This Tax Alert summarizes a recent ruling of the Special Bench of the Chennai Income Tax Appellate Tribunal (SB) [ITA Nos. 2412 to 2416/Mds/2005] in the case of M/s Mahindra Holidays & Resorts (India) Ltd. (Taxpayer) on the issue of tax ability, under the Income Tax Law (ITL), of timeshare membership fee received upfront by the Taxpayer in the initial year of enrollment of a member.
The SB held that the entire amount of timeshare membership fee receivable upfront by the Taxpayer, at the time of enrollment of a member, is not the income chargeable to tax in the initial year, on account of contractual obligation to provide services in future over the term of contract.
Facts
(I) The Taxpayer has resorts in tourist places and is in the business of selling timeshare units for these resorts. It grants membership for a specified number of years on payment of certain amount. It initially granted membership for 33 years which was later reduced to 25 years (Contracted Period). During the currency of the membership, the member gets a right to have a holiday for one week in a year at the place of his choice from among st the places offered by the Taxpayer. Further, the member has a right to transfer or gift his membership/ timeshare unit to any other person.
(II) The Taxpayer charges the following fees from its members:
