Case Law Details
Sports Club of Gujarat Ltd. Vs PCIT (ITAT Ahmedabad)
Introduction: The case of Sports Club of Gujarat Ltd. vs. PCIT, as adjudicated by the Income Tax Appellate Tribunal (ITAT) in Ahmedabad, revolves around the taxability of entrance membership fees. The tribunal’s decision hinges on the principles of mutuality and draws comparisons to relevant legal precedents.
Detailed Analysis:
Principle of Mutuality: The ITAT, in its analysis, emphasized the principle of mutuality. It distinguished the case from the Delhi Stock Exchange precedent, asserting that the lack of mutuality in the trade association context doesn’t apply to incorporated Members Clubs, as upheld in the State of West Bengal v. Calcutta Club Ltd [2019] case.
Differentiation from Trade Associations: Citing DCIT v. Bengal Rowing Club [1994], the ITAT highlighted the distinctions between trade associations and membership clubs. The ratio of one case cannot be applied to the other. This underscores the uniqueness of the Sports Club’s situation.
Consistency in Previous Assessments: The appellant argued for consistency, noting that since AY 2004-05, the entrance membership had been treated as a capital receipt and not taxed as revenue. The ITAT endorsed the principle of consistency, referencing ACIT v. Royal Western India Turf Club Ltd. [2017], reinforcing that unless contrary facts are presented, the previous treatment should prevail.
Relevance of Prior ITAT Decisions: Referring to the ITAT’s earlier decision in the appellant’s case for AY 1966-67, the ITAT asserted that it had upheld the principle of mutuality. This further strengthened the appellant’s stance on the taxability of surplus arising to the club as revenue receipts.
Pr. CIT’s Failure to Distinguish Cases: The Pr. CIT’s reliance on Delhi Stock Exchange Ltd. vs. CIT (1959) was challenged. The ITAT argued that the principle of mutuality was wrongly applied, and the Pr. CIT failed to distinguish relevant cases such as ACIT vs. Karnavati Club and others cited by the appellant.
Conclusion: In conclusion, the ITAT allowed the appellant’s appeal, criticizing the Pr. CIT’s decision to set aside the assessment order. The detailed analysis underscores the importance of the principle of mutuality and consistency in tax assessments, ensuring fair and just treatment for sports clubs and similar entities.
This comprehensive analysis provides insights into the Sports Club of Gujarat Ltd. vs. PCIT case, shedding light on the intricate details and legal principles involved in the tribunal’s decision.
ITAT held that the Delhi Stock Exchange case would not apply to the assessee’s set of facts, firstly, for the reason the Hon’ble Supreme Court in the said case taxed the income in the hands of the Trade Association on the basis that the principle of mutuality is lacking, whereas in the case of State of West Bengal v. Calcutta Club Ltd [2019] 110 taxmann.com 47 (SC), the Hon’ble Supreme Court in VAT proceedings has upheld that the incorporated Members Clubs are governed by the principle of mutuality. Secondly, as aptly noted in the DCIT v. Bengal Rowing Club [1994] 48 ITD 512 (Calcutta), the facts of trade associations cases and that of Membership Clubs are on a different footing and ratio of one case cannot be applied to the other. Thirdly, it would not be out of place of mention that ITAT in the assessee’s own case for AY 1966-67, 67-68, 68-69 and 69-70 has upheld the principle of mutuality while adjudicating on the taxability of surplus arising to the club as revenue receipts.
