M/S.Chennai Corporate Club Pvt. Ltd v. The Assistant Commissioner of Income Tax

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 02.07.2010Coram:THE HONOURABLE Ms. JUSTICE K.B.K.VASUKIW.P. Nos. 2937 to 2939 of 2010andM.P. Nos. 1,1,1 of 2010M/S.Chennai Corporate Club Pvt. Ltd., No.3, 5th floorCity Centre Plaza, Anna SalaiChennai-600 002. .. Petitioner in all the W.Ps.vs.The Assistant Commissioner of Income Tax, Company Circle-I(3)6th floor, Aayakar Bhavan-New Block121, Utthamar Gandhi SalaiNungambakkamChennai-600 034. .. Respondent in all the W.Ps. Prayer: Writ Petitions filed under Article 226 of the Constitutionof India, praying for the issuance of Writ of Certiorari, to callfor the records of the respondent herein in even PAN No.AACCC3395Hdated 05.11.2009 (in W.P.Nos.2937 and 2939 of 2010) and 24.12.2009(in W.P. No.2938 of 2010) and to quash the same. For Petitioner : Mr. R.L.Raman Senior Counsel for Mr.B.Raveendran For Respondent : Mr.K.Subramanian C O M M O N O R D E RHeard both sides. 2. On consent, these writ petitions are taken up for finalhearing.3. As the petitioner, the controversy issuance and the reliefsought for in all the three petitions are one and the same, they aredisposed of by common order. All the three writ petitions are filedfor the issuance of writ of Certiorari to set aside the proceedings https://hcservices.ecourts.gov.in/hcservices/ dated 5.11.2009 and 24.12.2009 in even Pan No.AACCC3395H relating tothe assessment years 2006-2007, 2007-2008 and 2008-2009. 4. The brief facts, which are relevant for the disposal of theissue in hand are as follows: The petitioner is a club providing services in the form ofentertainment and relaxation to its members and for the purpose ofgetting entry into the club members are bound to pay life membershipfee. The members are in addition to life membership fee bound to payonly monthly or annual subscription to the club to enjoy theservices rendered. While submitting the returns for every assessmentyear, the petitioner used to treat the life membership fee collectedevery year as capital receipt and the amount so collected towardsmonthly or annual subscription will be treated as revenue income andthe same will be reflected in the same manner in the profit and lossaccount. The returns filed by the club with the above particularsused to be accepted by the assessing authority under Section 143(1)(a) of the Income Tax Act. While so, the assessments originallyaccepted for the assessment years 2001-2002 to 2005-2006 werereopened on the basis of two Judgments rendered by Patna High Court,to the effect that entrance fee received was to be treated asrevenue, and not capital. After the assessment, reassessment wascompleted and reassessment orders were passed against which thepetitioner preferred appeals before the Commissioner of Income Tax(Appeals)-III). Thus, totally five individual appeals were filedagainst individual assessment order. According to the petitioner,the appeal relating to assessment year 2005-2006 is treated asAppeal No.272/2007-2008 and other appeals relating to the otherassessment years 2001-2002 to 2004-2005 are though received nottaken up on file. It is not in dispute that the main contentionraised on both sides in all these appeals is lifetime membership feecannot be treated as revenue but should be treated only as capital.Such contention is based on the Judgment, rendered by Division Benchof Bombay High Court reported in 136 ITR 569, which was subsequentlyfollowed by another Division Bench of Bombay High Court reported in263 ITR page 1. 5. Pending appeals above referred to the returns were filed forthe subsequent years i.e. 2006-2007 to 2008 -2009 wherein also thelife membership fee is treated as capital and not as revenue. Thereturns were duly received by the assessing officer, but noacknowledgment was issued and no assessment was made in respect ofthe returns so filed. However, the petitioner club is by noticedated 05.11.2009 purported to be issued under Section 142(1) of theIncome Tax Act, 1961, called upon by the Assistant Commissioner ofIncome Tax, to appear for the enquiry with the documents mentionedin the notice one among which is the membership funds folio in thebooks of account and registers of members. The petitioner has also https://hcservices.ecourts.gov.in/hcservices/ duly submitted the records and no further order was passed. But, allof a sudden, the