The ACIT, Circle-1(1)(2), Vadodara V. M/s. Vadodara Enviro Channel Project Ltd., Vadodara

ITA 766/AHD/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3782 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 29-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A KHAN
• Keywords: Revenue expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ I.T.A. NO.766/AHD/2016 ( / ASSESSMENT YEAR : 2012-13) THE ACIT CIRCLE(1)(2) VADODARA / VS. M/S.VADODARA ENVIRO CHANNEL PROJECT LTD. 304/1, 317 & 318, AT & POST DHANORA DIST.VADODARA-391346 ./ ./ PAN/GIR NO. : AAACE 8486 B ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI M.S.A. KHAN, CIT-DR / RESPONDENT BY : SHRI MANISH SHAH, AR / DATE OF HEARING 18/02/2019 !'# / DATE OF PRONOUNCEMENT 19/02/2019 / O R D E R PER SHRI RAJPAL YADAV, JUDICIAL MEMBER : THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORDE R OF LD.COMMISSIONER OF INCOME TAX(APPEALS)-1, VADODARA [CIT(A) IN SHORT] DATED 20/01/2016 PASSED FOR ASSESSMENT YEAR (AY) 2012-13. 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: ITA NO.766/AHD/ 2016 THE ACIT VS. M/S.VADODARA ENVIRO CHANNEL PROJECT LTD. ASST.YEAR 2012-13 - 2 - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(APPEALS) ERRED IN ALLOWING THE ASSESSEE TO S PREAD THE CAPITAL CONTRIBUTION RECEIVED OVER A PERIOD OF FIVE YEARS B EGINNING FROM THE YEAR IN WHICH SUCH CONTRIBUTIONS WERE RECEIVED INIT IALLY TREATING THE SAME AS DEFERRED REVENUE INCOME WITHOUT APPRECIATIN G THE PROVISIONS OF SECTION 4(1), SECTION 5(1)(A) AND SEC TION 5(1)(B) AND SECTION 9(1)(I) OF THE INCOME-TAX ACT, 1961. 2. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR ALTE R THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HA D FILED ITS RETURN OF INCOME ELECTRONICALLY DECLARING TOTAL INCOME AT RS. 90,48,660/- AFTER SET OFF OF LOSSES OF RS. 56,97,848/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE U/S.143(2) OF THE IN COME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') WAS ISSUED A ND SERVED UPON THE ASSESSEE. 4. IT IS PERTINENT TO OBSERVE THAT THE ASSESSEE AT THE RELEVANT TIME WAS ENGAGED IN THE BUSINESS OF CONVEYANCE OF INDUSTRIAL EFFLUENT AND MAINTENANCE OF CHANNEL. IT HAS CONSTRUCTED A CHANN EL WHICH IS 15KMS IN LENGTH. IT ENDS UP TO THE GULF OF CAMBAY. THERE ARE ABOUT 300 INDUSTRIAL MEMBERS TO WHOM THE ASSESSEE-COMPANY PROVIDES CHANN EL FOR EFFLUENT DISPOSAL OF MEMBER INDUSTRIES. THE ASSESSEE HAS RE CEIVED CONTRIBUTION FROM THE MEMBERS WHICH WERE SHOWN BY THE ASSESSEE A S REVENUE RECEIPT IN THE FIRST YEAR. BUT IT RECOGNIZED THE INCOME TO THE EXTENT OF 1/5 TH AND REST OF THE AMOUNT WAS DEFERRED FOR FIVE YEA RS. IN THIS YEAR, IT ITA NO.766/AHD/ 2016 THE ACIT VS. M/S.VADODARA ENVIRO CHANNEL PROJECT LTD. ASST.YEAR 2012-13 - 3 - HAS RECEIVED A SUM OF RS.6,65,88,064/-. THE ASSESS EE HAS NOT OFFERED EVEN 1/5 TH FOR TAXATION. IT WAS OF THE VIEW THAT RECEIPTS AR E CAPITAL IN NATURE. THE LD.AO HAS OBSERVED THAT STARTING FROM AY 2001-02, THESE RECEIPTS HAVE BEEN TREATED AS REVENUE RECEIPT AND T HEY WERE TAXED IN THE YEAR OF RECEIPT. 