILE ARRIVING AT THE DECISION IN THIS ORDER. WITH THE ABOVE BACKGROUND NOW WE PROCEED TO ADJUDIC ATE THE ISSUE OF EXIGIBILITY OF NON REFUNDABLE ENTRANCE FEE IN THE H ANDS OF THE ASSESSEE. IT IS WELL ESTABLISHED PRINCIPLES OF TAXING STATUTE THAT THE NOMENCLATURE OF ENTRIES IN THE BOOKS OF ACCOUNTS ARE NOT DETERMINATIVE OF T HE CHARGEABILITY TO TAX RATHER IT IS THE TRUE NATURE AND CHARACTER OF RECEI PT WHICH SHALL BE DECISIVE OF BRINGING THE SAME TO CHARGEABILITY TO TAX AS INCOME EXIGIBLE TO TAX. THE ASSESSEE HAS RECEIVED CLUB MEMBERSHIP ENROLLMENT FU ND WHICH COMPRISES TWO COMPONENTS , FIRSTLY REFUNDABLE DEPOSITS AND SECOND LY NON-REFUNDABLE ENTRANCE FEE . THE DISPUTE IS REGARDING THE CHARGEA BILITY TO TAX OF NON- REFUNDABLE ENTRANCE FEE RECEIVED BY THE ASSESSEE FR OM ITS MEMBERS AT THE TIME OF ADMISSION. THE HONBLE BOMBAY HIGH COURT VIDE IT S JUDGMENT DELIVERED ON 13-10-1944 IN THE CASE OF NATIVE SHARE AND STOCK BR OKERS ASSOCIATION V. CIT (SUPRA) HELD THAT ADMISSION FEE RECEIVED FROM MEMBE RS FOR ADMITTING AND SUPERVISION OF THE AUTHORIZED ASSISTANTS WAS HELD T O BE EXIGIBLE TO TAX AS REVENUE RECEIPT. THEREAFTER VIDE JUDGMENT DELIVERED ON 26-03-1959 , THE HONBLE SUPREME COURT IN CIT V. CALCUTTA STOCK EXCH ANGE ASSOCIATION LIMITED(SUPRA) IN SIMILAR MATTER TOOK NOTE OF DECIS ION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF NATIVE SHARE AND STOCK BROKERS ASSOCIATION (SUPRA) AND SEVERAL ENGLISH DECISIONS AND HONBLE SUPREME COURT AFFIRMED THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF NATIVE SHA RE AND STOCK BROKERS ASSOCIATION (SUPRA) AND HELD THAT ENTRANCE FEES AND SUBSCRIPTION RECEIVED FROM MEMBERS IN RESPECT OF AUTHORIZED ASSISTANTS IS EXIGIBLE TO TAX AND ALSO FEE RECEIVED FROM MEMBERS FOR ENLISTING NAMES OF NE WLY FLOATED COMPANIES ON STOCK EXCHANGE IS ALSO EXIGIBLE TO TAX . THEREAFTER VIDE JUDGMENT DELIVERED ON ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 60 30-11-1960 , THE HONBLE SUPREME COURT IN THE CASE OF DELHI STOCK EXCHANGE ASSOCIATION LIMITED V. CIT(SUPRA) FOLLOWING THE DEC ISION OF HONBLE SUPREME COURT IN CALCUTTA STOCK EXCHANGE ASSOCIATION LIMITE D(SUPRA) HELD THAT ADMISSION FEES RECEIVED IN RESPECT OF ADMISSION OF AUTHORIZED ASSISTANTS AS WELL FOR ADMISSION FEE RECEIVED FOR ADMISSION OF ME MBERS ARE EXIGIBLE TO TAX AS REVENUE RECEIPTS . THE HONBLE BOMBAY HIGH COURT VIDE JUDGMENT DELIVERED ON 31-01-1979, THEREAFTER , IN WIAA CLUB LIMITED(SUPRA) TOOK A VIEW THAT ENTRANCE FEE RECEIVED BY THE CLUB IS NOT EXIGI BLE TO TAX AS THE SAME IS PAID FOR OBTAINING MEMBERSHIP AND IS A CAPITAL RECEIPT. THE JUDGMENTS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF NATIVE SHARE AND STOCK BROKERS ASSOCIATION (SUPRA) AND DECISIONS OF HONBLE SUPREM E COURT IN THE CASE OF CIT V. CALCUTTA STOCK EXCHANGE ASSOCIATION LIMITED(SUPR A) AND DECISION OF HONBLE SUPREME COURT IN THE CASE OF DELHI STOCK EX CHANGE ASSOCIATION LIMITED V. CIT(SUPRA) WERE NOT BROUGHT TO THE NOTIC E OF HONBLE BOMBAY HIGH COURT IN THE CASE OF WIAA CLUB LIMITED(SUPRA) WHILE HONBLE BOMBAY HIGH COURT TOOK NOTE OF DECISION OF KINGS BENCH DIVISION OF THE HIGH COURT IN THE CASE OF LIVERPOOL CORN TRADE ASSOCIATION LIMITED V. MONKS (1926) 10 TC 442(KB) , AND THE HONBLE BOMBAY HIGH COURT DISTING UISHED THE SAID JUDGMENT ON THE GROUNDS THAT THE MAIN QUESTION IN T HE SAID CASE WAS TO DETERMINE WHETHER THE ASSOCIATION IN QUESTION WAS A MUTUAL