petitioner is issued with identical notices for thethree assessment years as above referred to purported to be underSection 148 of the Income Tax Act, for reopening the assessment asthe Assessing Officer has reason to believe that an incomechargeable to tax for particular assessment years has escapedassessment within the meaning of Section 147 of the Income Tax Actand therefore, the Assessing Officer proposed to reassess the incomefor the said assessment years. The petitioner is hence, directed tosubmit the returns, in the prescribed form, of the income in respectof which, the petitioner is assessable for the particular assessmentyear. The notice contains reasons on the basis of which, theAssessing Officer proposed to reassess the returns as if theassessee has received life membership fee for the particularassessment years, which is not refundable to the members after thetermination of the life period of the members and can neither betreated as liability nor can be treated as capital receipts as perthe Judgment reported in Patna High Court in 161 ITR 853 and thesame is to be treated as revenue receipt and liable to tax andhence, according to the Assessing Officer the amount collected asmembership fee had escaped assessment and the same warrantsreopening of the proceedings under Section 147 of the Income TaxAct. All the three notices above referred to are under challenge inall the three writ petitions. 6. The writ petitioner has in these writ petitions challengedthe validity of the impugned notices mainly on two grounds that theassessment is already deemed to be completed and the same cannot bereassessed on the ground of escaped assessment under Section 147 ofthe Income Tax Act. (2) The petitioner has also by relying uponnumber of judgments of our High Court made in similar writ petitionsthe copies which are enclosed at pages 31 to 40 of the typed set ofpapers dated 12.02.2010 filed by the petitioner contended thatwhether the life membership fee collected is to be treated ascapital or revenue is the issue pending adjudication before theappellate authority in the appeals filed in respect of the earlierassessment years and pending appeal proceedings, the assessmentproceedings in respect of same disputed issue cannot be permitted togo on. The learned standing counsel for the department seriouslyopposed the first contention by saying that no assessment was doneunder Section 143 of the Act for the assessment years in questionand no acknowledgment of the return was also intimated to theassessee to treat it as deemed assessment and the assessment returnsfiled by the assessee for the years in question was only processedand though the expression used in the impugned notices isreassessment, it is not actually reassessment but only originalassessment of the returns, after scrutiny of the records ascontemplated under Section 147 of the Act. The learned counsel forthe petitioner and learned standing counsel for the department has https://hcservices.ecourts.gov.in/hcservices/ also in support of their respective contentions, cited the followingJudgments respectively. 1. Division Bench Judgment of our High Court reported in (2010) 321ITR 474 Madras in Commissioner of Income Tax v. K.K.Palanisamy. 2. Judgment of the Apex Court reported in (2007) 291 ITR 500 SCC inAssistant Commissioner of income tax v. Rajesh Jhaveri Stock BrokersPrivate limited . In the case dealt with by our High Court, the returns wereoriginally filed and processed, later it was taken up for scrutinyand assessment was held, concluded and the assessment order waspassed. Thereafter, it was reopened on the ground of escapement ofassessment and the assessee challenged the reassessment proceedingsand our High Court is pleased to hold that the assessment completedcannot be reassessed under Section 147 of the Act particularly whenall the particulars on the basis of which the assessment wasreopened were available in the original return. Our High Court ispleased to treat the same as change of opinion and held that thesame cannot come under the category of escapement of assessment andaccordingly set aside the reassessment proceedings. In theconsidered view of this Court, the Judgment cited on the side of thepetitioner as above referred to, is not applicable to the facts inhand. In this case, the return was only processed, there was neitherdeemed nor actual assessment. The notice was issued under Section147 