One Time Membership Fee Received by Club

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CA AJAY SONI (Querist)
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30 June 2011 I have one of my Client, who is going to start his Hotel. In his club facilities are also there. For members to take benefit of this Club they have to pay One time life Membership Fee and then Annual Fee. Please suggest me the appropriate Tax treatment of both these Receipts specially One Time LIfe Membership Fee.

If One Time Life Membership is to treated as Income, then will it be taxable one time or on prorata basis. If prorat basis then how such prorata can be determined.

Does this is not exempt as it takes the shape of mutual Concern whereby Members would entertain Club Membership at Discounted Rate or whether it is to be shown in Balance Sheet as Liabilities as per Accounting Principle because Income will accrue only if Life Time Membership is provided

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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01 July 2011 It depends on the terms of the membership. The law of mutuality will also depend on the same.

If the one time membership fee is refundable after few years or after death or is transferable then the matter is different and if nothing is there then the income is to be treated as income in the year in which the membership fee is received.

As regards annual membership fee it is taxable on the basis of accrual if the books are maintained on mercantile basis and in the year of received if accounts are cash basis.

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