ASSOCIATION OR A TRADING COMPANY AND THE QUESTION WAS WHETHER THE PR OFITS OBTAINED AS A RESULT OF DEALING BETWEEN THE CORPORATION AND ITS M EMBERS SHOULD BE REGARDED AS PROFITS AS SUCH . THE HONBLE BOMBAY HIGH COURT IN THE CASE OF WIAA CLUB(SUPRA) HELD THAT LIFE MEMBERSHIP FEE OF RS. 25 00 HAS TWO COMPONENTS , ONE RS. 500 TOWARDS ENTRANCE FEE WHICH IS CAPITAL R ECEIPT NOT EXIGIBLE TO TAX , AND SECONDLY RS. 2000 TOWARDS CONSOLIDATED ANNUAL S UBSCRIPTION WHICH IS A REVENUE RECEIPT EXIGIBLE TO TAX , AS IN THE SAID CA SE THE TAX-PAYER BEING LIFE MEMBER WAS NOT REQUIRED TO PAY ANY FURTHER ANNUAL C HARGES. THE HONBLE PATNA HIGH COURT VIDE JUDGMENT DATED 28-09-1985 WHI LE DECIDING THE CASE OF CIT V. UNITED CLUB(SUPRA) TOOK NOTE OF THIS FACT TH AT HONBLE BOMBAY HIGH ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 61 COURT WHILE DECIDING WIAA CLUB LIMITED(SUPRA) DID N OT TOOK NOTE OF DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF CIT V. CALC UTTA STOCK EXCHANGE ASSOCIATION LIMITED(SUPRA) AND DECISION OF HONBLE SUPREME COURT IN THE CASE OF DELHI STOCK EXCHANGE ASSOCIATION LIMITED V. CIT( SUPRA) , AND HONBLE PATNA HIGH COURT FOLLOWING ABOVE SUPREME COURT DECI SIONS IN CIT V. CALCUTTA STOCK EXCHANGE ASSOCIATION LIMITED(SUPRA) DELHI STO CK EXCHANGE ASSOCIATION LIMITED V. CIT(SUPRA) HELD THAT ENTRANCE FEE RECEI VED BY THE CLUB IS A REVENUE RECEIPTS EXIGIBLE TO TAX AND NOT A CAPITAL RECEIPTS . AGAIN HONBLE BOMBAY HIGH COURT DECIDED THE ISSUE OF TAXABILITY OF ENTRANCE F EE IN THE YEAR 2003 VIDE DECISION RENDERED ON 17-04-2003 IN THE CASE OF CIT V. DINERS BUSINESS SERVICES PRIVATE LIMITED (2003) 263 ITR 1(BOM.) WHE REBY IT WAS HELD BY HONBLE BOMBAY HIGH COURT FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. WIAA CLUB LIMITED( SUP RA) THAT NON-REFUNDABLE ENTRANCE FEE IS NOT EXIGIBLE TO TAX BEING A CAPITAL RECEIPTS.THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. SHREE NIRMAL COMME RCIAL LIMITED(SUPRA) HELD THAT NON-REFUNDABLE INTEREST BEARING DEPOSITS RECEI VED BY THE TAX-PAYER FROM THE SHAREHOLDERS FOR ALLOTTING OCCUPANCY RIGHTS ARE CHARGEABLE TO TAX AS REVENUE RECEIPTS, THE SAID DECISION OF HONBLE BOMB AY HIGH COURT IN 193 ITR 694 IN THE CASE OF SHREE NIRMAL COMMERCIAL LIMITED( SUPRA) WAS LATER REITERATED BY THE FULL BENCH DECISION OF HONBLE BO MBAY HIGH COURT IN THE CASE OF THE SAME TAX-PAYER FOR SUBSEQUENT ASSESSME NT YEARS IN CIT V. SHREE NIRMAL COMMERCIAL LIMITED (1995) 213 ITR361(BOM.)(F B). IN A RECENT JUDGMENT, HONBLE SUPREME COURT APPROVED THE RATIO OF THE SAID DECISION OF HONBLE BOMBAY HIGH COURT IN 193 ITR 694 IN THE CAS E OF G S HOMES AND HOTELS PRIVATE LIMITED V. DCIT IN CIVIL APPEAL NO 7 379-7380 OF 2016 VIDE JUDGMENT DATED 09-08-2016. WE HAVE GONE THROUGH THE ENTIRE BACKGROUND OF THE C ASE AND ALSO DELVED UPON THE VARIOUS IMPORTANT CASE LAWS ON THE ISSUE I N HAND, WE HAVE OBSERVED ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 62 THAT THE ASSESSEE IS NOT GOVERNED BY THE DOCTRINE O F MUTUALITY WHICH IS SETTLED AND UNDISPUTED POSITION BETWEEN THE RIVAL PARTIES I N THE INSTANT CASE. THE ASSESSEE IS A COMPANY AND SHAREHOLDERS IN THEIR CAP ACITY AS SHAREHOLDERS ARE DISTINCT FROM MEMBERS OF THE CLUB WHO ARE ENTITLED TO AVAIL THE FACILITIES AND AMENITIES OFFERED BY THE CLUB AND HENCE COMPLETE ID ENTITY BETWEEN SHAREHOLDERS OF THE COMPANY AND MEMBERS OF THE CLU B IS LACKING. THE SURPLUS OF THE ASSESSEE