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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI PRAMOD KUMAR, VP & SHRI SAKTIJIT DEY, JM
per the terms of the contract renders various services and incurs expenditure for
fulfilling the obligations as per the terms of the contract. To fulfill its obligation under
the terms of the contract, the assessee is required to maintain resorts as per committed
quality level which involves replacement/renovation/upgradation of the assets at
various stages during the tenure of the contract. This also requires incurring other
expenses including marketing and sales related expenditure. The membership fee for
the time share units is collected either in full upfront or on deferred payment basis. As
per the accounting principle consistently followed by the assessee, out of the total
membership fee received during the year, the amount reasonably attributable towards
direct cost required to sale time share units, which is revised periodically, is
recognized as income in the year in which the purchaser of the time share unit
becomes a member and the balance amount representing advance subscription
towards customer facilities is recognized as time share income in equal proportion
over a period for which the holiday facilities are provided, commencing from the year
in which the member becomes entitled to benefit of membership under this scheme.
By following the aforesaid revenue recognition policy, in the return of income filed
for the impugned Assessment Years, the assessee offered income of Rs.4,98,23,067/-
being 45% of the total amount received of Rs.10,79,94,361/-. The balance 55%
translating to income of Rs.6,08,94,861/- was deferred to future years. In course of the
assessment proceedings, the Assessing Officer noticing the aforesaid revenue
recognition method adopted by the assessee called upon the assessee to explain why
3 ITA Nos. 4611 to 4613/Mum/2018 ACIT vs. M/s. Sterling Holiday Resorts Ltd. the entire amount received during the year should not be treated as income. Though,
the assessee furnished its reply objecting to the proposed addition, however, the A.O.
rejecting the submission of the assessee proceeded to treat the entire amount of
Rs.10,79,94,361/- as income of the assessee for the year under consideration. While
doing so, the A.O. also did not follow the decision of the Tribunal on identical issue in
assessee’s own case in A.Ys. 2002-03, 2006-07 and 2008-09 on the plea that the
department has contested the decision of the Tribunal by filing appeals before the
Hon'ble High Court. The assessee having offered the amount of Rs.4,98,23,061/- as
income, the balance amount of Rs.6,08,94,861/- was added back to the income of the
assessee in A.Y. 2011-12.
Similar additions were also made in the other Assessment Years in appeal.
Being aggrieved with the aforesaid additions made by the A.O., the assessee preferred
appeals before ld. CIT(A).
Having taken note of the fact that in assessee’s own case, in A.Ys. 2002-03 to
2010-11, the Tribunal has decided the issue in favour of the assessee, ld. CIT(A)
followed the same and deleted the additions made by the A.O.
We have considered rival submissions and perused the materials on record.
From the facts on record, it is evident that as per the consistently followed accounting
method and revenue recognition policy, the assessee offers reasonably attributable
time share income in the year in which the purchaser of time share units becomes a
4 ITA Nos. 4611 to 4613/Mum/2018 ACIT vs. M/s. Sterling Holiday Resorts Ltd. member and the balance amount of the membership fee, though, is recognized as time
share income, however, it is offered as income in equal proportion over a period for
which the holiday facilities are provided to the member commencing from the year in
which the member is entitled to benefits of membership under the scheme.
Accordingly, the assessee offers 45% as membership fee as income and defers the
balance 55% to subsequent years. This method of revenue recognition is being
followed by the assessee consistently from past several years. It is also evident,
whether the deferred income is to be treated as income of the assessee in the year of
receipt, is a subject matter of dispute in the past years and the Tribunal while deciding
the issue in AYs. 2002-03, 2006-07, 2007-08 and 2008-09 in ITA No. 471/Mds/2012
and others vide order dated 30.08.2012, after following that the decision of Chennai
Special Bench in the case of M/s. Mahindra Holiday & Resorts (India) Limited
(supra) in ITA No. 2412 to 2416/Mum/2005 dated 26.05.2010 has deleted the addition
made by the A.O. on account of time share income. Same view was expressed by the
Tribunal while deciding Revenue’s appeal in assessee’s own case in A.Y. 2010-11 in
ITA No. 2956/Mds/2016 dated 05.05.2017. As could be seen, the A.O. has made the
addition by not applying the decisions of the Tribunal simply on the plea that the
department has not accepted the decision of the Tribunal. In our view, this cannot be a
valid reason for not following the decision of the Tribunal rendered in the assessee’s
own case. In our considered opinion, the issue at hand stands fully covered by the
decision of the Tribunal in assessee’s own case as referred to above. No contrary
decision has been brought to our notice by the ld. Departmental Representative (ld.
5 ITA Nos. 4611 to 4613/Mum/2018 ACIT vs. M/s. Sterling Holiday Resorts Ltd. DR for short). Accordingly, respectfully following the decision of the co-ordinate
bench in assessee’s own case as referred above, we uphold the decision of ld. CIT(A)
on this issue. Grounds raised are dismissed.
The next common issue in these appeals relate to the deletion of disallowance
of Employee Stock Option Plan (ESOP) expense/cost. In the course of the assessment
proceedings, the A.O. noticed that the assessee has debited ESOP expenses to the
profit and loss account. When the A.O. called upon the assessee to justify the claim,
the assessee relied upon the decision of Hon’ble Madras High Court in the case of
PVP Ventures vs. CIT (in TC(A) No. 1023 of 2005 vide order dated 19.06.2012). The
A.O. however did not accept the claim of the assessee. He observed, the assessee has
amortized the ESOP cost in contravention to SEBI guidelines. Further, he observed, in
case of Ranbaxy Laboratories ltd Vs. Addl. CIT (2009) (124 TTJ (Del) 771) and VIP
Industries Ltd. VS DCIT (2010-TIOL-654- ITAT-Mum), the Tribunal has upheld the
disallowance of ESOP expenditure on the reasoning that the issue of shares at a price
below market price does not result in incurring of any expenditure. Rather it results in
short receipt of premium which the assessee is otherwise entitled to. Accordingly, he
disallowed the ESOP expenses debited to profit and loss account.
Being aggrieved, the assessee preferred appeals before ld. CIT(A).
Having found that the issue is covered by the decision of Hon’ble Madras High
Court in the case of PVP Ventures (supra), ld. CIT(A) deleted the disallowances made
by the A.O.
6 ITA Nos. 4611 to 4613/Mum/2018 ACIT vs. M/s. Sterling Holiday Resorts Ltd.
We have considered rival submissions and perused the materials on record. It is
evident, the ESOP expenditure debited to the profit and loss account represents the
difference between the fair market value and the issue price of the stocks. It is also
evident that the assessee has provided for such cost in terms with SEBI guidelines.
The Hon’ble Madras High Court in the case of PVP Ventures (supra) has allowed
similar expenditure claimed by the assessee. In fact, in case of Biocon Limited vs. Dy.
CIT in ITA No. 248/Bang/2010 vide order dated 16.07.2013 the ITAT (Special
Bench), Bangalore has also allowed ESOP expenditure/cost. Respectfully following
the aforesaid judicial precedents, we uphold the decision of ld. CIT(A). Accordingly,
grounds are dismissed.
In the result, all the appeals are dismissed.
Order pronounced in the open court on 20.11.2019
Sd/- Sd/-
(Pramod Kumar) (Saktijit Dey) Vice President Judicial Member Mumbai; Dated : 20.11.2019 Roshani, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,
(Dy./Asstt. Registrar) ITAT, Mumbai