DCIT 7(1), MUMBAI V. PANCARD CLUBS LTD, MUMBAI

ITA 6724/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75632 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 05-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A C TEJPAL
• Assessee Lawyers: D V LAKHANI
• Keywords: Capital receipt
• Section: 145; 263; 63

Judgement Text

, ,, , , ,, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI , ! ! ! ! ' . # , , $% $ $$ $ & & & & BEFORE SRI VIJAY PAL RAO, JM AND SHRI D. KARUNAKARA RAO, AM ./ I.T.A. NO. 6724 /MUM/2012 ( ' ( ' ( ' ( ' ( )( )( )( )( / ASSESSMENT YEARS: 2006-07) DCIT - 7(1), ROOM NO.622, AAYAKAR BHAVAN, M.K.ROAD, CHURCHGATE, MUMBAI-400020 ' ' ' ' / VS. M/S. PANCARD CLUBS LTD., 110 , KALYANDAS UDYOG BHAVAN, NEAR CENTURY BAZAR, PRABHADEVI, MUMBAI-400 0025. * $% ./ + ./ PAN/GIR NO . : AAACP9093R ( *, / ASSESSEE ) .. ( -.*, / RESPONDENT ) ./ I.T.A. NO. 6725 /MUM/2012 ( ' ( ' ( ' ( ' ( )( )( )( )( / ASSESSMENT YEARS: 2008-09) DCIT - 7(1), ROOM NO.622, AAYAKAR BHAVAN, M.K.ROAD, CHURCHGATE, MUMBAI-400020 ' ' ' ' / VS. M/S. PANCARD CLUBS LTD., 110 , KALYANDAS UDYOG BHAVAN, NEAR CENTURY BAZAR, PRABHADEVI, MUMBAI-400 0025. * $% ./ + ./ PAN/GIR NO . : AAACP9093R ( *, / ASSESSEE ) .. ( -.*, / RESPONDENT ) *, / 0 $ / ASSESSEE BY : SHRI A.C. TEJPAL -.*, / 0 $ / RESPONDENT BY : SHRI D.V.LAKHANI ' / 1% / DATE OF HEARING : 07/01/2014 23) / 1% / DATE OF PRONOUNCEMENT : 21 /02/2014 $4 / O R D E R PER VIJAY PAL RAO, JM: THESE TWO APPEALS BY THE REVENUE WHICH DIRECTED AGA INST THE COMPOSITE ORDER DATED 27/08/2012 OF CIT(A) FOR THE ASSESSMENT YEARS 2006-07 AND 2008-09. THE REVENUE HAS RAISED C OMMON GROUNDS IN THESE APPEALS AS UNDER. A. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE RECEIPT OF ADVANCE OF ROOM NIGHT IS NOT A REVENUE RECEIPT. 2 ITA NO.6724 & 6625/MUM/2012 M/S PANCARD CLUBS LTD. B. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS I N HOLDING THAT THE PROVISION FOR HOLIDAY SCHEME SURRENDER VA LUES IS ALLOWABLE EXPENDITURE. 2. THE ASSESSEE IS A PUBLIC LIMITED COMPANY AND ENG AGED IN THE BUSINESS OF PROVIDING FACILITIES OF ROOM NIGHTS IN HOTELS/CLUBS. THE ASSESSEE HAS FLOATED SEVERAL HOLIDAYS SCHEMES ON AC COUNT OF ADVANCE AGAINST SALE OF ROOM NIGHTS. UNDER THE SCH EME AN INDIVIDUAL CAN BECOME A MEMBER AND WILL MAKE THE AD VANCE PAYMENT FOR UTILISATION OF ROOM NIGHTS IN FUTURE. THE MEMBER HAS AN OPTION TO EXERCISE HIS RIGHT AND IF THE OPTION I S EXERCISED THEN HE WILL BE ENTITLED TO AVAIL THE ROOM NIGHTS AS PER TH E SCHEME. THE MEMBER IS ALSO ENTITLE TO REFUND, AT THE END OF THE RESPECTIVE SHCEME, THE SURRENDER VALUE OF THE ROOM NIGHTS. TH E ASSESSEE HAS TREATED THE ADVANCE RECEIVED AGAINST THE SALE OF RO OM NIGHTS AS A LIABILITY AND THE SAME IS DISCLOSED IN THE BALANCE SHEET UNDER THE HEAD LIABILITY. THE ASSESSEE HAS TREATED DIFFERENC E BETWEEN AMOUNT PAID BY THE MEMBER AND THE SURRENDER VALUE AS AN EX PENSE AND THE SAME IS SPREAD OVER THE TENURE OF THE SCHEME AND PR ORATE AMOUNT IS CLAIMED AS DEDUCTION. THE LD. AO HAS TREATED THE A DVANCE RECEIVED FROM THE MEMBERS AS TAXABLE INCOME AND HAS ALSO DIS ALLOWED THE CLAIM OF OR PRORATE AMOUNT OF HOLIDAY MEMBERSHIP SU RRENDER VALUE. THE ASSESSING OFFICER RELIED UPON THE ORDER PASSED BY THE COMMISSIONER U/S 263 FOR THE A.Y. 2004-05 AND 2005-0 6. ON APPEAL, THE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION OF THIS TRIBUNAL IN THE APPE AL FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER PASSED U /S 263 FOR A.Y.2004-05 AND 2005-06. 3. BEFORE US, THE LD. DR HAS HEAVILY RELIED UPON TH E ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND, THE LD. AR H AS SUBMITTED THAT 3 ITA NO.6724 & 6625/MUM/2012 M/S PANCARD CLUBS LTD. THE ISSUE IN THESE APPEALS IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE ARISING FROM THE REVISION ORDER PASSED BY THE COMMISSIONER U/S 2 63 OF THE INCOME-TAX ACT FOR A.Y. 2004-05 AND 2005-06. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS RELEVANT MATER IAL ON RECORD. AT THE OUTSET, WE NOTE THAT FOR THE A.Y.2004-05 AND 2005-06 THE ORIGINAL ASSESSMENT WAS COMPLETED ON 16/03/2009 AND 17/02/2009 RESPECTIVELY. SUBSEQUENTLY,THE COMMISSIOER FOUND T HAT THE ORDER OF THE ASSESSING OFFICER FOR THESE TWO ASSESSMENT YEAR S WERE ERONEOUS SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE TO THE EXTENT THE CLAIM OF THE ASSESSEE IS NOT RECOGNISING ADVANCE RECEIVED FROM THE MEMBERS AGAINST THE SALE OF ROOM NIGHTS AS REVENUE. FURTHER, ALLOWING THE PRORATE SURRNEDER VALUE COMPUTING OVER THE PERIOD OF SCHEMES AS EXPENDITURE. THE ASSESSE CHALLENGED THE ORDER OF THE COMMISSIONER PASSED U/S 263 BEFORE THE TRIBUNAL. T HE TRIBUNAL THOUGH FOUND THAT THERE WAS A LACK OF ENQUIRY ON TH E PART OF THE AO AND THEREFORE THE INVOKING OF THE PROVISION U/S 263 WAS JUSTIFIED. HOWEVER, THE TRIBUNAL HAS DECIDED THESE TWO ISSUES ON MERIT VIDE ORDER DATED 16/03/2011 IN ITA NO.2389/MUM/2009 AND 2918/MUM/2009. WE NOTE THAT THE TRIBUNAL HAS GIVEN A DETAILED FINDING ON MERITS OF THESE TWO ISSUES FROM PARA 71 TO PARA 87 AS UNDER. 71. NOW, WE CONSIDER THE SECOND MAJOR GROUND THAT THE R EVISION I.E., ACCOUNTING OF ADVANCE SALE OF ROOM NIGHTS, THE FACTS HAVE ALREADY BEEN BROUGHT OUT BOTH IN THE ASSESSMENT ORDER AS WELL AS IN THE ORDER OF CIT AND THE ARGUMENTS OF THE PARTIES. THE DEPARTMENTAL REPRESENTATIVE, IN HIS ARGUMENTS, STRE SSED ON THE POINT THAT THE PREDOMINANT PURPOSE IS TO SELL THE ROOM NIGHTS. THE UNDISPUTED F ACT IS THAT THE ASSESSEE HAS COLLECTED AN ADVANCE, UNDER PROMISE TO MAKE AVAILABLE TO ITS CUS TOMERS, ROOMS IN AT ANY OF ITS HOTELS / CLUBS OWNED BY IT OR BY ITS SUBSIDIARY AS WELL AS O WNED BY THE OTHER AFFILIATED DESTINATIONS. IT IS ALSO UNDISPUTED THAT A CUSTOMER IS ENTITLED TO S URRENDER THE ROOM NIGHTS IN CASE THEY DO 4 ITA NO.6724 & 6625/MUM/2012 M/S PANCARD CLUBS LTD. NOT UTILIZE THEM AND OPT FOR SURRENDER VALUE. WHEN A CUSTOMER OPTS FOR SURRENDER VALUE, HE SHALL BE PAID IN CASH BY THE ASSESSEE OR IN THE ALT ERNATIVE, THE CUSTOMER MAY OPT TO BUY OR UTILISE THE PRODUCTS AND SERVICES OF ITS COMPANY AN D ITS GROUP COMPANIES. THE CIT HAS BROUGHT OUT THE SCHEME WHICH IS THE BASIS ON WHICH WE HAVE TO ADJUDICATE THE ISSUE FOR READY REFERENCE, WE EXTRAC T THE SAME FROM PAGES8 AND 9 OFTHE CITS ORDER. I HAVE GONE THROUGH THE ADVERTISEMENT BROCHURE IN RESPECT OF ALL THE NINE SCHEMES IN OPERATION DURING THE RELEVANT ACCOUNTING YEAR. THE A DVERTISEMENT BROCHURES ARE SPECIFIC SO FAR AS THE OBJECTIVE OF THE SCHEMES IS CONCERNED. T HE PRIMARY OBJECTIVE IN COOPTING A PERSON AS A MEMBER IS TO PROVIDE ACCOMMODATION AND OTHER FACILITIES TO AVAIL OF THE FACILITIES DURING THE HOLIDAY PERIOD. BASIC FEATURES OF THE SC HEME ARE SIMILAR. AS ON ILLUSTRATION, THE FEATURES OF COMFORT MEMBERSHIP