CIT Vs Sterling Holiday Resorts (India) Ltd. (Madras High Court)
Summary: The Madras High Court dismissed the Revenue’s Tax Case Appeal concerning the taxability of deferred time-share membership fees received by M/s Sterling Holiday Resorts (India) Ltd. for Assessment Year 2002-03. The assessee was engaged in running timeshare resorts at various places in India.
For the previous year 2001-02, the assessee treated 45% of the receipts from sale of time shares as income of the current year and deferred the remaining 55% for spreading over the remaining years of the contract period, setting apart the deferred amount as provision for future expenditure. The Assessing Officer, applying the mercantile system of accounting, held that the entire income had accrued in the year of receipt and disallowed the deduction. The Commissioner of Income Tax (Appeals) confirmed the disallowance.
On appeal, the ITAT considered the decision of the Special Bench of the ITAT, Madras, reported in [131 TTJ 1], and the decision in M/s Mahindra Holidays and Resorts India Ltd., ITA No.1613/Mds/2011 dated 25.05.2012, on identical facts, and allowed the assessee’s appeal. The Tribunal held, in substance, that the entire time-share membership fee received upfront at the time of enrolment was not income chargeable to tax in the initial year because the receipts were subject to contractual obligations requiring the assessee to provide services in future over the term of the contract. The decision referred to in the judgment is available as Mahindra Holidays and Resorts India Ltd..
