Introduction
The treatment of life membership fees received by professional bodies, trusts, and charitable institutions has long been a contentious issue in income-tax law. The central question revolves around whether such one-time, non-recurring receipts should be classified as revenue income chargeable in the year of receipt, or as capital receipts forming part of corpus/endowment funds.
In the case of the Council of Architecture, New Delhi, the Income Tax Appellate Tribunal (ITAT), Delhi Bench, in its ruling dated 13 August 2025, addressed this precise issue. The Council, a statutory body regulating the profession of architecture in India, collected life membership fees from members and credited the same to its Endowment Fund. While the Assessing Officer treated these receipts as revenue in nature and sought to tax the entire amount in the year of receipt, the assessee contended that they were capital in nature, not taxable as income, and were to be spread over a number of years as per established accounting practice.
The Tribunal’s decision provides important judicial clarity on the capital vs. revenue distinction in the context of lump-sum membership receipts, with significant implications for professional councils, societies, and charitable institutions across India.
Facts / Background
The assessee is the Council of Architecture, New Delhi, presumably a trust/charity (or exempt organisation) under Section 11.
It collects a one-time life membership fee from members (architects).
Such fees were credited to an Endowment Fund (or treated as part of the corpus / capital fund).
The life‐membership fee is large and is not recurring (i.e. not in the nature of an annual subscription). It is a lump-sum, once for life membership.
The Assessing Officer (AO) had taken the view that this life membership fee is not a voluntary contribution to corpus, but rather a revenue receipt, and thus should be included in the income for that year and/or excluded from corpus under Section 11 exemption.
On appeal, the ITAT has held (on 13 August 2025) that this life membership fee is a capital receipt, not a revenue receipt, ipso facto not to be treated as income in full in the year of receipt.
They further held that the receipt should be apportioned over 40 years under a long-standing accounting practice accepted by Revenue. That is, each year 1/40th of the amount may be considered notionally for certain purposes; but for the exemption under Section 11, one may ignore the apportioned corpus (or treat it appropriately).
Legal / Tax Provisions Relevant
Section 11 of the Income-tax Act: deals with incomes of trusts, charitable or religious institutions which are applied to charitable or religious purposes. To get exemption, the income must satisfy conditions, including that application of income should be out of income and/or voluntary contributions; corpus funds are treated differently.
Distinction between revenue receipt and capital receipt is central. Revenue receipts are part of regular income; capital receipts are not part of ordinary income and in many cases are excluded or treated differently, particularly in context of exempt organisations and corpus, etc.
Prior practice / case law: there are precedents wherein life membership fees (one-time, for lifetime) by certain institutions have been treated as capital or corpus (e.g., endowed funds) rather than revenue. Part of the rationale is that membership confers a continuing right, or that the fee is more in the nature of a capital contribution.
The principle of apportionment over a long period is used when an organisation (esp. a trust) has received a large one-time capital contribution but uses it over many years.
Held by ITAT and Reasoning
Here are the key holding points and the reasoning as per the reports:
Nature of receipt:
The life membership fee is capital in nature, in that it is a one-time fee, confers a continuing right, etc. It is credited to an endowment fund / corpus.
It is not a “revenue receipt” coming from regular operations or annual subscriptions, etc.
Apportionment over 40 years:
Even though it is capital, it is recognised that the benefit / use of that fee accrues over many years.
Hence, following “long-standing accounting practice accepted by Revenue”, the sum is spread out (apportioned) over 40 years (i.e. 1/40th each year is considered notionally).
Effect on Section 11 exemption:
For the purpose of exemption under Section 11, the corpus (or the capital portion) is not included as income applied in the year. The apportioned corpus sum (i.e. the capital portion) is excluded from computation of “application of income for charitable purposes”.
Therefore, only the appropriate part (if any) is treated for revenue / income, and the rest is corpus that is not treated as exempted income (but perhaps held as corpus).
No addition of full amount in year of receipt:
The AO’s attempt to treat the entire life membership fee as revenue in the year of receipt was rejected. Because doing so would distort income, given the nature of the receipt and long benefit stream.
Implications of the Decision
Organisations (trusts, societies, etc.) receiving one-time life membership fees, or similar one-off fees that grant permanent membership or rights, may now rely on this decision to argue that such fees are capital / corpus, not revenue.
They may need to show a long-standing or consistent accounting treatment (practice) accepted by Revenue, of apportioning such fees over a fixed number of years (here, 40). If an organisation has always treated/recognized such fees as corpus and/or applied them over multiple years, that strengthens their case.
The decision provides a template for treatment: credit the sum to Endowment / Corpus fund; apportion over years; treat only the income portion, if any, in a given year for exemption / application of income under Section 11.
Assessing Officers must not include the entire fee in income, but must allow for corpus / capital portion, as long as the facts support it.
Possible Arguments / Counterpoints
In such cases, the Revenue / AO might argue:
The life membership fee is not “voluntary contribution” or not sufficiently distinguished from revenue, or that the rights conferred are similar to annual subscriptions, etc.
That there is no established pattern of accounting practice, so treating as capital might be arbitrary.
That the entire sum was used (applied) immediately, or expenditure matching it, etc., could warrant revenue treatment.
That if the fee is tied to services or obligations, membership benefits, continuing obligations, etc., it could be revenue.
But in this case, ITAT found sufficient evidence and accepted the accounting practice.
Key Takeaways / Summary
Life membership fees (one-time) in this case, held to be capital, corpus receipt, not revenue.
Apportioned over 40 years as per accepted accounting practice.
Not fully included under income for the year of receipt for computing exemption under Section 11; the “capital” portion excluded.
Revenue’s attempt to treat whole amount as income in year of receipt is rejected.