SCHEME HAVING A TENU RE OF THREE YEARS ARE DETAILED. THIS SCHEME PROVIDES FOR FIVE ROOM NIGHTS PACKAGE AT AN OFFICER PRICE OF RS. 3,000. THIS SCHEME WAS EFFECTIVE FROM 1ST APRIL 2004. THE TERMS AND CO NDITIONS FOR THE MEMBERSHIP ARE AS FOLLOWS: I) THE TENURE IS THREE YEARS. II) THE MEMBERSHIP IS ACCEPTED FOR MINIMUM OF 5 NIGH TS AND THEREAFTER IN MULTIPLE OF TWO ROOM NIGHTS. III) ROOM IS DEFINED TO MEAN A STANDARD NON AIRCON DITIONED ACCOMMODATION PROVIDED FOR A COUPLE, AND CHILD BELOW 5 YEARS OF AGE. IV) THE ENTITLEMENT OF ROOM NIGHTS IS DEFINED TO MEA N ACCOMMODATION ONLY THAT SHALL BE PROVIDED TO THE MEMBERS. V) IN CASE THE ROOM NIGHTS ARE NOT AVAILED OF DURIN G THE 3 YEARS TENURE PERIOD, THE MEMBER WOULD BE ENTITLED TO SURRENDER VALUE OF RS. 4,250 @ RS.850 PER ROOM NIGHT). VI) MEMBER SHALL COMMENCE UTILIZATION OF THE ROOM N IGHTS ENTITLEMENT AFTER 60 DAYS FROM THE DATE OF MEMBERSHIP. VII) THE ROOM NIGHTS CAN BE AVAILED IN THE EXISTING OR THE AFFILIATED FACILITIES, FOR AVAILING OF THE AFFILIATED FACILITIES, EXCHANGE FEE OF RS.150 PER R OOM NIGHT WILL BE CHARGED. VIII) THE MEMBER MAY SURRENDER THEIR UNUSED ENTITLEM ENT OF ROOM NIGHTS TO THE COMPANY AND OPT FOR SURRENDER VALUE. IX) PAYMENT AGAINST UNUSED ROOM NIGHTS WILL BE MADE AFTER THE EXPIRATION OF THE MEMBERSHIP PERIOD. X) IN LIEU OF SURRENDER VALUE, MEMBERS MAY OPT BY O R UTILIZE THE PRODUCTS AND SERVICES OF THE COMPANY AND ITS GROUP COMPANIES. THE PRODUCT AND SE RVICES, INTERALIA, INCLUDES HERBAL PRODUCTS, FOOD AND FOOD COUPONS, I.T. TRAINING SOFTWARE DEVELO PMENT, AUDITORIUM / HALL AT THANE CLUB, ETC. XI) THE MEMBER SHALL BE ENTITLED TO FREE INSURANCE C OVER AS PER THE ELIGIBILITY UNDER THE SCHEME. XII) IN CASE OF NATURAL / ACCIDENTAL DEATH OF THE M EMBERS, THE MEMBERSHIP SHALL BE TRANSFERRED IN THE NAME OF THE NOMINEE AS MENTIONED IN THE MEMBERSHIP APPLICATION FORM WHO SHALL BE ENTITLED FOR UNUSED ROOM NIGHTS, SETTL EMENT OF CLAIM AMOUNT BUT INSURANCE BENEFITS SHALL BE TRANSFERRED IN FAVOUR OF THE NOMI NEE. THE AFORESAID FEATURES EXIST IN ALL THE SCHEMES OF MEMBERSHIP FLOATED BY THE ASSESSEE COMPA NY. [EMPHASIS ADDED] 5 ITA NO.6724 & 6625/MUM/2012 M/S PANCARD CLUBS LTD. A PERUSAL OF THE SCHEME SHOWS THAT A MEMBER PAYS RS . 3,000 FOR A FIVE NIGHT PACKAGE AND THAT IF HE DOES NOT AVAIL OF ANY OF THE ROOM OR FACILITIES, HE IS ENTITLED TO RS.4,250, AS SURRENDER VALUE. THE RIGHT TO CLAIM OF SURRENDER VALUE ACCRUES TO THE CUSTOMER / MEMBER ON PAYMENT OF RS.3,000. THE ASSESSEE HAS NO RIGHT TO APPROPRIATE OR TAKE AS INCOME, THE AMOUNT OF RS.3,000 BEFORE THE CUSTOMER/ MEMBER, EXERCISE ANY OF THE OPTIONS GIVEN IN THE SCHEME I.E., (I) AVAIL THE ROOM IN THE ASSESSEES HOTEL OR RESORT; (II) AVAIL ROOM IN AFFILIATED FACILITIES (IN SUCH CASE, THE RECEIPT HA S TO BE TRANSFERRED TO AFFILIATED FACILITY); (III) OPT FOR SURRENDER VALUE; (IV) OPT TO UTILISE THE SURREN DER VALUE, IN AVAILING OF THE SERVICES OR PURCHASING THE PRODUCT OF THE COMPANY. UNLESS THE C USTOMER / MEMBER UTILISES THE SERVICES, OR EXERCISES HIS OPTION OF PURCHASE, ETC., IN OUR O PINION, INCOME DOES NOT ACCRUE TO THE ASSESSEE. ANOTHER VITAL POINT IS THAT, IF THE RECEIPT OF RS. 3,000 FROM MEMBER AS A FLOATING ADVANCE FOR ROOM NIGHTS IS INCOME, THEN THE LD. CIT WAS BOUND TO HOLD THAT THE PAYMENT OF SURRENDER VALUE OF RS. 4,250 IS EXPENDITURE TO BE ALLOWED. THI S WAS NOT DONE BY THE LD. CIT. THE ASSESSEE HAS FURNISHED FOLLOWING STATISTICS, WHI CH WE EXTRACT FOR ANALYSIS. F. YEAR SCHEME NAME OP. BAL AMOUNT COLLECTED REFUNDED UTILISATION CLOSING BAL. 2002 03 COMFORT 117,151,200 600 117,150,600 LUXURY 191,979,300 425 191,978,875 PREMIUM 12,410,000 12,410,000 REGULAR 15,963,000 102,000 15,861,000 ROYAL 105,058,800 5,600 105,053,200 STANDARD 38,219,160 1,960 38,217,200 SUPREME 10,854,480 10,854,480 TOTAL 491,635,940 8,585 491,525,355 % 0.001% 2003 04 COMFORT 117,150,600 173,715,200 40,800 290,825,000 LUXURY 191,978,875 353,233,990 12,750 545,200,115 PREMIUM 12,410,000 20,673,120 1,871,120 1,120 31,2 10,880 REGULAR 15,861,000 33,218,000 1,989,000 47,090,000 ROYAL 105,053,200 79,150,120 17,640 184,185,680 STANDARD 38,217,200 46,724,120 7,560 84,933,760 6 ITA NO.6724 & 6625/MUM/2012 M/S PANCARD CLUBS LTD. SUPREME 10,854,480 12,754,000 840 23,607,610 GOLDEN 1,846,800 1,846,800 PLATINUM 15,748,700 15,748,700 TOTAL 737,064,650 3,860,120 80,710 1,224,648,575 0.006% 2004 05 COMFORT 290,825,000 268,122,400 732,600 558,214,800 LUXURY 545,200,115 350,791,935 1,021,700 894,970,350 PREMIUM 31,210,880 25,500,000 5,236,000 51,474,880 REGULAR 47,090,000 58,266,000 13,056,000 92,300,000 ROYAL 184,185,680 98,562,520 1,479,240 281,268,960 STANDARD 84,933,760 42,609,320 136,640 127,406,440 SUPREME 23,607,640 15,951,275 46,760 39,515,135 GOLDEN 1,846,800 2,462,400 615,600 3,693,600 PLATINUM 15,748,700 40,065,300 55,814,000 TOTAL 1,224,648,575 902,334,150 18,907,600 3,416,9 40 2,104,658,185 0.16% 2005 06 COMFORT 558,214,800 196,698,671 58,102,450 75,900 996,735,121 LUXURY 894,970,350 609,871,969 2,867,675 191,675 1 ,501,785,969 PREMIUM 51,47,880 26,358,075 340,000 77,492,955 REGULAR 92,300,000 71,381,500 1,734,000 161,947,5 00 ROYAL 281,268,960 125,668,118 772,765 172,655 405, 991,658 STANDARD 127,406,410 57,008,754 136,045 271,040 18 4,008,109 SUPREME 39,515,155 28,070,873 167,040 4,120 67,417 ,868 GOLDEN 3,693,600 4,164,000 7,797,600 REGAL 6,569,400 25,000 6,544,400 PLATINUM 55,814,000 75,966,010 232,950 131,547,06 0 TOTAL 2,104,658,185 1,501,700,370 64,377,925 712,3 90 3,541,268,240 0.02% 2006 07 7 ITA NO.6724 & 6625/MUM/2012 M/S PANCARD CLUBS LTD. COMFORT 996,735,121 989,856,575 120,313,395 1,866 ,278,301 LUXURY 1,501,785,969 1,739,395,861 2,935,365 3,23 8,246,465 PREMIUM 77,492,955 34,503,045 170,000 111,826,000 REGULAR 161,947,500 121,889,050 1,622,000 282,214 ,550 ROYAL 405,991,658 365,051,952 652,170 770,391,440 STANDARD 184,008,109 114,124,366 66,325 298,066,1 50 SUPREME 67,417,868 82,809,432 98,525 150,128,775 GOLDEN 7,797,600 3,129,300 4,668,300 REGAL 6,544,400 12,810,375 900 19,353,875 PLATINUM 131,547,060 82,433,630 168,730,085 45,25 0,605 TOTAL 3,541,268,240 3,542,874,286 297,718,065 6,7 86,424,461 000% 2007 08 COMFORT 1,866278,301 201,670,929 302,138,530 78,70 0 1,765,732,000 LUXURY 3,238,246,465 315,780,435 2,147,060 136,850 3,551,742,990 PREMIUM 111,826,000 26,283,700 1,700 138,108,000 REGULAR 282,214,550 134,640,000 416,854,550 ROYAL 770,391,440 59,561,205 996,445 38,080 828,91 8,120 STANDARD 298,066,150 28,425,080 11,200 21,880 326, 458,150 SUPREME 150,128,775 137,329,055 462,725 1,680 286, 993,425 GOLDEN 4,668,300 410,400 564,300 4,514,400 REGAL 19,353,875 41,783,465 61,137,340 PLATINUM 45,250,605 280,947,395 326,198,000 NEW COMFORT 1,189,351,500 1,800 1,189,349,700 NEW