Taxpublishers.in - InterestingDecision/IDDT_014.htm - Tax Publishers Your Tax Solution Hub

Share via Whatsapp 144 Views


The Tax Publishers Income from stem cell storage business - Spread over of income vs. in toto taxability in the year of receipt *Facts:* Assessee in the business of storage of stem cell, umbilical cord blood received enrollment fees from its customers which was offered to tax in full. Debate on taxability arose on the storage revenue for stem cells which was received in advance for a tenure of 21/100 years by the assessee. Assessee's contention was it should be spread over the tenure of 21/100 years over the contractual life. Revenue's contention was it was taxable in the year of receipt in full with no spread over/deferral of income possible for future years. The topic has been going on in litigation for the assessee with ITAT holding to their favour until A.Y. 2012-13 and from A.Ys. 2013-14/2014-15 ITAT has taken a contrary stand against the assessee holding that the entire storage revenue is taxable in the year of receipt in full. The change of opinion has risen from the fact that there was no storage expenses which was deferred against the revenue deferral besides the fact that the refund of the storage revenue was remote due to contractual conditions. Lower tax authorities applying earlier ITAT orders of immediate years decided storage revenue as fully taxable in the year of receipt on which assessee went in higher appeal once again to ITAT - Held against the assessee that the storage revenue was taxable in full in the year of receipt itself. *Ed. Note:* The business model of Stem cell business is similar to time share business where there have been contrary decisions on revenue recognition or more so on deferral/spread over of revenue. Reference be made to Sterling Holiday Resorts (India) Ltd. v. ACIT (2007) 295 ITR (AT) 162 (Chennai) : 2007 TaxPub(DT) 0924 (Chen-Trib) where it was held similar to assessee's case taxable upfront in year of receipt. In ACIT/DCIT v. Mahindra Holidays and Resorts (India) Ltd. (2010) 3 ITR (Trib) 600 (Chennai) (SB) : 2010 TaxPub(DT) 1965 (Chen-Trib) the spread over logic over 25/33 years was found acceptable. In such businesses especially from the dimension of sustainability of such businesses it is better if some specified formula for revenue spread over is conceived/accepted by the revenue to avoid disputes. The logic of spread over of revenue cannot be doubted in such businesses and the receipt in one year in entirety alone cannot make it taxable in the very same year. Calcutta Co. Ltd. v. CIT (1959) 37 ITR 1 (SC) : 1959 TaxPub(DT) 0180 (SC) needs to be borne in mind to consider fair spread over of revenue on matching principles in similar cases. *Case:* Lifecell International (P) Ltd. v. Asstt. CIT 2023 TaxPub(DT) 156 (Chen-Trib)

The Tax Publishers

Income from stem cell storage business - Spread over of income vs. in toto taxability in the year of receipt

Facts:

Assessee in the business of storage of stem cell, umbilical cord blood received enrollment fees from its customers which was offered to tax in full. Debate on taxability arose on the storage revenue for stem cells which was received in advance for a tenure of 21/100 years by the assessee. Assessee's contention was it should be spread over the tenure of 21/100 years over the contractual life. Revenue's contention was it was taxable in the year of receipt in full with no spread over/deferral of income possible for future years. The topic has been going on in litigation for the assessee with ITAT holding to their favour until A.Y. 2012-13 and from A.Ys. 2013-14/2014-15 ITAT has taken a contrary stand against the assessee holding that the entire storage revenue is taxable in the year of receipt in full. The change of opinion has risen from the fact that there was no storage expenses which was deferred against the revenue deferral besides the fact that the refund of the storage revenue was remote due to contractual conditions. Lower tax authorities applying earlier ITAT orders of immediate years decided storage revenue as fully taxable in the year of receipt on which assessee went in higher appeal once again to ITAT -

Held against the assessee that the storage revenue was taxable in full in the year of receipt itself.

Ed. Note: The business model of Stem cell business is similar to time share business where there have been contrary decisions on revenue recognition or more so on deferral/spread over of revenue. Reference be made to Sterling Holiday Resorts (India) Ltd. v. ACIT (2007) 295 ITR (AT) 162 (Chennai) : 2007 TaxPub(DT) 0924 (Chen-Trib) where it was held similar to assessee's case taxable upfront in year of receipt. In ACIT/DCIT v. Mahindra Holidays and Resorts (India) Ltd. (2010) 3 ITR (Trib) 600 (Chennai) (SB) : 2010 TaxPub(DT) 1965 (Chen-Trib) the spread over logic over 25/33 years was found acceptable. In such businesses especially from the dimension of sustainability of such businesses it is better if some specified formula for revenue spread over is conceived/accepted by the revenue to avoid disputes. The logic of spread over of revenue cannot be doubted in such businesses and the receipt in one year in entirety alone cannot make it taxable in the very same year. Calcutta Co. Ltd. v. CIT (1959) 37 ITR 1 (SC) : 1959 TaxPub(DT) 0180 (SC) needs to be borne in mind to consider fair spread over of revenue on matching principles in similar cases.

Case: Lifecell International (P) Ltd. v. Asstt. CIT 2023 TaxPub(DT) 156 (Chen-Trib)