COMPANY BEING PRIVATE LIMIT ED COMPANY IS DISTRIBUTABLE AS DIVIDEND TO SHAREHOLDERS . NOTHING CONTRARY TO THE AFORE- STATED PROPOSITIONS ARE ON RECORD BROUGHT BY THE AS SESSEE TO REBUT THE SAID PROPOSITIONS THE ASSESSEE HAS RECOVERED CLUB MEMBER SHIP ENROLLMENT FUND AT THE TIME OF ADMITTING MEMBERS WHICH COMPRISES OF NO N-REFUNDABLE DEPOSITS OF ENTRANCE FEE AT THE TIME OF ADMISSION OF MEMBERS WH ICH CONSTITUTE 20% OF THE TOTAL CLUB MEMBERSHIP ENROLLMENT FUND COLLECTED FRO M AN MEMBER AT THE TIME OF ADMISSION , AS WELL REFUNDABLE DEPOSITS AT THE T IME OF ADMISSION OF MEMBER WHICH CONSTITUTE BULK BEING 80% OF THE CLUB MEMBERS HIP ENROLLMENT FUND. THE ASSESSEE IS ALSO RECEIVING MEMBERSHIP FEE FROM ITS MEMBERS, ANNUAL CHARGES AND ALSO CHARGES FOR VARIOUS FACILITIES AND AMENITIES PROVIDED TO ITS MEMBERS SUCH AS FOOD, BEVERAGES, SWIMMING POOL ETC. . THE SAID REFUNDABLE DEPOSIT RECEIVED BY THE ASSESSEE AT THE TIME OF ADM ISSION BEING BULK AMOUNT I.E. 80% OF CLUB MEMBERSHIP ENROLLMENT FUND IS TREA TED AS CAPITAL RECEIPTS BY THE REVENUE AND BROUGHT TO TAX, WHILE NON-REFUNDAB LE ENTRANCE FEES CONSTITUTING 20% OF CLUB MEMBERSHIP ENROLLMENT FUND PAID BY THE MEMBERS ON BEING ADMITTED TO THE MEMBERSHIP OF THE CLUB IN OUR CONSIDERED VIEW IN THE INSTANT CASE BASED ON FACTUAL MATRIX OF THE CAS E HAS CLOSE PROXIMITY AND NEXUS TO THE SPECIFIC SERVICES PERFORMED BY THE ASS ESSEES CLUB TO ITS MEMBERS WHICH ARE BEING MADE AVAILABLE BY THE ASSESSEE CLUB TO MEMBERS ONLY ON OBTAINING OF MEMBERSHIP OF THE CLUB AND IS COVERED BY THE PROVISIONS OF SECTION 28(I) AND 28(III) OF THE ACT AND IS A REVEN UE RECEIPT IN THE HANDS OF THE ASSESSEE EXIGIBLE TO TAX, WHILE REFUNDABLE DEPOSIT CONSTITUTING BULK OF PAYMENT BEING 80% OF CLUB MEMBERSHIP ENROLLMENT FUN D APPEARS TO HAVE ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 63 CLOSE NEXUS WITH PAYMENT MADE FOR OBTAINING CLUB ME MBERSHIP IN THE INSTANT CASE. IT IS NOT IMPORTANT THAT SERVICES RENDERED OR PERFORMED ARE TRIVIAL OR IMMATERIAL SO LONG SPECIFIC SERVICES ARE BEING PERF ORMED BY THE ASSESSEE TO ITS MEMBERS BEING MADE AVAILABLE ON BECOMING MEMBER OF THE CLUB WHICH ARE ONLY AVAILABLE TO THE MEMBERS OF THE CLUB ON BEING ADMITTED AS MEMBER OF THE CLUB. IN OUR CONSIDERED VIEW, THE HONBLE BOM BAY HIGH COURT IN THE CASE OF WIAA CLUB LIMITED (SUPRA) HAS CORRECTLY SEGREGA TED THE LIFE MEMBERSHIP FEE INTO TWO SEGMENTS I.E. ONE TOWARDS CAPITAL RECE IPTS BEING PAID FOR OBTAINING MEMBERSHIP OF THE CLUB WHICH HAS NO PROXIMITY TO SE RVICES BEING PERFORMED TO ITS MEMBERS AND IS MERELY A PRICE PAID FOR OBTAI NING MEMBERSHIP OF THE CLUB WHICH IS CAPITAL RECEIPTS NOT EXIGIBLE TO TAX, AND SECONDLY FOR THE CONSOLIDATED ANNUAL SUBSCRIPTION INCLUDED IN THE LI FE MEMBERSHIP FEES WHICH IS REVENUE RECEIPT WHICH IS EXIGIBLE TO TAX BEING C HARGED FOR MAKING AVAILABLE SERVICES BY THE CLUB WHICH ARE ONLY AVAILABLE TO ME MBERS OF THE CLUB ON OBTAINING MEMBERSHIP OF THE CLUB. IN THE INSTANT CA SE , THERE ARE TWO COMPONENTS OF THE AMOUNT PAID BY THE MEMBERS AT THE TIME OF SEEKING ADMISSION FOR BECOMING MEMBER OF THE CLUB BEING CLU B MEMBERSHIP ENROLLMENT FUND, ONE IS A REFUNDABLE DEPOSITS WHICH , IN OUR CONSIDERED VIEW, HAS CLOSE PROXIMITY TO PAYMENT BEING MADE FOR OBTAI NING THE MEMBERSHIP OF THE CLUB AND BEING CAPITAL RECEIPTS IS NOT EXIGIBLE TO TAX, AND SECOND COMPONENT IS TOWARDS NON-REFUNDABLE ONE TIME ENTRAN CE FEE PAID BY THE