Supreme Court: Dismissed Department’s SLP Against HC Decision Holding That Entrance Fees Received By Club From Its Member Is Capital Receipts

The Supreme Court in the case PCIT Versus Royal Western India Turf Club, wherein the bench comprising of Chief Justice of India, Justice D.Y. Chandrachud, and Justice Hima Kohli observed and has dismissed the special leave petition of the department challenging the decision of the Bombay High Court. It has been held by the Bombay High Court that any sum paid by a member of a club to acquire the rights of a club is a capital receipt and not a revenue receipt.
In the present case, the respondent or the assessee runs the race course in Bombay. During the assessment year 2009-2010 and in the years prior, thus, the assessee used to receive entrance fee amounts from life members, club and stand members, service members, and local members. It was also found that an amount has been credited to the General Reserves and had not offered it for taxation, claiming it to be a capital receipt.
However, the Assessing Officer disallowed it and added it to the heads of income as revenue receipts.
It was observed that the assessee appealed before the CIT (A). it has been granted by the CIT(A) the assessee’s appeal and determined that the entrance fees were a capital receipt.
Further, department challenged the order before the ITAT. It has been noted by the ITAT that the right from practically the date of incorporation, the entrance fee from the members was treated as capital in nature, and the majority of the orders were being passed under Section 143(3) of the Income Tax Act, 1961.
Further, an appeal was made by the department to the Bombay High Court. Thus, the department’s plea has been dismissed by the court and has held that the Tribunal had not committed any perversity or applied incorrect principles.
A special leave petition has been filled by the department before the Apex Court.
Accordingly, the court dismissed the petition filed under Article 136 of the Constitution of India.