TaxTMI 
TaxTMI 
2026 (5) TMI 184
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpany engaged in Time share business. For the assessment year 1997-1998, it filed return of its income declaring loss of Rs. 46,73,15,499/- on 01.12.1997. Subsequently, it filed a revised return on 04/01/1999. The return of income taken up for a scrutiny and total income was determined as Rs. 8,81,45,376/-. The Assessing Officer, disallowed the claim of the assessee, who declared 45% of the total consideration received for the membership as income of current year and deferred the balance 55% of the advance subscription received from the customer as provision for the future expenditure to provide amenities and facilitates promised to the customers for the remaining period of time share agreement (i.e.,) 99 years. The Assessing Officer viewed that the amount shown by the assessee as "advance subscription towards customers facilities" could not be treated as deferred income, but it should be treated as income of the relevant previous year. Accordingly, he brought to tax the 55% of the subscription amount received from the members also as income of the relevant previous year. 3. In the appeals by the assessee, the Commissioner of Income Tax (Appeal) reversed the Assessment Order and....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the entire subscription charges received is taxable in the year of receipt." 4. Since identical issue in respect of assessee's own case for the Assessment Year 2001-2002 decided first by ITAT in ITA.No:335/Mds/05 in favour of the Revenue, following the said order, the ITAT allowed the rest of the appeals by the Revenue with the following observations:- "An identical issue came for consideration of the Tribunal in the assessee's own case for assessment year 2001-02 in I.T.A. No. 335/Mds/05 and a copy of the order has been filed on the record by the learned D.R. In that case, after detailed discussion, it was held that the concept of deferred income was alien to Income-Tax Act and same was required to be taxed on its coming into existence. It was further observed that obligation to use the income in a particular manner does not remove it from the category of income and this is so even if the obligation is part of the original contract giving rise to the income. This observation was based on the decision of Hon'ble Supreme Court in the case of E.D.Sassoon & Company Ltd vs. CIT (26 ITR 27) (SC). It was also observed that there is absolutely nothing in the Act to permit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ortioning 45% as revenue during the current year and the balance 55% as advance subscription towards customers and kept in the liability side. Whereas, the Tribunal distinguished the case of Calcutta Company Ltd. vs. CIT (37 ITR 1, SC), on facts and declined to accept the assessee's submission that the amount received was deferred income, as certain obligations were attached to be discharged over the remaining period of agreement. The claim of the assessee that the Treatment given to such receipt was in accordance with the fundamental accounting concept for matching the revenue of each year with the expenses incurred to earn such revenue, negatived by the ITAT. The plea of the assessee that the entire amount received towards advance subscription cannot be debited to the P&L account as it tantamounts to provision of agreed amenities and facilities towards which customer made the payment in the previous year did not find favour with the Tribunal. 9. In the order impugned before us, the ITAT has observed that in the Calcutta Company Case cited supra, the undertaking to carry out the developments within six months from the date of deed of sale is unconditional. Whereas, in the case ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Madras High Court in Brilliant Tutorials Pvt Ltd in T.C.(A).No.6 of 2007 and Coral Electronics (P) Ltd (274 ITR 336). 13. Further, the Learned Counsel for the appellant draw the attention of this Court that the Commissioner of Income Tax accepted the hybrid method of accounting while considering the case of the assessee for the Assessment Years 1991-1992 and 1992-1993, in exercising his powers of revision under Section 263 of the Act. As per Accounting Standard, the proportionate completion method is well recognised. The Institute of Chartered Accountants of India (ICAI), in its Technical Guide on Income Computation and Disclosure Standard (ICDS), under Chapters 5, 6 and 7 deals with Revenue from service Transactions and recognition of percentage completion method. Thus, when assessee provides services for intermediate number of actions over a specified period of time, the revenue may be recognised on a straight-line basis over the specified period. Finally, it was contended that there can be no doubt about the recognition of deferred income in view of Section 43 CB of the Income Tax Act. Also, it is brought to our attention the judgment of the ITAT, Chennai, Special Bench....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dgments which have recognised the accounting method of deferring part of the income to meet future expenditure. (i) Treasure Island Resorts (P). Ltd v. Deputy Commissioner of Income Tax reported in [2004] 90 ITD 814 (ITAT[Hyd]), wherein ITAT held as below:- "47. The learned Departmental Representative pleaded before us that entrance fee is a revenue receipt in the light of the decision of the Patna High Court in the case of United Club (supra) and so, the entire membership fee which is on par with such entrance fee has to be taxed in one year. This contention has to be rejected for more than one reason. Firstly, strictly speaking, there is no entrance fee as such in the present case. Secondly, the jurisdictional High Court has held in the case of Secunderabad Club(150 ITR 49) that the entrance fee is a capital receipt. Even as per accounting standard 9, entrance fee is normally capitalized. More basically, the issue in the present case is not whether the membership fee is capital receipt or revenue receipt. The assessee has not disputed that it is a revenue receipt. The only claim of the assessee is that, even if it is a revenue receipt, it cannot be brought to ta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpugned orders of the Revenue authorities on this aspect and direct the assessing officer to modify the assessment accordingly." (ii) Madras Industrial Investment Corporation Ltd vs. Commissioner of Income Tax, reported in [1997] 225 ITR 802 (SC), the case referred by the Learned Counsel for the assessee, the Hon'ble Supreme Court has said:- "....In the case of Indian Molasses Co. (P) Ltd. v. CIT [(1959) 37 ITR 66 : AIR 1959 SC 1049] this Court considered the meaning of "expenditure" under Section 10(2)(xv) of the Income Tax Act, 1922. The High Court was concerned with sums which were transferred by the Company to trustees to take out an annuity policy on the life of the managing director or the longest life policy in favour of the managing director and his wife. There was a provision in the policy for surrendering the annuity for a capital sum after giving notice. The payment by the Company to the trustees was contingent and the liability itself was contingent. The Court said that expenditure which is deductible for income tax purposes is one which is towards a liability actually existing at the time. Putting aside of money which may become expenditure on the hap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rily confined to the money which has been actually paid out. It covers a liability which has accrued or which has been incurred although it may have to be discharged at a future date. However, a contingent liability which may have to be discharged in future cannot be considered as expenditure." (iii). Metal Box Company of India Ltd vs. Their Workmen reported in 1968 SCC OnLine SC 83, wherein it held as below: "The appellant Company estimated its liability under two gratuity schemes framed by the Company and the amount of liability was deducted from the gross receipts in the P&L account. The Company had worked out on an actuarial valuation its estimated liability and made provision for such liability not all at once but spread over a number of years. The practice followed by the Company was that every year the Company worked out the additional liability incurred by it on the employees putting in every additional year of service. The gratuity was payable on the termination of an employee's service either due to retirement, death or termination of service - the exact time of occurrence of the latter two events being not determinable with exactitude beforehand. A ....