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Income Tax Appellate Tribunal, “B”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN, JM
O R D E R PER R.C.SHARMA (A.M): These are the appeals filed by the assessee and revenue against the order of CIT(A), Mumbai, for the assessment years 2006-07 to 2008- 09.
In asessee’s appeal (i.e. & 2283/Mum/11), for all the years under consideration, the common 2 ITA No.2146&2147/09,2283/11 & ITA No.2986/09 grievance relates to taxing the entrance fees collected by the assessee which was capital in nature.
Rival contentions have been heard and record perused. Facts in brief for the A.Y.2006-07 are that a search and seizure action u/s 132 (1) was carried out at various premises of Natwar Pareekh Group on 23.1.2007. It was found that during this year the assessee company had received Rs.3,84,64,802/- as one time membership fees from the members who were considered as life members of the club for 25 years. During search, the Managing Director Shri Apurva Parikh in the statement recorded on 24.01.2007, under section 132(4) of the Act had admitted that such receipts from AY 2003-04 to 2007-09 aggregating to Rs.5,43,73,232/- were revenue receipts and not capital, as claimed in the return so filed. It was also admitted that the decision in the case of Diners Business Services Pvt Ltd was not applicable to the facts of the case. Accordingly, he offered additional income to the extent of 1/25th of receipts pertaining to such years and also offered to pay the taxes due. But the said statement was later on retracted by him stating that this claim for exemption of one time membership fees was based on the Bombay High Court judgment in the case of Diner's Business Services, Pvt. Ltd. (supra) wherein the High court has held that entrance fees received from the members as capital receipt and hence, was not chargeable to tax. The Assessing Officer, however, rejected the contentions of the assessee by observing that the facts obtaining in the Diners Business Services Pvt. Ltd. and the assessee's case were different. In the latter, the membership 3 & ITA No.2986/09 fees was a 'ONE TIME PAYMENT' while in the present case, it was to be paid every 'Twenty five year'. Thus, in the present case it was not a 'ONE TIME PAYMENT' but only limited to a specific period. Secondly, in the present case members did not get rights in the properties of the club but only used the services provided by e club. Hence, the fees received by members was in the nature of revenue and thus, had to be taxable in entirety during the year of its receipt and not a portion of it. The receipt was to be taxed n entirety also because it was not to be refunded to the members and hence, accrued as income in the year of receipt. Moreover, once a statement is given u/s.132(4), it was to be abided by as the same was given under oath. Accordingly, he added the total amount i.e. Rs.3,84,64,802/- being the entrance fees received during this year to the total income of the assessee.
It was contended by ld. AR that as per the rules and regulations of the Club, the normal membership was valid for 25 years and came to an end under various circumstances under Rule 4.1 of the Rules and regulations of the club including on expiry of the term. The entrance fee collected by the appellant is one time fee to enable the members to be admitted as a member to the club. The members by making payment of the aforesaid fees acquire the right as an ordinary member. In lieu of this payment, the member does not get any return in the form of services or amenities. The member is entitled to enjoy the facilities in the club only after he makes payment of his annual subscription fees. The appellant receives separate amount from its members towards its annual 4 & ITA No.2986/09 subscription fees which has been considered by the appellant as its revenue receipt liable to tax whereas one time membership fees received from the members has been treated as capital receipt following the decision of the Bombay High Court in the case of Diners Business Services Pvt. Ltd. It is further stated that in this it was held that the entrance fee received from a member by the assessee therein was a capital receipt not liable to tax. While holding that the entrance fees are not liable to tax, the High court has relied on the earlier decision in the case of CIT Vs WIAA Club Ltd [136 ITR 569] where the entrance fee was paid by a member only once. It is further argued that the ratio laid down by the High Court is directly applicable to its case. The amount received by the assessee as one time entrance fee is in entirety the amount paid for vesting right of membership in the members and to acquire right to avail of the services and facilities extended by the club. The member by making this payment is not entitled to enjoy the facilities and amenities provided by the club but is only entitled to the right of membership in the club which the court has categorically held that such a receipt is in the nature of capital receipt. It was further contended that assessee club charges its members (after they have been elected as members) an annual subscription fees to be entitled to avail of the services. These fees are considered as revenue receipt and subjected to tax. The members of the appellant club would be entitled to enjoy the benefits of the facilities of the club only upon separate payment of the same. It is further contented that the finding of the Assessing Officer that in the case of the assessee 5 & ITA No.2986/09 the payment of the entrance fees is not a one time payment and is required to be paid every 25th year has no relevance with regard to deciding whether the said fees are taxable as capital receipt or revenue receipt as held by the Bombay high court. Further the finding that the members of the appellant club do not get vested interest in the assets of the club is also of no consequence. The Bombay high court while deciding the issue whether the entrance fee is a capital receipt has made no distinction as to whether the membership is for life or for specified period and whether the members paying the entrance fees get vested interest in the assets of the club.lt is further submitted that In the appellant's case the membership entrance fee received is also non-refundable by nature and therefore again it amounts to capital receipt and hence, not taxable.
