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Income Tax Officer 8(3)(3),Room No.202 Aayakar Bhavan,MK Road, Mumbai 400020 Vs. M/s Royal Toshali Holiday Club Pvt. Ltd, C-309 Crystal Plaza, New Link Road, Andheri (West) Mumbai 400055
April, 15th 2013
                                ITA No.6802 of 2011 Royal Toshali Holiday Club Pvt Ltd Mumbai

                      "B" Bench, Mumbai

       Before Shri B. Ramakotaiah, Accountant Member
            & Dr. S.T.M. Pavalan, Judicial Member

                    ITA No.6802/Mum/2012
                    (Assessment year: 2007-08)

Income Tax Officer 8(3)(3),      Vs.       M/s Royal Toshali Holiday
Room No.202 Aayakar Bhavan,                Club Pvt. Ltd,
MK Road, Mumbai 400020                     C-309 Crystal Plaza, New
                                           Link Road, Andheri (West)
                                           Mumbai 400055
                                           PAN: AACCR 8904 N
(Appellant)                                   (Respondent)

                  Department by:      Shri Mohit Jain, DR
                  Assessee by:        Shri K.K. Ved

                  Date of Hearing:       04/04/2013
                  Date of Pronouncement: 10/04/2013


Per B. Ramakotaiah, A.M.

      This is a Revenue appeal against the orders of the CIT (A) 18
Mumbai dated 29.7.2011. The Revenue has raised the following two
     "1. On the facts and in the circumstances of the case
     and in law, the CIT (A) erred in deleting the disallowance
     made under section 40(a)(ia) of reimbursement of
     expenditure of `.12,20,111 paid to Prestige Holidays
     Resorts Pvt Ltd to which it had paid commission of
     `.15,25,137 without appreciating the facts and without
     considering the CBDT's Circular No.715 dated 08-08-
     1995 on the issue.

     2. On the facts and in the circumstances of the case and
     in law, the CIT (A) erred in deleting the addition of
     `.45,885 being 50% of the money forfeited by assessee
     from defaulters, without appreciating the fact that once
     money is forfeited by assessee, there is no contractual
     obligation to refudn any amount and therefore,
     assessee's offer of only 50% of the forfeited amount for

                               Page 1 of 6
                                 ITA No.6802 of 2011 Royal Toshali Holiday Club Pvt Ltd Mumbai

      tax is arbitrary and a mere ruse to defer taxation of the
      balance 50% amount indefinitely".

2.    We have heard the learned DR and the learned Counsel in

3.    Ground No.1 pertains to the issue of invoking the provisions
of section 40(a)(ia) on an amount of `.12,20,111 paid to M/s
Prestige Holidays Resorts Pvt. Ltd in addition to the commission.
According to AO, this amount of reimbursement was part of
commission itself on which TDS under section 194H was applicable
and as assessee has not deducted any tax, the same is to be
disallowed under section 40(a)(ia). He gives a findings that the
amounts    are   reimbursement      of     various          expenditures,               but
considered them as part of commission. Assessee made detailed
submissions both on facts and on law which were recorded in para
2.3 of the CIT (A) order elaborately and ultimately he deletes the
same by holding as under:

      "2.4 I have considered the submissions of the learned
      Counsel and in view of the facts brought on record and
      submissions made and decisions of Hon'ble Bombay
      High Court in the case of Siemens Aktiongesellschaft vs.
      CIT (2009) 310 ITR 320 and Hon'ble Mumbai ITAT in the
      case of Linklaters LLP vs. Income Tax Officer (2010) 134
      TTJ 20, the disallowance/ addition made by AO is
      hereby deleted and this ground of appeal is allowed".
4.    Since it is a fact that assessee has reimbursed the telephone
charges of `.3,20,283, printing and stationery of `.18,200 and
business promotion expenses of `.8,81,636 totaling to `.12,20,111
in terms of Clause 7 of the marketing agency agreement dated
11.03.2004 to the said Prestige Holidays Resorts Pvt Ltd, the
reimbursement of the expenditure does not call for any deduction of
tax, as held by the jurisdictional High Court relied upon by the CIT
(A). Whatever commission was paid by assessee, that amount was
already covered by the TDS on which there is no dispute. As seen

                                Page 2 of 6
                                    ITA No.6802 of 2011 Royal Toshali Holiday Club Pvt Ltd Mumbai

from the order of AO also, he disallowed the amount under section
40(a)(ia) with a clear mention of reimbursement of the expenses, so
there is no dispute to the nature of the expenditure claimed. In view
of this, we see no reason to interfere with the order of the CIT (A)
who not only considered the facts but also considered the law on
the issue in arriving at that decision. The ground is accordingly

5.    Ground No.2 is with reference to bringing to tax an amount of
`.45,885 being 50% of the money forfeited by assessee from the
defaulted members. AO noticed that assessee offered 50% of the
forfeited money, therefore, he brought to tax the balance 50% of
`.45,885 in the year under consideration inspite of assessee's
objections in doing so. Before the CIT (A) it was submitted that:

      i)     As assessee is engaged in the business of selling
             holiday points based timeshares.

      ii)    In terms of the method of accounting followed by
             assessee it recognizes income from sales of time share
             only when the full contract value is received. This is in
             accordance with the Accounting standard 9 issued by
             the Institute of Chartered Accounts of India on Revenue

      iii)   Accordingly persons who have opted for payment of the
             membership fees in installments are neither recognized
             as the "members" nor are the fees received by the
             accounted for as "income" till the time the full amount
             of fees is received.

      iv)    Till such time the whole amount of fee is received the
             amounts are accounted for as a liability under the head
             "advances from customers".

