Lifecell International Private Limited, CHENNAI v. ACIT, CHENNAI

ITA 851/CHNY/2011 | 2006-2007
Pronouncement Date: 13-07-2011 | Result: Allowed

Appeal Details

RSA Number 85121714 RSA 2011
Assessee PAN AAECA7997B
Bench Chennai
Appeal Number ITA 851/CHNY/2011
Duration Of Justice 2 month(s) 7 day(s)
Appellant Lifecell International Private Limited, CHENNAI
Respondent ACIT, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 13-07-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 13-07-2011
Assessment Year 2006-2007
Appeal Filed On 06-05-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D CHENNAI B E F O R E DR. O.K.NARAYANAN VICE PRESIDENT AND SHRI HARI OM MARATHA JUDICIAL MEMBER .. ITA NO.851(MDS)/2011 ASSESSMENT YEAR: 2006-07 M/S. LIFECELL INTERNATIONAL PVT. LTD. 26-VANDALUR KELAMBAKKAM MAIN ROAD KEELAKOTTAIYUR CHENNAI-600 048. PAN AAECA7997B. VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX COMPANY CIRCLE II(4) CHENNAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI T.BANUSEKAR C.A. RESPONDENT BY: SHRI ANIRUDH RAI CIT DR. O R D E R PER DR.O.K.NARAYANAN VICE-PRESIDENT: THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVAN T ASSESSMENT YEAR IS 2006-07. THE APPEAL IS DIRECTED AGAINST THE - - ITA NO.851(MDS)/20 11 2 REVISION ORDER PASSED BY THE COMMISSIONER OF INCOME -TAX CHENNAI-I UNDER SECTION 263 OF THE INCOME-TAX ACT 1961 THROUGH HIS PROCEEDINGS DATED 25-3-2011. 2. THE ASSESSEE IS CARRYING ON THE BUSINESS OF COLLECTION PROCESSING PRESERVING AND STORING BLOO D STEM CELLS FROM UMBILICAL CORD AT THE TIME OF DELIVERY OF THE CHILD. THE ASSESSEE IS PRESERVING AND STORING THE BLOOD STEM C ELLS COLLECTED FROM NEW BORN BABIES FOR A PERIOD OF 21 YEARS. PAR ENTS COME FORWARD TO USE THE FACILITY PROVIDED BY THE ASSESSE E COMPANY TO PRESERVE AND STORE THE BLOOD STEM CELLS OF THEIR WA RDS SO THAT THE CELLS CAN BE USED TO COMBAT AGAINST MAJOR DISEASES TILL THEIR WARDS ATTAIN THE AGE OF 21 YEARS. THIS IS THE BENE FIT OF MODERN TECHNOLOGY. THE ASSESSEE IS CARRYING ON BUSINESS I N THAT LINE. 3. THE ASSESSEE IS MAKING THREE TYPES OF COLLECTIO NS FROM ITS CLIENTS. THE THREE CATEGORIES OF COLLECTI ONS ARE ENROLMENT FEE PROCESSING FEE AND STORAGE FEE. THE COLLECTIONS MADE UNDER ENROLMENT FEE AND PROCESSING FEE ARE ACC OUNTED BY THE ASSESSEE AS INCOME OF THE YEAR OF RECEIPT AND O FFERING FOR TAXATION IN THE RELEVANT ASSESSMENT YEAR. IN OTHER WORDS THOSE TWO TYPES OF COLLECTIONS ARE TREATED AS REVENUE REC EIPTS. IN - - ITA NO.851(MDS)/20 11 3 RESPECT OF