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TMI Blog2019 (7) TMI 880X X X X Extracts X X X X X X X X Extracts X X X X ..... at the hands of the assessee for these years must be treated as capital receipts. We reiterate that though the Court s focus was not directly on this, yet, a pronouncement by this Court, even if it cannot be strictly called the ratio decidendi of the judgment, would certainly be binding on the High Court. Even otherwise, as we have stated, it is clear that on general principles also such subscription cannot possibly be treated as income. Mr. Ganesh is right in stating that in cases of this nature it would not be possible to go only by the treatment of such subscriptions in the hands of accounts of the assessee itself. The theoretical aspect of the present transaction is the fact that the assessee treated subscription receipts as income. The reality of the situation, however, is that the business aspect of the matter, when viewed as a whole, leads inevitably to the conclusion that the receipts in question were capital receipts and not income. In the circumstances, we set aside the judgment of the High Court and restore that of the Income Tax Appellate Tribunal. - CIVIL APPEAL NO. 1265 OF 2007 - - - Dated:- 9-7-2019 - MR ROHINTON FALI NARIMAN AND MR SANJIV KHANNA, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income but are in the nature of capital receipts. These were not only because of the interpretation of an RBI Circular of 1987, but also because, on general principles, such amounts must be treated to be capital receipts or otherwise they would violate the provisions of the Companies Act. It further went through the various clauses contained in the scheme at hand, and found that in point of fact no subscription certificate had, in fact, been forfeited, as a result of which it was clear that there would be no income in the hands of the assessee for these two years. It also dealt with certificates that were surrendered prior to the stated time, and stated that in such cases as well whatever would remain as surplus in the hands of the assessee would be treated as income. It went on to state that there would be no estoppel in law against the assessee making a claim that these amounts were in the nature of capital receipts and not income, and also relied upon certain judgments of this Court to buttress the proposition that this Court had also held that what is the true position in law cannot be deflected by what the assessee may or may not do in its treatment of the matter at hand in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit and loss account for the years in question and would, therefore, be estopped by the same. On going through the judgment of this Court, namely, Peerless General Finance and Investment Co. Limited (supra) it went on to state that since the said judgment dealt with an RBI Circular of 1987, which itself was only prospective, any law declared as to the effect of Clause 12 of that Circular would be prospective in nature and would, therefore, not apply to the assessment years in question. 5) Mr. S. Ganesh, learned Senior Advocate, appearing for the appellant-Company has argued before us that the High Court is incorrect on all counts. According to him, the fact that forfeiture may take place under the clauses of the scheme has to be read with an interim order which he has brought to our notice by way of a supplementary affidavit dated 05.04.2017 in which it is made clear that, post the date of the order i.e. 03.09.1979, no amount can be forfeited under any of the schemes by the appellant-Company. He stated that, as a matter of fact, the supplementary affidavit states that for the years in question and, in particular, for every year after 1979, no sum has in fact b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. Further, in any event, the Commissioner of Income Tax (Appeals) was correct in stating that this judgment dealing only with an RBI circular 1987, being prospective in nature, would not apply to the assessment years at hand. 7) Having heard the learned counsel for both parties, we must first set out the answers given to the three questions by the High Court, in its judgment under appeal. The answers given are as follows: 10.1 The questions referred to us, therefore, having regard to the principles discussed above, are answered in the following manner: ( a) that the decision of the Apex Court in Peerless General Finance and Investment Company Ltd. (supra) did not lay down any absolute proposition of law that all receipts of subscription at the hands of the assessee for the previous year relevant to the assessment years 1985-86 and 1986-87 must necessarily be treated as capital receipts. ( b) Having regard to the facts and circumstances of the case the learned Tribunal was wrong in treating the first year s subscription relevant to the assessment years 1985-86 and 1986-87 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various grounds, to the aforesaid directions. However, this Court did state, Kasliwal, J., in particular, holding: The amount contributed by the depositors being a capital receipt and not a revenue receipt cannot under any circumstances be shown in the balance sheet otherwise than at its full value. Moreover, being a capital receipt, it cannot be credited to the profit and loss account since Part II of Schedule VI to the Companies Act, 1956 requires that the amounts to be shown in the profit and loss account should be confined to the income and expenditure of the company. Thus, crediting a part of the first and subsequent year s deposit instalments to the profit and loss account and not showing them fully as a liability in the balance sheet would be a contravention of the provisions of the Companies Act. The learned Judge further went on to hold: The method followed by the companies in carrying on the aforesaid business is that a certain portion of the subscriptions received by it is transferred to the profit and loss account, shown as income, and the same is used to defray inevitable working capital re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h subscriptions in the hands of accounts of the assessee itself. In this behalf, he cited a decision of the Division Bench of the Allahabad High Court in Commissioner of Income Tax vs. Sahara Investment India Ltd ., reported as Volume 266 ITR page 641 in which the Division Bench followed Peerless General Finance and Investment Co. Limited (supra), and then held as follows: In Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India (1992) 75 Comp Cas 12, the Supreme Court on similar facts held that the deposits were capital receipts and not revenue receipts (vide paragraphs 67 68 of the aforesaid judgment). That case also pertains to a finance company which used to collect deposits, and credited part of its deposits to the profit and loss account, as in the present case. Hence, the ratio of the said decision, in our opinion, applies to this case also. It is well settled in income-tax law that book keeping entries are not decisive or determinative of the true nature of the entries as held by the Supreme Court in CIT vs. India Discount Co. Ltd. [1970] 75 ITR 191 and in Godhra Electricity Co. Ltd v. CIT [1997] 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) Ltd. 29 ITR 661 at 665 and Commissioner of Income-Tax, Madras vs. V.MR.P. Firm, Muar (1965) 56 ITR 67. 11) Shri Arijit Prasad, learned senior counsel, appearing on behalf of the Revenue, however, strongly relied upon the observations in Ram Janki Devi and another v. M/s. Juggilal Kamlapat, (1971) 1 SCC 477. In particular, he relied upon paragraph 12 of the judgment which reads as follows:- The case of a deposit is something more than a mere loan of money. It will depend on the facts of each case whether the transaction is clothed with the character of a deposit of money. The surrounding circumstances, the relationship and character of the transaction and the manner in which parties treated the transaction will throw light on the true form of the transaction. 12) This judgment has no direct relevance to the facts of the present case. The vexed question in that case was as to whether a particular transaction in question was a loan or a deposit. It was in that context that paragraph 12 laid down that whether a loan of money could be called a deposit, would depend upon the facts of each case, having regard ..... X X X X Extracts X X X X X X X X Extracts X X X X
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