MEMBERS ON BEING ADMITTED TO MEMBERSHIP WHICH HAS C LOSE NEXUS AND PROXIMITY WITH THE PAYMENTS BEING MADE FOR SERVICE S BEING PERFORMED BY THE ASSESSEE TO ITS MEMBERS BEING MADE AVAILABLE TO MEM BERS IMMEDIATELY ON OBTAINING THE MEMBERSHIP OF THE CLUB AND ALSO THE A SSESSEE BEING A TRADING COMPANY WHEREBY PROFITS ARE DISTRIBUTABLE TO SHAREH OLDERS WHERE THERE IS A LACK OF IDENTITY BETWEEN SHAREHOLDERS OF THE COMPAN Y AND MEMBERS OF THE CLUB AND DOCTRINE OF MUTUALITY IS NOT INVOKED , HEN CE , THE NON-REFUNDABLE ENTRANCE FEE IS REVENUE RECEIPTS WHICH IS EXIGIBLE TO TAX. THE MEMBERSHIP FEE, ANNUAL CHARGES AND PAYMENTS FOR AVAILING SERVICES A RE UNDOUBTEDLY REVENUE ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 64 RECEIPTS IN THE HANDS OF THE ASSESSEE AS THEY ARE R ELATED TO THE SERVICES BEING PERFORMED OR MADE AVAILABLE BY THE ASSESSEE AFTER T HE MEMBERS ARE ADMITTED TO THE CLUB. THE RATIO OF LAW LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF DELHI STOCK EXCHANGE ASSOCIATION LIMITED V. CIT( SUPRA) CLEARLY HELD THAT THE ADMISSION FEE PAID BY THE MEMBER AT THE TIME OF ENTERING AS MEMBER OF ASSOCIATION IS EXIGIBLE TO TAX WHEREIN IT WAS HELD THAT IN CASE OF TRADING ASSOCIATION AND PROFITS BEING DIVISIBLE AS DIVIDEND AMONGST SHAREHOLDERS THE SAME IS TRADING RECEIPTS EXIGIBLE TO TAX RELYING ON DECISION OF KINGS BENCH OF THE HIGH COURT IN THE CASE OF LIVERPOOL CORN TRADE ASSOCIATION V. MONKS(1962) 2 KB 110, WHEREIN IT WAS HELD BY THE HO NBLE APEX COURT AS UNDER: IT IS WHOLLY IMMATERIAL IN THE CIRCUMSTANCES OF TH E PRESENT CASE TO TAKE INTO CONSIDERATION AS TO HOW THE APPELLANT TREATED THE AMOUNTS IN QUESTION. IT IS NOT HOW AN ASSESSEE TREATS ANY MONI ES RECEIVED BUT WHAT IS THE NATURE OF THE RECEIPTS WHICH IS DECISIVE OF ITS BEING TAXABLE. THESE AMOUNTS WERE RECEIVED BY THE APPELLANT AS MEMBERSHI P ADMISSION FEES AND AS ADMISSION FEES PAID BY THE MEMBERS ON ACCOUN T OF AUTHORISED ASSISTANTS. AS FAR AS THE LATTER PAYMENT IS CONCERN ED THAT WOULD FALL WITHIN THE DECISION OF THIS COURT IN COMMISSIONER O F INCOME- TAX V. CALCUTTA STOCK EXCHANGE ASSOCIATION LTD. [1959] 36 ITR 222 AND THEREFORE IS TAXABLE INCOME. THE FORMER, I.E., MEMB ERS' ADMISSION FEES, HAS TO BE DECIDED IN ACCORDANCE WITH THE NATURE OF THE BUSINESS OF THE APPELLANT COMPANY, ITS MEMORANDUM AND ARTICLES OF A SSOCIATION AND THE RULES MADE FOR THE CONDUCT OF BUSINESS. THE APPELLA NT COMPANY WAS AN ASSOCIATION WHICH CARRIED ON A TRADE AND ITS PROFIT S WERE DIVISIBLE AS DIVIDEND AMONGST THE SHAREHOLDERS. THE OBJECT WITH WHICH THE COMPANY WAS FORMED WAS TO PROMOTE AND REGULATE THE BUSINESS IN SHARES, STOCKS AND SECURITIES ETC., AND TO ESTABLISH AND CONDUCT T HE BUSINESS OF A STOCK ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 65 EXCHANGE IN DELHI AND TO FACILITATE THE TRANSACTION OF SUCH BUSINESS. THE BUSINESS WAS MORE LIKE THAT IN LIVERPOOL CORN TRADE ASSOCIATION V. MONKS [1926] 2 KB 110. IN THAT CASE AN ASSOCIATION WAS FORMED WITH THE OBJECT OF PROMOTING THE INTEREST OF CORN TRADE WITH A SHARE CAPITAL UPON WHICH THE ASSOCIATION WAS EMPOWERED TO DECLARE A DIVIDEND. THE ASSOCIATION PROVIDED A CORN EXCHANGE MARKET, NEWSROOM AND FACILITIES FOR CARRYING ON BUSINESS AND MEMBERS HIP WAS CONFINED TO PERSONS ENGAGED IN THE CORN TRADE AND EVERY MEMBER WAS REQUIRED TO BE A SHAREHOLDER AND HAD TO PAY AN ENTRANCE FEE. THE A SSOCIATION ALSO CHARGED THE MEMBERS AND