Life Membership Fee received by Private Club is Capital Receipt, Not Taxable to Income: Madras HC [Read Order]

The decision was given against five Tax Case Appeals filed by Chennai Corporate Club Ltd. seeking clarity on the decision of the Income Tax Appellate Tribunal which held that entrance fee received by the Assessee/Club amounts to revenue receipts.

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Chennai Corporate Club collects entrance fees for conferring life membership status upon new members. The income tax authorities assessed these receipts as revenue income, treating them as taxable in the hands of the club.

The club had argued that these fees were not collected for recurring services or amenities, but represented a lump sum consideration for conferring the status and privileges of life membership which is by itself not part of the club’s regular income-generating operations.

The club maintained that the entrance fee was a non-refundable, one-time payment for acquiring life membership rights and thus was a capital receipt and thus not taxable as regular income.

After the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) both held the amount to be revenue and confirmed the addition, the matter was appealed before the High Court.

The Bench of Chief Justice K.R. Shriram and Justice Sunder Mohan analyzed the legal character of the life membership fee and the circumstances under which it was collected by the appellant.

The Court observed that the one-time, non-refundable payment was to secure life membership rights, and not to pay for periodic services or regular amenities which may be enjoyed by the members upon the payment of a separate regular monthly subscription amount, paid as cost of participation.

The Bench referred to the decision of the Bombay High Court in Principal Commissioner of Income-Tax vs. Royal Western India Turf Club Limited (RWITC) (2023) which held that a non-refundable, one-time payment for club membership constitutes a capital receipt.

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In light of the observations the Madras High Court set aside the findings of the lower authorities and ruled in favour of the Chennai Corporate Club Ltd., holding that the life membership fee is a capital receipt and not liable to be taxed as income.

Chennai Corporate Club was represented by Hemamuralikrishnan and C.Subramanian while the Revenue was represented by Avinash Krishnan Ravi.

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