IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 02.07.2010 Coram: THE HONOURABLE Ms. JUSTICE K.B.K.VASUKI W.P. Nos. 2937 to 2939 of 2010 and M.P. Nos. 1,1,1 of 2010 M/S.Chennai Corporate Club Pvt. Ltd., No.3, 5th floor City Centre Plaza, Anna Salai Chennai-600 002. .. Petitioner in all the W.Ps. vs. The Assistant Commissioner of Income Tax, Company Circle-I(3) 6th floor, Aayakar Bhavan-New Block 121, Utthamar Gandhi Salai Nungambakkam Chennai-600 034. .. Respondent in all the W.Ps. Prayer: Writ Petitions filed under Article 226 of the Constitution of India, praying for the issuance of Writ of Certiorari, to call for the records of the respondent herein in even PAN No.AACCC3395H dated 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 R Heard both sides. 2. On consent, these writ petitions are taken up for final hearing. 3. As the petitioner, the controversy issuance and the relief sought for in all the three petitions are one and the same, they are disposed of by common order. All the three writ petitions are filed for 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 to the assessment years 2006-2007, 2007-2008 and 2008-2009. 4. The brief facts, which are relevant for the disposal of the issue in hand are as follows: The petitioner is a club providing services in the form of entertainment and relaxation to its members and for the purpose of getting entry into the club members are bound to pay life membership fee. The members are in addition to life membership fee bound to pay only monthly or annual subscription to the club to enjoy the services rendered. While submitting the returns for every assessment year, the petitioner used to treat the life membership fee collected every year as capital receipt and the amount so collected towards monthly or annual subscription will be treated as revenue income and the same will be reflected in the same manner in the profit and loss account. The returns filed by the club with the above particulars used to be accepted by the assessing authority under Section 143(1) (a) of the Income Tax Act. While so, the assessments originally accepted for the assessment years 2001-2002 to 2005-2006 were reopened on the basis of two Judgments rendered by Patna High Court, to the effect that entrance fee received was to be treated as revenue, and not capital. After the assessment, reassessment was completed and reassessment orders were passed against which the petitioner preferred appeals before the Commissioner of Income Tax (Appeals)-III). Thus, totally five individual appeals were filed against individual assessment order. According to the petitioner, the appeal relating to assessment year 2005-2006 is treated as Appeal No.272/2007-2008 and other appeals relating to the other assessment years 2001-2002 to 2004-2005 are though received not taken up on file. It is not in dispute that the main contention raised on both sides in all these appeals is lifetime membership fee cannot be treated as revenue but should be treated only as capital. Such contention is based on the Judgment, rendered by Division Bench of Bombay High Court reported in 136 ITR 569, which was subsequently followed by another Division Bench of Bombay High Court reported in 263 ITR page 1. 5. Pending appeals above referred to the returns were filed for the subsequent years i.e. 2006-2007 to 2008 -2009 wherein also the life membership fee is treated as capital and not as revenue. The returns were duly received by the assessing officer, but no acknowledgment was issued and no assessment was made in respect of the returns so filed. However, the petitioner club is by notice dated 05.11.2009 purported to be issued under Section 142(1) of the Income Tax Act, 1961, called upon by the Assistant Commissioner of Income Tax, to appear for the enquiry with the documents mentioned in the notice one among which is the membership funds folio in the books 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, all of a sudden, the petitioner is issued with identical notices for the three assessment years as above referred to purported to be under Section 148 of the Income Tax Act, for reopening the assessment as the Assessing Officer has reason to believe that an income chargeable to tax for particular assessment years has escaped assessment within the meaning of Section 147 of the Income Tax Act and therefore, the Assessing Officer proposed to reassess the income for the said assessment years. The petitioner is hence, directed to submit the returns, in the prescribed form, of the income in respect of which, the petitioner is assessable for the particular assessment year. The notice contains reasons on the basis of which, the Assessing Officer proposed to reassess the returns as if the assessee has received life membership fee for the particular assessment years, which is not refundable to the members after the termination of the life period of the members and can neither be treated as liability nor can be treated as capital receipts as per the Judgment reported in Patna High Court in 161 ITR 853 and the same is to be treated as revenue receipt and liable to tax and hence, according to the Assessing Officer the amount collected as membership fee had escaped assessment and the same warrants reopening of the proceedings under Section 147 of the Income Tax Act. All the three notices above referred to are under challenge in all the three writ petitions. 6. The writ petitioner has in these writ petitions challenged the validity of the impugned notices mainly on two grounds that the assessment is already deemed to be completed and the same cannot be reassessed on the ground of escaped assessment under Section 147 of the Income Tax Act. (2) The petitioner has also by relying upon number of judgments of our High Court made in similar writ petitions the copies which are enclosed at pages 31 to 40 of the typed set of papers dated 12.02.2010 filed by the petitioner contended that whether the life membership fee collected is to be treated as capital or revenue is the issue pending adjudication before the appellate authority in the appeals filed in respect of the earlier assessment years and pending appeal proceedings, the assessment proceedings in respect of same disputed issue cannot be permitted to go on. The learned standing counsel for the department seriously opposed the first contention by saying that no assessment was done under Section 143 of the Act for the assessment years in question and no acknowledgment of the return was also intimated to the assessee to treat it as deemed assessment and the assessment returns filed by the assessee for the years in question was only processed and though the expression used in the impugned notices is reassessment, it is not actually reassessment but only original assessment of the returns, after scrutiny of the records as contemplated under Section 147 of the Act. The learned counsel for the petitioner and learned standing counsel for the department has https://hcservices.ecourts.gov.in/hcservices/ also in support of their respective contentions, cited the following Judgments respectively. 