Another, issue for consideration for us is that the Ld. Counsel for the assessee has submitted that from AY 2004-05, the assessee has been earning entrance membership and the assessee has been regularly assessed to tax, but entrance membership has never been brought to tax as revenue receipts in the hands of the assessee. Therefore, on principles of consistency, if the Revenue has taken a certain position in the case of the assessee in prior years, unless there is a material change in the facts, the same position should be adopted in the later years as well. Though, we note from the assessment orders that taxability of entrance fee does not find a specific mention, but the Ld. Counsel for the assessee has relied on page 69 of the Paper-Book years (where year-wise details of Entrance Membership received by the assessee has been mentioned) to aver that since AY 2004-05, the assessee has been earning Entrance Membership, which had been capitalized and for all years and in all the above years, detailed scrutiny assessment has taken place in which such Entrance membership has not been brought to tax as revenue receipts. We note that in the case of ACIT v. Royal Western India Turf Club Ltd. [2017] 88 taxmann.com 567 (Mumbai – Trib.) the facts were that in earlier years, in the case of assessee, the entrance fee was accepted as capital receipt and it goes to balance sheet as reserve account. The ITAT held that where one-time entrance fees received by assessee, race club, from its members had been treated as capital receipts in earlier years, on basis of principle of consistency, such fees would be treated as capital receipt unless and until contrary facts are brought on record by revenue.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This is an appeal filed by the assessee against the order of the ld. Pr. Commissioner of Income Tax-4, Ahmedabad vide order dated 13/03/2020 passed for the assessment year 2015-16.
2. The assessee has raised following grounds of appeal:-
“The Principal Commissioner of Income Tax-4, Ahmedabad (herein after referred as CIT) has erred both in Law and on facts in passing order u/s. 263 dated 13-3-2020 on the following amongst the other Grounds.
I. On Legality:
(1) CIT has erred in holding that order u/s. 143(3) dated 21-12-17 is erroneous and prejudicial to the interest of the revenue and has further erred in setting aside the same with a direction to carry out further inquiries from details and documents in order to examine taxability of Rs.8,63,92,930/- being entrance fees received from the members treating the same to be a revenue receipt and taxable income of the Appellant.
(2) It is submitted that the CIT has passed the order without giving a chance of personal hearing to the Appellant and has further erred in setting it aside particularly since the AO., in the course of passing order u/s.143(3) dated 21-12-17 has specifically asked for the details of the entrance fees, has examined the nature and character of its receipt and has taken a well considered view that the same is in the nature of capital receipt and hence not taxable income of the Appellant.
(3) Further, the order of the AO has merged with that of the order of CIT(A) on identical issue of taxability or otherwise of subscription received from the members which are not taxable on principles of mutuality.
(4) The order of the C1T therefore be cancelled as an erroneous order and the order of the AO be reinserted.
II. On Merits:
(1) Without prejudice to above, the CIT has erred in holding that Rs.8,63,92,930/- being entrance fees received from the members is a revenue receipt and hence taxable as income of the Appellant.
(2) It is submitted that as per the provisions of Companies Act, Accounting Standards laid down by ICAI and as per accounting practice adopted by the Appellant since its inspection since 1966-67 which is accepted by the Department, the CIT has erroneously treated nature of receipt of entrance fees as revenue receipt.
(3) Alternatively, without prejudice and assuming without admitting that the nature and character of entrance fees is a revenue receipt, even then the same is not taxable on principles of mutuality because the same is contributed by the members who are also the participators which is an established principle of Law by Hon. Supreme Court, Hon. Gujarat High Court, Hon. ITAT, Ahmedabad and in Appellant’s own case since its inspection since 66-67 and therefore also, the C1T has erroneously held that entrance fees of Rs.8,63,92,930/- is revenue receipt and taxable as income of the Appellant. It is therefore submitted that relieves claimed above be allowed and the order of the Pr. Comm. of be modified accordingly. Your Appellant reserves right to add, alter or amend any or all of the above Grounds of Appeal.”
3. The brief of the case are that the return of income was filed by the assessee on 30.03.2017 declaring total income of Rs.74,51,320/-. The case was selected for complete scrutiny assessment and the ld. A.O. passed an assessment order u/s 143(3) of the Act determining total income at Rs.2,93,14,163/-. In the assessment order so passed, the A.O. made an addition of Rs.2,10,73,529/- being the total of various incomes treated as non-mutuality income and also disallowed a sum of Rs.7,89,314/-claimed against the incomes chargeable under the head “Income from other sources”. Thereafter, the appeal filed by the assessee before the CIT(A)-8, Ahmedabad stood fully allowed in favour of the assessee vide order dated 15.10.2019.
