2007 (1) TMI 71 - AT - Income Tax

Appeal dismissed: Advance subscription income taxable in year received

The Tribunal dismissed the appeal, affirming the inclusion of advance subscription towards customer facilities as income for the relevant assessment year. ... Income – Assessee contended that 55% of amount received from the sale of time share units is advance subscription and it is appropriated over the contract period – Assessee appeal dismissed and directed that assessable as income in the year of receipt Issues:- Interpretation of Income-tax (Appellate Tribunal) Rules, 1963 regarding grounds of appeal.- Treatment of advance subscription towards customer facilities as income.- Application of accounting principles in recognizing income.- Comparison with relevant legal precedents on similar cases.- Taxability of income and obligations attached to receipts.Interpretation of Income-tax (Appellate Tribunal) Rules, 1963 regarding grounds of appeal:The appeal raised concerns about the grounds not being in accordance with the Tribunal Rules. The rules mandate that the memorandum of appeal must concisely state the grounds of appeal without arguments or narratives. However, the final prayer was submitted as a ground by the assessee, seeking exclusion of a specific amount from the income of the year.Treatment of advance subscription towards customer facilities as income:The case revolved around the treatment of advance subscription received from customers by the assessee in the business of selling time share units. The dispute arose when the Assessing Officer considered 55% of the receipt as income for the relevant year, while the assessee argued that it should be recognized as income over the period of the contract. The Commissioner of Income-tax (Appeals) upheld the AO's decision, leading to the appeal before the Tribunal.Application of accounting principles in recognizing income:The assessee contended that the amount received was deferred income due to obligations attached to the receipts, aligning with fundamental accounting principles for revenue recognition. Citing a legal precedent, the assessee argued that the entire receipt should not be accounted for as income in the year, emphasizing the need to match revenue with expenses incurred to earn it.Comparison with relevant legal precedents on similar cases:The Tribunal analyzed previous legal cases to determine the treatment of income in the present scenario. It distinguished the facts of the current case from precedents where excess amounts received were considered deposits or advances, not taxable income. The Tribunal emphasized that the 55% amount allocated for future expenditure cannot be construed as a deposit and is exigible to tax.Taxability of income and obligations attached to receipts:The Tribunal rejected the assessee's argument of excluding 55% of the receipt from income, stating that the concept of deferred income is not recognized in the Income-tax Act. It emphasized that income, once received, is taxable, irrespective of any obligations attached to its use. The Tribunal deemed the assessee's approach as a subterfuge to evade tax obligations, upholding the Commissioner of Income-tax (Appeals) decision to include the entire receipt as income for the year.In conclusion, the Tribunal dismissed the appeal, affirming the inclusion of the advance subscription towards customer facilities as income for the relevant assessment year.