AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (9) TMI 603
X X X X Extracts X X X X
X X X X Extracts X X X X
....st assessment year (i.e. 2012-13) before us for the sake of brevity. However, if any issue arises in any assessment year for the first time, the facts pertaining to the same will be discussed accordingly. 3. Before dealing with the issues on merits, it is pertinent to note certain factual background which is peculiar to the present case. The assessee was involved in the business of selling holiday membership plans to its members. The assessee had an affiliation with certain hotels, which provided accommodation to its members, whenever they utilise the eligible holidays. The members of various schemes were entitled to utilise the eligible holidays on the basis of predetermined entitlements as prescribed in each scheme. The members were also given the option to encash their entitlements for non-availing the eligible holidays. In addition to that, the members, at their absolute discretion, may exercise another option to go for premature encashment, termination of the membership right, and claim a refund of the amount, which is refundable to them in case of premature termination as prescribed in each scheme. The Security and Exchange Board of India ("SEBI"), vide interim order dated....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... passed by the Hon'ble NCLT, which was dismissed vide order dated 30/11/2017. The Hon'ble Supreme Court vide order dated 08/01/2018, in appeal by the said investors, stayed the proceedings under IBC, 2016. Vide order dated 10/05/2018, the Hon'ble Supreme Court constituted a Sale-cum-Monitoring Committee for the purpose of valuation of the properties that have been unearthed during the insolvency process. The Hon'ble Supreme Court further directed the attachment of all the properties of the assessee as well as assets and other properties of the associates/sister concerns. Vide another order dated 12/02/2019, the Hon'ble Supreme Court clarified that in selling the properties under its aegis, the Sale-cum-Monitoring Committee is to follow the procedure laid down by the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. Vide order dated 06/05/2019, the Hon'ble Supreme Court appointed Justice (Retd.) J.P. Devadhar to head the Sale-cum-Monitoring Committee so that the process of the sale of properties is expedited. 6. In this regard, the learned Authorised Representative for the assessee ("learned A.R") also filed a letter dated 20/07/2022, by the Sale-c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unt wrongly considered by Ld. D.C.I.T. as additional amount of Non availing original excluding membership amount received of Rs. 22,77,046/- as alleged interest instead of considering the correct of amount Rs. NII./- as claimed by the Appellant. 2.e The Ld. CIT(Appeals) erred in not directing the Ld. D.C.I.T. to follow the Mercantile system of accounting while treating part of the NAC as interest and tax interest on accrual basis. 3. The Appellant reserves the right to add, to alter and to amplify the Grounds of Appeals." 8. During the hearing, at the outset, the learned A.R. wishes to argue ground no.2.c, and submitted that once the relief is granted in respect of this ground, the other grounds raised in the appeal need not be gone into and can be kept open. The issue arising in ground no.2.c, raised in assessee's appeal, is pertaining to treating the deposits received from its members as non-taxable consistent with the Revenue's approach of treating the Non-Availing Compensation ("NAC") paid by the assessee to its members as interest, which was disallowed under section 40(a)(ia) for non-deduction of tax under section 194A of the Act. 9. The brief facts of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....interest and accordingly affirmed the disallowance made under section 40(a)(ia) of the Act. Being aggrieved, the assessee is in appeal before us. 12. We have considered the submissions of both sides and perused the material available on record. We find that a similar issue came up for consideration before the Co-ordinate Bench of the Tribunal in the case of sister concern in M/s. Royal Twinkle Star Club Pvt. Ltd. v/s DCIT, in ITA no.1425/Mum./2018, etc., for the assessment years 2009-10 to 2015-16. In the aforesaid decision, the Co-ordinate Bench, vide order dated 11/05/2023, directed the amount received by the taxpayer from its members, to the extent the same was treated as income in its books of account, to be reduced while calculating the total income of the taxpayer, as the Revenue has treated the NAC paid by the taxpayer to its members as interest. The relevant findings of the Co-ordinate Bench, in the aforesaid decision, are reproduced below:- "11. We have considered the rival submissions and perused the material available on record. In the present case, the assessee is engaged in the business of selling holiday membership plans to its customers/members. The amoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e is in the nature of capital receipt and not income. It is pertinent to note that in the facts of this case, the taxpayer had floated various schemes which require subscribers to deposit certain amounts by way of subscriptions in its hands, and, depending upon the scheme in question, these subscribed amounts at the end of the scheme are ultimately repaid with interest. Further, the taxpayer, in this case, has also shown the sum as income in its books of accounts. However, the Hon'ble Supreme Court by referring to the various judicial pronouncements agreed with the submission of the taxpayer that it would not be possible to go only by the treatment of such subscriptions in the accounts of the assessee itself. 