3.1 Ld. Pr. CIT issued notice u/s order passed u/s 263 of the Act to the assessee on the ground that during the year under consideration, the assessee had received entrance fees of Rs.8,63,92,930/- which had been capitalized in the balance sheet. At the time of assessment, there were several decisions which had held that entrance fees received by the assessee-club at the time of entrance of new members is a receipt of revenue nature and chargeable to tax in the hands of the club viz. the Supreme Court decision in the case of Delhi Stock Exchange Ltd. Vs. CIT(1959) 36 ITR 222(Supreme Court). However, the A.O. did not take note of the above-referred decision and did not tax the amount of Rs.8,63,92,930/- as taxable receipts. Thus, the assessment order passed u/s 143(3) of the Act on 21.12.2017 was erroneous and prejudicial to the interest of the revenue so far as non-taxing of these receipts is concerned.
3.2 In response to this notice, the assessee-company has filed letter dated 03.03.2020 and made various submissions which challenged the issuance of notice u/s order passed u/s 263 of the Act since the two pre-requisite to exercise revisionary powers that the order of the A.O. should be erroneous and it should also be prejudicial to the interest of the revenue are not met in the instant facts. The assessee submitted the issue with respect to non-taxability of entrance fees on account of mutuality as well as considering the same as capital in nature has already been examined by the A.O. during the assessment proceedings u/s 143(3) of the Act and after due application of mind, Ld. Assessing Officer had considered such entrance fees as nontaxable item. The view expressed by the A.O. through the assessment order cannot lead to invocation of provisions of section 263 of the Act for the reason that a different view has been adopted by the revisionary authority. The A.O. had sought details and explanation in respect of various issues including the entrance fees which have been provided by the assessee vide its letter dated 24.11.20.17 and the details so “furnished included the details of members, annual subscriptions credited to income & expenditure account of Rs.1,30,23,177/- and those of entrance fees credited to reserve and surplus for Rs. 8,63,92,099/- with supporting evidences. The assessee submitted that the treatment given by the assessee to such type of receipts, i.e. entrance fees received from the members has been approved in its own case by the Hon’ble ITAT for the assessment year 1966-67, 67-68,68-69 and 69-70. Merely for the reason that the issue of entrance fees had not been discussed in the assessment order cannot lead to hold that the assessment order was erroneous and hence can attract the provisions of section 263 of the Act. The fees so received have been contended to be “a one time entrance fee which is non-refundable to him during his tenure of membership”. This fee has been treated as capital receipt and taken over under the head “Reserves & Surplus” in accordance with the Companies Act, 2013. After paying the onetime entrance fees, the members are also subjected to pay annual subscription fee and activity fees for participating in the activities offered by the club which are treated as revenue receipts against which the expenditure has also been incurred and debited in the profit &. loss account. The assessee also relied on the following decisions:-
(a) ACIT Vs. Karnavati Club Ltd.(2010) 4 ITR (T) 724
(b) ACIT Vs. W.I.A.A. Club Ltd.(1979) 2 Taxman 57.
(c) CIT Vs. Dinners Business Services (Pvt.) Ltd. (200) 132 Taxman. 758
(d) ACIT, Circle-2 Vs. Royal Western India Turf Club Ltd.(2017) 88 com 567.