With regard to the assessee’s offer of the membership fees as income during the course of search, it was contended that the assessee had originally offered for taxation the amount received from the membership fees in the Assessment Year 2003-04. Subsequently, after the receipt of the judgement of the Bombay High Court as above, the assessee filed the revised return claiming that these receipts are of capital nature and, therefore, these are not taxable which was accepted by the Assessing Officer in the AY 2003-04 and 2004-05. The assessee further submitted that the aforesaid judgement has been accepted by the Department and no Special Leave Petition is pending/filed against the said order before the Supreme Court. Consequently, the aforesaid judgement has become final. As per ld. AR the decision given by High 6 & ITA No.2986/09 Court is binding on all the appellate authorities especially where the decision is given by the jurisdictional High court.
In respect of the retraction of statement recorded u/s.132(4) of the Act, the ld. AR contended that statement under section 132(4) of the Act was made under utter stress and on the assertion made by the officials from the tax department that the aforesaid judgement of the Bombay High Court would not apply to the case of the assessee since the facts in both cases were different, and therefore, it would be distinguishable from the above judgement. It is contented that the disclosure was made without having the benefit of legal advise at the relevant time, not appreciating the legal consequences of a disclosure or the legal ramifications thereof and without full and proper application of mind. The assessee submits that the issue under consideration was a question of law requiring legal interpretation and understanding of the decision of the court. At the time of the search proceedings, a person cannot be in a position to make a correct or a conscious discourse in the statement, especially if the issue involved was matter of legal interpretation. In this connection, reliance was placed on the decision in the case of Kailashben Manharlal Chosksi v. CIT [(2008) 174 Taxman 466 (Guj)] wherein a similar issue was involved and the assessee who had made a disclosure in the statement under section 132(4) retracted the statement after a period of two months. The court held such a retraction to be valid and held that the addition made was not justified. It has also relied upon Circular bearing F.No 286/2/2003/1T (Inv) issued by the Central Board of Direct tax dated March 7 & ITA No.2986/09 10, 2003 where the Board has clarified that where there are confessions made which are subsequently retracted, if such confessions are not based on credible evidence, such confession during the search operations do not serve any useful purpose. Without prejudice to such contentions, it was further submitted that even assuming that the retraction is not valid, an item which is otherwise not taxable under law cannot become taxable merely because of an admission/disclosure made by the appellant. The chargeability is not dependent on the admission or waiver by the assessee but it is dependent on the charging section which needs to be strictly construed. This has been upheld by the Mumbai Tribunal in the case of Vaishali A. Shelar & Other vs ACIT (2007) 109 TTJ 607 (Mum)] 7. On the other hand, ld. DR relied on the orders of the lower authorities and contended that membership fees was received not for the whole life but for limited period of 25 years and assessee was entitled to again take the membership fees after completion of 25 years. Therefore, the facts are distinguishable from the facts of case relied on by ld. AR in case of Dinners Business Services Pvt. Ltd., 263 ITR 1 (Bom).
