Income Tax Appellate Tribunal (ITAT), Jaipur Bench consisting of Sandeep Gosain, Judicial Member and Rathod Kamalesh Jayantibhai, Accountant Member held that Life membership fees received by AOP is Capital Receipt hence Not Taxable.
The assessee society, The Jewellers Association is registered u/s 12A . It is a trade association carrying out activities for upliftment of Gems & Jewellery trade and for carrying out that object is providing dharam kanta facility to trade members publishing Gems & Jewellery related journals, Gem & jewellery Bourse, organization of Gem & Jewellery trade shows and running and maintaining Janopyogi Bhavan for trade members.
The assessee in the status of AOP filed the return of income for the assessment year 2012-13 on 28-09-2012 declaring total income as NIL. The association since registration u/s 12A (a) is claiming its income as exempt u/s 11 & 12 of 1. T. Act, 1961 which was allowed to it till A.Y. 2009-10. In this year also, association continued to carry out same activities and had gross receipts from its activities amounting to Rs. 3,49,18,618/- and expenses incurred by it on carrying out its activities are Rs. 2,96,99,300/- resulting in surplus of Rs. 52,19,318/- which is being less than 15% of its income.
The issue of the assessee is regarding life membership fees or corpus donation which are in the nature of capital receipt and not chargeable to tax. This issue has been decided by the CIT(A) by observing “Life membership fees which is attributable towards subscription of magazines etc. which is otherwise charged to normal members, the entire life membership fees could not be attributed to revenue receipts. However, the necessary facts towards objective/ attribution of life membership fees needed to be brought on record. The lump-sum payment on account of life membership fees is to be dissected into two parts – one being entrance fee and the other being commuted payment in lieu of annual subscriptions.
The element of entrance fee was to maintain parity with ordinary members, and the same was of return for investing the right of membership and hence it was the capital receipt, the other element was the consolidation of the revenue receipt and hence is taxable. The AO is therefore, directed to obtain necessary details and evidences from the appellant association in regard to life membership fees credited by the appellant as corpus/ capital receipt in the balance sheet and thereafter dissect the same in two parts.”
The Tribunal held that “The issue in question is already mentioned in the Rules and Regulation of the Society which indicates that the fees like entrance fees as well as life membership are part of the corpus fund and accordingly are in the nature of capital receipt.”
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