LUXURY 1,572,129,900 3,600 1,572,126,300 NEW ROYAL 279,784,750 279,784,750 TOTAL 6,786,424,461 4,268,097,814 306,320,260 284,290 10, 747,917,725 0.002% 8 ITA NO.6724 & 6625/MUM/2012 M/S PANCARD CLUBS LTD. 72. A PERUSAL OF THE ABOVE DISCLOSES THAT A VERY NE GLIGIBLE PERCENTAGE OF THE CUSTOMER / MEMBER ONLY UTILISE THE ROOM NIGHTS. MORE THAN 99% OF THE CUSTOMERS SURRENDER THE ROOM NIGHTS WHICH IS NOT ONLY THE AMOUNT PAID BUT WHICH IS INCLUSIVE OF A PREMIUM OVER AND ABOVE THE COLLECTED VALUE. THE LEARNED DEPARTMENTAL REPRES ENTATIVE ALSO FILED A CHART TO PROVE HIS POINT THAT THE REFUNDS ARE NOT DONE IN ITS ENTIRETY AND THAT ONLY ABOUT 30% OF THE AMOUNT IS RETURNED. WE DO NOT EXTRACT CHART, AS IT WILL NOT S ERVE THE PURPOSE FOR THE REASON THAT THE FACT REMAINS THAT THE ASSESSEE IS OBLIGED TO REFUND THE AMOUNT WHEN CLAIMED AND JUST BECAUSE A SMALLER PORTION IS RETURNED, IT DOES NOT MEAN THAT THE RECEIPT BECOMES INCOME. ON THESE FACTS, WE EXAMINE THE CASE LAWS RELIED UPON BY BOTH THE PARTIES. (I) IN THE CASE OF TAPARIA TOOLS LTD. V/S JCIT, (200 3), 260 ITR 102 (BOM.), THE HONBLE JURISDICTIONAL HIGH COURT WAS C ONSIDERING THE MATCHING CONCEPT. IT HELD THAT UNDER THE MERCANTILE SYSTEM O F ACCOUNTING, IN ORDER TO DETERMINE THE NET INCOME OF ACCOUNTING YEAR, THE RE VENUE AND OTHER INCOMES ARE MATCHED WITH THE COST OF RESOURCES CONS UMED (EXPENSES) AND THE SALE IS REQUIRED TO BE DONE ON ACCRUAL BASIS. I T HELD THAT THE REVENUES AND INCOME EARNED DURING AN ACCOUNTING PERIOD, IRRE SPECTIVE OF THE ACTUAL CASH FLOW IS REQUIRED TO BE COMPARED WITH THE EXPEN SES INCURRED FOR THE SAME PERIOD IRRESPECTIVE OF THE CASH OUT FLOW. IT H ELD THAT IF THE MATCHING COST IS NOT APPLIED, THEN THE PROFITS GET DISTORTED . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED HEAVILY ON THIS ASPECT OF MAT CHING CONCEPT. WHEN THERE IS NO INCOME, THE QUESTION OF RECOGNIZING A P ARTICULAR PORTION AS INCOME UNDER THE MATCHING CONCEPT DOES NOT ARISE. I T HAS TO BE FIRST SEEN IF THERE IS AN INCOME. JUST BECAUSE EXPENDITURE IS CLA IMED, THE RECEIPT WHICH IS NOT INCOME DOES NOT BECOME INCOME. MATCHING CONC EPT TALKS ABOUT APPORTIONING INCOME, WHEN THERE IS CORRESPONDING EX PENDITURE WHICH IS SPREAD OVER A PERIOD OF TIME. A CAPITAL RECEIPT DOE S NOT BECOME A REVENUE RECEIPT, JUST BECAUSE SOME EXPENDITURE IS INCURRED ON THE CAPITAL RECEIPT AND CLAIMED BY THE ASSESSEE. THUS, WE DO NOT AGREE O N THIS ISSUE WITH THE LEARNED CIT AS WELL AS THE LEARNED DEPARTMENTAL REPR ESENTATIVE. (II) IN SIDDHESHWAR SAHAKARI SAKHAR KARKHANA LTD. V /S CIT & ORS., (2004) 270 ITR 001 (SC), THE HON'BLE SUPREME COURT H AS HELD AS FOLLOWS: HELD (I) REVERSING THE DECISION OF THE HIGH COURT , THAT THE LINE OF ENQUIRY, IN ORDER TO DETERMINE THE TRUE NATURE AND CHARACTER OF THE RECEIPTS, DID NOT STOP AT ASCERTAINING THE MERE FACT WHETHER THE REAL IZATION WAS IN THE COURSE OF TRADING. ALTHOUGH THE USE OF THE EXPRESSION DEP OSIT DID NOT CONCLUDE THE ISSUE, THE EXPRESSION WAS USED IN THE BYELAWS TO MEAN JUST WHAT IT SAID. THE REPAYMENT OF LOANS TAKEN FOR CAPITAL EXPEN DITURE AND THE SHARE CAPITAL OF THE GOVT. WERE TWO SPECIFIED EVENTS WHIC H WERE BY NO MEANS UNCERTAIN, THOUGH THE TIME OF REPAYMENT WAS INDEFIN ITE. ON THE OCCURRENCE OF THE TWO EVENTS THE RIGHT TO DEMAND REFUND WOULD ACCRUE TO THE MEMBER DEPOSITOR. SUCH A RIGHT, THOUGH CONTINGENT IN NATUR E INITIALLY, INHERED IN THE DEPOSITOR FROM THE BEGINNING . THE WORD MAY IN THE BYELAWS HAD TO BE CONSTRUED AS SHALL AND THE BOARD WAS BOUND TO ALL OT SHARES TO THE MEMBERS IN RELATION TO THE DEPOSITS, AFTER FULL REP AYMENT TO THE GOVT. AND THE FINANCIAL INSTITUTIONS. THE EXISTENCE OF THE OTH ER FEATURES SUCH AS 9 ITA NO.6724 & 6625/MUM/2012 M/S PANCARD CLUBS LTD. TRANSFERABILITY OF THE DEPOSIT TO ANOTHER MEMBER AN D THE PROVISION FOR REFUND OF THE DEPOSITED AMOUNT TO THE MEMBER IN CASE OF CE SSATION OF MEMBERSHIP OR TO HIS LEGAL HEIRS IN CASE OF DEATH INDICATED TH AT THE DEPOSITED AMOUNT COULD NOT BE TREATED AS MONEY BELONGING TO THE ASSE SSEE SOCIETY . THE PAYMENT OF INTEREST AT A SPECIFIED RATE FROM YEAR T O YEAR WAS CONSISTENT ONLY WITH THE FACT THAT THE DEPOSITED AMOUNT STILL BELON GED TO THE MEMBERS. AND THE FACT THAT THE DEPOSITED AMOUNTS WERE CREDITED T O THE INDIVIDUAL ACCOUNTS OF THE MEMBERS CORROBORATED THE CIRCUMSTANCES THAT THE DEPOSITS BELONGED TO THE MEMBERS. THE AMOUNTS DEDUCTED FROM THE CANE P RICE TOWARDS THE NON REFUNDABLE DEPOSITS WERE NOT TRADING RECEIPTS O F THE ASSESSEE. CIT V/S BAZPUR COOPERATIVE SUGAR FACTORY LTD., (1988 ) 172 ITR 321 (SC); (1988) 3 SCC 553 AND SHREE NIRMAL COMMERCIAL LTD. V /S CIT, (1992) 192 ITR 694 (BOM.) DISTINGUISHED. (II) REVERSING THE DECISION OF THE HIGH COURT, THAT THE AMOUNT OF REFUNDABLE DEPOSITS COULD NOT IN ANY SENSE BE TREATED AS INCOM E OF THE ASSESSEE SOCIETY . [EMPHASIS ADDED ] 73. IN OUR OPINION, THE RATIO LAID DOWN IN THIS JUD GMENT WHICH IS RELIED UPON BY THE LD. SR. COUNSEL, SQUARELY APPLIES TO THE FACTS OF THE CASE, IN VIEW OF THE OBLIGATION FASTENED ONE THE ASSESSEE TO REFUND THE AMOUNT, OF ADVANCE RECEIVED ON SALE OF ROOM NIGHTS. THE SCHEME GIVES A RIGHT TO THE CUSTOMER TO TAKE BACK HIS MONE Y WITH PREMIUM AND IN SUCH A SITUATION, WE DO NOT SEE HOW IT COULD BE TREATED AS A TRADING RECEIPT. (III) IN ACIT V/S MAHINDRA HOLIDAYS & RESORTS (I) LT D., (2010) 131 TTJ 1 (SB) (CHENNAI), THE SPECIAL BENCH OF THE TRIBUNAL WA S CONSIDERING THE CASE WHERE THE FACTS WERE THAT THE COMPANY HAD NO OBLIGA TION TO REFUND THE AMOUNT. IT WAS A CASE WHERE THE ASSESSEE HAD NOT MADE ANY PROV ISIONS FOR ANY LIABILITY WHICH THE COMPANY COULD CLAIM THAT IT WOULD INCUR I N FUTURE. IN THE CASE ON HAND, UNLIKE IN THE CASE OF MAHINDRA HOLIDAYS & RESORTS ( I) LTD. (SUPRA), THERE IS A CLEAR OBLIGATION ON THE PART OF THE ASSESSEE TO NOT ONLY REFUND THE AMOUNT OF ADVANCE ROOM NIGHTS COLLECTED BUT ALSO PAY A PREMIU M ALONG WITH IT. IN THE CASE OF MAHINDRA HOLIDAYS & RESORTS (I) LTD. (SUPRA), AN ANNUAL MAINTENANCE CHARGE WAS COMPULSORILY COLLECTED, OR ONLY ADMINISTRATIVE CHARGE WAS COLLECTED FROM CUSTOMER / MEMBER IRRESPECTIVE OF THE FACT AS TO WH ETHER THE CUSTOMER / MEMBER MAKES USES OF RESORT OR NOT. IN THE CASE ON HAND, T HERE IS NO SUCH ANNUAL MAINTENANCE CHARGE COLLECTED. THESE ARE THE FUNDAMEN TAL DIFFERENCE BETWEEN THESE TWO CASES. THE SPECIAL BENCH DID CONSIDER ALL THE POINTS INCLUDING THE ACCOUNTING STANDARD AS/29 AND AS/9, RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE AND HAS COME TO CONCLUSION THAT THE ENTIRE RECEIPT CANNOT BE IN THE FIRST YEAR. IN FACT, THE SPECIAL BENCH DECISION CLEARLY COVERS THE CASE ON HAND TO THE EXTENT THAT, THE DIRECTION OF THE CIT THAT TH E ENTIRE ADVANCE HAVE TO BE TAXED, IS BAD IN LAW. THE TRIBUNAL HELD AS FOLLOWS: INCOMEACCRUALTIME-SHARE MEMBERSHIP FEE RECEIVABLE AT THE TIME OF ENROLMENT OF MEMBERSTHOUGH A DEBT IS CREATED IN FAV OUR OF THE ASSESSEE 10 ITA NO.6724 & 6625/MUM/2012 M/S PANCARD CLUBS LTD. IMMEDIATELY ON EXECUTION OF THE AGREEMENT, IT CANNO T BE SAID THAT THE ASSESSEE HAS FULLY CONTRIBUTED TO ACCRUAL OF INCOME BY RENDE RING SERVICESASSESSEE IS BOUND TO PROVIDE ACCOMMODATION TO THE MEMBERS FOR O NE WEEK EVERY YEAR TILL THE CURRENCY OF THE MEMBERSHIPTILL THE ASSESSEE FUL FILS ITS PROMISE, THE PARENTHOOD CANNOT BE TRACED TO ITFURTHER, IF THE AS SESSEE CONFIRMS THE RESERVATION OF A MEMBER BUT IS NOT ABLE TO PROVIDE THE ALLOTTED OR AN ALTERNATE ACCOMMODATION, IT IS LIABLE TO PAY LIQUIDATED DAMAG ES TO THE MEMBERTHESE TYPES OF CONTINGENCIES WILL ALWAYS ENTAIL OUTFLOW O F RESOURCES FOR THE ASSESSEE IN FUTURE THEREFORE, THERE IS EVERY POSSIBILITY OF AN OBLIGATING EVENT ARISING WHICH WILL RESULT IN AN OUTFLOW OF RESOURCESTHERE IS A CO NTINUING LIABILITY ON THE PART OF THE ASSESSEE NOT ONLY TO PROVIDE ACCOMMODATION BUT ALSO TO PROVIDE OTHER INCIDENTAL SERVICES ATTACHED WITH THE ACCOMMODATION IT IS NOT ONLY DIFFICULT TO QUANTIFY THE FUTURE LIABILITY BUT ALSO TO REASONABL Y ESTIMATE ITNO SCIENTIFIC BASIS IS SHOWN TO QUANTIFY THE SAME EVEN REASONABLYTHEREF ORE, EVEN IF THE ASSESSEE HAD CHOSEN TO PROVIDE FOR THE LIABILITY IN EVERY YEAR TO COMPLY WITH THE MATCHING CONCEPT, IT WOULD HAVE BEEN WHOLLY UNSCIEN TIFIC AND ARBITRARY AVERMENT IN THE AFFIDAVIT FILED BY THE ASSESSEE BEF ORE THE SERVICE-TAX AUTHORITIES TO THE EFFECT THAT ONCE THE AGREEMENT IS SIGNED NO SERVICE IS LEFT TO BE RENDERED BY THE ASSESSEE IS NOT RELEVANT IN THIS REGARDBY S AYING SO, THE ASSESSEE MEANT THAT THERE IS NO TAXABLE EVENT UNDER THE SERV ICE-TAX LAWS ONCE A PERSON BECOMES A MEMBERSINCE A DEFINITE LIABILITY IS CAST ON THE ASSESSEE TO FULFIL ITS PROMISE, IT CANNOT BE SAID THAT THE ENTIRE FEE RECE IVED BY IT HAS ACCRUED AS INCOME, AND RECOGNIZING THE ENTIRE RECEIPT AS INCOM E IN THE YEAR OF RECEIPT WOULD LEAD TO DISTORTIONONLY WAY TO MINIMISE THE DISTORT ION IS TO SPREAD OVER A PART OF THE INCOME OVER THE ENSUING YEARS THEREFORE, THE EN TIRE AMOUNT OF TIME-SHARE MEMBERSHIP FEE RECEIVABLE BY THE ASSESSEE UPFRONT A T THE TIME OF ENROLMENT OF A MEMBER IS NOT INCOME CHARGEABLE TO TAX IN THE INITI AL YEAR (IV) IN TREASURE ISLAND RESORTS PVT. LTD. V/S DCIT, ( 2004) 90 ITD 814 (HYD.), THE TRIBUNAL HELD AS FOLLOWS: INCOMEACCRUALSPREAD OVER OF CLUB MEMBERSHIP FEES ASSESSEE-CLUB TREATING THE FEES COLLECTED FROM MEMBERS AS REVENUE RECEIPTS BUT AS PER AS-9 PRESCRIBED BY THE ICAI, SPREADING OVER THE SAME FOR FIVE YEARS IN THE CASE OF PERMANENT MEMBERS AND TWO YEARS IN THE CASE OF TEMP ORARY MEMBERS JUSTIFIEDSERVICES ARE RENDERED BY ASSESSEE TO VARI OUS CATEGORIES OF MEMBERS ON A CONTINUING BASISCEILING ON NUMBER OF MEMBERS AND REFUNDABILITY OR OTHERWISE OF THE FEES ARE IMMATERIAL FOR PURPOSES O F APPLICABILITY OF AS- 9AS-9 HAS BEEN MADE MANDATORY BY THE ICAI W.E.F. 1ST APRI L, 1991, AND NO AUDITOR CERTIFYING ACCOUNTS CAN AFFORD TO IGNORE ITFACT TH AT MEMBERSHIP FEE WAS UTILISED IN CREATION/ACQUISITION OF FIXED ASSETS ON WHICH DE PRECIATION WAS CLAIMED IS NO GROUND TO REJECT THE CLAIM FOR SPREAD OVERWHENEVER THERE IS A RECEIPT GIVING RISE TO A LIABILITY, A PROVISION CAN BE CREATED AGA INST THE RECEIPT FOR THE LIABILITY THERE BEING NO CONFLICT BETWEEN THE PROVISIONS OF IT ACT AND AS-9, THERE IS NO QUESTION OF PRECEDENCE OF FORMER OVER THE LATTER WHEN DULY MANDATED ACCOUNTING STANDARD IS FOLLOWED, IT CANNOT BE SAID THAT INCOME CANNOT BE DEDUCED PROPERLY IN TERMS OF PROVISO TO S. 145 BUT THE THINGS ARE OTHER WAY ROUNDFURTHER, IF THE ENTIRE RECEIPT IS SHOWN IN TH E CURRENT YEAR, THERE WOULD BE 11 ITA NO.6724 & 6625/MUM/2012 M/S PANCARD CLUBS LTD. SUBSTANTIAL DEFICIT IN FUTURE YEARS GIVING A COMPLE TELY DISTORTED PICTURE OF WORKING RESULTS . [EMPHASIS ADDED ] (V) THE TRIBUNAL HELD THAT WHEN MEMBERSHIP FEE IS COL LECTED GIVING THE RIGHT TO THE MEMBER OVER THE PERIOD OF FIVE YEARS, THE ALLOCATION OF INCOME OR THE RECOGNITION OF REVENUE, OVER A PERIOD OF FIVE YEARS , IS QUITE RATIONAL AND IN CONFORMITY WITH THE AS/9. IT HELD THAT IF THE ENTIR E MEMBERSHIP FEE IS TAXED IN THE FIRST YEAR, IT WOULD GIVE A TOTALLY DISTORTED PICTU RE OF THE WORKING RESULTS OF THE ASSESSEE AS SUBSTANTIAL PROFITS WOULD BE TAXED IN T HE YEAR UNDER APPEAL AND WHEREAS SUBSTANTIAL LOSS WOULD BE TAXED IN THE SUBS EQUENT YEARS. THE FACTS OF THE CASE SHOW THAT THE ASSESSEE WAS NOT UNDER THE O BLIGATION TO REFUND THE ADVANCE COLLECTED BY IT. THUS, THIS CASE DOES NOT S UPPORT THE FINDINGS OF THE CIT THAT THE ENTIRE ADVANCE RECEIVED ON SALE OF ROOM NI GHTS SHOULD BE TAXED IN THE YEAR OF RECEIPTS ITSELF IRRESPECTIVE OF THE FACT TH AT, AS TO WHETHER, THE ASSESSEE HAS ACTUALLY AVAILED THE FACILITIES OF ROOM NIGHTS IN ANY ONE OF THE PROPERTIES OF THE ASSESSEE OR IN ITS SUBSIDIARIES OR ASSOCIATE CO NCERNS. (VI) THE NEXT DECISION, RELIED UPON BY THE LEARNED D EPARTMENTAL REPRESENTATIVE, IS IN THE CASE OF CIT V/S MANGAL TIRT H ESTATES LTD., (2008) 303 ITR 366 (MAD.). THIS IS A CASE WHERE THE ASSESSEE IS IN THE BUSINESS OF CONSTRUCTION OF SALE OF MULTISTORIED OFFICE CUM SHOPPING COMPLEX AND HAS FOLLOWED THE PROJECT COMPLETION METHOD. THE ASSESSE E WAS RECEIVING SERVICE CHARGES SEPARATELY FOR PROVIDING AIR CONDITION FACILITY FOR THE PERIOD OF FIVE YEARS. HONBLEBLE MADRAS HIGH COURT HELD THAT THE SALE CO NSIDERATION OF SHOPS AND PREMISES WAS INCLUSIVE OF AIR CONDITION FACILITIES AND, THEREFORE, THE ENTIRE CONSIDERATION WAS LIABLE TO TAX IN THE YEAR ON RECE IPT AS PER PROJECT COMPLETION METHOD. IN OUR OPINION, THIS CASE LAW HAS NO RELEVA NCE TO THE FACTS OF THE CASE. (VII) THE NEXT DECISION IS THE ORDER OF TRIBUNAL, CHA NDIGARH BENCH, RENDERED IN ACIT V/S ASIA RESORTS LTD., (2005) 96 TTJ 909 (CHAN D.). THIS IS A CASE WHERE THE ASSESSEE RECEIVED ADVANCE SUBSCRIPTION IN ITS H OTEL BUSINESS UNDER A TIME SHARING AGREEMENT, WHEREBY THE CUSTOMER WAS ENTITLE D TO CERTAIN FACILITIES OVER A NUMBER OF YEARS. THE TRIBUNAL HELD THAT THE INCOME IS ASSESSABLE ON PROPORTIONATE BASIS. THIS DECISION ALSO DOES NOT HEL P THE REVENUE, AS, IN THE CASE ON HAND, WHAT WAS RECEIVED WAS ADVANCE WITH EM BEDDED OBLIGATION FOR REFUND AS AND WHEN THE CUSTOMER / MEMBER AVAILED OF THE ROOM NIGHTS, THE PROPORTION WAS TAKEN AS INCOME. IN ANY EVENT, THE S PECIAL BENCH IN MAHINDRA HOLIDAYS & RESORTS (I) LTD. (SUPRA), HAS CONSIDERED THIS CASE. (VIII) IN JCIT V/S TIRUMALAI CHEMICALS LTD., (2006) 9 SOT 744 (MUM.), THE MUMBAI BENCH OF THE TRIBUNAL CONSIDERED THE MATCHING CONCEPT AND IT HELD THAT THE ASSESSEE HAD ADOPTED A SCIENTIFIC AND HAD WRITT EN OFF AND ALLOCATED THE EXPENDITURE PROPORTIONATELY FOR THE ENTIRE PERIOD O F LIFE OF THE EQUIPMENT AND THAT IN DIFFERING THE REMAINING EXPENDITURE TO THE YEARS CORRESPONDING TO THEIR INCOME YEARS THE ASSESSEE HAD SOUGHT TO MATCH THE EXPENDIT URE TO THE CORRESPONDING REVENUE EARNING YEARS. THE TRIBUNAL HELD THAT THE EXP ENDITURE IN QUESTION SHOULD BE ALLOCATED TO OVER THE PERIOD OF FIVE YEARS. 