IN THE ITAT CHENNAI BENCH ‘C’
Sterling Holiday Resorts (
v.
Assistant Commissioner of Income-tax, Company
Circle-VI(4), Chennai
M.K. CHATURVEDI, VICE PRESIDENT
AND CHANDRA POOJARI, ACCOUNTANT MEMBER
IT APPEAL NO. 335 (MDS) OF 2005
[ASSESSMENT YEAR 2001-02]
JANUARY 19, 2007
Section 4 of the Income-tax Act, 1961 - Income - Chargeable as - Assessment year 2001-02 – Whether income that is received or deemed to be received in previous year is exigible to tax and obligation to use income in a particular manner does not remove it from category of income ; there is absolutely nothing in Act to permit assessee to treat part of income as deferred income and to offer it for taxation as per its own sweet will- Held, yes - Assessee was engaged in business of sale of time share units promoted by it at different locations – In respect of said properties, assessee entered into a time share agreement with customers to extend usership rights along with various facilities to them for a period of 99 years – During relevant year, assessee received certain amount from customers, of which 45 per cent was offered as income – As regards balance 55 per cent, assessee claimed that same was advance subscription towards customer facilities to be provided by it in terms of agreement and was to be spread over period of agreement – However, no details were furnished by assessee as to expenditure actually incurred during relevant period towards providing customer facilities – Whether in absence of such details, there was no rationale for assessee to exclude 55 per cent income and, consequently, entire receipt was assessable as income of assessee in year in question - Held, yes
The assessee-company was engaged in the business of sale of time share units promoted by it at different locations. In respect of said properties, the assessee entered into a time share agreement with customers whereby it agreed to extend usership rights along with various facilities and amenities to them for a period of 99 years. During the assessment year 2001-02, the assessee received certain amount from the customers. The assessee treated 45 per cent of the said receipt as income during the year in question. As regards the balance 55 per cent, the assessee treated it as advance subscription towards customer facilities and offered it as income in equal instalments over the number of years for which the usership right was extended to the customers. The Assessing Officer, however, treated the entire receipt as income in the year under consideration.
On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer.
On second appeal:
As per the Time Share Agreement, the time share holder should pay the
requisite charges/fees/prices decided by the assessee from time to time for use
and enjoyment of the amenities. The time
share holder shall also pay such charges as may be fixed from time to time by
the assessee in respect of electricity, gas, water, air-conditioning/heater
etc. that may be utilized by the time share holder while enjoying his time
share. The time share holder was also
required to pay ‘utility charges’ as applicable to the concerned resort. Assessee could not demonstrate that what
actual expenditure it incurred towards facilities for which it deducted 55 per
cent out of the total income. The first
facility was known as ‘exchange facility’.
By this the time share holder was given an option to exchange his
holiday week to a different week in the same resort or in any other resorts,
subject to availability. The second
facility was known as ‘floating facility’.
When a time share holder was not using his holiday week and was not sure
as to when he will utilize, he could surrender his week and may enjoy a
‘floated week’ any time in the same calendar year. The third facility was ‘split week facility’. By this the time share holder may utilize
only a few days out of his holiday week in any year and may utilize the
remaining days later. The last facility
was ‘accumulation facility’. Where the
time share holder had opted for a floating facility or a split week facility,
but did not get confirmation of reservation due to non-availability, such
floated or split week will be accumulated and could be enjoyed later. It was not clear as to what special expenses
were involved in providing the aforesaid facilities. No details were furnished by the assessee as
to the expenditure actually incurred during the relevant period towards
providing the customer facilities.
Assessee was separately collecting amenity charges which were reflected
as miscellaneous income. The resorts operational expenses were separately
claimed by the assessee. [
The concept of deferred income is alien to Act. Income on its coming into existence attracts
tax. The obligation to use the income in
a particular manner does not remove it from the category of income: this is
even if the obligation is part of the original contract giving rise to the
income. This view was taken by the
Supreme Court in the case of E.D. Sassoon & Company Ltd. v. CIT (1954) 26
ITR 27. It is amply clear that income
that is received or deemed to be received in the previous year is exigible to
tax. The computation of such income is
to be made in accordance with the method of accounting regularly employed by
the assessee. There is absolutely
nothing in the Act to permit the assessee to treat part of the income as
deferred income and to offer it for taxation as per its own sweet will. Thus,
there was absolutely no rationale for excluding 55 per cent income. Even on facts, assessee failed to satisfy
that 55 per cent receipt was to meet certain obligations and it was to be
spread over in 100 years’ time. This was
a subterfuge devised to hoodwink the revenue.
The Commissioner (Appeals) took a correct view in the matter and his
order called for no interference on this count.
Accordingly, the same was to be upheld. [
In the result, the appeal was to be dismissed. [