EVERY PERSON MAKING USE OF FACILITIES A SUBSCRIPTION WHICH VARIED ACCORDING TO THE USE MADE BY THEM. THE BULK OF THE RECEIPTS OF THE ASSOCIATION WAS DERIVED FROM ENTRANCE FEES AND SUBSCRIPTIONS. IT WAS, THEREFORE, CONTENDED THAT TH E ASSOCIATION DID NOT CARRY ON A TRADE AND THAT IT WAS A MUTUAL ASSOCIATI ON AND ENTRANCE FEES AND SUBSCRIPTIONS SHOULD BE DISREGARDED IN COMPUTIN G ASSESSMENT OF THE ASSESSABLE PROFITS. IT WAS HELD THAT IT WAS NOT A M UTUAL ASSOCIATION WHOSE TRANSACTIONS WERE INCAPABLE OF PRODUCING A PR OFIT; THAT IT CARRIED ON A TRADE AND THE ENTRANCE FEE PAID BY MEMBERS OUG HT TO BE INCLUDED IN THE ASSOCIATION'S RECEIPTS FOR PURPOSES OF COMPUTIN G THE PROFIT. ROWLATT, J., SAID AT PAGE 121: 'I DO NOT SEE WHY THAT AMOUNT IS NOT A PROFIT. THE COMPANY HAS A CAPITAL UPON WHICH DIVIDENDS MAY BE EARNED, A ND THE COMPANY HAS ASSETS WHICH CAN BE USED FOR THE PURPOS E OF OBTAINING PAYMENTS FROM ITS MEMBERS FOR THE ADVANTA GES OF SUCH USE, AND ONE IS TEMPTED TO ASK WHY A PROFIT IS NOT SO MADE EXACTLY ON THE SAME FOOTING AS A PROFIT IS MAD E BY A RAILWAY COMPANY WHO ISSUES A TRAVELLING TICKET AT A PRICE TO ONE OF ITS OWN SHAREHOLDERS, OR AT ANY RATE AS MUCH A PROFIT AS A PROFIT MADE BY A COMPANY FROM A DEALING WITH I TS OWN ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 66 SHAREHOLDERS IN A LINE OF BUSINESS WHICH IS RESTRIC TED TO THE SHAREHOLDERS.' IN COMMISSIONER OF INCOME-TAX V. ROYAL WESTERN INDI A TURF CLUB LTD. [1953] 24 ITR 551 . THIS COURT REJECTED THE APPLICABILITY OF THE PRINCIPLE OF MUTUALITY BECAUSE THERE WAS NO MUTUAL DEALING BETWEEN MEMBERS INTER SE. THERE WAS NO PUTTING UP A COMMON FUND FOR DISCHARGING A COMMON OBLIGATION UNDERTAKEN BY THE C ONTRIBUTORS FOR THEIR MUTUAL BENEFIT AND FOR THIS REASON THE CASE DECIDED BY THE HOUSE OF LORDS IN STYLES V. NEW YORK LIFE INSURANCE COMPANY [1889] 2 TAX CAS. 460 WAS HELD NOT APPLICABLE. IN THE PRESENT CASE THE MEMORANDUM OF ASSOCIATION S HOWS THAT THE OBJECT WITH WHICH THE COMPANY WAS FORMED WAS TO PROMOTE AN D REGULATE THE BUSINESS OF EXCHANGE OF STOCKS, SHARES, DEBENTURES, DEBENTURE STOCKS ETC. THE INCOME, IF ANY, WHICH ACCRUED FROM THE BUS INESS OF THE APPELLANT COMPANY WAS DISTRIBUTABLE AMONGST THE SHAREHOLDERS LIKE IN EVERY JOINT STOCK COMPANY. ACCORDING TO THE ARTICLES OF ASSOCIA TION THE MEMBERS INCLUDED SHAREHOLDERS AND MEMBERS OF THE EXCHANGE A ND ACCORDING TO THE RULES AND BYE-LAWS OF THE APPELLANT COMPANY 'ME MBER' MEANS AN INDIVIDUAL, BODY OF INDIVIDUALS, FIRMS, COMPANIES, CORPORATIONS OR ANY CORPORATE BODY AS MAY BE ON THE LIST OF WORKING MEM BERS OF THE STOCK EXCHANGE FOR THE TIME BEING. IN THE ARTICLES OF ASS OCIATION, CLAUSES 7 AND 8, PROVISION WAS MADE FOR THE ELECTION OF MEMBERS B Y THE BOARD OF DIRECTORS AND RULES 9 AND 10 LAID DOWN THE PROCEDUR E FOR THE ELECTION OF THESE MEMBERS. THE ENTRANCE FEES WERE PAYABLE BY TH E TRADING MEMBERS ELECTED UNDER THE RULES AND BYE-LAWS OF THE ASSOCIA TION, WHO ALONE WITH THEIR ASSOCIATES, COULD TRANSACT BUSINESS IN STOCKS AND SHARES IN THE ASSOCIATION. THEREFORE, THE BODY OF TRADING MEMBERS WHO PAID THE ENTRANCE FEES, AND THE SHAREHOLDERS AMONG WHOM THE PROFITS WERE DISTRIBUTED WERE NOT IDENTICAL AND THUS THE ELEMENT OF MUTUALITY WAS ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 67 LACKING. IT IS THE NATURE OF THE BUSINESS OF THE CO MPANY AND THE PROFITS AND THE DISTRIBUTION THEREOF WHICH ARE THE DETERMIN