13. In the present case, it is no doubt true that the amount received from members and apportioned to the year is considered as "sales" by the assessee in its books of account, however, in view of the fact that subsequently the schemes floated by the assessee were held to be in the nature of CIS and therefore, the NAC paid by the assessee to its members was considered as interest on deposits, such deposits by the members cannot be treated as revenue in the hands of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 16. In the result, assessee's appeal for the A.Y. 2012-13 is partly allowed. ITA no.1016/Mum./2019 Assessee's Appeal - A.Y. 2013-14 17. In its appeal, the Revenue has raised the following grounds:- "1. The Ld. C.I.T. erred (Appeals) in confirming the action of the Ld. D.C.I.T. of re-opening of assessment u/s 147/148 of the Income Tax Act, 1961 without a valid reason for re-opening the assessment. 2.a The Ld. C.I.T. (Appeals) erred in not directing to the Ld. D.C.I.T not to make applicable the provision of section 194A to non availing compensation (NAC). 2.b The Ld. CIT (Appeals) erred in confirming the addition made by the Ld. D.C.I.T. of Rs. 18,64,02,834/- u/s 40(a)(ia) of the Income Tax Act, 1961, by treating the sale proceeds as deposits and further erred in confirming the treatment of part of non-availing compensation (NAC) as interest. 2.c The Ld. CIT (Appeals) erred in not directing the Ld. D.C.I.T. to remove such deemed deposits from sale proceeds and accordingly also erred in not directing the Ld. D.C.I.T. to reduce the income by the amount treated as Deposits which can not be treated as income if treated as deposit and can no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in not directing to the Ld. D.C.I.T not to make applicable the provision of section 194A to non availing compensation (NAC). 2.b The Ld. CIT (Appeals) erred in confirming the addition made by the Ld. D.C.I.T. of Rs. 132,57,12,340/- u/s 40(a)(ia) of the Income Tax Act, 1961 by treating the sale proceeds as deposits and further erred in confirming the treatment of part of non availing compensation (NAC) as interest. 2.c The Ld. CIT (Appeals) erred in not directing the Ld. D.C.I.T. to remove such deemed deposits from sale proceeds and accordingly also erred in not directing the Ld. D.C.I.T. to reduce the income by the amount treated as Deposits which cannot be treated as income if treated as deposit and can not be taxed. 2.d Without prejudice, Hon'ble CIT (Appeals) erred in confirming the which was amount wrongly considered by Ld. D.C.I.T. as additional amount of Non availing original excluding membership amount received of Rs. 132,57,12,340/- as alleged interest instead considering the of correct amount of Rs. 25,74,63,240/- as claimed by the Appellant. 2.e The Ld. CIT (Appeals) erred in not directing the Ld. D.C.I.T. to Mercantile follow syste....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ich can not be treated as income if treated as deposit and can not be taxed. 1.d Without prejudice, Hon'ble CIT (Appeals) erred in confirming the amount which was wrongly considered by Ld. D.C.I.T. as additional amount of Non availing excluding original membership amount received of Rs. 252,96,12,895/- of as alleged interest instead of considering the correct amount of Rs. 18,81,76,099/- claimed by the Appellant. 1.e The Ld. CIT (Appeals) erred in not directing the Ld. D.C.I.T. to follow the Mercantile system of accounting while treating part of the NCA as interest and tax interest on accrual basis. 1.f The Ld. CIT (A) also erred in confirming the entire addition of Rs. 252,96,12,895/- for the purpose of disallowance u/s 40(a)(ia) of the Income Tax Act instead of considering only 30% of the total alleged interest i.e. additional amount of NAC as applicable for the assessment year under consideration. 2.a The Ld. CIT(Appeals) erred in confirming the addition made by Ld. D.C.I.T. on account of disallowance of Rs. 2,30,38,866/- u/s 14A r.w. Rule 8D. 2.b The Ld. CIT (Appeals) erred in holding that expenses attributed towards earning exempt income....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 :" 35. CBDT, while explaining the provisions of the Finance (No.2) Act, 2014, vide Circular No.1 of 2015, dated 21/01/2015, clarified that the amendment by the Finance (No.2) Act, 2014 to the provisions of section 40(a)(ia) of the Act takes effect from 1st April 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years. We further find that the Hon'ble Supreme Court in Shree Choudhary Transport Company vs ITO, [2020] 426 ITR 289 (SC) held that the amendment by the Finance (No.2) Act, 2014 is with effect from 01/04/2015, and shall be applicable from the assessment year 2015-16. Since it is settled that the amendment to section 40(a)(ia) of the Act by the Finance (No.2) Act, 2014 is with effect from the assessment year 2015-16, the AO is directed to apply the said amended provision while computing disallowance under section 40(a)(ia) of the Act. As a result, ground no.1.f, raised in assessee's appeal is allowed. 36. Since the relief has been granted to the a....