Income Tax Appellate Tribunal - Delhi
Dlf Commercial Developers Ltd., New ... vs Department Of Income Tax on 3 January, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'B' NEW DELHI)
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND
SHRI K.G. BANSAL, ACCOUNTANT MEMBER
I.T.A. No.2064/D/2011
Assessment year :2006-07
A.C.I.T., Vs. M/s DLF Commercial Developers
Circle 10(1), Ltd., 9-DLF Centre, 9th Floor,
New Delhi Sansad Marg, New Delhi
PAN/GIR No.AABCD 4619 C
(Appellant) (Respondent)
Appellant by : Shri Krishna, CIT-DR
Respondent by : Shri R.K. Kapoor, FCA
ORDER
PER RAJPAL YADAV: JM:
The revenue is in appeal before us against the order of learned CIT(A) dated 3rd January, 2011 passed for assessment year 2006-07. The solitary grievance of the revenue is that learned CIT(A) has erred in deleting the addition of `3,66,25,722/-.
2. The brief facts of the case are that assessee has filed its return of income on 29.11.2006 declaring total income of `263,44,56,700/-. The Assessing Officer had issued notice u/s 143(2) and 142(1) of the Income-tax Act. In response to the notice, authorized representative Shri Adesh Gupta and Shri S.K. Sharma appeared before the Assessing Officer and submitted requisite details. On scrutiny of the accounts, it revealed to the Assessing Officer that auditor in the audit report at serial No.7 of schedule 23 has shown membership fees i.e., subscription fee is recognized on a time proportion basis. The Assessing Officer has directed the assessee to explain as to why total membership fees received by it has not been recognized as revenue receipts. It emerges out that assessee has received a sum of 2 2064-2011-DLFCD `7,42,62,250/- towards non-refundable membership fees. It has recognized a sum of `3,76,36,528/- as revenue receipts. The learned Assessing Officer made a detailed analysis of the conditions for making the member in the Golf Club and following the decision of ITAT Chennai in the case of Sterling Holidays Resorts (India) Limited Vs. ACIT reported in 295 ITR at page 162 (2007), has held that total receipts received by the assessee towards non-refundable membership fee has to be recognized as revenue receipts in this assessment year. He made an addition of the balance amount i.e. `3,66,25,722/- in the total income of the assessee.
3. Dissatisfied with the addition, assessee carried the matter in appeal before the learned CIT(A). It had filed a written submission demonstrating the conditions of giving membership in its Golf Club. The learned CIT(A) has noticed the submissions of assessee on page 3 of the impugned order. The relevant portion exhibiting type of membership offered by the assessee is worth to note and it read as under:-
"9. Regarding these grounds, we wish to respectfully submit that there is an accounting policy followed by the appellant company being mentioned at point No.6 (e) of Schedule 24 "Significant Accounting Policies" forming part of the financial statements for the year under consideration in which it is stated that Membership Fees/subscription fees is to be recognized on a time proportion basis.
We also wish to submit that this subscription/membership fees received from customers is in respect of a Golf Club. This Gold Club is offering the membership for one year, two years and five years as under:-
a) Membership for one year:-
In this case, the club charges a sum of `60,000/- as annual membership fees. The fees received from the members as membership fees are taken in profit and loss account based on the time proportion basis. For example if a 3 2064-2011-DLFCD member joins the Golf Club on 1st October, 2005, his six monthly membership fees is taken in the financial year 2005-06 (assessment year 2006-07) as income and balance six monthly fees is taken in the next financial year as income because his membership fees is valid for the period from 1st October, 2005 to 30th September, 2006.
b) Membership for two years:-
This membership is applicable only in the case of foreigners. In this case, the club charges a sum $4,500/- as membership fees. Membership fees are taken in profit and loss account on accrual basis based on the time proportion basis. For example if a member joins the Golf Club on 1st October, 2005, his six monthly membership fees is taken in the financial year 2005-06 (assessment year 2006-07) as income and balance eighteen month's fees is taken in the next financial years as income because his membership fees is valid for the period from 1st October, 2005 to 30th September, 2007.
c) For five years membership, fees of `3 lacs for new members and `2 lacs for existing members on renewal, which is termed as non refundable membership fees is charged from the members. Appellant recognizes this membership fees in the books of accounts on accrual basis based on time proportion basis. For example if a member joins the Golf Club on 1st October, 2005, his six monthly membership fees is taken in the financial year 2005-06 (assessment year 2006-07) as income and balance 54 months' fees is taken in the next financial years as income because his membership fees is valid for the period from 1st October, 2005 to 30th September, 2010.
In addition to this, the members of this category are also required to pay annual charges of `18,000/- which is payable by him on year to year basis. Appellant company recognize this annual charges in the books of account on accrual basis based on time proportion basis. For example, if a member joins the Golf Club on 1st October, 2005, his annual charges for six month's is taken in the financial year 2005-06 (assessment year 2006-07) as income and balance 6 months' annual charges is taken in the next financial year as income."