3.3 Ld. Pr. CIT however, rejected the assessee’s contentions on the grounds firstly, that the careful perusal of the entire case-records revealed that the A.O. did not raise specific query with regard to crediting of the amount of Rs.8,63,92,099/- as capital receipts either through a written communication or through an order-sheet entry. Thus, there is an omission on the part of the A.O. for carrying out necessary inquiries or verification of the issue as mentioned above. Secondly, the very basis of resorting to the revisionary proceedings u/s 263 of the Act is the decision of the Hon’ble Supreme Court of India in the case of Delhi Stock Exchange Ltd. Vs. CIT reported at (1961) 41 ITR 486 which affirmed the decision of the Hon’ble High Court of Delhi reported (1959) 36 ITR 222(S.C.) in which the identical issue has been dealt with. The assessee’s case is squarely covered by these decisions. Thirdly, reliance by the assessee on the decision of the Hon’ble ITAT rendered in its own case for A.Yrs.1966-67, 1967-68, 1968-69 and 1969-70 dated 21.03.1975 is misplaced since the core issue in these cases was denial of exemption u/s 10(23) of the Act by the A.O. In the present case, the issue of receiving the lifetime membership or onetime membership fees transferred to the balance-sheet as reserve and surplus has not been precisely examined as it was not the core issue in the above cases. Therefore, this decision is held to be rendered in respect of the claim made u/s 10(23) of the Act and thus not applicable to the present case on hand. Ld. Pr. CIT accordingly set aside the assessment order by holding that the same is erroneous and prejudicial to the interests of the Revenue.
4. Before us, at the outset, we note that the registry has given a defect memo to the effect that appeal is time-barred by 43 days. The ld. counsel for the assessee submitted that CIT(A) served the order on the assessee on 13-03-2020 and 60 days time limit for filing appeal was expiring on 12-052020. However, due to nationwide lockdown on account of Covid 19, the appeal could be filed only on 24-06-2020. Ld. Counsel for the assessee submitted that the Hon’ble Supreme Court extended time-line for all statutory filing vide suo moto Writ Petition (Civil) No. 3 of 2020 dated 2303-2020 till 30-06-2020. Ld. Counsel for the assessee accordingly submitted there is no delay in filing the appeal in view of the above. The Ld. Departmental Representative has not objected to or contested the arguments in support of condonation of delay put forth by Ld. Counsel for the assessee.
5. In view of the above facts cited above, we deem it fit to condone the delay of 43 days in filing the appeal.
6. Before us, the ld. counsel for the assessee submitted that during the course of assessment proceeding, the ld. Assessing Officer had made inquiries in respect to membership fees and vide submission dated 24-112017, the assessee gave an explanation regarding contributions received from members. He drew our attention to pages 4 and 122 of the paper book in support of his contention. On merits of the case, the ld. counsel for the assessee submitted that in respect of the order of assessment sought to be revised, the ld. CIT(A) has granted full relief and accepted the assessee’s view that the assessee is entitled to benefit of non-taxation of certain receipts on the principles of mutuality. The ld. counsel for the assessee submitted that the entrance fee is a one-time fee which is non-refundable to the member during his tenure of membership, hence is a capital receipt. The ld. counsel for the assessee submitted that the assessee’s case is squarely covered by the decision of ACIT vs. Karnavati Club 4 ITR (T) 174, CIT vs. W.I.A.A. Club Ltd. 2 taxmann 57 and CIT vs. Diners Business Services 132 taxmann 758 which have held that entrance fee charged by assessee-club as a one-time fee for enrolment as members of ‘executive centre’, which was not refundable, was a capital receipt. The Ld. Counsel for the assessee submitted that the same were discussed with Pr. CIT, who has not given any cogent reasons for disregarding the same. Ld. Counsel for the assessee further submitted that the Pr.CIT has not been able to distinguish the above decisions on facts and has given no reason why the same should not apply to assessee’s set of facts. The ld. counsel for the assessee relied on the case of State of West Bengal v. Calcutta Club Ltd [2019] 110 taxmann.com 47 (SC) to submit that SC in the above case has held that doctrine of mutuality is applicable to incorporated and unincorporated members’ clubs and thus sales tax could not have been levied on such clubs for supply of food and drinks to permanent members (in VAT proceedings). The Hon’ble Supreme Court has upheld that the doctrine of mutuality is applicable to incorporated clubs like the assessee. He argued that if revenue receipts are exempt on the basis of principles of mutuality, then, capital receipts in the nature of one-time membership fees should also be exempt from taxation. The ld. counsel for the assessee drew our attention to page 69 of paper book and submitted that for the past 12 years i.e. from Assessment Year 2004-05 onwards, the assessee has been getting entrance fees from Members and the Revenue has never taxed entrance fees as revenue receipts in the hands of the assessee. The ld. counsel for the assessee submitted that the case laws relied upon by the ld. pr. CIT are distinguishable on facts and hence have no applicability to the present case. Hence, the LPr. CIT erred in passing order u/s. 263 of the Act. In response, the ld. D.R. relied on the observations made by the Pr. CIT in the 263 order.