We have considered rival contentions and also deliberated on the judicial pronouncements cited at bar in the context of factual matrix of the case. From the record we found that the AO has taxed entire entrance fee for giving membership of Club for 25 years, in the year of receipt itself. As per ld. AR the fee so received was capital in nature as per decision of Dinners Business Services Pvt. Ltd., 263 ITR 1. We found that in case of 8 & ITA No.2986/09 Dinners Business Services Pvt. Ltd (supra) the membership so received was for whole-life and not for specified period of time, whereas in the instant case after expiry of 25 years, member was to again pay entrance fee, therefore, facts of the instant case are distinguishable from the case of Dinners Business Services Pvt. Ltd (supra). In case where onetime membership is received for a specified period of time, the issue has been dealt by the ITAT Special Bench in the case of Club Mahindra Holidays, 40 DTR 1, wherein after considering the decision of Hon’ble Supreme Court in the case of E.D.Sasoon, 26 ITR 27, Madras Industrial Corporation Ltd., 225 ITR 802, Calcutta Co. Ltd. 37 ITR 1 and in the case of Rotork Controls India Pvt. Ltd., 314 ITR 62, it was held that membership fee received for 33/25 years was liable to spread over the period of time for which such fee is received. Respectfully following the same, we direct the AO to tax 1/25th share of fee in each year, rather than taxing the entire sum in the year of receipt itself.
In the appeal filed by the revenue (i.e. ITA No.2986/Mum/2009), the revenue is aggrieved for deleting the addition of Rs.50 lakhs made by the AO on account of payment made by assessee company to Shri Sujan Parik.
Rival contentions have been heard and record perused. Facts in brief are that certain loose papers were found at assessee’s premises on the basis of which the AO inferred that assessee had given Rs.50 lakhs to Sujan Parikh group. Accordingly same was added in asessee’s income. The contention of assessee was that this amount was already included in 9 & ITA No.2986/09 the total payment of Rs.19.02 cr. made by the assessee to Sujan A. Parikh Group for buying back his group’s shares by the assessee and there was no separate unaccounted payment and accordingly, no disallowance was called for. According to the assessment order, certain loose papers as per Sr.No 90 to 92 of Annexure A-1 seized from the premises at Asian House, 2nd (Floor, R Kamani Marg, Ballard Estate, being the office of NPIL was a copy of letter dated 15.1.2007 from Wadia Ghandy & Co., the solicitors of the ANP (Apurva) Group addressed to the Solicitors of SAP (Sujan) group in which it was mentioned that Sujan Parikh had been paid a sum of RS.50 lakh on the condition that he and his chartered accountant will not verify the books of accounts of NPIL and NPCL drawn and prepared by the ANP group ( present assessee NPCL is the flagship company of ANP group) for the year ended 31.3.2006. However, Shri Sujan Parikh refused to approve the accounts of the NPIL for the year ended 31.3.2006 . In the circumstances, they had demanded that Mr. Sujan Parikh should refund the sum of Rs.50 lakh. As per the AO this amount paid of Rs.50 lakhs had not been accounted for by the assessee NPCL in its accounts. Accordingly he added the same in assessee’s income.
By the impugned order the CIT(A) deleted the addition after observing as under :- “8.2 On careful consideration of the above facts, I find sufficient merits in the contentions of the appellant. The AO has not justified the addition on any cogent ground and has not been able to rebut the contentions of the appellant in any manner. The objections raised to the fresh evidence are superficial and without any merit.
10 & ITA No.2986/09 The appellate authority is duly empowered to entertain any evidence which could help in deciding the appeal. The AO has been allowed opportunity in terms of rule 46A also. He has not found any infirmity in the confirmation of the recipient nor in the contentions of the appellant in the matter. The addition has been made purely on presumptions and surmises. Accordingly, it is held that there is no justification for the said addition which is accordingly deleted.”
We have considered rival contentions, carefully gone through the orders of the authorities below and found that a categorical finding has been recorded by the CIT(A) to the effect that no additional amount was paid, the amount so paid was part and parcel of the total consideration paid to Shri Sujan Parikh. From the record we found that Mr. Sujan Parikh has received the consideration for transfer of shares of NPCL in direct proportion of the market value of the properties held by NPCL in the month of April 2006. There was no mention of any additional amount of Rs.50 lakh. There was no other mention anywhere in the correspondence exchanged for family settlement which indicated that Mr. Sujan Parikh was paid Rs.50 lakh extra over and above the consideration paid for sale of shares in the group companies. As per finding of the CIT(A) no cogent material was brought on record by the AO to hold that Rs.50 lakhs was paid in addition to normal consideration so determined. Accordingly, we do not find any infirmity in the order of CIT(A) for deleting the addition of Rs.50 lakhs.
In the result, appeals of the assessee are allowed in part, whereas appeal of revenue is dismissed.