THE THIRD CATEGORY OF COLLECTION TOWARDS STORAGE FEE THE ASSESSEE HAS GIVEN AN OPTION TO THE PARENTS. E ITHER THE PARENTS MAY MAKE A LUMP SUM PAYMENT FOR 21 YEARS I N WHICH CASE THE ASSESSEE WILL GIVE A DISCOUNT IN THE TOTAL STORAGE FEE OR THE PARENTS MAY CHOOSE FOR ANNUAL PAYMENTS OF STORA GE FEE. WHEREVER THE PARENTS HAVE OPTED FOR ANNUAL PAYMENTS OF STORAGE FEE SUCH COLLECTIONS ARE ACCOUNTED BY THE ASSESSEE AS REVENUE RECEIPTS OF THE CONCERNED PREVIOUS YEAR AND OFFERS FOR TAXATION IN THE RELEVANT ASSESSMENT YEAR. 4. BUT WHERE THE PARENTS OPT FOR LUMP SUM PAYMENT FOR THE WHOLE PERIOD OF 21 YEARS OF STORAGE THE AS SESSEE IS NOT TREATING THE ENTIRE COLLECTION AS REVENUE RECEIPT O F THAT YEAR. THE LUMP SUM COLLECTION IS TREATED BY THE ASSESSEE AS C OLLECTION FOR 21 YEARS AS A WHOLE AND THE STORAGE FEE ATTRIBUTABL E TO ONE PREVIOUS YEAR ALONE WILL BE TREATED AS REVENUE RECE IPT OF THAT PREVIOUS YEAR AND OFFERED FOR TAXATION IN THE RELEV ANT ASSESSMENT YEAR. THE BALANCE PORTION OF THE STORAGE COLLECTIO N FOR THE REMAINING PERIOD OF YEARS WILL BE ACCOUNTED AS LIAB ILITY IN THE ACCOUNTS OF THE ASSESSEE COMPANY. IN THE ENSUING Y EAR AGAIN THE YEARLY PORTION WILL BE TRANSFERRED FROM THE LIA BILITY TOWARDS THE - - ITA NO.851(MDS)/20 11 4 COLLECTION OF THAT PREVIOUS YEAR WHICH IS OFFERED FOR TAXATION IN THE RELEVANT ASSESSMENT YEAR. IN OTHER WORDS THE LUMP SUM COLLECTION RECEIVED BY THE ASSESSEE IN A PARTICULAR YEAR IS TREATED AS DEFERRED REVENUE RECEIPT ATTRIBUTABLE TO THE PER IOD OF STORAGE UNDERTAKEN BY THE ASSESSEE AND YEARLY DISTRIBUTED O N A PROPORTIONATE MANNER. THE REASON FOR THIS ACCOUNTI NG TREATMENT IS THAT THE ASSESSEE IS BOUND TO STORE THE BLOOD ST EM CELLS FOR THE ENTIRE PERIOD OF CONTRACT ENTERED INTO WITH THE PAR ENTS AND THEREFORE THE LUMP SUM COLLECTION HAS TO BE DISTRIB UTED OVER THE PERIOD OF LIABILITY. THEN ONLY THE ASSESSEE CAN SA TISFY THE MATCHING PRINCIPLE OF INCOME AND EXPENDITURE. 5. MOREOVER AS PER THE TERMS OF THE AGREEMENT WHENEVER A PARENT TERMINATES THE CONTRACT WITH THE ASSESSEE THE ASSESSEE IS LIABLE TO MAKE REFUND OF THE STORAG E FEE COLLECTED FROM THAT PARENT PERTAINING TO THE UNEXPIRED PERIOD OF CONTRACT. THEREFORE THE ASSESSEE IS PROVIDING FOR FUTURE COMM ITMENT BOTH BY WAY OF STORAGE AND BY WAY OF LIABILITY TOWARDS T ERMINATION REFUND. 