                                    Page 3 of 6
                                ITA No.6802 of 2011 Royal Toshali Holiday Club Pvt Ltd Mumbai

v)      In the case of defaults in payment of subsequent
        installments, the amount received by them till the date
        of default is forfeited.

vi)     The defaults occur generally on account of the following
        two broad reasons:

        a) The prospective customer losing interest in the
           scheme or

        b) He is in genuine need of funds for some other

vii)    This forfeited amount is accounted for as under:

        a) 50% is directly credited to the income as "retained
           money" account and treated in which the forfeiture
           takes place and accounted for as "income".

        b) The balance 50% is transferred to the "retention
           money" account and treated as a liability as on the
           year end. This is to take care of an eventuality of
           subsequent refunds to the defaulting parties in case
           of genuine difficulties like say a family emergency,
           accident, hospitalization etc.

        c) Any unutilized amount out of the aforesaid balance
           of 50% is offered to tax as income of the immediately
           succeeding AY.

viii)   Accordingly    during      the      year       under         consideration
        assessee forfeited a sum of `.91,770 (net of refunds/
        transfers) on forfeited contracts.

ix)     50% of the said amount was offered to tax during the
        year under consideration and the balance amount was
        transferred to the liability account.

                              Page 4 of 6
                                      ITA No.6802 of 2011 Royal Toshali Holiday Club Pvt Ltd Mumbai

      x)       Accordingly, an amount of `.1,50,138 was offered to tax
               during the year under consideration, the break-up of
               which is as follows:

               a) `.45,885 (50% of the retention money of `.91,770
                  received during the year)

               b) `.1,04,254(50% of the retention money of `.2,08,508
                  received during the preceding previous year i.e. AY

6.    On considering the facts and method of accounting being
followed and also the fact that 50% of the retention money forfeited
during earlier year was offered during the year on a consistent
method of accounting, the learned CIT (A) deleted the same holding
it as under:

      "3.4 I have considered the submissions of the learned
      Counsel and the facts brought on record. The decision of
      the Hon'ble Supreme Court in the case of Rotork Controls
      India (P) Ltd vs. CIT (2009) 314 ITR 62 on which
      Appellant has placed reliance is clearly in appellant's
      favour and respectfully following the ratio of the Hon'ble
      Supreme Court in the above mentioned decision AO is
      directed to delete this disallowance/addition and this
      ground of appeal is allowed".
7.    After considering the rival contentions, we uphold the order of
the learned CIT (A) as assessee is consistently following the
accounting treatment in a rationale manner. It was submitted that
50% of the retention money was kept aside by assessee to meet the
eventuality of having to refund the amounts to prospective
customers who do not pay the remaining installments because of
genuine reasons of emergency, accident, hospitalization etc. This
method of accounting has been followed by assessee right since its
inception and has always been accepted in earlier years. This can
be ascertained from the fact that an amount of `.1,04,254 being
50% of the retention money received during the previous year was

                                      Page 5 of 6
                                     ITA No.6802 of 2011 Royal Toshali Holiday Club Pvt Ltd Mumbai

offered as income of this year along with 50% of the retention
money of this year totaling to an amount of `.1,50,138. There is no
rationale in disturbing assessee's method of accounting which is
being accepted consistently and there is no evasion of any income
but only the timing of bringing it to tax. Had AO excluded the
amount offered during the year on the same principles in which he
brought the balance 50% of the amount to tax, there could have
been some justification in the action of AO. He did not do so. Since
assessee's method of accounting is consistent and is based on a
rationale method, we uphold the order of the CIT (A) and reject the

8.        In the result appeal filed by the Revenue is dismissed.

          Order pronounced in the open court on 10th April, 2013

                  Sd/-                                   Sd/-
          (Dr. S.T.M. Pavalan)                     (B. Ramakotaiah)
            Judicial Member                       Accountant Member

Mumbai, dated 10th April, 2013.

Copy to:

     1.   The   Appellant
     2.   The   Respondent
     3.   The   concerned CIT(A)
     4.   The   concerned CIT
     5.   The   DR, "B " Bench, ITAT, Mumbai

                                  By Order

                            Assistant Registrar
                       Income Tax Appellate Tribunal,
                         Mumbai Benches, MUMBAI

                                    Page 6 of 6
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