4 2064-2011-DLFCD
4. On the strength of above explanation, it was submitted that order of the ITAT in the case of Sterling Holidays Resorts (India) Limited Vs. ACIT reported in 295 ITR (AT) page 162 (2007) has been over-ruled by a Special Bench of the ITAT in the case of ACIT Vs. Mahindra Holiday and Resort reported in 131 TTJ page 1. Learned First Appellate Authority has considered the issue elaborately and after following the order of ITAT's Special Bench in the case of Mahindra Holidays and Resorts deleted the addition.
5. Learned DR relied on the order of the Assessing Officer whereas the learned counsel for the assessee submitted that the issue in dispute is squarely covered in favour of the assessee by the order of the ITAT's Special Bench in the case of Mahindra Holidays & Resorts. He also pointed out that an identical issue has come up before Hon'ble Delhi High Court in the case of CIT Vs. Dinesh Kumar Goel reported in 331 ITR page 10. In this case the issue was whether total fees received by the assessee at the time of admission for a course of two years duration is to be recognized as revenue receipts in the year of receipt or it has to be spread for two years. The Assessing Officer treated the total receipts as taxable in the year of receipt, however, learned CIT(A) as well as ITAT deleted the addition and allowed the assessee to spread the receipts in two years. The Hon'ble High Court has upheld the order of the ITAT.
6. We have duly considered the rival contention and gone through the record carefully. In brief, the case of the assessee is that amounts received by it under different membership schemes of the Golf Club are in the shape of advance. The services against the said advance were yet to be provided, which could be rendered by the assessee in subsequent period and, therefore, income qua those receipts would accrue only in the later period. The obligation to provide service is upon the assessee and there would be out-flow of amount for providing such service to the ultimate members. Hence, total receipts cannot be 5 2064-2011-DLFCD recognized as a revenue receipts at the time of receipt. On the other hand, case of the revenue is that there is no obligation upon the assessee to refund those amounts to the ultimate customers, hence, an absolute right to retain the money has been crystallized under some of the conditions of providing membership. Therefore, it is taxable in the year under which these amounts have been received. We find that issue in dispute is squarely covered in favour of the assessee by the judgment of Hon'ble Delhi High Court in the case of Dinesh Kumar Goel (supra). In this case, the assessee Shri Dinesh Kumar Goel was running coaching institute under the name and style of M/s Fiitjee. He is the sole proprietor. At the time of admission of the student, the institute took the fees for two years. The issue was whether total fees received by the assessee at the time of admission for a course of two years duration is to be recognized as revenue receipts in the year of receipt or it has to be spread over for two years. The learned Assessing Officer treated the total receipts as taxable in the year of receipt. However, learned CIT(A) as well as the ITAT deleted the addition and allowed the assessee to spread the receipts in two years. Hon'ble High Court has considered the scope of total income provided in section 5 of the Income-tax Act, 1961 and has observed that income would accrue or arise or is deemed to occur or arise to an assessee in India during such year when a right to receive crystallized in favour of the assessee. Similarly, in the case of Mahindra Holidays & Resorts (supra), facts are that assessee has been receiving amounts for selling timeshare unit. Under the scheme a person can become a member either by paying the full amount at a time or by paying instalments. The members are entitled to enjoy the holidays only after 12 or 18 months, from the date of membership. The membership will be entitled to facilitate a stay at a resort for one week in a year for 33/25 years. The assessee has recognized 40% of the total cost of membership towards accommodation and 60% 6 2064-2011-DLFCD towards facilities. It offered 40% of the receipts of tax in the year of receipt of the membership fees. The dispute arose between the assessee and the revenue is, whether entire amount of timeshare membership fees receivable by the assessee upfront at the time of an enrolment is an income chargeable to tax in the initial year when there is a contractual obligation fastened to the receipt to provide the services in future year over the period of contract? The Special Bench after a detailed analysis arrived at a conclusion that entire amount of time-share membership fees received by the assessee upfront at the time of enrolment of a member is not the income chargeable to tax in the initial year, and assessee has rightly spread over it in the future year. The facts in the case before us are identical. The assessee is also accounting the receipt for which service is being provided in the year itself and balance is spread over during the period of membership. Learned First Appellate Authority has appreciated the facts in right perspective and has rightly placed his reliance on the judgment of the Hon'ble Supreme Court in the case of E.D. Sassoon and Company Limited Vs. CIT 26 ITR 27 as well as of the Special Bench, we do not find any error in the order of learned CIT(A), hence, appeal of the revenue is dismissed.
7. In result, appeal of the revenue is dismissed.
This order was pronounced in open court on 08.07.2011.
Sd/- sd/-
( K.G. BANSAL ) ( RAJPAL YADAV )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dt.08.07.2011.
NS
7 2064-2011-DLFCD
Copy forwarded to:-
1. A.C.I.T., Circle 10(1), New Delhi.
2. DLF Commercial Developers Limited, 9-DLF Centre, 9th Floor, Sansad Marg, New Delhi.
3. The CIT
4. The CIT (A), New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi.
True copy By Order (ITAT, New Delhi).