5. HOWEVER, ON APPEAL, THE LD.FIRST APPELLATE AUTHO RITY HAS RESTRICTED THE TAXATION TO THE EXTENT OF 1/5 TH IN THE YEAR OF RECEIPT. IN OTHER WORDS, THE ASSESSEE WAS ALLOWED TO SPREAD OVER TAXABILITY OF RECEIPTS IN FIVE ASSESSMENT YEARS FROM THE YEAR OF RECEIPT. THIS AS PECT HAS BEEN UPHELD UPTO THE ITAT IN EARLIER YEARS. THE CIT(A) IN THIS YEAR FOLLOWED THE ORDER OF HIS PREDECESSOR AS WELL AS ITAT IN EARLIER YEARS. AT THIS STAGE, FINDING OF THE LD.CIT(A) IS WORTH TO NOTE WHICH REA DS AS UNDER:- 4.2.1. FROM THE DETAILS SUBMITTED BY THE APPEL LANT, IT IS SEEN THAT AN AMOUNT OF RS.1,70,25,850/- BEING 1/5 TH OF THE SUBSCRIPTION AMOUNTS RECEIVED DURING THE AY 2008-09 TO AY 2011-12 SHOULD HAVE BEEN OFFERED BY THE APPELLANT AS ITS INCOME IN THE CURRE NT ASSESSMENT YEAR WHICH IT HAS NOT DONE. THE APPELLANT HAS ALSO NOT OBJECTED TO THE PROPOSED ENHANCEMENT TO BE MADE IN THE CURRENT YEAR . HENCE, THE APPELLANTS INCOME IS ENHANCED BY THE AMOUNT OF RS. 1,70,25,850/-. AS HAS BEEN ALREADY DISCUSSED, THE APPELLANT HAS ACCEP TED THAT 1/5 TH PORTION OF CONTRIBUTION OF AY 2008-09 TO AY 2011-12 HAD NOT BEEN OFFERED BY THE APPELLANT AS ITS INCOME IN THE RETUR N OF INCOME FOR AY 2012-13. SINCE, THE APPELLANT HAS FAILED TO DISC LOSE THIS AMOUNT OF RS.1,70,25,850/- AS ITS INCOME IN THE CURRENT YEAR AND THE INCOME OF THE CURRENT YEAR HAS ALREADY BEEN DIRECTED TO BE ENHANC ED BY THIS AMOUNT, HENCE, I AM SATISFIED THAT THE APPELLANT HAD CONCEA LED THE PARTICULARS OF SUCH INCOME WHILE FILING ITS RETURN OF INCOME FOR T HE CURRENT ASSESSMENT ITA NO.766/AHD/ 2016 THE ACIT VS. M/S.VADODARA ENVIRO CHANNEL PROJECT LTD. ASST.YEAR 2012-13 - 4 - YEAR. THEREFORE, PENALTY PROCEEDINGS U/S.271(1)(C) RWS 274 OF THE ACT FOR CONCEALMENT OF PARTICULARS OF INCOME ARE ALSO I NITIATED SEPARATELY IN RESPECT OF THE ABOVE ENHANCED INCOME OF RS.1,70,25, 850/-. 6. THE REVENUE IS OF THE VIEW THAT WHOLE RECEIPT DE SERVES TO BE TAXED IN THIS ASSESSMENT YEAR. THE LD.COUNSEL FOR THE AS SESSEE CONTENDED THAT IDENTICAL ISSUE WAS CONSIDERED IN AY 2008-09. HE P LACED ON RECORD COPY OF TRIBUNALS ORDER IN THE CASE OF EFFLUENT CHANNEL PROJECTS LTD. VS. DCIT IN ITA NOS.1945 & 1948/AHD/2011 (CROSS-APPEALS ) DATED 24/07/2015 PASSED FOR AY 2008-09. 7. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. WE FIND THAT VERBATIM FACTS EXCEPT VARIATION IN QUANTUM ARE AVAILABLE BETWEEN THIS ASSESSMENT YEAR AS WELL AS AY 2008- 09. THE DISCUSSION MADE BY THE TRIBUNAL IN AY 2008 -09 READS AS UNDER: 3. BRIEF FACTS OF THE CASE THAT THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF CONVEYANCE OF INDUSTRIAL EFFLUENT AND M AINTENANCE OF CHANNEL. IT HAS FILED ITS RETURN OF INCOME ELECTRONICALLY ON 27.9.2008 DE CLARING AN INCOME OF RS.2,60,660/- . THE ASSESSEE HAS CONSTRUCTED CHANNEL WHICH IS 15 KILO-METERS IN LENGTH. IT ENDS UPTO THE GULF OF CAMBAY. THERE ARE ABOUT 300 INDUSTRIAL MEMBERS, TO WHOM THE ASSESSEE COMPANY PROVIDES CHANNEL FOR EFFLUENT DISPOSAL OF M EMBER