2013 (11) TMI 979 - HC - Income Tax

Capital receipt or revenue receipt financial schemes in which deposits were collected from the Public - Held that - Following Commissioner of Income Tax vs. Sahara Investment India Limited 2003 (11) TMI 57 - ALLAHABAD High Court - No part of the deposit is the income of the assessee. The assessee is merely a custodian of the deposit. The income arises from the deposits i.e. dividend, interest etc- Although any amount which was earned by the assessee on these deposits made with it, minus any legitimate expenses incurred in the business, would amount to income of the assessee the deposits themselves could not amount to income - There was no forfeiture of any deposit and did not discharge the onus which was cast on it to prove that the deposits were revenue receipts and therefore, liable to tax Decided against Revenue.

Summary

Issues:
Nature of receipt - Whether the amount of Rs.14.82 lakhs is a capital receipt or a revenue receipt for taxation purposes.

Analysis:

The judgment pertains to an appeal under Section 260-A of the Income Tax Act, 1961 against a decision by the Income Tax Appellate Tribunal regarding the treatment of a receipt of Rs.14.82 lakhs as a capital receipt. The appellant, a partnership firm, was involved in financial schemes collecting deposits from the public. The initial assessment resulted in a loss, but subsequent assessments varied, with the last reassessment treating the amount in question as a revenue receipt. The appellant contended that the amount was part of the deposits received and should be considered capital in nature. The CIT (A) and the Tribunal upheld this view. The appellant department challenged this decision.

During the hearing, it was noted that the issue was similar to a previous case involving the true nature of receipts. The court emphasized that deposits themselves cannot be considered income, as they are merely held by the assessee. Any earnings from these deposits, after deducting legitimate expenses, would constitute income. The department failed to prove that the deposits were revenue receipts subject to taxation. Consequently, the court found no merit in the appeal and upheld the lower authorities' decision.

The judgment highlighted that the deposits were not income but rather capital held by the assessee. Emphasizing the importance of assessing the true nature of receipts beyond accounting entries, the court dismissed the appeal, stating that no substantial question of law arose from the tribunal's order. The decision was based on the principle that income arises from deposits through interest or dividends, not the deposits themselves. The court upheld the lower authorities' findings, concluding that the appeal lacked merit and should be dismissed at the admission stage.