Accrual and real income principles support spreading time-share membership fees over the service period.

Time-share membership fees linked to continuing accommodation and allied service obligations were not required to be taxed in full on receipt. The fee structure was treated as partly consideration for accommodation and partly advance payment for future facilities, so the income related to services over the membership tenure. Applying accrual, real income and commercial accounting principles, the deferred recognition method was accepted, and revenue could be spread over the period to which the services related even under the mercantile system.

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Issues: Whether the entire time-share membership fee was taxable in the year of receipt or whether the receipt could be spread over the membership period on the basis of the assessee's method of accounting.

Analysis: The membership arrangement created continuing obligations on the assessee to provide accommodation and allied facilities over the tenure of membership, and the fee structure itself bifurcated the receipt into consideration for accommodation and advance payment towards facilities. The receipt was therefore not a mere one-time entrance fee but was linked to performance over multiple years. Applying the principles of accrual, real income, and commercial accounting, the Court held that income from such continuing service obligations need not be brought to tax in full on receipt merely because the assessee follows the mercantile system. The accepted accounting approach permits recognition of revenue over the period to which the services relate, and the deferred recognition method adopted by the assessee was consistent with settled law.

Conclusion: The entire membership fee was not required to be taxed in the year of receipt, and the assessee's method of spreading the income over the membership period was upheld.

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