HC Allows Deferral of Time-Share Membership Fees Over Membership Tenure

Case Details: Commissioner of Income-tax - LTU vs. Mahindra Holidays and Resorts (India) Ltd. - [2026] 186 taxmann.com 146 (Madras)

Judiciary and Counsel Details

Dr. G. Jayachandran & Shamim Ahmed, JJ.
V. Pushpa, Senior Standing Counsel for the Appellant.
Arvind P. Datar, Senior Counsel, Sandeep Bagmar & Rahul Unnikrishnan for the Respondent.

Facts of the Case

The assessee was engaged in selling time-share units and providing holiday facilities to members for a specified week each year over a fixed tenure, in return for membership fees collected either upfront or in instalments. The assessee offered 60% of the membership fee as income in the year of admission and spread the remaining 40% equally over the membership period. Annual Maintenance Charges and utility charges were collected separately. The Assessing Officer held that the entire membership fee was taxable in the year of receipt, as the assessee had claimed full expenditure while deferring part of the income, contrary to the matching principle. However, the Commissioner (Appeals), following earlier orders in the assessee’s own case, accepted the deferred revenue concept, and the Tribunal upheld the same.

High Court Held

The matter reached the High Court. The Court held that the Time-share Agreement and Membership Rules were valid and observed that the membership fee was not merely an entrance fee but was linked to continuing obligations to provide accommodation and holiday facilities throughout the membership period. The agreement specifically provided that 40% of the fee represented accommodation costs, while 60% represented an Advance Payment towards Facilities (APF) to be apportioned equally over the membership tenure. The Court held that the assessee had an ongoing obligation to provide assured accommodation and related facilities. Therefore, the receipts could not be treated as income entirely accruing in the year of receipt.

Further, Annual Maintenance Charges and utility charges were independent of membership fees and could not be linked to them. Accordingly, the Court upheld the assessee’s method of accounting and answered the substantial questions of law in favour of the assessee.

List of Cases Reviewed

CIT v. Shyam Telelink Ltd. [2019] 101 taxmann.com 218/260 Taxman 402/410 ITR 31 (Delhi) (para 16) followed
Order of Tribunal, Chennai, dated 06.07.2010 in I.T.A.No.1705/Mds/2008 (para 23) affirmed