12 ITA NO.6724 & 6625/MUM/2012 M/S PANCARD CLUBS LTD. (IX) IN CIT V/S PUNJAB TRACTORS CO OPERATIVE MULTIPURPOSE SOCIETY LTD., (1998) 234 ITR 105 (PUNJ.), THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF TRACTOR AND MOTORCYCLE AND THE IR PARTS, BESIDES UNDERTAKING REPAIRS OF THE SAME. THE ASSESSEE HAD RECEIVED ADVAN CE FROM BUYERS OF TRACTOR TO COVER SERVICE CHARGES OF TRACTOR FOR THE PERIOD OF ONE YEAR AFTER THE EXPIRY OF WARRANTY PERIOD OF ONE YEAR. THE ASSESSEES CONTENTI ON WAS THAT THERE IS AN OBLIGATION ON THE PART OF ASSESSEE TO PROVE VERY SE RVICES TO THE TRACTOR FOR ONE YEAR, AS REQUIRED BY THE MANUFACTURERS AND AFTER TH E EXPIRY OF WARRANTY PERIOD, A FURTHER PERIOD OF ONE YEAR WAS ALSO COVERED BY THE ASSESSEE FOR SERVICING THE TRACTOR AND THAT THOSE SERVICES OF THE POST WARRANT Y PERIOD, THE ASSESSEE RECEIVED MONEY FROM THE BUYERS. THE ASSESSING OFFICE R BROUGHT THE SAME ON TAX TO PROPORTIONATE BASIS. THE CIT INVOKED HIS POWER UND ER SECTION 263 AND HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE FROM THE C USTOMERS TOWARDS POST WARRANTY SERVICE CHARGES WAS TAXABLE. THE CIT HELD TH AT THESE WERE TRADING RECEIPTS. THE TRIBUNAL REVERSED THE ORDER. ON APPEAL , THE HONBLE PUNJAB & HARYANA HIGH COURT HELD THAT THE ASSESSEE DID NOT B ECOME THE OWNER OF THE AMOUNT AND COULD NOT APPROPRIATE IT TILL SERVICES W ERE RENDERED IN LIEU OF WHICH IT WAS RECEIVED AN ADVANCE. THE HONBLE COURT HAS OBSE RVED AS UNDER: HELD MONEY WAS PAID BY THE BUYERS OF TRACTORS TO THE ASSESSEE TOWARDS PWS CHARGES. SERVICES WERE REQUIRED TO BE RENDERED BY T HE ASSESSEE FOR ONE YEAR AFTER THE EXPIRY OF THE WARRANTY PERIOD, THAT IS TO SAY, ONE YEAR AFTER THE DATE OF RECEIPT OF MONEY. THE ASSESSEE WAS ALSO BOUND TO REF UND THE DEPOSIT TO A MEMBER OF THE SCHEME IF THAT MEMBER SO DESIRED. THE ASSESSEE HAD REFUNDED A SUM OF RS. 19,320 TO THOSE PERSONS WHO DID NOT WANT TO CONTINUE AS MEMBERS OF THE SCHEME. EVERY RECEIPT WAS THUS NOT NECESSARILY INCOME. THE ASSESSEE HAD MADE ADJUSTMENT OF THE AMOUNT RECEIVED FROM THE PWS ADVANCES ACCOUNT TO THE WORKSHOP INCOME ACCOUNT DURING THE QUARTER IN WHICH THE WORK OF REPAIRS AND SERVICING WAS DONE. THE AMOUNT, RECEIVED ONE YEAR EA RLIER, WAS THUS NOT RELEVANT TO THE ASSESSEE S INCOME AND WAS DEPENDE NT UPON THE SERVICES RENDERED BY THE ASSESSEE. THE ASSESSEE DID NOT BECOM E THE OWNER OF THE AMOUNT AND COULD NOT APPROPRIATE IT TILL SERVICE WA S RENDERED IN LIEU OF WHICH IT WAS RECEIVED IN ADVANCE. THE ASSESSEE COULD LEGALLY CLAIM THE AMOUNT AFTER RENDERING THE SERVICES . PART OF THE AMOUNT COULD BE TREATED AS INCOME IN THE YEAR UNDER ASSESSMENT ON THE BASIS OF THE ACCRUAL O F THE RIGHT TO APPROPRIATE THE MONEY. THE DEPOSITED AMOUNT WAS TRANSFERRED AS INCOM E AS SOON AS SERVICE WAS RENDERED. THE ASSESSEE TREATED THE AMOUNT RECEIV ED AS INCOME BY TRANSFERRING IT TO THE WORKSHOP INCOME ACCOUNT. THUS , ADJUSTMENT OF THE ADVANCE MONEY TOWARDS INCOME WAS MADE, KEEPING IN VIEW THE PERIOD IN WHICH ACTUAL SERVICES WERE RENDERED. THE QUESTION IS AS TO WHEN T HE MONEY IS TO BE TREATED AS INCOME. SINCE THE RECEIPT WAS RELATABLE TO A PAR TICULAR PERIOD IN FUTURE, IT WOULD FRUCTIFY AND MATURE INTO INCOME DURING THAT P ERIOD AND NOT EARLIER. THE ASSESSEE WAS REGULARLY FOLLOWING THE SYSTEM OF ADJU STMENT. THE MONEY RECEIVED FROM THE BUYERS COULD NOT BE TREATED TO BE INCOME U NLESS RIGHT TO APPROPRIATE IT TOWARDS THE SERVICES HAD ACCRUED OR ARISEN. SO LONG AS THE RIGHT DID NOT EXIST, THE MONEY RECEIVED FROM THE BUYERS REMAINED ADVANCE MONEY. IT IS THE 13 ITA NO.6724 & 6625/MUM/2012 M/S PANCARD CLUBS LTD. APPROPRIATION OF THE MONEY TOWARDS THE OBJECT AND P URPOSE FOR WHICH IT WAS RECEIVED, WHICH IS RELEVANT. DEPOSITS OR ADVANCES R ECEIVED BY THE ASSESSEE BECAME TRADING RECEIPTS WHEN THE ASSESSEE BECAME EN TITLED TO APPROPRIATE THE SAME TO ITS INCOME AT THE TIME OF RENDERING THE SER VICE . [EMPHASIS ADDED ] THIS CASE APPLIES ON ALL FORUMS TO THE FACTS OF THIS CASE. THE ASSESSEE DID NOT BECOME AN OWNER OF THE AMOUNT, UNLESS THE SERVICES ARE RENDERED. THIS CASE COVERS THE CASE ON HAND AND APPLYING THIS JUDGMENT, WE HAVE TO DECIDE THE CASE IN FAVOUR OF THE ASSESSEE. (X) IN CIT V/S BAZPUR CO OPERATIVE SUGAR FACTORY LTD. , (1988) 172 ITA 321 (SC), THE HON'BLE SUPREME COURT HAS HELD AS FOLLOWS : IF A RECEIPT IS A TRADING RECEIPT, THE FACT THAT I T IS NOT SO SHOWN IN THE ACCOUNT BOOKS OF THE ASSESSEE WOULD NOT PREVENT THE ASSESSI NG AUTHORITY FROM TREATING IT AS A TRADING RECEIPT. THE SAME PRINCIPLE CAN BE DERI VED FROM THE DECISION OF THIS COURT IN PUNJAB DISTILLING INDUSTRIES LTD. VS. CIT ( 1959) 35 ITR 519 (SC) : TC13R.487 IN THAT CASE, THE ASSESSEE CARRIED ON BUSI NESS AS A DISTILLER OF COUNTRY LIQUOR AND SOLD THE PRODUCE OF ITS DISTILLE RY TO LICENSED WHOLESALERS. UNDER A SCHEME DEVISED BY THE GOVERNMENT, THE DISTI LLER (ASSESSEE) WAS ENTITLED TO CHARGE THE WHOLESALER A PRICE FOR THE B OTTLES IN WHICH THE LIQUOR WAS SUPPLIED, AT RATES FIXED BY THE GOVERNMENT, WHICH H E WAS BOUND TO REPAY WHEN THE BOTTLES WERE RETURNED. IN ADDITION TO THE PRICE FIXED UNDER THE GOVERNMENT SCHEME, THE ASSESSEE TOOK FROM THE WHOLESALERS CERT AIN FURTHER AMOUNTS, DESCRIBED AS SECURITY DEPOSITS WITHOUT THE GOVERNME NT'S SANCTION AND ENTIRELY AS A CONDITION IMPOSED BY THE ASSESSEE ITSELF FOR T HE SALE OF ITS LIQUOR. THE MONEYS DESCRIBED AS SECURITY DEPOSITS WERE ALSO RET URNED AS AND WHEN THE BOTTLES WERE RETURNED BUT IN THIS CASE THE ENTIRE S UM TAKEN IN ONE TRANSACTION WAS REFUNDED WHEN 90 PER CENT. OF THE BOTTLES COVER ED BY IT WERE RETURNED. THE PRICE OF THE BOTTLES RECEIVED BY THE ASSESSEE WAS E NTERED BY IT IN ITS GENERAL TRADING ACCOUNT WHILE THE ADDITIONAL SUM WAS ENTERE D IN THE GENERAL LEDGER UNDER THE HEADING 'EMPTY BOTTLES RETURN SECURITY DEPOSIT ACCOUNT'. THE QUESTION WAS WHETHER THE ASSESSEE COULD BE ASSESSED TO TAX ON TH E BALANCE OF THE AMOUNTS OF THESE ADDITIONAL SUMS LEFT AFTER THE REFUNDS MAD E OUT OF THE SAME. IT WAS HELD THAT THE ADDITIONAL AMOUNT DESCRIBED AS SECURITY DE POSIT BY THE ASSESSEE WAS REALLY AN EXTRA PRICE FOR THE BOTTLES AND WAS A PAR T OF THE CONSIDERATION FOR THE SALE OF LIQUOR; IT DID NOT MAKE ANY DIFFERENCE THAT THE ADDITIONAL AMOUNT WAS ENTERED IN A SEPARATE LEDGER TERMED 'EMPTY BOTTLES RETURN DEPOSIT ACCOUNT'. IT WAS HELD THAT THESE ADDITIONAL AMOUNTS, WHICH REMAI NED AFTER THE REFUNDS WERE MADE, WERE TRADING RECEIPTS OF THE ASSESSEE AND LIA BLE TO TAX. APPLYING THESE PRINCIPLES TO THE PRESENT CASE, IN OUR OPINION, IT MAKES NO DIFFERENCE THAT, IN THE BYE-LAW, THESE AMOUNTS HAVE BEEN REFERRED TO AS DEP OSITS AND THE ACCOUNT IN WHICH THESE RECEIPTS WERE ENTERED HAS BEEN CALLED ' LOSS EQUALIZATION AND CAPITAL REDEMPTION RESERVE FUND'. THE ESSENCE OF A DE POSIT IS THAT THERE MUST BE A LIABILITY TO RETURN IT TO THE PARTY BY WHOM OR ON WHOSE BEHALF IT IS MADE ON THE FULFILLMENT OF CERTAIN CONDITIONS. 