6. THE INCOME COMPUTED BY THE ASSESSEE IN THE ABOV E LINE WAS ACCEPTED BY THE ASSESSING AUTHORITY IN THE COURSE OF - - ITA NO.851(MDS)/20 11 5 ASSESSMENT COMPLETED UNDER SECTION 143(3). LATER O N THE COMMISSIONER OF INCOME-TAX AFTER GOING THROUGH THE RECORDS OF THE CASE CAME TO THE CONCLUSION THAT THE ASSESSING AUTHORITY HAS NOT INVESTIGATED INTO THE ASPECT OF DEFERRING O F REVENUE RECEIPTS AND HAS NOT GONE DEEP INTO THE MATTER. IT IS THE VIEW OF THE COMMISSIONER OF INCOME-TAX THAT THE ASSESSING A UTHORITY HAS NOT EXAMINED WHETHER THE STORAGE FEE COLLECTION REC EIVED BY THE ASSESSEE IN LUMP SUM FROM THE PARENTS SHOULD BE CO NSIDERED AS THE INCOME OF THE YEAR OF RECEIPT OR WHETHER IT SHOULD BE PERMITTED TO PROVIDE FOR FUTURE LIABILITIES. ACCOR DING TO THE COMMISSIONER THIS VITAL ASPECT OF THE ISSUE HAS NO T BEEN EXAMINED BY THE ASSESSING OFFICER. THEREFORE HE SE T ASIDE THE ASSESSMENT ORDER WITH A DIRECTION TO THE ASSESSING AUTHORITY TO RE-EXAMINE THE ISSUE OF THE STORAGE FEE COLLECTED B Y THE ASSESSEE IN ADVANCE. 7. THE ASSESSEE IS AGGRIEVED AND THEREFORE IN APPE AL BEFORE US. WE HEARD SHRI T.BANUSEKAR THE LEARNED CHARTERED ACCOUNTANT APPEARING FOR THE ASSESSEE AND SHRI ANI RUDH RAI THE LEARNED COMMISSIONER OF INCOME-TAX APPEARING FO R THE REVENUE. - - ITA NO.851(MDS)/20 11 6 8. AFTER HEARING BOTH SIDES IN DETAIL WE FIND THA T THE COMMISSIONER OF INCOME-TAX IS NOT JUSTIFIED IN EXER CISING HIS POWERS OF REVISION UNDER SECTION 263 ON THIS MATTER OF ADVANCE COLLECTION OF STORAGE FEE FROM PARENTS OF BABIES. AS FAR AS ENROLMENT FEE IS CONCERNED THERE IS NO DISPUTE. IN THE CASE OF PROCESSING FEE THERE IS NO DISPUTE. IN THE CASE OF STORAGE FEE PAID ON YEARLY BASIS AGAIN THERE IS NO DISPUTE. ALL THESE THREE COLLECTIONS ARE TREATED AS REVENUE RECEIPTS OF THE CONCERNED PREVIOUS YEAR. THE DISPUTE IS ONLY IN RESPECT OF T HE STORAGE FEE COLLECTED BY THE ASSESSEE IN ADVANCE. 9. IT IS TO BE SEEN THAT THE ASSESSEE IS STORING T HE BLOOD STEM CELLS FOR A PERIOD OF 21 YEARS. WHEN TH E ASSESSEE IS COLLECTING STORAGE FEE IN ADVANCE FROM THE PARENTS IN LUMP SUM THE ASSESSEE IS UNDERTAKING THE LIABILITY OF PROVID ING THE SERVICES OF STORING THE BLOOD STEM CELLS NOT FOR THE YEAR OF RECEIPT ALONE BUT ALSO FOR THE ENTIRE PERIOD OF 21 YEARS. THEREF ORE IT IS VERY CLEAR THAT THE LUMP SUM COLLECTION MADE BY THE ASSE SSEE FROM THE PARENTS IS ONLY IN THE NATURE OF ADVANCE AND NO T IN THE NATURE OF INCOME AGAINST SERVICES RENDERED. IF THE ASSESS EE HAS COLLECTED ` 21 000/- FROM A PARENT FOR STORING THE BLOOD STEM - - ITA NO.851(MDS)/20 11 7 CELLS FOR 21 YEARS THE PORTION OF INCOME FOR ONE Y EAR WILL BE ` 1 000/- ONLY. THE REMAINING SUM OF ` 20 000/- IS TO BE TREATED AS STORAGE FEE