1. Division Bench Judgment of our High Court reported in (2010) 321 ITR 474 Madras in Commissioner of Income Tax v. K.K.Palanisamy. 2. Judgment of the Apex Court reported in (2007) 291 ITR 500 SCC in Assistant Commissioner of income tax v. Rajesh Jhaveri Stock Brokers Private limited . In the case dealt with by our High Court, the returns were originally filed and processed, later it was taken up for scrutiny and assessment was held, concluded and the assessment order was passed. Thereafter, it was reopened on the ground of escapement of assessment and the assessee challenged the reassessment proceedings and our High Court is pleased to hold that the assessment completed cannot be reassessed under Section 147 of the Act particularly when all the particulars on the basis of which the assessment was reopened were available in the original return. Our High Court is pleased to treat the same as change of opinion and held that the same cannot come under the category of escapement of assessment and accordingly set aside the reassessment proceedings. In the considered view of this Court, the Judgment cited on the side of the petitioner as above referred to, is not applicable to the facts in hand. In this case, the return was only processed, there was neither deemed nor actual assessment. The notice was issued under Section 147 for the assessment after scrutiny of the records and the same is in my opinion, only actual assessment under Section 143. If that is so, the Judgment cited on the side of the department is more applicable to the present case. Wherein the Apex Court has under similar circumstances pleased to hold that it was not reassessment but only assessment. Further, the reading of the provisions under Section 147 would also disclose that the petitioner's returns are covered under explanation 2(b) of Section 147 of the Income Tax Act, wherein though the income return is furnished by the assessee, but no assessment was made and it is noticed by the Assessing Officer that the assessee has either understated the income or claimed excessive, deduction, allowance or relief in the return. Hence, impugned notices for the reasons stated above can only be treated as the notices issued for assessment under Section 147 read with Section 143. 7. Next aspect to be considered is as to whether the Assessing Officer can proceed with the assessment proceedings relating to the issue in respect of serious dispute pending adjudication before the appellate authority. The main dispute involved herein is as to whether the lifetime membership fee collected is to be treated as capital or income and the same is already raised as an issue and is pending 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 the appeals are admittedly not disposed of till date. The Assessing Officer has initiated the assessment proceedings for the subsequent assessment years on the ground of escapement of assessment only by treating the same lifetime membership fee collected as revenue and as not capital. As rightly argued by the learned counsel for the petitioner any adjudication rendered in the appeal by the appellate authority on the same issue will have greater bearing on the present assessment proceedings for the subsequent years. Under such circumstances, the Judgments of our High Court enclosed in the typed set of papers will certainly come for the rescue of the petitioner. Our High Court is in the various Judgments (1) dated 26.08.2003 passed in M/S.Tecumseh Products India Limited in W.P. No.22769 of 2003 (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 that where an appeal on similar issue is pending, the department can be permitted to go ahead with the assessment but the final order shall not be given effect to pending disposal of the appeal. In all these cases, the observation is so made only by following the earlier Division Bench Judgment of this Court made in M/S.Tecumseh Products India Limited in W.P. No.22769 of 2003. Though such observations are made in the matters arising out of Commercial Tax, the same logic and the reasoning can be easily applied to the assessment proceedings under Income Tax Act. 8. That being the legal position, this Court is following the earlier Division Bench Judgment inclined to dispose of these writ petitions by permitting the respondents to proceed with the assessment proceedings in pursuance of the impugned notices for the assessment years in question. But the respondent cannot proceed with any recovery proceedings in respect of the disputed amount pending adjudication of the issue relating to life membership fee by the appellate 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 petitioner relating to the assessment years 2001-2002 to 2005-2006 and dispose of the same as per law after giving adequate opportunity to the parties within 12 weeks from the date on which the order of this Court is brought to the notice of the appellate authority. The connected miscellaneous petitions are closed. No costs. Sd/- Asst.Registrar. /true copy/ Sub Asst.Registrar. kj https://hcservices.ecourts.gov.in/hcservices/ To 1. The Assistant Commissioner of Income Tax, Company Circle-I(3) 6th floor, Aayakar Bhavan-New Block 121, Utthamar Gandhi Salai Nungambakkam Chennai-600 034. 2. The Commissioner of Income Tax (Appeals)III Chennai W.P. Nos. 2937 to 2939 of 2010 and M.P. Nos. 1,1,1 of 2010 RSY (CO) kk 21/7 https://hcservices.ecourts.gov.in/hcservices/