14 ITA NO.6724 & 6625/MUM/2012 M/S PANCARD CLUBS LTD. IN THIS CASE, THE HON'BLE SUPREME COURT, ON FACTS, REJECTED THE CONTENTION OF THE ASSESSEE THAT WHAT WAS RECEIVED WERE DEPOSITS. IT H ELD THAT WHAT IS TO BE SEEN IS THE TRUE NATURE AND QUALITY OF THE RECEIPT AND NOT THE HEAD UNDER WHICH IT IS ENTERED IN THE ACCOUNT BOOK THAT WOULD PROVE DECISI VE. THEY RELIED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN CHOWRINGHE E SALES BUREAU PVT. LTD. V/S CIT, (1973) 87 ITR 542 (SC). APPLYING THIS PROPOS ITION TO THE FACTS OF THE CASE, THE ADVANCE RECEIPT ON SALE OF ROOM NIGHTS CA NNOT BE TREATED AS A TRADING RECEIPT IN VIEW OF THE OBLIGATION FASTENED ON THE A SSESSEE TO REFUND THE ADVANCE AND ALSO IN VIEW OF THE HISTORICAL DATA WHICH DEMON STRATE THAT THE ASSESSEE HAS REFUNDED THE AMOUNT IN MORE THAN 99% OF THE CASES. WE DO NOT AGREE WITH THE ARGUMENT OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE RECEIPT IN A TRADING RECEIPT, ON THE FACTS OF THIS CASE . 74. AFTER DISCUSSING THE CASE LAWS CITED BY BOTH TH E PARTIES AND AFTER APPLYING TO THE PROPOSITION LAID DOWN THEREIN TO THE FACTS OF THE C ASE, WE ARE OF THE CONSIDERED OPINION THAT THE ENTIRE ADVANCE RECEIVED ON SALE OF ROOM NIGHTS CANNOT BE TREATED AS INCOME OF THE ASSESSEE FOR THE REASON THAT (A) THE ASSESSEE HAS AN OBLIGATION TO REFUND THE M ONEY ALONG WITH CERTAIN COMPENSATION, IF THE CUSTOMER / MEMBER EXERCISE SUCH AN OPTION; (B) THE AMOUNT RECEIVED IS AN ADVANCE AND IT IS NOT AGAINST ANY SPECIFIC ITEM, IN THE SENSE THAT THE CUSTOMER / MEMBER HAS A RIGHT FOR AN OPTION TO CHOO SE TO STAY IN THE ROOM FOR A NIGHT IN ANY OF THE PROPERTY OF THE ASSESSEE OR IN THE PROPERTY OF ITS SUBSIDIARY OR IN THE PROPERTY OF ITS ASSOCIATE CONCERN. IT IS NOT A CASE WHERE A CUSTOME R HAS BOOKED A PARTICULAR ROOM IN A PARTICULAR PROPERTY FOR A PARTICULAR DATE, IT IS A GENERAL AMOUNT GIVEN WHEREIN IN CUSTOMER / MEMBER HAVE OPTION OF STAYING IN MANY ALTERNATE PRO PERTIES AS WELL AS AN OPTION FOR REFUND OF MONEY WITH CERTAIN COMPENSATION CALLED SURRENDERED VALUE AS WELL AS AN OPTION THE MEMBERS / CUSTOMERS TO UTILIZE / PURCHASE PRODUCTS AND SERVICES OF THE COMPANIES AND ITS GROUP COMPANIES. THUS, WHEN CUSTOMER / MEMBER HAS SO MANY OPTIONS, IT CANNOT BE SAID THAT THE ASSESSEE HAS THE RIGHT TO APPROPRIATE THE AMOUNT OF ADVANCE ON RECEIPT, IRRESPECTIVE OF RENDERING OF SERVICE. JUST ON RECEI PT, IT CANNOT BE SAID THAT THE INCOME HAS ACCRUED TO THE ASSESSEE. THUS, IN OUR CONSIDERED OP INION, THE DIRECTION OF THE CIT TO TAX THE ENTIRE ADVANCE RECEIVED BY THE ASSESSEE ON ACCOUNT OF SALE OF ROOM NIGHTS AS INCOME DURING THE YEAR, IS BAD IN LAW AND HAS TO BE VACATED. IN OUR OPINION, THE SYST EM ADOPTED BY THE ASSESSEE I.E., ADVANCE ON SALE OF ROOM NIGHTS I S SHOWN AS AN ADVANCE AND THEREAFTER APPORTIONMENT TO INCOME IS BASED ON THE HAPPENING O F THE EVENT OF THE CUSTOMER AVAILING THE ROOM NIGHTS, IS A CORRECT METHOD. THE ALTERNAT IVE PROPOSITION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT, A PORTION OF THE ADVANCE SHOULD BE HELD AS TAXABLE CANNOT BE ACCEPTED IN VIEW OF THE OBLIGATION ON THE ASSESSEE TO REFUND THE MONEY. THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE P RINCIPLES LAID DOWN IN THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF SIDDHESHWAR SA HAKARI SAKHAR KARKHANA LTD. (SUPRA). 75. LOOKING AT THE ISSUE FROM ANOTHER ANGLE, AS ALR EADY POINTED OUT, IF AN ADVANCE RECEIPT IS TO BE TREATED AS AN INCOME, THE NATURAL COROLLARY WOULD BE THAT THE AMOUNT WHEN REFUNDED TO THE CUSTOMER / MEMBER, ON THIS CASE EXE RCISING AN OPTION OF AVAILING THE SURRENDER VALUE, THE REPAYMENT SHOULD BE CONSIDERED AS AN EXPENDITURE. THE CITS DIRECTION THAT THE RECEIPT SHOULD BE TREATED AS INC OME AND KEEPING SILENT ABOUT REPAYMENT BEING TREATED AS EXPENDITURE, GIVES A DISTORTED PIC TURE AND SUCH A DIRECTION CANNOT BE UPHELD. THUS, WE VACATE THE DIRECTION OF THE CIT TO I NCLUDE THE AMOUNT RECEIVED ON ACCOUNT OF ADVANCE SALE OF ROOM NIGHTS AS INCOME OF THE ASS ESSEE FOR THE RELEVANT PERIOD. 15 ITA NO.6724 & 6625/MUM/2012 M/S PANCARD CLUBS LTD. 76. THE THIRD ISSUE IS THE ALLOWABILITY OF AN AMOUNT OF RS. 22,09,84,169, DEBITED UNDER THE HEAD HOLIDAY MEMBERSHIP SURRENDERED VALUE . AS ALREADY EXPLAINED, THE CUSTOMER / MEMBER HAS THE OPTION TO COLLECT SURRENDER VALUE. T HE SURRENDER VALUE IS NOTHING BUT THE AMOUNT PAID BY THE CUSTOMER / MEMBER PLUS A CERTAIN AMOUNT WHICH IS IN THE FORM OF A PREMIUM OR COMPENSATION. A PERUSAL OF THE SCHEME CL EARLY DEMONSTRATE THAT THE SURRENDERED VALUE PAYABLE IN REFUND OF THE ADVANCE ROOM NIGHTS COLLECTED WITH A PREMIUM / COMPENSATION AND THAT THIS COMPENSATION IS A TIME B ASED OR A PERIOD BASED COST. IT IS NOT CONNECTED TO THE PERFORMANCE OR OTHER CRITERIA. IF THE CUSTOMER / MEMBER CHOOSES NOT TO AVAIL OF THE FACILITY OF ROOM NIGHT IN A PARTICULAR YEAR, THE PARTICULAR AMOUNT ACCRUES TO HIM AS SURRENDERED VALUE IN THAT YEAR. AN IMPORTANT FACT T O BE NOTICED IN THE SCHEME IS THAT THERE IS A CAP ON THE NUMBER OF ROOM NIGHTS A MEMBER CAN U SE IN A YEAR. WHEN A MEMBER DOES NOT UTILISE ROOM NIGHTS IN ANY YEAR, INCLUDING THE FIRST YEAR, HE LOOSES HIS RIGHT TO CERTAIN QUANTITY OF ROOM NIGHT AND GETS ENTITLED TO AN ENTE RTAINMENT OF SURRENDER VALUE. IF, FOR THE ENTIRE DURATION OF THE SCHEME, THE CUSTOMER / MEMBE R DOES NOT AVAIL THE ROOM NIGHTS, THIS SURRENDERED VALUE ACCRUES TO HIM FOR THE ENTIRE PER IOD. THE FACTS CLEARLY DEMONSTRATE THAT THE LIABILITY IS A TIME BASED LIABILITY AND THAT IT OCCURS FROM YEAR TO YEAR. ON THESE FACTS, WE NOW EXAMINE THE CASE LAWS RELIED UPON BY BOTH THE P ARTIES. 