Deferred timeshare income and future service liability can be recognised over time, with estimated future expenditure deductible.

A 99-year timeshare membership fee linked to continuing obligations for facilities and amenities was not taxable in full in the year of receipt, because deferred income may be recognised over the service period under the matching principle. The Court treated the receipt as connected to future performance rather than immediate income. It also held that an accrued liability to provide the promised facilities in later years was not contingent merely because the expenditure would be incurred later, so estimated future expenditure was deductible on settled accounting principles. The substantial questions were decided for the assessee.

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Issues: (i) Whether the entire membership fee received for a 99-year timeshare period was taxable in the first year itself. (ii) Whether, if the whole receipt was brought to tax in the first year, estimated future expenditure for providing promised facilities and amenities was deductible.

Issue (i): Whether the entire membership fee received for a 99-year timeshare period was taxable in the first year itself.

Analysis: The receipts were collected against continuing obligations to provide facilities and amenities over the entire period of the agreement. The accounting treatment adopted by the assessee apportioned the receipt over the period of service, while the revenue sought to tax the full amount on receipt. The Court held that deferred income is not alien to income-tax law where the receipt relates to services to be rendered over future years and the matching principle supports recognition over the relevant period.

Conclusion: The issue was answered in favour of the assessee. The entire membership fee was not taxable in the first year itself.

Issue (ii): Whether, if the whole receipt was brought to tax in the first year, estimated future expenditure for providing promised facilities and amenities was deductible.

Analysis: The Court held that where the assessee incurs an accrued obligation to render services in future years, the corresponding liability is not contingent merely because actual expenditure will be incurred later. The recurring obligation under the timeshare arrangement could be reasonably matched against the receipt, and the future expenditure was capable of estimation on settled accounting principles.

Conclusion: The issue was answered in favour of the assessee. Estimated future expenditure was liable to be allowed as deduction.

Final Conclusion: The substantial questions of law were decided for the assessee, and the appeals were allowed.

Ratio Decidendi: A receipt linked to continuing services over future years may be recognised on a time basis under the mercantile system, and an accrued liability to incur future expenditure for those services is deductible even if the expenditure will be discharged later.

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