2020 (5) TMI 361 - AT - Income Tax

Tax Tribunal Rules Golf Course as Plant & Machinery, Membership Fees Taxable on Accrual

Landbase India Ltd Versus ACIT, Circle-15 (1), New Delhi

The Tribunal allowed the assessee's appeals for Assessment Years 2013-14, 2014-15, and 2016-17. It held that the golf course qualifies as 'plant and ... Depreciation on the golf course - Whether depreciation should be allowed considering it as ‘plant and machinery’ ? - HELD THAT:- As in assessee’s own case for Assessment Year 2005-06 to 2011-12 [2019 (9) TMI 148 - ITAT DELHI] wherein, the coordinate bench has held that the golf course is a plant and machinery and assessee is eligible for depreciation thereon @15% - Allow ground No. 1 of the appeal directing the ld AO to grant depreciation on cost of developing golf course on land considering it as plant and machinery. Addition on account of security deposit and membership fees - Revenue receipt or capital receipt - HELD THAT:- In Gulmohar Green Golf and country club Ltd [2016 (12) TMI 1559 - GUJARAT HIGH COURT] wherein it was been held that the security deposit recovered from the members at the time of their enrolment as a member is refundable on occurrence of the contingency mentioned in the rules and regulation and bylaws, therefore it is required to be treated as a deposit, thus, a capital receipt. Therefore, it was held that it is not an income of the assessee. As in the case of the assessee also the security deposit is refundable hence respectfully following the decision of GULMOHAR GREEN GOLF AND COUNTRY CLUB LTD.[2016 (12) TMI 1559 - GUJARAT HIGH COURT] we also hold that the sum of refundable security deposit received from the members of the assessee is a capital receipt and cannot be charged to tax as income. Accordingly, we direct the learned assessing officer to delete the addition to the extent of refundable deposit received from the members. Addition on account of security deposit and membership fees received. Issues Involved:1. Depreciation on golf course as 'plant and machinery.'2. Taxability of security deposit and membership fees as capital or revenue receipt.Issue-wise Detailed Analysis:1. Depreciation on Golf Course as 'Plant and Machinery':The assessee, a company engaged in various businesses including the operation of a golf course, claimed depreciation on the golf course at 15%, categorizing it as 'plant and machinery.' The Assessing Officer (AO) denied this claim, arguing that the golf course, being an improvement on land, should be considered as part of the land itself, which is non-depreciable. The Commissioner of Income Tax (Appeals) [CIT(A)] partially agreed with the AO, reclassifying the golf course as a 'building' and allowing depreciation accordingly.The assessee appealed, and the Tribunal referenced its own decision in the assessee’s previous cases (Assessment Years 2005-06 to 2011-12), where it had been held that the golf course qualifies as 'plant and machinery.' The Tribunal noted that the golf course functions as a business tool and generates revenue, akin to a plant. It also referenced judicial precedents, including the Supreme Court's decision allowing depreciation on a pond for an aquaculture company and the Gujarat High Court's ruling that mineral oil wells constitute a plant. Therefore, the Tribunal concluded that the golf course should be considered 'plant and machinery,' allowing the depreciation claim at 15%.2. Taxability of Security Deposit and Membership Fees:The assessee received security deposits and membership fees from its members, which it claimed as capital receipts. The AO and CIT(A) treated these amounts as revenue receipts, taxable in the year of receipt. The Tribunal reviewed the issue, referencing its decision in the assessee’s earlier cases (Assessment Year 2005-06), where it had ruled that membership fees should be taxed in the year they accrue, not when received, following the mercantile system of accounting.The Tribunal highlighted that the membership fees, though received in advance, were for services to be rendered in subsequent years and should be taxed accordingly. It directed the AO to verify if the income had been offered in subsequent years and delete the addition if confirmed. Regarding the refundable security deposits, the Tribunal cited the Gujarat High Court's decision in *Principal Commissioner of Income Tax vs. Gulmohar Green Golf and Country Club Ltd.*, which treated such deposits as capital receipts, not taxable as income. Following this precedent, the Tribunal directed the AO to delete the addition related to refundable security deposits.Conclusion for Each Assessment Year:- Assessment Year 2013-14: The Tribunal allowed the appeal, directing the AO to grant depreciation on the golf course as 'plant and machinery' and to delete the addition of security deposits and membership fees.- Assessment Year 2014-15: The Tribunal allowed the appeal, applying the same reasoning for depreciation on the golf course as in the previous year.- Assessment Year 2016-17: The Tribunal allowed the appeal, again directing the AO to grant depreciation on the golf course and to delete the addition of security deposits and membership fees.Final Order:All three appeals of the assessee were allowed, with the Tribunal pronouncing the order in the open court on 14/05/2020.