COLLECTED IN ADVANCE AGAINST THE LIA BILITY OF RENDERING SERVICE OF STORING THE BLOOD STEM CELLS F OR THE REMAINING 20 YEARS. IF THE ENTIRE AMOUNT OF ` 21 000/- IS TREATED AS REVENUE RECEIPT OF THE FIRST YEAR THERE IS NO P ROVISION AVAILABLE IN THE HANDS OF THE ASSESSEE TO MEET THE LIABILITY FOR THE REMAINING 20 YEARS. THE ASSESSEE HAS TO ACCOUNT FO R INCOME AND EXPENDITURE FOLLOWING THE MATCHING PRINCIPLE. SERVICE CHARGES RECEIVED IN ADVANCE CANNOT BE TREATED AS TH E INCOME OF THE YEAR IN WHICH THE ADVANCE AMOUNT WAS RECEIVED. THAT IS AGAINST THE CANONS OF ACCOUNTANCY. 10. THE ASSESSEE HAS GIVEN A PROPER TREATMENT TO T HE ACCOUNTING OF STORAGE FEE COLLECTED IN ADVANCE. TH E LUMP SUM PAYMENT IS SPREAD OVER THE PERIOD OF SERVICE FOR WH ICH THE ASSESSEE IS LIABLE. THIS IS THE CORRECT METHOD OF ACCOUNTING. THIS HAS BEEN ACCEPTED BY THE ASSESSING AUTHORITY. THE ORDER OF THE ASSESSING AUTHORITY ON THIS POINT IS JUST AND P ROPER IN LAW. - - ITA NO.851(MDS)/20 11 8 11. THEREFORE ON THE MERITS OF THE CASE THE REVIS ION ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX IS UNSUSTAINABLE IN LAW. 12. SECONDLY AS FAR AS SECTION 263 IS CONCERNED THE SAME CANNOT BE INVOKED IF THE ASSESSING AUTHORITY H AS FOLLOWED ONE OF THE POSSIBLE VIEWS. IN THE PRESENT CASE EVE N IF ANY OTHER VIEW IS POSSIBLE STILL THE ASSESSING AUTHORITY HAS FOLLOWED A VIEW POSSIBLE IN LAW. THEREFORE ON THAT GROUND ALSO TH E REVISION ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX IS NOT SUS TAINABLE. 13. THE REASON POINTED OUT BY THE COMMISSIONER OF INCOME-TAX THAT THE ASSESSING AUTHORITY HAS NOT EXA MINED THE ISSUE HAS NOW BECOME AN ACADEMIC ISSUE FOR THE REA SON THAT ON THE MERIT OF THE ISSUE THE ASSESSING AUTHORITY HAS DECIDED THE ISSUE IN ACCORDANCE WITH LAW. BUT AS A MATTER OF FACT WE HAVE TO STATE THAT THE ASSESSEE HAS FURNISHED THE DETAIL S OF COLLECTIONS MADE BY THE ASSESSEE AND THE ASSESSING OFFICER HAS APPLIED HIS MIND ON THAT TOPIC. THE ONLY ISSUE IS THAT THE SUBJECT MATTER WAS NOT DISCUSSED BY THE ASSESSING OFFICER A T LENGTH IN HIS ASSESSMENT ORDER. - - ITA NO.851(MDS)/20 11 9 14. IN RESULT WE FIND THAT THE REVISION ORDER PASS ED BY THE COMMISSIONER OF INCOME-TAX IN THE PRESENT CASE IS NOT SUSTAINABLE IN LAW. ACCORDINGLY THE REVISION ORDER IS VACATED. 15. IN RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON WEDNESDAY THE 13 TH DAY OF JULY 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI DATED THE 13 TH JULY 2011. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.