ING FACTORS AND IN THIS CASE IT HAS NOT BEEN SHOWN THAT THE APPELLANT'S BUS INESS WAS IN ANY WAY DIFFERENT FROM THAT WHICH WAS CARRIED ON IN THE CAS E REPORTED AS LIVERPOOL CORN TRADE ASSOCIATION V. MONKS [1962] 2 KB 110 . IN OUR OPINION THE JUDGMENT OF THE HIGH COURT IS RI GHT AND THE APPEALS ARE THEREFORE DISMISSED WITH COSTS. ONE HEARING FEE. KEEPING IN VIEW OUR DETAILED DISCUSSIONS AND REASON ING IN PRECEDING PARAS AS ALSO THE CASE LAWS DISCUSSED VIZ. HONBLE BOMBAY HI GH COURT DECISION IN THE CASE OF NATIVE SHARE AND STOCK BROKERS ASSOCIATION( SUPRA), DECISION OF HONBLE SUPREME COURT IN THE CASE OF CALCUTTA STOCK EXCHANGE ASSOCIATION LIMITED(SUPRA), DECISION OF HONBLE SUPREME COURT I N THE CASE OF DELHI STOCK EXCHANGE ASSOCIATION LIMITED, DECISION OF HONBLE P ATNA HIGH COURT IN THE CASE OF UNITED CLUBS(SUPRA) , DECISION OF HONBLE B OMBAY HIGH COURT IN THE CASE OF SHREE NIRMAL COMMERCIAL LIMITED(SUPRA) WHIC H WAS LATER REITERATED IN FULL BENCH DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SHREE NIRMAL COMMERCIAL LIMITED (SUPRA) AND WHICH WAS REC ENTLY AFFIRMED BY HONBLE SUPREME COURT IN THE DECISION OF G.S. HOMES AND HOTELS PRIVATE LIMITED(SUPRA) WHICH ALSO SUPPORTS OUR DECISION T HAT NON-REFUNDABLE ENTRANCE FEE OF RS.31,34,037/- RECEIVED BY THE ASSE SSEE IN THE INSTANT CASE BASED ON FACTUAL MATRIX OF THE CASE IS CHARGEABLE T O TAX AS REVENUE RECEIPTS IN THE HAND OF THE ASSESSEE .WE ORDER ACCORDINGLY. (B) ADVANCE MEMBERSHIP FEE - THE ASSESSEE RECEIVED RS.4,18,96,537/- AS ADVANCE MEMBERSHIP FEE FOR 25 YEARS FROM ITS MEMBER S. THE ASSESSEE IS ALSO RECEIVING ANNUAL CHARGES FROM ITS MEMBERS AND ALSO CHARGES ARE COLLECTED FROM MEMBERS ADDITIONALLY FOR USE OF VARI OUS AMENITIES/FACILITIES BY ITS MEMBERS SUCH AS FOOD , BEVERAGES, SWIMMING P OOL ETC.. THERE IS NO ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 68 DISPUTE BETWEEN THE RIVAL PARTIES THAT THE SAID AMO UNT OF ADVANCE MEMBERSHIP FEE RECEIVED BY THE ASSESSEE IS EXIGIBLE TO TAX BUT THE DISPUTE IS WITH RESPECT TO THE YEAR OF TAXABILITY I.E. WHET HER THE SAME IS CHARGEABLE TO TAX IN THE YEAR OF RECEIPT OR IS TO BE SPREAD OV ER NUMBER OF YEARS. THE AO BROUGHT TO TAX 100% OF THE RECEIPT OF ADVANCE ME MBERSHIP FEE AS INCOME IN THE YEAR OF RECEIPT ITSELF, WHILE THE LEA RNED CIT(A) RELYING ON DECISION OF SPECIAL BENCH OF THE CHENNAI TRIBUNAL I N THE CASE OF MAHENDRA HOLIDAYS AND RESORTS LIMITED (2010) 39 SOT 438(CHE NNAI)(SB) HAS HELD THAT 60% OF THE ADVANCE MEMBERSHIP FEE RECEIVED SHA LL BE BROUGHT TO TAX IN THE YEAR OF RECEIPT AS THE ASSESSEE HAS TO MAINT AIN THE FACILITIES IN SUBSEQUENT YEARS FOR WHICH IT WOULD BE REQUIRED TO INCUR EXPENDITURE WITHOUT MATCHING CONTRIBUTION FROM MEMBERS BASED ON CONCEPT OF MATCHING PRINCIPLES OF REVENUE AND EXPENDITURE AN D ALSO CONSIDERING THAT 70% OF THE FACILITIES ARE COMPLETED BY THE END OF T HE PREVIOUS YEAR AS ADMITTED BY THE ASSESSEE . WE ARE AGREEABLE THAT AS SESSEE HAVING RECEIVED ADVANCE MEMBERSHIP FEE FOR 25 YEARS , CONCEPT OF MA TCHING PRINCIPLES ARE TO BE APPLIED WHILE COMPUTING INCOME UNDER THE ACT AND THE ENTIRE AMOUNT OF REVENUE RECEIVED BY THE ASSESSEE CANNOT B E BROUGHT TO TAX IN THE YEAR OF RECEIPT ITSELF AS THE ASSESSEE WILL BE REQUIRED TO RENDER SERVICES AND MAINTAIN FACILITIES IN SUBSEQUENT YEARS FOR WHI CH EXPENDITURE WILL HAVE TO BE NECESSARILY INCURRED AS PER CONTRACTUAL OBLIG ATIONS OF THE ASSESSEE WITH