7. We have heard the rival contentions and perused the material on record. We observe that the principle of mutuality has been upheld by the Hon’ble Supreme Court in the case of State of West Bengal v. Calcutta Club Ltd [2019] 110 taxmann.com 47 (SC) as applicable to incorporated clubs. We also observe that in the appeal against certain additions made by Assessing Officer in respect of certain fee earned by non-members, the CIT(A) has deleted the additions by accepting that the assessee was governed by the principle of mutuality. We also note that for the past 12 years i.e. from Assessment Year 2004-05 onwards, the assessee has been earning entrance fee and has been treating the same as its capital receipt, and all these years, the stand of the assessee has been accepted by the Revenue and therefore, the same have not been taxed in the hands of assessee as its revenue receipts. We also note that the assessee placed reliance on several cases in 263 proceedings before ld. Pr. Ld. CIT(A) (ACIT vs. Karnavati Club 4 ITR (T) 174, CIT vs. W.I.A.A. Club Ltd. 2 taxmann 57 and CIT vs. Diners Business Services 132 taxmann 758) However, the Pr.CIT has not given any reason as to how these cases are distinguishable from assessee’s facts.
7.1 We shall first briefly discuss the applicability of the cases cited by Ld. Counsel for the assessee to the assessee’s set of facts. We note that in the case of ACIT vs. Karnavati Club 4 ITR (T) 174, the only issue involved was whether entrance fees received by the assessee club are “capital receipt ” and not “revenue receipt”. While deciding in favour of the assessee, the jurisdictional Ahmedabad ITAT observed as below:
“12. The issue is directly covered in favour of the assessee by the aforementioned decision of the hon’ble Bombay High Court in the case of CIT v. Diners Business Services (P.) Ltd. [2003] 263 ITR 1 , as in the said case, the entrance fee was charged by the assessee for enrolment of its customers as members of ‘executive centre’. The entrance fee was a one-time fee and only members were eligible to avail of the facilities available in the ‘executive centre’ and the entrance fee was non-refundable, following the decision in the case of CIT v. W. I. A. A. Club Ltd. [1982] 136 ITR 569 (Bom), it is held by the Bombay High Court that the entrance fees were paid to the club in order to acquire the right to avail of the services and facilities extended by the club and therefore, the receipts constituted capital receipts.
13. In view of the above discussion, accepting the arguments of the assessee that the receipts on account of entrance fees and life membership fees received by the assessee from its members, was not a revenue or trading receipt and therefore, cannot be included in the assessable income, we hold that the addition on this account has rightly been deleted by the learned Commissioner of Income tax (Appeals) and we confirm his order to that extent.
7.2 In our view, the facts in the assessee’s case and the Karnavati Club case supra are identical, wherein the jurisdictional ITAT has decided the issue in favour of the assessee. The Ld. Pr. CIT has not brought on record any cogent reason why the jurisdictional ITAT decision on identical facts will not apply to the assessee’s set of facts.
7.3 It is also apt to discuss the applicability of case relied upon by ld. Pr. CIT to assessee’s set of facts, while initiating proceedings u/s. 263 of the Act. The Ld. Pr. CIT has relied on the decision of Delhi Stock Exchange Ltd. Vs. CIT(1959) 36 ITR 222(Supreme Court) to form a view that entrance membership fee is a receipt of revenue nature and hence chargeable to tax in the hands of the club. In fact, order passed u/s 263 of the Act proceedings have been initiated by Ld. Pr. CIT on the basis of the above decision, wherein at para 3.1 of order passed u/s 263 of the Act order, he has observed “3.1 The very basis of resorting to the revisionary proceedings u/s 263 of the Act is the decision of the Hon’ble Supreme Court of India in the case of Delhi Stock Exchange Ltd. Vs. CIT reported at (1961) 41 ITR 486 which affirmed the decision of the Hon’ble High Court of Delhi reported (1959) 36 ITR 222(S.C.) in which the identical issue has been dealt with”.