INDUSTRIES. THE ASSESSEE HAS RECEIVED CONTRIBUTION FROM THE MEMBERS WHICH WE RE SHOWN BY THE ASSESSEE AS REVENUE RECEIPT IN THE FIRST YEAR. BUT IT RECOGNIZ ES THE INCOME TO THE EXTENT OF 1/5 TH AND THE REST OF THE AMOUNT WAS DEFERRED FOR FIVE YE ARS. DURING THE ASSTT.YEAR 2008- 09, THE ASSESSEE HAS RECEIVED CONTRIBUTION OF RS.1, 70,76,612/- FROM NEW MEMBERS FOR LIFE-TIME MEMBERSHIP TO AVAIL EFFLUENT DISPOSAL FAC ILITY OFFERED BY THE ASSESSEE- COMPANY. ITA NO.766/AHD/ 2016 THE ACIT VS. M/S.VADODARA ENVIRO CHANNEL PROJECT LTD. ASST.YEAR 2012-13 - 5 - 4. THE ISSUE BEFORE US IS WHETHER THE CONTRIBUTION RECEIVED FROM THE MEMBERS IS TO BE ASSESSED IN THE YEAR OF RECEIPT OR ASSESSEE I S TO BE PERMITTED TO SPREAD OVER, OVER A PERIOD OF FIVE YEARS. ACCORDING TO THE AO, THE CONTRIBUTION IS TO BE ASSESSED AS INCOME OF THE ASSESSEE IN THE YEAR OF RECEIPT, WHER EAS, IN THIS YEAR, THE ASSESSEE ALLEGED THAT IT IS CAPITAL CONTRIBUTION AND NO LIAB ILITY CAN BE FASTENED UPON THE ASSESSEE. 5. ON APPEAL, THE LD.FIRST APPELLATE AUTHORITY HAS REJECTED THE CONTENTIONS OF THE ASSESSEE THAT IT IS CAPITAL CONTRIBUTION BY FOLLOWI NG THE ORDER OF THE TRIBUNAL IN THE ASSTT.YEAR 2001-02. HOWEVER, THE LD.CIT(A) OBSERVE D THAT THE ASSESSEE DID NOT FOLLOW THE METHOD AS FOLLOWED IN EARLIER YEARS. IT HAS NO T SPREAD OVER RECEIPTS OVER A PERIOD OF FIVE YEARS. ACCORDINGLY, THE LD.FIRST APPELLATE AUTHORITY HAS CONFIRMED THE ADDITION OF RS.1,03,15,000/-. 6. THE LD.FIRST APPELLATE AUTHORITY FURTHER FOUND T HAT AS FAR AS THE AMOUNT RECEIVED BY THE ASSESSEE IN EARLIER YEARS AND SPREA D OVER, OVER A PERIOD FIVE YEARS, HAS NOT BEEN OFFERED FOR TAX IN THIS YEAR. IN OTHE R WORDS, 1/5 TH OF THE AMOUNTS RECEIVED IN EARLIER YEARS, WHICH ARE TO BE OFFERED FOR TAXATION IN THIS YEAR, NOT OFFERED. THEREFORE, THE LD.CIT(A) HAD ISSUED NOTICE FOR ENHA NCEMENT OF THE INCOME. THE LD.FIRST APPELLATE AUTHORITY AFTER HEARING THE ASSE SSEE, AND FOLLOWING THE ORDER OF THE ITAT IN EARLIER YEARS AS WELL AS SPECIAL BENCH ORDE R IN THE CASE OF MAHINDRA HOLIDAYS AND RESORT (I) LTD., (2010) 131 TTJ (CHENN AI) (SB), MADE THE ADDITION OF RS.23,95,082/-. 7. WITH THE ASSISTANCE OF THE LEARNED REPRESENTATIV E, WE HAVE GONE THROUGH THE RECORD CAREFULLY. WE FIND THAT IN THE FIRST ASSESS MENT YEAR I.E. ASSTT.YEAR 2001-02, THE TRIBUNAL HAS CONSIDERED THIS ISSUE IN DETAIL AND RE JECTED THE CONTENTIONS OF THE ASSESSEE. THE ISSUE IN DISPUTE IS CLEARLY COVERED BY THE ORDER OF THE ITAT. THE DISCUSSION MADE BY THE TRIBUNAL IN ITA NO.4280/AHD/ 2007 READS AS UNDER: 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL ON RECORD. SO FAR AS THE FACTS ARE CONCERNED THERE IS NO DISPUTE. THE ASSESSEE COMPANY IS ENTIRELY SET UP FOR ENABLING MEMBER INDU STRIES TO DISCHARGE THEIR EFFLUENTS IN THE GULF OF CAMBAY. ON THE BASIS OF QU ANTITY OF ANNUAL EFFLUENT EMISSION, A MEMBER PAYS CAPITAL CONTRIBUTION TO THE ASSESSEE COMPANY WHICH IS TREATED BY THE ASSESSEE COMPANY AS REVENUE RECEI PT BUT IS DEFERRED FOR BEING TAXED OVER A PERIOD OF FIVE