2003 (8) TMI 188 - AT - Income Tax

Tribunal Remands Order for Reassessment Due to Procedural Lapses; Membership Fees to Align with AS-9 Revenue Recognition.

Treasure Island Resorts (P.) Ltd. Versus Deputy Commissioner Of Income Tax.

Treasure Island Resorts (P.) Ltd. Versus Deputy Commissioner Of Income Tax. - ITD 090, 814, TTJ 084, 820, Issues Involved:1. Validity of the original assessment order.2. Applicability of Accounting Standard 9 (AS-9) for revenue recognition.3. Taxability of membership fees collected by the assessee.Summary:Issue 1: Validity of the Original Assessment OrderThe assessee challenged the validity of the original assessment order on the grounds that it was time-barred u/s 153 and that the principles of natural justice were violated. The CIT(A) set aside the assessment, directing the Assessing Officer to reframe it after giving due opportunity to the assessee. The Tribunal upheld the CIT(A)'s decision, noting that any procedural lapses could be corrected and did not invalidate the assessment order. The Tribunal emphasized that the assessment was completed within the statutory limitation period and that the principles of natural justice were not fully complied with, thus justifying the remand for fresh consideration.Issue 2: Applicability of Accounting Standard 9 (AS-9) for Revenue RecognitionThe assessee argued that the membership fees should be recognized over a period of time in accordance with AS-9, which mandates revenue recognition on a systematic and rational basis. The Tribunal noted that AS-9 had been made mandatory by the Institute of Chartered Accountants of India from 1-4-1991. The Tribunal found that the assessee had followed AS-9 and that the membership fees were spread over five years for longer-duration memberships and two years for temporary memberships. The Tribunal rejected the Assessing Officer's view that AS-9 was only recommendatory and held that the assessee's method of revenue recognition was in line with AS-9.Issue 3: Taxability of Membership Fees Collected by the AssesseeThe Assessing Officer had brought the entire membership fee collected to tax in the year of receipt, arguing that the fees were non-refundable and that there was no guarantee of service provision beyond one year. The Tribunal rejected this view, noting that the assessee was under a continuing obligation to provide services to its members either free or at reduced rates. The Tribunal held that the entire membership fee could not be taxed in one year as it would lead to distorted financial results, with substantial profits in the year of receipt and losses in subsequent years. The Tribunal directed the Assessing Officer to accept the assessee's method of spreading the membership fees over the relevant periods in accordance with AS-9.Conclusion:The Tribunal dismissed the appeal regarding the validity of the original assessment order, upholding the CIT(A)'s decision to remand the case for fresh consideration. However, the Tribunal allowed the appeal concerning the taxability of membership fees, directing the Assessing Officer to recognize the fees over the relevant periods in line with AS-9.