2025 (4) TMI 862 - AT - Income Tax

Nominal membership fees and share transfer fees ruled as capital receipts, not revenue receipts

ITAT PUNE ruled in favor of the assessee regarding the nature of nominal membership fees and share transfer fees received one time. The AO treated these ... Nature of receipt - Nominal Membership fees and Share Transfer fees received one time - Capital Nature or Revenue nature - HELD THAT:- AO has treated the amount as Revenue receipt but the assessee treated the B-Class Fees, Member Share Entrance and Admission Fees received for one time from Members as Capital Receipt and credited it to Reserve Fund. We find that in the preceding years, i.e. A.Ys. 2009-10, 2012- 13, 2013-14 and 2014-15 also similar issue was raised and this Tribunal [2021 (1) TMI 1349 - ITAT PUNE] held that the fee received by the assessee does not constitute Revenue Receipt. Appeal of the assessee is allowed. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this appeal was whether the Nominal Membership fees and Share Transfer fees received by the assessee, a Cooperative Bank, should be classified as capital receipts or revenue receipts for the purpose of income tax assessment for the Assessment Year 2017-18. The question was whether these fees, credited to the Reserve Fund by the assessee, should be treated as non-taxable capital receipts or taxable revenue receipts.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework revolves around the classification of receipts as either capital or revenue in nature under the Income Tax Act, 1961. The Tribunal referred to previous decisions, notably the decision in the assessee's own case for earlier assessment years (2009-10, 2012-13, 2013-14, and 2014-15), where similar issues were adjudicated. The Tribunal also referenced the Supreme Court's decision in Peerless General Finance & Investment Company Ltd., which held that certain subscriptions could be considered capital receipts.Court's Interpretation and ReasoningThe Tribunal's interpretation was guided by the principle that the true nature of a receipt determines its classification, not merely the bookkeeping entries. The Tribunal emphasized that the treatment of receipts in the books of accounts should align with statutory provisions and the bylaws of the society. It was noted that the fees in question were not charged for specific services rendered by the society, which supported their classification as capital receipts.Key Evidence and FindingsThe Tribunal found that the fees were consistently credited to the Reserve Fund, in accordance with the bylaws and statutory provisions. This treatment was consistent with the past practice of the assessee and supported by previous Tribunal decisions in the assessee's favor. The Tribunal noted the absence of any express provision in the Income Tax Act that would classify such fees as taxable revenue receipts.Application of Law to FactsThe Tribunal applied the legal principles established in previous cases to the facts of the current case, concluding that the membership and share transfer fees should be treated as capital receipts. The Tribunal found that the fees were not related to any specific service rendered, further supporting their classification as capital in nature.Treatment of Competing ArgumentsThe Department's representative relied on the orders of the lower authorities, which treated the fees as revenue receipts. However, the Tribunal found no compelling evidence or binding precedent to support the Department's position. The Tribunal emphasized the consistency of its earlier decisions and the lack of any new arguments or evidence from the Department.ConclusionsThe Tribunal concluded that the membership and share transfer fees received by the assessee were capital receipts and not subject to tax as revenue receipts. The Tribunal reversed the findings of the CIT(A) and allowed the appeal in favor of the assessee.SIGNIFICANT HOLDINGSThe Tribunal held that the membership and share transfer fees received by the assessee constitute capital receipts. The Tribunal emphasized the principle that the true nature and quality of a receipt, rather than its classification in the books of accounts, determine its taxability. The Tribunal's decision relied heavily on its own prior rulings and the Supreme Court's decision in Peerless General Finance & Investment Company Ltd.Core Principles EstablishedThe Tribunal reiterated the principle that book entries are not determinative of the nature of a receipt, and that the underlying nature and statutory treatment of a receipt should guide its classification. The Tribunal also reinforced the notion that consistency in treatment across different assessment years, in accordance with legal precedents, is crucial.Final Determinations on Each IssueThe Tribunal determined that the fees in question were capital receipts, thus allowing the appeal of the assessee. The Tribunal's decision was based on the consistent application of legal principles and precedents, and the absence of any compelling contrary evidence from the Department.