for the assessment after scrutiny of the records and the same isin my opinion, only actual assessment under Section 143. If that isso, the Judgment cited on the side of the department is moreapplicable to the present case. Wherein the Apex Court has undersimilar circumstances pleased to hold that it was not reassessmentbut only assessment. Further, the reading of the provisions underSection 147 would also disclose that the petitioner's returns arecovered under explanation 2(b) of Section 147 of the Income Tax Act,wherein though the income return is furnished by the assessee, butno assessment was made and it is noticed by the Assessing Officerthat the assessee has either understated the income or claimedexcessive, deduction, allowance or relief in the return. Hence,impugned notices for the reasons stated above can only be treated asthe notices issued for assessment under Section 147 read withSection 143. 7. Next aspect to be considered is as to whether the AssessingOfficer can proceed with the assessment proceedings relating to theissue in respect of serious dispute pending adjudication before theappellate authority. The main dispute involved herein is as towhether the lifetime membership fee collected is to be treated ascapital or income and the same is already raised as an issue and ispending determination by the appellate authority in the appeals https://hcservices.ecourts.gov.in/hcservices/ relating to the assessment years 2001-2002 to 2005-2006 and theappeals are admittedly not disposed of till date. The AssessingOfficer has initiated the assessment proceedings for the subsequentassessment years on the ground of escapement of assessment only bytreating the same lifetime membership fee collected as revenue andas not capital. As rightly argued by the learned counsel for thepetitioner any adjudication rendered in the appeal by the appellateauthority on the same issue will have greater bearing on the presentassessment proceedings for the subsequent years. Under suchcircumstances, the Judgments of our High Court enclosed in the typedset of papers will certainly come for the rescue of the petitioner.Our High Court is in the various Judgments (1) dated 26.08.2003passed in M/S.Tecumseh Products India Limited in W.P. No.22769 of2003 (2) dated 27.09.2004 passed in M/S.Gail India Limited in W.P.Nos. 27417 to 27420 of 2004 and (3) dated 28.12.2004 passed in M/S.Oriental Hotels Limited (Formerly known as Covelong Beach Hotel(India) Limited in W.P. No. 38912 of 2004, pleased to hold thatwhere an appeal on similar issue is pending, the department can bepermitted to go ahead with the assessment but the final order shallnot be given effect to pending disposal of the appeal. In all thesecases, the observation is so made only by following the earlierDivision Bench Judgment of this Court made in M/S.Tecumseh ProductsIndia Limited in W.P. No.22769 of 2003. Though such observations aremade in the matters arising out of Commercial Tax, the same logicand the reasoning can be easily applied to the assessmentproceedings under Income Tax Act. 8. That being the legal position, this Court is following theearlier Division Bench Judgment inclined to dispose of these writpetitions by permitting the respondents to proceed with theassessment proceedings in pursuance of the impugned notices for theassessment years in question. But the respondent cannot proceed withany recovery proceedings in respect of the disputed amount pendingadjudication of the issue relating to life membership fee by theappellate authority i.e. Commissioner of Income Tax (Appeals)-III.It is also but appropriate to direct the Commissioner of Income Tax(Appeals) -III to take up all the appeals filed by the petitionerrelating to the assessment years 2001-2002 to 2005-2006 and disposeof the same as per law after giving adequate opportunity to theparties within 12 weeks from the date on which the order of thisCourt is brought to the notice of the appellate authority. Theconnected miscellaneous petitions are closed. No costs. Sd/- Asst.Registrar. /true copy/ Sub Asst.Registrar.kj https://hcservices.ecourts.gov.in/hcservices/ To1. The Assistant Commissioner of Income Tax, Company Circle-I(3)6th floor, Aayakar Bhavan-New Block121, Utthamar Gandhi SalaiNungambakkamChennai-600 034. 2. The Commissioner of Income Tax (Appeals)IIIChennaiW.P. Nos. 2937 to 2939 of 2010and M.P. Nos. 1,1,1 of 2010RSY (CO)kk 21/7