YEARS AND THUS OF FERING FOR TAX ONLY 1/5TH THEREOF AND REST 4/5TH IN ENSUING FOUR YEARS. THE R EVENUE INTENDS TO TAX THE ENTIRE RECEIPT IN THE YEAR OF RECEIPT ON THE GROUND THAT CONCEPT OF DEFERRING REVENUE RECEIPT IS ALIEN TO INCOME-TAX ACT AND SECT IONS 4,5 & 9 DO NOT PROVIDE FOR SUCH DEFERMENT. HOWEVER, THE SPECIAL BENCH OF T HE TRIBUNAL, CHENNAI IN ITA NO.766/AHD/ 2016 THE ACIT VS. M/S.VADODARA ENVIRO CHANNEL PROJECT LTD. ASST.YEAR 2012-13 - 6 - ACIT VS. MAHINDRA HOLIDAYS & RESORTS (INDIA) LTD. ( SUPRA) HAS CONSIDERED THE ISSUE IN GREAT LENGTH. IN THAT CASE ADMISSION S HARE MEMBERSHIP FEES WAS RECEIVABLE FROM THE NEW MEMBERS AT THE TIME OF THEI R ENTRY OR ENROLMENT. THE ASSESSEE COMPANY HAD OFFERED 40% OF SUCH RECEIPTS I N THREE INITIAL YEARS AND 60% IN REMAINING YEARS OUT OF THE LIFE TIME OF MEMB ERSHIP. GENERAL MEMBERSHIP WAS FOR 33 YEARS BUT IN THAT CASE IT WAS REDUCED TO 25 YEARS AND THEREFORE, 60% OF MEMBERSHIP FEES WAS SOUGHT TO BE OFFERED FOR TAX IN LAST 22 YEARS WHEREAS 40% WAS OFFERED TO BE TAXED IN FIRST THREE YEARS. REVENUE SOUGHT TO TAX ENTIRE RECEIPT IN THE YEAR OF RECEIPT . HON. SPECIAL BENCH REFERRED TO THE DECISION OF HON. SUPREME COURT IN E.D. SASSO ON & CO. LTD. VS. CIT (1954) 26 ITR 27 (SC) AND REFERRED TO OBSERVATION O F THEIR LORDSHIPS ON PAGE 52 OF 26 ITR, WHEREIN THE HON. APEX COURT OBSERVED THAT UNLESS AND UNTIL MANAGING AGENTS COMPLETE THEIR PERFORMANCE, VIZ., T HE COMPLETION OF THE DEFINITE PERIOD OF SERVICE OF A YEAR WHICH WAS A CO NDITION PRECEDENT TO THEIR BEING ENTITLED TO RECEIVE THE REMUNERATION OR COMMI SSION STIPULATED THEREUNDER, NO DEBT PAYABLE BY THE COMPANIES WAS CR EATED IN THEIR FAVOUR AND THEY HAD NO RIGHT TO RECEIVE ANY PAYMENT FROM THE C OMPANIES. THUS NO REMUNERATION OR COMMISSION COULD THEREFORE BE SAID TO HAVE ACCRUED TO THEM AT THE DATES OF THE RESPECTIVE TRANSFERS. THUS UNLE SS AND UNTIL THE AGENTS EARN THEIR COMMISSION IT WILL NOT ACCRUE TO THEM. BUT IN ORDER THAT THE INCOME CAN BE SAID TO HAVE ACCRUED TO OR EARNED BY THE ASSESSE E, IT IS NOT ONLY NECESSARY THAT THE ASSESSEE MUST HAVE CONTRIBUTED TO ITS ACCR UING OR ARISING BY RENDERING SERVICES OR OTHERWISE BUT HE MUST HAVE CREATED A DE BT IN HIS FAVOUR. A DEBT MUST HAVE COME INTO EXISTENCE AND HE MUST HAVE ACQU IRED A RIGHT TO RECEIVE THE PAYMENT. UNLESS AND UNTIL HIS CONTRIBUTION OR P ARENTHOOD IS EFFECTIVE IN BRINGING INTO EXISTENCE A DEBT OR A RIGHT TO RECEIV E THE PAYMENT OR IN OTHER WORDS UNLESS THERE IS A DEBITUM IN PRAESENTI, SOLVE NDUM IN FUTURO, IT CANNOT BE SAID THAT ANY INCOME HAS ACCRUED TO THE AGENTS. FRO M THIS OBSERVATION OF HON. APEX COURT THE SPECIAL BENCH OF THE TRIBUNAL OBSERV ED THAT TWO CONDITIONS ARE NECESSARY TO BE SATISFIED TO SAY THAT INCOME HA S ACCRUED OR EARNED BY THE ASSESSEE. THEY ARE (I) IT IS NECESSARY THAT THE AS SESSEE MUST HAVE CONTRIBUTED TO ITS ACCRUING OR ARISING BY RENDERING SERVICES OR OTHERWISE, AND (II) A DEBT MUST HAVE COME INTO EXISTENCE AND ASSESSEE MUST HAV E ACQUIRED A RIGHT TO RECEIVE THE PAYMENT. ANOTHER POINT WHICH WAS MADE O UT BY THE SPECIAL BENCH WAS THAT THE INCOME DOES NOT ACCRUE MERELY ON SIGNI NG OF THE AGREEMENT FOR ENROLLING AS A MEMBER. THERE IS A CONTINUING LIABIL ITY ON THE PART OF THE ASSESSEE NOT ONLY TO PROVIDE ACCOMMODATION BUT ALSO TO PROVIDE OTHER INCIDENTAL SERVICES ATTACHED WITH THE ACCOMMODATION . HON. SPECIAL BENCH THEN REFERRED TO THE DECISION OF HON. SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA (P) LTD. VS. CIT 314 ITR 62 (SC) WHE REIN IT IS OBSERVED THAT LIABILITY IS DEFINED AS A PRESENT OBLIGATION ARISIN G FROM PAST EVENTS, THE ITA NO.766/AHD/ 2016 THE ACIT VS. M/S.VADODARA ENVIRO CHANNEL PROJECT LTD. ASST.YEAR 2012-13 - 7 - SETTLEMENT OF WHICH IS EXPECTED TO RESULT IN AN OUT FLOW FROM THE ENTERPRISE OF RESOURCES EMBODYING ECONOMIC BENEFITS. IT WAS FURTH ER OBSERVED THAT A PAST EVENT THAT LEADS TO A PRESENT OBLIGATION IS CALLED AS AN OBLIGATING EVENT. THE OBLIGATING EVENT IS AN EVENT THAT CREATES AN OBLIGA TION WHICH RESULTS IN AN OUTFLOW OF RESOURCES. IT ALSO OBSERVED THAT FOR A L IABILITY TO QUALIFY FOR RECOGNITION THERE MUST BE NOT ONLY PRESENT OBLIGATI ON BUT ALSO THE PROBABILITY OF AN OUTFLOW OF RESOURCES TO SETTLE THAT OBLIGATIO N. FROM THIS OBSERVATION OF APEX COURT IT WAS OBSERVED THAT THERE IS A DEFINITE LIABILITY CAST ON THE ASSESSEE TO FULFILL ITS PROMISE I.E. TO CONTINUE TO PROVIDE FACILITIES TO MEMBERS AND, THEREFORE, IT CANNOT BE SAID THAT ENTIRE FEE R ECEIVED FROM THE NEW ENROLLED MEMBERS HAD ACCRUED AS INCOME IN THE YEAR OF RECEIP T. FINALLY THE SPECIAL BENCH OBSERVED AS UNDER :- 31. WE HAVE HELD THAT THERE IS A DEFINITE LIABILIT Y CAST ON THE ASSESSEE TO FULFILL ITS PROMISE AND THEREFORE, IT CANNOT BE SAI D THAT THE ENTIRE FEE RECEIVED BY IT HAS ACCRUED AS INCOME. WE HAVE ALSO CONSIDERE D THE PECULIAR NATURE OF THE ACTIVITY ALONG WITH THE COMPLEXITY ATTACHED TO IT AS RESULT OF WHICH NO REASONABLE PROVISION FOR THE LIABILITY CAN BE MADE. THEREFORE, RECOGNIZING THE ENTIRE RECEIPT AS INCOME IN THE YEAR OF RECEIPT CAN LEAD TO DISTORTION. SOMEWHAT SIMILAR, THOUGH NOT EXACTLY IDENTICAL SITU ATION WAS FACED BY THE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVE STMENT CORPORATION LTD. VS. CIT (SUPRA). IN THAT CASE, THE ASSESSEE HAD ISS UED DEBENTURES OF RS.1.5 CRORES AT A DISCOUNT OF 2 PER CENT REDEEMABLE AFTER 12 YEARS. AT P. 813 OF THE REPORT, THE COURT OBSERVED THAT ORDINARILY REVENUE EXPENDITURE WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IT IS INCURRED . IT CANNOT BE SPREAD OVER A NUMBER OF YEARS EVEN IF THE ASSESSEE HAS WRITTEN IT OFF IN HIS BOOKS OVER A PERIOD OF YEARS. HOWEVER, THE FACTS MAY JUSTIFY AN ASSESSEE WHO HAS INCURRED EXPENDITURE IN A PARTICULAR YEAR TO SPREAD AND CLAI M IT OVER A PERIOD OF ENSUING YEARS. IN FACT, ALLOWING THE ENTIRE EXPENDI TURE IN ONE YEAR MIGHT GIVE A VERY DISTORTED PICTURE OF THE PROFITS OF A PARTIC ULAR YEAR. IT IS THIS DISTORTION WE HAVE TALKED ABOUT IN THE EARLIER PART OF THIS PA RA. THE ONLY DIFFERENCE IS THAT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CO RPORATION (SUPRA), THE DISTORTION WAS SUPPOSED TO BE ON ACCOUNT OF EXPENDI TURE, IN THE PRESENT CASE IN THE DISTORTION IS ON ACCOUNT OF THE ENTIRE INCOM E BEING ACCOUNTED IN THE YEAR OF RECEIPT. EARLIER, WE HAVE ALSO DISCUSSED AS TO HOW DIFFICULT IT IS TO ESTIMATE THE LIABILITY WHICH IS LIKELY TO BE INCURR ED IN FUTURE, MORE SO IN THE ABSENCE OF ANY SCIENTIFIC BASIS OR HISTORICAL DATA. THEREFORE, THE ONLY WAY TO MINIMIZE THE DISTORTION IS TO SPREAD OVER A PART OF THE INCOME OVER THE ENSUING YEARS. AT THIS JUNCTURE, WE MAY DEAL WITH ONE OF TH E ARGUMENTS MADE ON BEHALF OF THE ASSESSEE AND THE INTERVENER. IT WAS ARGUED T HAT ACCOUNTING FOR THE ITA NO.766/AHD/ 2016 THE ACIT VS. M/S.VADODARA ENVIRO CHANNEL PROJECT LTD. ASST.YEAR 2012-13 - 8 - WHOLE OF THE INCOME IN ONE YEAR WOULD GIVE A DISTOR TED VIEW OF THE PROFITS OF THE COMPANY WHICH WILL BE AGAINST THE TRUE AND FAIR PRINCIPLE REQUIRED FOR THE ANNUAL ACCOUNTS. WELL, THE DISTORTION THE LEARNED C OUNSEL TALKED ABOUT WAS VIS--VIS THE PRESENTATION OF PUBLISHED ACCOUNTS WH EREAS THE DISTORTION THE SUPREME COURT TALKED ABOUT AND WHICH WE ARE INCLINE D TO FOLLOW, IS VIS--VIS THE REAL TAXABLE INCOME FOR A PARTICULAR YEAR. THER EFORE, IN VIEW OF THE FOREGOING DISCUSSION, WE ACCEPT THE PROPOSITION OF THE ASSESSEE THAT IT IS NOT JUSTIFIABLE TO TAX THE ENTIRE INCOME IN A SINGLE YE AR AS IS THE CASE OF THE DEPARTMENT. THUS THE ABOVE JUDGMENT CLEARLY LAYS DOWN A PRINCIP LE THAT WHERE FEES IS RECEIVED BY AN ASSESSEE FOR RENDERING SERVICES IN F UTURE THEN ENTIRE SUCH FEES CANNOT BE TAXED IN THE YEAR OF RECEIPT BECAUSE THE ASSESSEE HAD NOT PERFORMED ITS PART OF OBLIGATION IN THE YEAR OF RECEIPT. IT H AS TO BE PERFORMED IN ENSUING YEAR AND INCUR EXPENDITURE FOR SUCH PERFORMANCE. TH EREFORE, ENTIRE RECEIPT OF MEMBERSHIP FEES CANNOT BE TAXED IN ONE YEAR. 11. WHEN WE APPLY THE ABOVE PRINCIPLE TO THE FACTS OF THE PRESENT CASE, WE NOTICE THAT WHAT THE ASSESSEE HAS RECEIVED IS TERME D AS CAPITAL CONTRIBUTION BY THE MEMBERS BUT IT IS A REVENUE RECEIPT IN THE HAND S OF ASSESSEE. QUID PRO QUO IS GIVING A RIGHT TO THE MEMBERS TO USE THE EFFLUEN T DISCHARGE CHANNEL ACCORDING TO THE CAPACITY PURCHASED BY THEM. THUS B Y THIS ONE TIME PAYMENT THE MEMBERS ARE MADE ELIGIBLE TO UTILIZE THE PRESEN T CAPITAL SET UP OF THE ASSESSEE COMPANY AS WELL AS FURTHER EXPANSION THERE OF, IF ANY, OR MODIFICATION THEREOF, IF MADE BY THE ASSESSEE COMPANY IN FUTURE. 12. NOW WE REFER TO THE USER AGREEMENT WHICH THE NE W MEMBER SIGNED WITH THE ASSESSEE COMPANY. FOLLOWING CLAUSES ARE CONSIDE RED AS IMPORTANT :- (8) CAPITAL CONTRIBUTIONS MEANS CONTRIBUTION TOWAR DS CAPITAL/ EXPENDITURE INCURRED/ LOBE INCURRED BY EFF LUENT CHANNEL PROJECT LIMITED FOR ITS ACTIVITIES. (9) M&R CONTRIBUTION MEANS PAYMENT OF FEES FOR THE MAINTENANCE AND REPAIRS OF THE EFFLUENT CHANNEL ANN UALLY. (10) TREATED EFFLUENT MEANS LIQUID EFFLUENT DISCHAR GED AFTER TREATMENT AS PER THE GPCB CONSENT CONDITIONS INTO T HE EFFLUENT CHANNEL OF EFFLUENT CHANNEL PROJECT LIMITED. ITA NO.766/AHD/ 2016 THE ACIT VS. M/S.VADODARA ENVIRO CHANNEL PROJECT LTD. ASST.YEAR 2012-13 - 9 - (11) COMPANY MEANS EFFLUENT CHANNEL PROJECT LIMT1ED (ECPL) PROVIDED FOR THE CONVEYANCE OF TREATED EFFLU ENT AS PER THE GPCB CONDITIONS UP TO THE SAFE DISPOSAL, RECEIVED F ROM THE PARTICIPANTS. (12) COMMITTED QUANTITY MEANS THE QUANTITY OF EFFLU ENT PER DAY, TO BE DISCHARGED BY EACH PARTICIPANT AS AGREED AND SPECIFIED IN HIS APPLICATION. PERIOD OF AGREEMENT : (13) THIS AGREEMENT SHALL COME INTO FORCE FROM THE DATE IT IS SIGNED AND SHALL REMAIN OPERATIONAL FOR A PERIOD OF 99 YEARS. DELIVERY OF EFFLUENT : (14) THAT THE PARTICIPANT IS A PRIVATE LIMITED; PUB LIC LIMITED/ PARTNERSHIP/ PROPRIETORSHIP COMPANY. (15) PARTICIPANT SHOULD BE MADE LIABLE ONLY FOR NOT MEETING THE EFFLUENT DISCHARGED TO THE ECPL AND NOT FOR ANY VIO LATION AROSE AT ECPL IN CONVEYANCE TO GULF OF CAMBAY. (16) THE PATICIPANT SHALL GET THE CONSENT FROM THE GUJARAT POLLUTION CONTROL BOARD DIRECTING THE PARTICIPANT T O SEND ITS TREATED EFFLUENT TO THE EFFLUENT CHANNEL OF EFFLUENT CHANNEL PROJECT LIMITED FOR SAFE DISPOSAL. (17) THE PATICIPANT SHALL NOT SEND IN ANY CASE ANY EFFLUENT CONTAINING ANY POLLUTANT BEYOND PERMISSIBLE LIMITS FROM HIS COMPANY OR HIS SISTER COMPANY OR ANY OTHER COMPANY FOR SHOR T OR LONG DURATION. THE TREATED EFFLUENT OF PARTICIPANT SHALL CONFORM TO THE GPCB CONSENT CONDITIONS. THE PARTICIPANT SHALL NOT DISCHARGE EFFLUENT EXCEEDING HIS (18) THE DISCHARGE OF TREATED EFFLUENT INTO EFFLUEN T CHANNEL OF THE EFFLUENT CHANNEL PROJECT LIMITED SHALL BE AS PE R COMMITTED QUANTITY AS IN 'APPLICATION' BY THE PARTI CIPANT TO COMPANY. (19) THE PARTICIPANT SHALL BE BOUND TO PAY M&R CHAR GES CALCULATED ON ITS COMMITTED QUANTITY AND IN THE EVE NT OF DISCHARGE BEING LESS THAN [HE COMMITTED QUANTITY, THE PARTICI PANT WILL HAVE ITA NO.766/AHD/ 2016 THE ACIT VS. M/S.VADODARA ENVIRO CHANNEL PROJECT LTD. ASST.YEAR 2012-13 - 10 - TO PAY M&R/ CAPITAL/ OTHER CHARGES AS PER COMMITTED EFFLUENT QUANTITY, WITHIN STIPULATED TIME LIMIT. (20) THE PARTICIPANT SHALL BE BOUND TO PAY M&R/ OTH ER CHARGES CALCULATED ON ITS COMMITTED EFFLUENT QUANTITY AND I N THE EVENT OF HIGH (MORE THAN COMMITTED) DISCHARGE, PARTICIPANT WILL H AVE TO PAY M&R/ OTHER CHARGES AS PER ACTUAL DISCHARGE WITHIN STIPUL ATED TIME LIMIT, AND THE RATES AS APPLICABLE. THUS A CLEAR RIGHT IS GIVEN BY THE ASSESSEE COMPANY TO THE MEMBERS TO UTILIZE ITS CAPITAL FACILITIES FOR A PERIOD OF 99 YEARS FOR DISCHARGE OF AGREED QUANTITIES OF EFFLUENT. IN OTHER WORDS, ASSESSEE COMPANY HAS T O PERFORM ITS PART OF OBLIGATION FOR NEXT 99 YEARS AND TO KEEP THE CAPITA L SET UP INTACT AND ALLOW THE USE THEREOF BY THE MEMBERS. THIS IS AKIN TO HIRING THE CAPITAL STRUCTURE OF THE ASSESSEE COMPANY FOR THE NEXT 99 YEARS BY MAKING ON E TIME HIRING CHARGES. SINCE THE ASSESSEE COMPANY HAS TO ENSURE USE OF CAP ITAL STRUCTURE BY THE MEMBERS DURING THE TERM OF AGREEMENT, IT IS BOUND T O DISCHARGE ITS OBLIGATION IN FUTURE. THUS ONE TIME