ITS MEMBERS AND HENCE ROLLOVER OF REVENUE HAS TO BE UNDERTAKEN WHICH IS REQUIRED TO BE BASED ON PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE KEEPING IN VIEW FACTUAL MATRIX OF THE CASE TO ARRIVE AT REASONABLE AND FAIR APPORTIONMENT, OTHERWISE THERE WILL BE HUGE IN COME REPORTED IN THE INITIAL YEARS WHEN MEMBERS ARE ENROLLED BY THE ASSE SSEE WHILE IN SUBSEQUENT YEARS WHEN THE ASSESSES STOP ENROLLING M EMBERS, THERE WILL BE HUGE LOSSES REPORTED BY THE ASSESSEE AS THEN THE AS SESSEE WILL BE REQUIRED TO MAINTAIN FACILITIES IN SUBSEQUENT YEARS FOR WHIC H EXPENDITURE WILL HAVE TO BE NECESSARILY INCURRED WITH NO MATCHING INFLOWS FROM MEMBERS AS THE ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 69 MEMBERSHIP FEE IS COLLECTED IN ADVANCE AND THE ASSE SSEE BEING BOUND BY CONTRACTUAL OBLIGATIONS UNDERTAKEN WHILE COLLECTING MEMBERSHIP FEE WILL HAVE TO MAINTAIN THE FACILITIES AND INCUR NECESSARY EXPENDITURE WITHOUT MATCHING REVENUE BEEN RECEIVED FROM THE MEMBERS OF THE CLUB. IT IS EQUALLY TRUE THAT THE ASSESSEE IS ALSO COLLECTING ANNUAL CH ARGES W.E.F. 01-01-2005 FROM MEMBERS APART FROM MEMBERSHIP FEE AND ALSO COL LECTING CHARGES FOR USAGE OF VARIOUS SERVICES SUCH AS SWIMMING COACHING , SQUASH COACHING FOOD, BEVERAGES ,BANQUET, GYM AND HEALTH CLUB, COMM ISSION ETC. BY THE MEMBERS WHICH ARE SEPARATELY COLLECTED BY THE ASSES SEE FROM ITS MEMBERS BASED ON ACTUAL USAGE OF SUCH FACILITIES/AMENITIES WHICH WILL ALSO ENABLE THE ASSESSEE TO HAVE REGULAR STREAM OF REVENUE IN T HE YEARS TO COME TO ENABLE IT TO INCUR EXPENDITURE FOR MAINTAINING THE FACILITIES/AMENITIES IN THE YEARS TO COME. BUT, THIS IS ALSO UNDISPUTED POS ITION BETWEEN THE RIVAL PARTIES THAT THE ADVANCE MEMBERSHIP FEE IS COLLECTE D BY THE ASSESSEE FROM ITS MEMBERS FOR A PERIOD OF 25 YEARS IN ADVANCE. TH E LEARNED CIT(A) HAD BASED ON DECISION OF SPECIAL BENCH OF CHENNAI TRIBU NAL IN THE CASE OF MAHENDRA HOLIDAYS AND RESORTS INDIA LIMITED(SUPRA) HAS BROUGHT TO TAX 60% OF ADVANCE MEMBERSHIP FEE COLLECTED FOR 25 YEAR S IN THE YEAR OF RECEIPT. IT IS ALSO TRUE THAT SOME MEMBERS MAY LEAV E THE CLUB AFTER A BRIEF STAY DESPITE PAYING MEMBERSHIP FEE FOR 25 YEARS AND SOME MAY CONTINUE FOR A LONG PERIOD OF TIME. THE HYDERABAD TRIBUNAL IN THE CASE OF TREASURE ISLAND RESORTS PRIVATE LIMITED V. DCIT (2004)84 TTJ 820(HYD. TRIB.) WHEREIN THE TRIBUNAL ACCEPTED ASSESSEES METHOD OF RECOGNIZING REVENUE ON SPREAD OVER BASIS KEEPING IN VIEW THAT THE SCHEM E DID NOT PROVIDED FOR REFUNDABILITY. THE TRIBUNAL RELYING ON THE EARLIER DECISION IN THE CASE OF MEERA AND CEIKO PUMP PRIVATE LIMITED [IT APPEAL NO. 652 (HYD.) OF 2001 DATED 21-6-2002 FOR THE ASSESSMENT YEAR 1994-95] HELD THAT UNDER MERCANTILE SYSTEM OF ACCOUNTING, RECEIPT ENTAILING A CONTINUING LIABILITY OF RENDERING SERVICES IN FUTURE YEARS CAN BE SPREAD OV ER YEARS. THIS ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 70 PROPOSITION IS SUPPORTED BY THE HONBLE SUPREME COU RT DECISION IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LI MITED V. CIT , (1997) 225 ITR 802(SC) . IN OUR CONSIDERED VIEW, A REASONABLE AND FAIR ESTIM ATE UNDER THESE CIRCUMSTANCES HAS TO BE MADE BASED ON REASONABLE SCIENTIFIC METHOD KEEPING IN VIEW BUSINESS MATRIX AND MODEL OF THE ASSESSEE AFTER STUDY OF THE BY-LAWS, RULES AND REGULATIONS GOVERNI NG THE ASSESSEES CLUB , MEMORANDUM AND ARTICLES OF ASSOCIATION, TERMS AND C ONDITIONS FOR THE GRANT OF