77. IN BHARAT EARTH MOVERS V/S CIT, (2000) 245 ITR 42 8 (SC), THE HON'BLE SUPREME COURT HELD THAT IF A BUSINESS LIABILITY HAS DEFINIT ELY ARISEN IN A PARTICULAR ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED, ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIABILITY. IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINTY, THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. UNDER THESE CIR CUMSTANCES, THE COURT HELD THAT THE LIABILITY IS NOT A CONTINGENT ONE. IT IS A LIABILIT Y IN PRAESENTI. THOUGH IT HAS TO BE DISCHARGED AT A FUTURE DATE. IN OUR OPINION, THIS CASE LAW APPLIE S ON ALL FOUR TO THE FACTS OF THIS CASE. LEARNED DEPARTMENTAL REPRESENTATIVE TRIED TO DISTIN GUISH THIS CASE LAW BY SUBMITTED THAT THE LIABILITY IN THIS CASE CANNOT BE ESTIMATED WITH REASONABLE CERTAINTY. IN OUR CONSIDERED OPINION, THE ARGUMENT IS DEVOIDE OF MERIT. THE FACTS POINT OUT THAT THIS IS THE PERIOD COST AND ON LAPSE OF A PARTICULAR TIME PERIOD, THE CUSTOMER / MEMBER GETS ENTITLED TO THE RECEIPT OF THE COMPENSATION IS SURRENDER VALUE AND THE ASSESSEE HA S CERTAINLY INCURRED THE LIABILITY. IN OUR OPINION, THE LIABILITY IS NOT ONLY ESTIMATED WITH R EASONABLE CERTAINTY AS THE QUANTIFICATION IS BASED OF FACTS. THE LIABILITY HAS DEFINITELY ARISING IN THE ACCOUNTING YEAR AS THE CUSTOMER / MEMBER HAS CHOSEN NOT TO AVAIL IN THIS ACCOUNTING Y EAR THE SERVICES OF ROOM NIGHTS OFFERED BY THE ASSESSEE BUT HAS CHOSEN TO ENCASH THE SURREN DER VALUE. AS THE PROVISION IS MADE ON THE HAPPENING OF AN EVENT, I.E., A MEMBER NOT AVAIL ING A ROOM NIGHT, THE QUESTION OF ESTIMATION DOES NOT ARISE. THE PROVISION IS AN ACTUA L PROVISION. IN OUR OPINION, THIS CASE LAW SUPPORTS THE CASE OF THE ASSESSEE. 78. IN METAL BOX COMPANY OF INDIA LTD. V/S THEIR WOR KMEN, (1969) 73 ITR 53 (SC), THE ASSESSEE COMPANY ESTABLISHED ITS LIABILITY UNDER TW O GRATUITY SCHEMES FRAMED BY THE COMPANY AND THE AMOUNT OF LIABILITY WAS DEDUCTED FR OM THE GROSS RECEIPT IN THE PROFIT & LOSS A/C. THE PROVISION WAS MADE ON THE BASIS OF ACTUARIA L VALUATION EVERY YEAR, THE EXERCISE WAS REPEATED AND THE COMPANY WORKED OUT THE ADDITIO NAL LIABILITY INCURRED BY IT. THE HON'BLE SUPREME COURT HAS LAID DOWN THE FOLLOWING PRINCIPLE S (I) FOR AN ASSESSEE MAINTAINING THE ACCOUNTING SYSTEM AS MERCANTILE, THE LIABILITY ALRE ADY ACCRUED, THOUGH TO BE DISCHARGED AT A FUTURE DATE, WOULD BE A PROPER DEDUCTION FOR WORKIN G OUT PROFITS AND GAINS OF ITS BUSINESS, REGARD BEING TO THE ACCEPTED PRINCIPLES OF COMMERCI AL PRACTICE AND ACCOUNTANCY. IT IS NOT AS 16 ITA NO.6724 & 6625/MUM/2012 M/S PANCARD CLUBS LTD. IF SUCH DEDUCTION IS PERMISSIBLE ONLY IN CASE OF AM OUNTS ACTUAL EXPENDED OR PAID; (II) JUST AS RECEIPTS, THOUGH NOT ACTUAL RECEIPTS BUT ACCRUED AN D DUE ARE BROUGHT IN, FOR INCOME TAX ASSESSMENT, SO ALSO THE LIABILITIES ACCRUED AND DUE WOULD BE TAKEN INTO ACCOUNT WHILE WORKING OUT THE PROFITS AND GAINS OF BUSINESS; (III ) A CONDITION, SUBSEQUENT TO THE FULFILLMENT OF WHICH MAY RESULT IN THE REJECTION OR EVEN EXPANS ION OF LIABILITY, WOULD NOT HAVE THE EFFECT OF CONVERTING THAT LIABILITY INTO THE CONTINGENT LI ABILITY; (IV) A TRADER COMPUTING ITS TAXABLE PROFITS FOR A PARTICULAR YEAR MAY PROPERLY DEDUCT, NOT ONLY THE PAYMENTS ACTUALLY MADE TO HIS EMPLOYEES, BUT ALSO THE PRESENT VALUE OF ANY PAYMEN TS IN RESPECT OF THE SERVICES IN THAT YEAR TO BE MADE IN SUBSEQUENT YEAR, IF IT CAN BE SA TISFACTORILY ESTIMATED. 78(I) SIMILAR VIEW HAS ALSO BEEN TAKEN IN CALCUTTA CO. LTD. V/S CIT, (1959) 27 ITR 1 (SC). APPLYING THESE PRINCIPLES TO THE FACTS OF THE PRESE NT CASE, WE HAVE TO HOLD THAT THE LIABILITY IN QUESTION IS NOT A CONTINGENT LIABILITY AS HELD BY T HE CIT AND AS ARGUED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. THE LIABILITY ACCRUES T O THE ASSESSEE ON THE PASSAGE OF TIME, IF THE CUSTOMER / MEMBER DOES NOT OPT FOR USING ROO M NIGHTS OR OTHER SERVICES. IN FACT, IT IS A LIABILITY IN PERSENTI, AS A MEMBER HAS CHOSEN NOT T O AVAIL OF A ROOM NIGHT IN THIS YEAR AND A PROVISION OF COMPENSATION OF THIS YEAR IS MADE, THO UGH PAYABLE AT A LATTER DATE. 79. IN CIT V/S SWARUP VEGETABLE PRODUCTS, (1991) 210 ITR 716 (ALL.), THE HONBLE ALLAHABAD HIGH COURT WAS CONSIDERING THE CASE OF AN ASSESSEE WHO FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING AND HAD CLAIMED DEDUCTION IN R ESPECT OF A BUSINESS LIABILITY BEFORE IT IS QUANTIFIED AND EVEN WHEN THE LIABILITY IS BEING DIS PUTED. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF SUGAR AND CLAIM ED DEDUCTION OF THE LIABILITY THAT HAS ARISEN ON ACCOUNT OF DIFFERENCE IN CANE PRICE ACTUA LLY PAID BY THE ASSESSEE AND ONE FIXED BY THE CENTRAL GOVT. IN THE NOTIFICATION, THE HONBLE COURT HELD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION. 79(I) IN ROTORK CONTROLS INDIA PVT. LTD. V/S CIT, (2 009) 314 ITR 62 (SC), THE HON'BLE SUPREME COURT HELD AS UNDER: HELD : A PROVISION IS A LIABILITY WHICH CAN BE MEA SURED ONLY BY USING A SUBSTANTIAL DEGREE OF ESTIMATION. A PROVISION IS RE COGNIZED WHEN : (A) AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RESULT OF A PAST EVENT; (B) IT IS PROBABLE THAT AN OUTFLOW OF RESOURCES WILL BE REQUI RED TO SETTLE THE OBLIGATION; AND (C) A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION. IF THESE CONDITIONS ARE NOT MET, NO PRO VISION CAN BE RECOGNIZED. LIABILITY IS DEFINED AS A PRESENT OBLIGATION ARISIN G FROM PAST EVENTS, THE SETTLEMENT OF WHICH IS EXPECTED TO RESULT IN AN OUT FLOW FROM THE ENTERPRISE OF RESOURCES EMBODYING ECONOMIC BENEFITS. A PAST EV ENT THAT LEADS TO A PRESENT OBLIGATION IS CALLED AS AN OBLIGATING EVENT . THE OBLIGATING EVENT IS AN EVENT THAT CREATES AN OBLIGATION WHICH RESULTS I N AN OUTFLOW OF RESOURCES. IT IS ONLY THOSE OBLIGATIONS ARISING FROM PAST EVEN TS EXISTING INDEPENDENTLY OF THE FUTURE CONDUCT OF THE BUSINESS OF THE ENTERP RISE THAT IS RECOGNIZED AS PROVISION. FOR A LIABILITY TO QUALIFY FOR RECOGNITIO N THERE MUST BE NOT ONLY PRESENT OBLIGATION BUT ALSO THE PROBABILITY OF AN O UTFLOW OF RESOURCES TO SETTLE THAT OBLIGATION. WHERE THERE ARE A NUMBER OF OBLIGATIONS (E.G. PRODUCT WARRANTIES OR SIMILAR CONTRACTS) THE PROBABILITY TH AT AN OUTFLOW WILL BE REQUIRED IN SETTLEMENT, IS DETERMINED BY CONSIDERIN G THE SAID OBLIGATIONS AS A WHOLE. 17 ITA NO.6724 & 6625/MUM/2012 M/S PANCARD CLUBS LTD. 80. LEARNED DEPARTMENTAL REPRESENTATIVE SOUGHT TO D ISTINGUISH THIS JUDGMENT BY HOLDING THAT THE ASSESSEE HAD NO PAST EXPERIENCE OR HISTORICAL DATA TO DETERMINE THE LIABILITY BY SUBSTANTIAL DEGREE OF RELIABILITY. IN OUR OPINIO N, THIS LINE OF ARGUMENT CANNOT BE ACCEPTED ON THE FACTS OF THE CASE. AT THE END OF THE ACCOUNT ING YEAR, THE ASSESSEE KNOWS THAT CUSTOMER / MEMBER WHO HAS NOT AVAILED THE ROOM NIGH TS AND BASED ON THIS FACTUAL INFORMATION, THE PERIOD COST IN THE FORM OF SURREND ERED VALUE HAS BEEN ESTIMATED AND A PROPER PROVISION MADE. THIS IS WHAT THE ASSESSEE DID . WHEN THE PROVISION IS MADE ON FACTS, THE QUESTION OF SCIENTIFIC ESTIMATION ETC., DOE NOT ARISE. THE DATA OF THIS VERY YEAR IS RELEVANT AND THE PROVISION IS ON ACTUAL. THIS PROVISION CANNO T BE CALLED A CONTINGENT LIABILITY. THE CIT WAS WRONG IN DIRECTING THE ASSESSING OFFICER TO DIS ALLOW THE ENTIRE AMOUNT OF SURRENDERED VALUE PROVIDED BY THE ASSESSEE. IT IS NOT A CASE WH ERE THE CIT HELD THAT THE ESTIMATION OF LIABILITY IS INCORRECT. IT IS A CASE WHERE THE CIT H ELD THAT THE LIABILITY IN QUESTION IS A CONTINGENT LIABILITY. THUS, THIS CASE, IN OUR OPINIO N, THIS CASE LAW GOES IN FAVOUR OF THE ASSESSEE. 