We will discuss the above decision to see their applicability in the assessee‘s set of facts. We note that the Supreme Court in the case of Delhi Stock Exchange supra upheld the taxability of members’ admission fees in hands of assessee as revenue receipts on the ground that since body of trading members and shareholders were not identical, the element of mutuality was lacking. However, we note that in the in the case of State of West Bengal v. Calcutta Club Ltd [2019] 110 taxmann.com 47 (SC), the Hon’ble Supreme Court has that upheld that the doctrine of mutuality is applicable to both unincorporated and incorporated Member Clubs, while holding that sales tax could not have been levied on such clubs for supply of food and drinks to permanent members. Further, the Ld. CIT(A), in appeal against the assessment order which is sought to have revised in order passed u/s 263 of the Act proceedings, has granted relief to the assessee on the principles of mutuality. The Hon’ble ITAT in the assessee’s own case for AY 1966-67 has held that the principles of mutuality applies to surplus arising to the Club, which would be otherwise taxable under the head ‘profits and gains from business and profession’. It would also be apt to refer to the decision of ITAT in the case of DCIT v. Bengal Rowing Club [1994] 48 ITD 512 (Calcutta), where the ITAT discussed and distinguished the applicability of Delhi Stock Exchange case supra to facts of the assessee’s case, which was a Rowing Club, in the following words:
“18. It was then doubted whether the subscription paid by the members for the services rendered by the club cannot be taxed in view of the decisions of the Supreme Court in the case of CIT v. Calcutta Stock Exchange Association. Ltd. [1959] 36 ITR 222 and in the case of Delhi Stock Exchange Association Ltd. v. CIT [1961] 41 ITR 495 (SC). Under section 28(iii) of the Income-tax Act, 1961, income derived by a trade, professional or similar association from specific services performed for its members are taxable as income from business. The fore-runner of this provision In the Act of 1922 was section 10(6) thereof. The decisions of the Supreme Court cited above were concerned with section 10(6) of the 1922 Act. In the present case, we are not concerned with the Income of any trade or professional or similar association. A trade or professional association is an association of businessmen or professionals to protect their common interests. The assessee can neither be stated to be trade association nor a professional association. The assessee does not carry on any business and this fact is also not disputed. The assessee is purely a members’ Club. In the case of Calcutta Stock Exchange Association Ltd. (supra) and in the case of Delhi Stock Exchange Association Ltd. (supra) the assesses were not members’ Club, but they were trade associations. It was not suggested on behalf of the Department that the assessee was an association similar to a trade or professional association. Even if it is so suggested, that cannot be accepted because the word ‘similar’ In section 28(iii) has to be interpreted ‘Ejusdem generis’ with the word ‘trade or professional’. A members’ Club such as the present assessee is wholly different from a trade or professional association. and therefore there is no scope for roping the same into the provisions of section 28(iii). A similar contention was advanced on behalf of the Department before the Delhi High Court in the case of CIT v. Delhi Race Club [1940] Ltd. [1970] 75 ITR 111. That was a case of the Delhi Race Club, which was an incorporated body. The finding of the Tribunal was that the assessee was essentially a members’ club and it was neither a trade nor professional association. On this finding of fact, the contention advanced on behalf of the revenue was expressly repelled by the Delhi High Court. At pages 116 and 117 of the report, the High Court held as under:
“The learned counsel for the revenue had referred to section 10(6) of the Indian Income-tax Act, 1922, but this has no application to the present case. As held by the Supreme Court in Royal Western India Turf Club case. section 10(6) has no application, for the assessee is not a trade or professional or other similar association within the meaning of that subsection. Trade association is not the same thing as a trading association. A trade association may be an association of tradesmen to protect their common interest. The assessee, as found by the Tribunal in the statement of the case, is not such an association; nor is it a professional association. The said section, therefore, does not apply to the case of the assessee.
