TaxTMI 
TaxTMI 
2012 (6) TMI 481
X X X X Extracts X X X X
X X X X Extracts X X X X
....ully furnished at various locations in India for specified period each year upto 30.9.2073. The assessee is stated to have performed services for the Members who have acquired the shares in Holiday Resort Companies over the period of time share. From the Deed of Trust dt.4.7.1997, it is seen that the assessee acted as intermediary between the property developers who have acquired time share in Holiday Resort Companies to the extent of protecting their legal rights over the period of time share. The assessee registers the owners, issues or re-issues documents of title deed to the land and building comprising the resorts and guarantees each owner of a time share week so that each owners right of occupation is legally protected etc. The role of the assessee also includes arranging of weekly holiday period of the members through Resorts Condoncium International ( RCI). For the services rendered by it in administering this work, the assessee is paid a one time Administration / Contract Fee of Rs.1,650 per member. The assessee is also compensated separately by way of an annual fee of Rs.5,000 per villa and annual inspection charges of Rs.12,500 plus travel expenses over the total period ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....98-99, 1999-2000, 2000-01 and 2003-04, the assessee challenged the validity of invoking the provisions u/s.147 for taking up assessment proceedings in these years to bring to tax income escaping assessment. iii) For A.Ys 1999-2000, 2000-01 and 2003-04, the assessee challenged the disallowance of interest expenditure. iv) Charge of interest under sections 234B and 234D of the Act was challenged in A.Ys 1997-98, 1998-99 to 2000-01 and 2002-03 to 2004-05. 2.4 In respect of the common ground urged at (i) in para 2.3 relating to revenue recognition of Administration Contract Fees for A.Y. 1996-97 the CIT(A) in his order in ITA No.81/02-03 dt.10.10.2002 was of the view that the assessee's activities in this regard needed to be carried out over a period of time and if the entire revenue was to be recognized in one year, there would be mismatch between revenue and expenditure. He, therefore, held that 25% of the Administration Contract Fees of Rs.1,650 per member is to be assessed to tax in each of the initial two years and the balance 50% should be spread over the balance period of time share upto 2073. This view was concurred with and followed by the CIT(A) in his order for A.Y.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....appreciated accounting principle of revenue recognition before confirming addition. 5. CIT(A) erred in holding interest expenditure not incurred wholly for business. 909/Bang/2009; 2000-01 Filed by Assessee 1. CIT(A) ought not to have upheld validity of reopening u/s. 147 of the Act. 2. CIT(A) ought to have appreciated that appellant's method of accounting in respect of contract fee. 3. CIT(A) erred in holding nature of receipt as revenue. 4. CIT(A) ought to have appreciated accounting principle of revenue recognition before confirming addition. 5. CIT(A) erred in holding interest expenditure not incurred wholly for business. 52/Del/2005; 2001-02 Filed by Revenue 1. CIT(A) erred in directing to tax only 50% of income received i.e. 25% in each year in the initial two years. 1514/Del/2006; 2002-03 Filed by Assessee 1. CIT(A) erred in upholding Assessing Officer's view of method of accounting. 2. CIT(A) erred in concluding revenue recognition as done by appellant is incorrect. 3. CIT(A) erred in accounting treatment adopted for recognizing interest income as well as expenditure. 4. CIT(A) erred in holding legal expenses paid to auditors is cap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s stated that the assessee acted as an intermediary between the property developers and the Members of Time Share to the extent of providing service to protect their legal rights over the time share period. Services provided were registering the owners, issue of documents of title deed to land and building at resorts and guarantees each owners right of occupation etc. For these services, the ld. A.R. stated that the assessee was paid an Administration / Contract Fee of Rs.1,650 per member apart from annual fees of Rs.5,000 and annual inspection fees of Rs.12,500 plus travel expenses. The assessee company has recognized as revenue and offered for taxation only 25% out of the Administration / Contract Fee of Rs.1,650 in the year of receipt and the balance 75% of the fee was admitted as revenue to be equally spread over the balance period of the time share. The ld. A.R. of the assessee strongly contended that the Assessing Officer went wrong in treating the entire amount as income in the year of receipt for the reason that the services which the assessee has to provide to members does not end with the initial period of registration of members of the time share. Rather, the services sp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as income over each of the first two years and the balance 50% be spread over the period of time share be reversed and the Assessing Officer's finding that the said fees are to be assessed entirely in the first year be restored. 6.3 The submissions of both parties have been duly considered and the orders of the lower authorities and the material on record carefully perused. Admittedly, the assessee has received a one time Administration/Contract Fee of Rs.1,650 per member for providing services to the members during the time share period pursuant to the Deed of Trust dt.4.7.1997 and its agreements with M/s. PHRC. The services rendered to members of the Time Share constitute registration of owners, issue or re-issue of documents of title deed to the land and building comprising resorts, guarantee owners of a time share week for occupation of room/apartment; ensure that each owners right of occupation on an annual basis is legally protected etc. While it cannot be denied that a major portion of services rendered by the assessee would be in the initial years of the time share period of 78 years, we do not agree with the Assessing Officer's view that all the services rendered to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... saying so, the assessee meant that there is no taxable event under the service tax laws once a person becomes a member. Since a definite liability is cast on the assessee to fulfil its promise, it cannot be said that the entire fee received by it has accrued as income, and recognizing the entire receipt as income in the year of receipt would lead to distortion. Only way to minimize the distortion is to spread over a part of the income over the ensuing years. Therefore, the entire amount of time share membership fee receivable by the assessee upfront at the time of enrolment of a member is not income chargeable to tax in the initial year. The Tribunal then went on to hold that the entire amount of time share membership fee receivable by the assessee upfront at the time of enrolment of a member cannot be charged to tax in the initial year on account of contractual obligation that is fastened to the receipt to provide services in future over the term of contract; it has to be spread over the ensuing years. 6.4 The assessee's claim in the present appeals is that out of the one time Administration Contract Fee of Rs.1,650 per member, it has admitted in its returns of income that 25%....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee to PHRC was expenditure not incurred wholly and exclusively for the purpose of business whereas it should have been fully allowed in accordance with the provisions of section 37(1) of the Act. 7.2 Both the ld. A.R. and the ld. D.R. have been heard. It is seen from the records that the assessee claimed expenditure incurred on interest paid to PHRC in the relevant years equal to the amount of interest received by the assessee from fixed deposits representing a Capital Bond Account. It was claimed that the agreements stipulated the creation of an equitable mortgage over the apartments and since the mortgage was not created, M/s. PHRC was required to place an amount of security deposit with the assessee which would be released back to it on creation of mortgage over the concerned property. It was claimed that the said security deposit was placed in fixed deposits in the name of the assessee on the basis of instructions from M/s. PHRC and signified the liability of the assessee to be discharged to M/s. PHRC in the event of the equitable mortgage being created. Consequently it was claimed by the assessee that the interest from fixed deposits on the Capital Board Account did no....