2015 (2) TMI 359 - HC - Income Tax

Tribunal Upheld: Advance Payments Not Revenue Yet

The SC upheld the Tribunal's decision, dismissing the Revenue's appeal. The appellant's treatment of advance amounts as revenue receipts was contested by ... Revision u/s 263 - advance amount of sale of room nights - considering that the principal business of the assessee engaged in running of hotels, resorts and clubs is to provide accommodation and other facilities to tourist members, then a provision of the nature made cannot be said to be an allowable revenue expenditure - Held that:- The Tribunal correctly concluded that the accounting of advance sale of room nights must be determined having regard to the undisputed facts. The assessee had collected an advance and under promise to make available to the customers the rooms. The customer is entitled to surrender the room nights in case they are not utilised and opt for surrender value. When a customer opts for surrender value, he shall be paid in cash by the assessee, or in the alternative the customer may opt to buy or utilise the products and services of the company or group companies. The Tribunal referred to the chart and in relation to each assessment year giving a break-up of the advance amount collected showing more than 99 per cent. of the customers surrendered the room nights which is not only the amount paid but which is inclusive of a premium over and above of the collected value. Even if the refund is not made in its entirety, still that will not mean that the amount received is income. The Tribunal accepted the method adopted by the assessee. A capital receipt does not become the revenue receipt just because some expenditure is incurred on the same, and it is claimed by the assessee. The finding of fact that the schemes oblige the assessee to refund not only the advance but also the surrendered value, then the further conclusion that the assessee incurs a liability and no income accrues to the assessee on receipt of this advance, cannot be said to be perverse or vitiated by any error of law apparent on the face of record. Thus considering the sweeping nature of the directions issued by the Commissioner in exercise of his powers under section 263 of the Income-tax Act, 1961, the appeal to the Tribunal was competent and maintainable. The Tribunal has considered the matter from all angles, and while upholding the exercise undertaken by the Commissioner, has on the merits found that the Assessing Officer was not in any error. The interest of the Revenue are not prejudicially affected. - Decided against revenue. Issues:1. Challenge to the order passed by the Income-tax Appellate Tribunal dated March 16, 2011.2. Interpretation of advance sale of room nights and provision of holiday scheme surrender value.Analysis:1. The appeal challenged the order passed by the Income-tax Appellate Tribunal regarding the assessment year 2005-06. The appellant, engaged in running hotels, resorts, and clubs, showed the advance amount of sale of room nights as a liability in the balance sheet, to be accounted for as income only upon actual utilization of room nights. The Revenue found the assessment order prejudicial and directed a fresh order under section 263 of the Income-tax Act, 1961. The Tribunal allowed the appeal of the assessee, leading to the Revenue's appeal. The appellant contended that the advance amount collected should be treated as a revenue receipt, affecting similar matters in the industry. Conversely, the respondent argued that the advance amount cannot be considered a revenue receipt until actual utilization by the customers, as supported by factual findings and legal principles.2. The Tribunal analyzed the advance sale of room nights and the holiday scheme surrender value. It noted the nature of activities and business of the assessee, focusing on the holiday scheme for card members offered at discounted prices. The Tribunal observed that the advance collected was under a promise to provide rooms, with customers having the option to surrender room nights and receive a surrender value. Refunds were made in more than 99% of cases, including a premium. The Tribunal referred to legal precedents such as Taparia Tools Ltd. and Siddheshwar Sahakari Sakhar Karkhana Ltd. to support its findings. It concluded that the provision made by the assessee for refunds did not constitute a revenue receipt, as it was a liability until actual utilization. The Tribunal's detailed reasoning and factual analysis led to the dismissal of the appeal, as it did not raise any substantial question of law.3. The judgment emphasized that the Tribunal's decision was based on factual findings and the terms of the scheme, ensuring that the assessee's liability for refunds did not result in income accrual. The Commissioner's directions under section 263 were found to be competently addressed by the Tribunal, upholding the Revenue's interests. The dismissal of the appeal was justified, as the findings did not indicate any error of law. The identical nature of the case with another appeal further supported the dismissal, with no costs awarded.This comprehensive analysis highlights the key legal and factual aspects of the judgment, addressing the challenges raised by the parties and the Tribunal's reasoning in resolving the issues related to advance sale of room nights and holiday scheme surrender value.