TaxTMI 
TaxTMI 
2019 (2) TMI 1465
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.... above grounds as may be deemed necessary. 3. The brief facts of the case are that assessee had filed its return of income electronically declaring total income at Rs. 90,48,660/- after set off of losses of Rs. 56,97,848/-. The case of the assessee was selected for scrutiny assessment and notice u/s.143(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") was issued and served upon the assessee. 4. It is pertinent to observe that the assessee at the relevant time was engaged in the business of conveyance of industrial effluent and maintenance of channel. It has constructed a channel which is 15KMs in length. It ends up to the Gulf of Cambay. There are about 300 industrial members to whom the assessee-company provides channel for effluent disposal of member industries. The assessee has received contribution from the members which were shown by the assessee as revenue receipt in the first year. But it recognized the income to the extent of 1/5th and rest of the amount was deferred for five years. In this year, it has received a sum of Rs. 6,65,88,064/-. The assessee has not offered even 1/5th for taxation. It was of the view that receipts are capital in nature. The....
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....ntum are available between this assessment year as well as AY 2008- 09. The discussion made by the Tribunal in AY 2008-09 reads as under: "3. Brief facts of the case that the assessee is a company. It is engaged in the business of conveyance of industrial effluent and maintenance of channel. It has filed its return of income electronically on 27.9.2008 declaring an income of Rs. 2,60,660/. The assessee has constructed channel which is 15 kilo-meters in length. It ends upto the gulf of Cambay. There are about 300 industrial members, to whom the assessee company provides channel for effluent disposal of member industries. The assessee has received contribution from the members which were shown by the assessee as revenue receipt in the first year. But it recognizes the income to the extent of 1/5th and the rest of the amount was deferred for five years. During the Asstt.Year 200809, the assessee has received contribution of Rs. 1,70,76,612/- from new members for life-time membership to avail effluent disposal facility offered by the assesseecompany. 4. The issue before us is whether the contribution received from the members is to be assessed in the year of receipt or assessee is ....
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....ears. The Revenue intends to tax the entire receipt in the year of receipt on the ground that concept of deferring revenue receipt is alien to Income-tax Act and sections 4,5 & 9 do not provide for such deferment. However, the Special Bench of the Tribunal, Chennai in ACIT vs. Mahindra Holidays & Resorts (India) Ltd. (supra) has considered the issue in great length. In that case admission share membership fees was receivable from the new members at the time of their entry or enrolment. The assessee company had offered 40% of such receipts in three initial years and 60% in remaining years out of the life time of membership. General membership was for 33 years but in that case it was reduced to 25 years and therefore, 60% of membership fees was sought to be offered for tax in last 22 years whereas 40% was offered to be taxed in first three years. Revenue sought to tax entire receipt in the year of receipt. Hon. Special Bench referred to the decision of Hon. Supreme Court in E.D. Sassoon & Co. Ltd. vs. CIT (1954) 26 ITR 27 (SC) and referred to observation of their Lordships on page 52 of 26 ITR, wherein the Hon. Apex Court observed that unless and until managing agents complete their ....
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....ating event is an event that creates an obligation which results in an outflow of resources. It also observed that for a liability to qualify for recognition there must be not only present obligation but also the probability of an outflow of resources to settle that obligation. From this observation of Apex Court it was observed that there is a definite liability cast on the assessee to fulfill its promise i.e. to continue to provide facilities to members and, therefore, it cannot be said that entire fee received from the new enrolled members had accrued as income in the year of receipt. Finally the Special Bench observed as under :- "31. We have held that there is a definite liability cast on the assessee to fulfill its promise and therefore, it cannot be said that the entire fee received by it has accrued as income. We have also considered the peculiar nature of the activity along with the complexity attached to it as result of which no reasonable provision for the liability can be made. Therefore, recognizing the entire receipt as income in the year of receipt can lead to distortion. Somewhat similar, though not exactly identical situation was faced by the Supreme Court in the....
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....ot be taxed in the year of receipt because the assessee had not performed its part of obligation in the year of receipt. It has to be performed in ensuing year and incur expenditure for such performance. Therefore, entire receipt of membership fees cannot be taxed in one year. 11. When we apply the above principle to the facts of the present case, we notice that what the assessee has received is termed as capital contribution by the members but it is a revenue receipt in the hands of assessee. Quid pro quo is giving a right to the members to use the effluent discharge channel according to the capacity purchased by them. Thus by this one time payment the members are made eligible to utilize the present capital set up of the assessee company as well as further expansion thereof, if any, or modification thereof, if made by the assessee company in future. 12. Now we refer to the user agreement which the new member signed with the assessee company. Following clauses are considered as important :- "(8) CAPITAL CONTRIBUTIONS means contribution towards capital/ expenditure incurred/ lobe incurred by EFFLUENT CHANNEL PROJECT LIMITED for its activities. (9) M&R CONTRIBUTION means pay....
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....s given by the assessee company to the members to utilize its capital facilities for a period of 99 years for discharge of agreed quantities of effluent. In other words, assessee company has to perform its part of obligation for next 99 years and to keep the capital set up intact and allow the use thereof by the members. This is akin to hiring the capital structure of the assessee company for the next 99 years by making one time hiring charges. Since the assessee company has to ensure use of capital structure by the members during the term of agreement, it is bound to discharge its obligation in future. Thus one time membership fee is not in fact in return for any obligation or services rendered by the assessee in one year. It is a receipt in advance for an obligation to be rendered in future. Thus it cannot be said that income has actually accrued to the assessee in one year even though it might have received it in one year. Merely receipt does not ensure accrual unless equivalent part of agreed services by the receiver is rendered. In fact by paying one time fees a part of debt is created against the assessee which has to be discharged by meeting equivalent obligation in the form....