MEMBERSHIP , TERMS AND CONDITIONS UNDER WH ICH ADVANCE MEMBERSHIP FEE WAS RECEIVED BY THE ASSESSEE, CONDIT IONS FOR REFUND OF MEMBERSHIP FEE, EMPIRICAL EXPERIENCES AND A SCIENTI FIC WORKING , WHICH NEED TO BE CARRIED OUT KEEPING IN VIEW PECULIAR BUS INESS MODEL AND MATRIX OF THE ASSESSEE AND ALSO WITH RESPECT OF THE ASSESS EES CLUB. WE ARE , THEREFORE, INCLINED TO SET ASIDE AND RESTORE THE MA TTER TO THE FILE OF THE AO FOR DE-NOVO DETERMINATION OF THE ISSUE ON MERITS IN ACCORDANCE WITH LAW TO WORK OUT SPREAD/ROLLOVER OF ADVANCE MEMBERSHIP FEE COLLECTED FOR A PERIOD OF 25 YEARS SPREAD OVER PERIOD OF TIME BASED ON REA SONABLE SCIENTIFIC METHOD KEEPING IN VIEW BUSINESS MATRIX AND MODEL OF THE ASSESSEE WORKED OUT AFTER STUDY OF THE ABOVE PARAMETERS AS CITED B Y US AND ALSO OF ANY OTHER RELEVANT PARAMETER HAVING IMPACT AND BEARING ON COMPUTATION OF CORRECT INCOME OF THE ASSESSEE CHARGEABLE TO TAX. O UR DECISION IS IN CONSONANCE WITH THE RECENT DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SEAGRAM DISTILLERIES PRIVATE LIMITED(NOW PE RNOD RICARD INDIA LIMITED) V. CIT-III,(2016) TIOL-117-SC-IT RENDERED ON 11-07-2016. THE ASSESSEE IS DIRECTED TO APPEAR BEFORE THE AO AND PR ODUCE ALL NECESSARY AND RELEVANT EVIDENCES AND EXPLANATIONS TO ENABLE THE A O TO ARRIVE AT CORRECT COMPUTATION OF INCOME OF THE ASSESSEE AS PER OUR DI RECTIONS. NEEDLESS TO SAY THAT PROPER AND ADEQUATE OPPORTUNITY OF HEARING SHALL BE GRANTED BY THE AO TO THE ASSESSEE IN ACCORDANCE WITH THE PRINC IPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LAW. WE ORDER ACCORDINGLY. ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 71 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IN I TA NO. 7905/MUM/2011 AND APPEAL FILED BY THE REVENUE IN ITA NO.8140/MUM/ 2011 FOR THE ASSESSMENT YEAR 2008-09 ARE PARTLY ALLOWED AS INDIC ATED ABOVE. 10.OUR DECISION IN ITA NO. 7905/MUM/2011 AND ITA NO . 8140/MUM/2011 FOR THE ASSESSMENT YEAR 2008-09 SHALL APPLY MUTATIS MUTANDIS TO THE APPEALS FOR ASSESSMENT YEARS 2004-05 TO 2007-08 AS APPLICAB LE. 11. THUS, THE REVENUE APPEALS IN ITA NO. 5316/MUM/ 2012 FOR ASSESSMENT YEAR 2004-05 IS ALLOWED WHILE REVENUE APPEALS IN IT A NO. 5337/MUM/2012 FOR ASSESSMENT YEAR 2005-06,ITA NO.5338/MUM/2012 FO R ASSESSMENT YEAR 2006-07, ITA NO. 5339/MUM/2012 FOR ASSESSMENT YEAR 2007-08 ARE PARTLY ALLOWED. WE ORDER ACCORDINGLY. 12. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IN ITA NO. 7905/MUM/2011 AND APPEAL FILED BY THE REVENUE IN ITA NO.8140/MUM/ 2011 FOR ASSESSMENT YEAR 2008-09 ARE PARTLY ALLOWED WHILE THE REVENUE APPEALS IN ITA NO. 5316/MUM/2012 FOR ASSESSMENT YEAR 2004-05 IS ALLOWE D AND THE REVENUE APPEALS IN ITA NO. 5337/MUM/2012 FOR ASSESSMENT YEA R 2005-06,ITA NO.5338/MUM/2012 FOR ASSESSMENT YEAR 2006-07, ITA N O. 5339/MUM/2012 FOR ASSESSMENT YEAR 2007-08 ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH SEPTEMBER, 2016. # $% &' 26-09-2016 ( ) SD/- SD/- (MAHAVIR SINGH) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 26-09-2016 ITA 7905 & 8140/MUM/2011 & ITA NO. 5316 & 5337- 5339/MUM/2012 72 [ !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 9 ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. 9 / CIT- CONCERNED, MUMBAI 5. <=( >>?@ , ?@ , $ / DR, ITAT, MUMBAI A BENCH 6. (BC D / GUARD FILE. / BY ORDER, < > //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI
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