81. IN CIT V/S MOTOR INDUSTRIES CO. LTD., (1998) 229 ITR 137, THE HON'BLE KARNATAKA HIGH COURT WAS CONSIDERING ALLOWABILITY OF PROVISIO NS FOR SALARY / WAGES FOR UNUTILISED LEAVE. ON FACTS OF THE CASE, THE HONBLE COURT HELD THAT T HERE IS NO CERTAINTY THAT THE PROVISION MADE FOR UNUTILISED LEAVE, WILL BE USED AT ALL, SIN CE THE LIABILITY ITSELF IS EITHER CONTINGENT OR NON EXISTENT. THE LEAVE EARNED DURING PARTICULAR ACCOUNT ING YEAR CANNOT BE TREATED AS MONEY EARNED DURING THE YEAR. IN OUR OPINION, THIS CASE LAW IS NOT OF MUCH AVAIL. 82. LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE JUDGMENT OF HON'BLE SUPREME COURT RENDERED IN MADRAS INDUSTRIAL INVESTMENT CORP . LTD. V/S CIT, (1997) 225 ITR 802 (SC). IN THIS CASE, A COMPANY HAS ISSUED DEBENTURES AT A DISCOUNT. THERE WAS A LIABILITY TO PAY THE DISCOUNTED AMOUNT OVER AN ABOVE THE AMOUNT RECEIVED FOR DEBENTURES. HON'BLE SUPREME COURT HELD THAT THE LIABILITY INCURRED BY T HE COMPANY WAS FOR THE PURPOSE OF ITS BUSINESS IN ORDER TO GENERATE FUNDS FOR ITS BUSINES S ACTIVITIES. IT APPROVED THE CLAIM OF DEDUCTION ON PROPORTIONATE BASIS OVER THE RELEVANT ACCOUNTING PERIOD ON THE GROUND THAT THIS WAS IN CONFORMITY WITH THE ACCOUNTING PRACTICE. IT APPROVED THE WRITE OFF OF DISCOUNT OVER A PERIOD OF THE DEBENTURES. IN OUR CONSIDERED OPINION , THIS DECISION APPLIES TO THE FACTS OF THE PRESENT CASE AS IN THE CASE ON HAND ALSO THE COST T O THE ASSESSEE IS A PERIOD COST IN THE CASE OF DEBENTURES. THE ASSESSEE CLAIMED A PROPORTIO NATE DEDUCTION OF THE LIABILITY BASED ON THE FACT THAT IN THIS YEAR THE MEMBER / CUSTOMER DID NOT AVAIL THE ROOM NIGHT AND THE LIABILITY HAS ACTUALLY ACCRUED TO HIM DURING THE YE AR. AT THIS STAGE, WE WOULD REFER TO OTHER CASE LAWS RE LIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE AS WELL AS THE LEARNED DEPARTMENTA L REPRESENTATIVE. 83. IN K.C.P. LIMITED V/S CIT, (2000) 245 ITR 421 (SC ), THE HON'BLE SUPREME COURT WAS CONSIDERING THE CASE WHETHER THE ASSESSEE HAD E XCESS REALISATION OF PRICE OVER AND ABOVE THE LEVY PRICE OF SUGAR AND SUCH A RECEIPT WA S HELD AS A TRADING RECEIPT LIABLE TO TAX. THOUGH THE LEARNED DEPARTMENTAL REPRESENTATIVE TRIED TO TAKE ASSISTANCE OF THIS CASE LAW, WE ARE OF THE CONSIDERED OPINION THAT THIS DOES NOT HELP THE CASE OF THE REVENUE. 18 ITA NO.6724 & 6625/MUM/2012 M/S PANCARD CLUBS LTD. 84. LEARNED DEPARTMENTAL REPRESENTATIVE PLACED RELI ANCE ON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN RAJENDRA TRADIN G CO. V/S CIT, (1976) 104 ITR 39 (BOM.), FOR THE PROPOSITION THAT THE DOMINANT OBJEC T OF THE SCHEME HAS TO BE SEEN. FOR THE SAME PURPOSE, HE RELIED ON AN ANOTHER JUDGMENT OF T HE HON'BLE BOMBAY HIGH COURT RENDERED IN NUTAN WAREHOUSING COMPANY PVT. LTD. V/S DCIT, (2010) 326 ITR 94 (BOM.), WHEREIN IT HAS BEEN HELD THAT THE DOMINANT INTENTIO N OF THE ASSESSEE HAS TO BE ASCERTAINED. BOTH THESE CASE LAWS WERE RELIED UPON, WITH AN OBJE CT TO DERIVE HOME TO POINT, THAT WHAT THE ASSESSEE COLLECTED WAS ADVANCE FOR SALE OF ROOM NIG HTS AND NOT ANYTHING ELSE. THIS IS ALSO THE CASE OF THE ASSESSEE. WHEN BOTH, THE DEPARTMENT AS WELL AS THE ASSESSEE, ARE ON FACTS AGREEING THAT WHAT IS COLLECTED IS AN ADVANCE FOR S ALE OF ROOM NIGHTS, NOTHING TURN OUR ON THESE CASE LAWS. 85. LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION IN NATIONAL ENGINEERING INDUSTRIES LTD. V/S CIT, (1999) 236 ITR 577 (CAL.), W HERE THE HON'BLE SUPREME COURT HAS MADE OBSERVATION AS UNDER: SO FAR AS THE QUESTIONS REFERRED AT THE INSTANCE O F THE ASSESSEE ARE CONCERNED, THE ASSESSEE HAS EXPLAINED THAT THE ASSE SSEE HAS ALREADY GOT THE BENEFIT IN REGARD TO GRATUITY IN OTHER CONCERNE D YEARS AND AS SUCH IT WOULD BE DIFFICULT FOR THE ASSESSEE TO PRESS FOR OB TAINING THE TAX BENEFIT ONCE AGAIN BY PRESSING FOR A FAVOURABLE ANSWER TO I TS QUESTION IN THAT REGARD. THE ASSESSEE HAS ALSO CONCEDED THAT INSOFAR AS THE PROPER METHOD OF DEDUCTION OF A DEBENTURE PREMIUM PAYABLE AT THE END PERIOD OF THE DEBENTURE IS CONCERNED, IT IS A PRO RATA METHOD, WH EREBY THE EXTRA PREMIUM IS TO BE SPREAD OVER ALL THE YEARS WHICH AR E OCCUPIED BETWEEN THE DATE OF ISSUE AND THE DATE OF ULTIMATE REDEMPTION. ON THE BASIS OF THIS CONCESSION THE ASSESSEE DOES NOT AND CANNOT ASK FOR A FAVOURABLE ANSWER TO THE QUESTIONS REFERRED AT ITS INSTANCE IN REGARD TO DEDUCTION FOR THE LIABILITY TO PAY DEBENTURE PREMIUM. NATURALLY WHEN THE ASSESSEE ITSELF COULD NOT PRESS FOR FAVOURABLE ANSWERS IN REGARD TO ITS Q UESTIONS, THE DEPARTMENT HAD NOT MUCH TO SAY IN THAT REGARD. BUT AS REGARDS THE QUESTIONS FRAMED AT THE INSTANCE OF THE DEPARTMENT, SOME SUBMISSIONS WE RE MADE. THESE SUBMISSIONS WERE MADE EVEN IN REGARD TO THE SPREAD OVER OF DEBENTURE PREMIUM WHICH WERE ALSO REFERRED AT THE INSTANCE OF THE DEPARTMENT. 86. COMING TO THE DECISION OF HONBLE CALCUTTA HIGH COURT IN CIT V/S TUNGABHADRA INDUSTRIES LTD., (1994) 207 ITR 553 (CAL.), THE LEAR NED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS JUDGMENT WAS REVERSED BY THE HON'BLE SUPR EME COURT IN MADRAS INDUSTRIAL INVESTMENT CORP. LTD. (SUPRA) AND THIS FACT IS NOTE D IN THE CASE OF NATIONAL ENGINEERING INDUSTRIES LTD. (SUPRA). 87. THOUGH BOTH THE PARTIES HAVE MADE NUMEROUS ARGUM ENTS ON DIFFERENT ANGLES, WE FIND THAT ALL THE ARGUMENTS ARE REPETITIVE AND TRYI NG TO SUPPORT OR OPPOSE THE SAME POINT FROM VARIOUS ANGLES. FACTUALLY, IN OUR CONSIDERED OP INION, THE SCHEMES ARE VERY CLEAR THAT THE ASSESSEE IS UNDER THE OBLIGATION TO REFUND, NOT ONLY THE ADVANCE BUT ALSO THE SURRENDERED VALUE. THE LIABILITY IS INCURRED ON ACCO UNT OF SURRENDERED VALUE ON THE PASSAGE OF TIME AND IT IS AN ACTUAL LIABILITY AND MAKING A PROVISION FOR THE SAME, IN OUR CONSIDERED 19 ITA NO.6724 & 6625/MUM/2012 M/S PANCARD CLUBS LTD. OPINION, IS CORRECT AND ALSO THAT NO INCOME ACCRUES TO THE ASSESSEE ON RECEIPT OF THIS ADVANCE. 5. THE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE AS SESSEE BY FOLLOWING THE ABOVE DECISION OF THIS TRIBUNAL IN AS SESSEES OWN CASE. ACCORDINGLY WE DO NOT FIND ANY ERROR OR IRREGULARIT Y IN IMPUGNED ORDER OF THE CIT(A). 6. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 /02/2014 . $4 / 23) % $ 5' 21 /02/2014 , 3 / 6 SD/- ( D.KARUNAKARA RAO ) SD/- ( VIJAY PAL RAO) $% / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 5' /DATED : 21 /02/ 2014 F{X~{T? P.S. $4 / -17 8$)1 / COPY OF THE ORDER FORWARDED TO : (1) ' (91 / THE ASSESSEE; (2) / THE REVENUE; (3) : ( ) / THE CIT(A); (4) : / THE CIT, MUMBAI CITY CONCERNED; (5) ;6 -1' , , / THE DR, ITAT, MUMBAI; (6) 6'( < / GUARD FILE. .1 -1 / TRUE COPY $4' / BY ORDER = / > / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI