2011 (7) TMI 514 - HC - Income Tax

Tax Court Decision on Cruise Booking Advances: Income Recognition, Offset Losses, and More

The High Court upheld the Commissioner of Income Tax (Appeals) decision regarding the treatment of booking advances received for cruise tickets as income, ... Advances receive - treated as income - Held that:- As per section 20, the assessee shall be liable to RCCL for payment of cancellation charges in accordance with the applicable cancellation charges schedule as may be amended from time to time - Assuming that in some cases, the assessee, in case of cancellation of trip, is liable to return the commission earned, it would be open for the assessee to seek adjustment or claim a refund of tax from the Authorities. Therefore, held that the stand taken by the CIT (A) in this regard was correct and 25% of the booking advances received should be treated as income of the assessee assuming that there are no cancellations - However, the assessee shall be entitled to 10% credit on account of travel agents commission after ascertaining actual outgoings in this regard. Loss from share trading - business loss or a capital loss - The assessee was doing share trading business although in his own name and not in the name of M/s Titun Travel Market - Held that:- The assessee was dealing in shares not for the purpose of investment but for the purpose of business - It is settled position of law that where shares are traded for the purpose of business, any loss arising therefrom will be considered as “Business Loss”. (CIT v. Ashoka Marketing Co -1971 (7) TMI 8 - SUPREME Court). Thus the Tribunal was right in holding that the assessee is entitled to set off the loss in share trading business from that of travel agency business - The case of the assessee comes within the purview of Section 70 - in favour of assessee and against the revenue. Issues Involved:1. Deletion of addition made by the Assessing Officer regarding advances received.2. Timing of income recognition for booking of cruise tickets.3. Adjustment of losses incurred on share transactions against the profit of commission agency business.Issue-Wise Detailed Analysis:1. Deletion of Addition Made by the Assessing Officer:The Tribunal had deleted the addition made by the Assessing Officer (AO), which was restricted by the Commissioner of Income Tax (Appeals) [CIT(A)] to 15% of the advances, treating the same as income of the assessee. The AO had observed that the assessee received substantial money before the sailing of the cruise and treated the entire amount of Rs. 1,44,76,873/- as income of the assessee. The CIT(A) held that only 25% of the advances should be treated as income, giving credit for 10% travel agents' commission. The Tribunal, however, held that the receipt itself does not result in income unless the corresponding services have been performed. The High Court upheld the CIT(A)'s view, stating that the commission accrues to the assessee with the booking of tickets and full payment, notwithstanding cancellations. Therefore, 25% of the booking advances received should be treated as income of the assessee, assuming no cancellations, with a 10% credit for travel agents' commission.2. Timing of Income Recognition for Booking of Cruise Tickets:The core question was whether the receipts on account of booking cruise tickets assumed the character of income when the amount was received from the customers or when the cruise departed. The Tribunal had held that income accrues only when the customer boards the cruise and it departs. The High Court, however, found that the income accrues to the assessee when the ticket is booked and full payment is received. The court emphasized that the right to receive income arises when the ticket is booked and full payment is made, irrespective of whether the customer boards the cruise or cancels the trip. The court referred to various judgments, including CIT v. Shri Goverdhan Limited and Morvi Industry Ltd v. CIT, to support the principle that income accrues when the right to receive it is established.3. Adjustment of Losses Incurred on Share Transactions:The Tribunal had allowed the assessee to adjust the losses from share transactions against the profits of the travel agency business, citing Section 70 of the Income Tax Act. The AO had treated the loss from share trading as a 'Capital Loss' due to the lack of documentary evidence. The High Court upheld the Tribunal's decision, stating that the assessee was entitled to set off the loss in share trading business from that of the travel agency business. The court referred to the Supreme Court judgment in CIT v. P K Muthuraman Chettiar, which allows the set-off of losses in one business against profits in another when multiple businesses are carried out by the assessee. The court concluded that the loss incurred from share trading, conducted for business purposes, should be considered a 'Business Loss,' thus falling under the purview of Section 70 of the Act.Conclusion:The High Court disposed of all three appeals, answering the substantial questions of law as follows:- Question (a): In favor of revenue and against the assessee.- Question (b): In favor of revenue and against the assessee.- Question (c): In favor of the assessee and against the revenue.