The cases of Calcutta Stock Exchange Association and of the Delhi Stock Exchange Association are entirely different, as the said associations are not members’ clubs. The receipts sought to be charged in both cases are referable to certain specific services, which are not privileges of membership.”
It is, therefore, not possible to countenance the proposition that the subscription paid by the members for the privileges and services enjoyed by them can be taxed under section 28(iii) of the Act.
7.4 In view of the above discussion, we are of the considered view that the Delhi Stock Exchange case would not apply to the assessee’s set of facts, firstly, for the reason the Hon’ble Supreme Court in the said case taxed the income in the hands of the Trade Association on the basis that the principle of mutuality is lacking, whereas in the case of State of West Bengal v. Calcutta Club Ltd [2019] 110 taxmann.com 47 (SC), the Hon’ble Supreme Court in VAT proceedings has upheld that the incorporated Members Clubs are governed by the principle of mutuality. Secondly, as aptly noted in the DCIT v. Bengal Rowing Club [1994] 48 ITD 512 (Calcutta), the facts of trade associations cases and that of Membership Clubs are on a different footing and ratio of one case cannot be applied to the other. Thirdly, it would not be out of place of mention that ITAT in the assessee’s own case for AY 1966-67, 67-68, 68-69 and 69-70 has upheld the principle of mutuality while adjudicating on the taxability of surplus arising to the club as revenue receipts.
7.5 Another, issue for consideration for us is that the Ld. Counsel for the assessee has submitted that from AY 2004-05, the assessee has been earning entrance membership and the assessee has been regularly assessed to tax, but entrance membership has never been brought to tax as revenue receipts in the hands of the assessee. Therefore, on principles of consistency, if the Revenue has taken a certain position in the case of the assessee in prior years, unless there is a material change in the facts, the same position should be adopted in the later years as well. Though, we note from the assessment orders that taxability of entrance fee does not find a specific mention, but the Ld. Counsel for the assessee has relied on page 69 of the Paper-Book years (where year-wise details of Entrance Membership received by the assessee has been mentioned) to aver that since AY 2004-05, the assessee has been earning Entrance Membership, which had been capitalized and for all years and in all the above years, detailed scrutiny assessment has taken place in which such Entrance membership has not been brought to tax as revenue receipts. We note that in the case of ACIT v. Royal Western India Turf Club Ltd. [2017] 88 taxmann.com 567 (Mumbai – Trib.) the facts were that in earlier years, in the case of assessee, the entrance fee was accepted as capital receipt and it goes to balance sheet as reserve account. The ITAT held that where one-time entrance fees received by assessee, race club, from its members had been treated as capital receipts in earlier years, on basis of principle of consistency, such fees would be treated as capital receipt unless and until contrary facts are brought on record by revenue. The ITAT observed as below while passing the order:
“2.5 The sum and substance of the aforesaid judicial pronouncements is that on the basis of principle of judicial discipline, consistency has to be followed and once in a particular year, if any view is taken, in the absence of any contrary material, no contrary view is to be taken as finality to the litigation is also a principle which has to be followed. Before us, no contrary facts or any adverse material was brought on record by the Revenue, therefore, on the principle of consistency also, the assessee is having a good case in its favour, thus, considering the totality of facts, we find no infirmity in the order of the Ld. Commissioner of Income Tax (Appeal).
7.6 In our considered view, since the assessee has been validated that from AY 2004-05, he has been receiving entrance membership, which has never been brought to tax as revenue receipts in the hands of the assessee, even on the principles of consistency, the Ld. Pr. Ld. CIT(A), in our view, has erred in revising the order passed u/s 263 of the Act, without bringing on record any material change in facts from the previous years.
7.7 In the result, we are of the view that in light of the discussion above, Ld. Pr. CIT has erred in facts and in law, erred in initiating proceedings u/s 263 of the Act and setting aside the assessment order on the ground that it is erroneous and prejudicial to the interests of the Revenue.
8. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 28-04-2022