MEMBERSHIP FEE IS NOT IN F ACT IN RETURN FOR ANY OBLIGATION OR SERVICES RENDERED BY THE ASSESSEE IN ONE YEAR. IT IS A RECEIPT IN ADVANCE FOR AN OBLIGATION TO BE RENDERED IN FUTURE. THUS IT CANNOT BE SAID THAT INCOME HAS ACTUALLY ACCRUED TO THE ASSESSEE IN ONE YEAR EVEN THOUGH IT MIGHT HAVE RECEIVED IT IN ONE YEAR. MERELY RECEIPT DOES N OT ENSURE ACCRUAL UNLESS EQUIVALENT PART OF AGREED SERVICES BY THE RECEIVER IS RENDERED. IN FACT BY PAYING ONE TIME FEES A PART OF DEBT IS CREATED AGAI NST THE ASSESSEE WHICH HAS TO BE DISCHARGED BY MEETING EQUIVALENT OBLIGATION I N THE FORM OF CONTINUING TO PROVIDE USE OF THE CAPITAL STRUCTURE FOR EFFICIENT DISCHARGE OF EFFLUENT EMITTED BY MEMBER-INDUSTRIES. EVEN ACCOUNTING STANDARD -9 P ROVIDES SUCH DEFERRING OF REVENUE FOR TAXATION. ACCOUNTING STANDARD 9 HAS BEEN REFERRED ABOVE AND PARA 6 THEREOF IS RELEVANT. 13. FOLLOWING THE ABOVE DECISION OF SPECIAL BENCH I N THE CASE OF ACIT VS. MAHINDRA HOLIDAYS & RESORTS (INDIA) LTD. (SUPRA) WE HOLD THAT THE ASSESSEE WAS JUSTIFIED IN DEFERRING THE REVENUE FOR TAXATION FOR FOUR YEARS. ACCORDINGLY THIS GROUND OF ASSESSEE IS ALLOWED. 8. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE IT AT, WE SET ASIDE THE ISSUE AS FAR AS DETERMINATION OF TAXABILITY OF THE RECEIPTS RECEIVED IN THIS YEAR TO THE FILE OF THE AO. THE LD. AO SHALL RE-WORK THE AMOUNT OUT OF THE CONTRIBUTION RECEIVED IN THIS YEAR ON THE BASIS OF THE TRIBUNALS FINDINGS IN THE ASST .YEAR 2001-02. IN OTHER WORDS, THE RECEIPT RECEIVED BY THE ASSESSEE DURING THE ACCOUNT ING PERIOD RELEVANT FOR THIS ASSESSMENT YEAR IS ALSO TO BE SPREAD OVER, OVER A P ERIOD OF FIVE YEARS. THE TOTAL ITA NO.766/AHD/ 2016 THE ACIT VS. M/S.VADODARA ENVIRO CHANNEL PROJECT LTD. ASST.YEAR 2012-13 - 11 - RECEIPT CANNOT BE ASSESSED IN THIS YEAR. AS FAR AS THE ENHANCEMENT MADE BY THE LD.CIT(A) IS CONCERNED, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD.CIT(A), BECAUSE, THE ASSESSEE OUGHT TO HAVE SHOWN THAT THE AMOUNT AS INCOME ON THE BASIS OF CLAIM MADE IN EARLIER YEARS, I.E. WHATEVER AMOUNT R EPRESENTING THE ALLEGED 1/5 TH OUGHT TO BE OFFERED FOR TAXATION IN THIS YEAR. THE LD.FIRST APPELLATE AUTHORITY HAS RIGHTLY MADE THE ENHANCEMENT. 9. IN VIEW OF THE ABOVE DISCUSSION, THE APPEAL OF T HE ASSESSEE IS TREATED AS PARTLY ALLOWED, WHEREAS, THE APPEAL OF THE REVENUE IS DISM ISSED. 8. AS OBSERVED EARLIER, THERE IS NO DISPARITY OF FA CTS, THE LD.FIRST APPELLATE AUTHORITY HAS ALSO CONSIDERED THIS ORDER AS WELL AS OTHER ORDERS OF ITAT ON THIS ISSUE. THEREFORE, RESPECTFULLY FO LLOWING THE ORDER OF THE ITAT, WE DO NOT FIND ANY MERIT IN THIS APPEAL OF TH E REVENUE, IT IS DISMISSED. 9. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED . ORDER PRONOUNCED IN THE COURT ON 19 TH FEBRUARY-2019 AT AHMEDABAD. SD/- SD/- ( AMARJIT SINGH ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 19/ 02 /2019 &.., .(../ T.C. NAIR, SR. PS !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-1, VADODARA 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD