Case: THE PEERLESS GEN.FIN AND INVESTMENT COMPANY LIMITED Vs. COMMNR. OF INCOME TAX

2. The assessee-Company has floated various schemes which require subscribers to deposit certain amounts by way of subscriptions in its hands, and, depending upon the scheme in question, these subscribed amounts at the end of the scheme are ultimately repaid with interest. The scheme at hand also contains forfeiture clauses as a result of which if, mid-way, a certain amount is forfeited, then the said amount would immediately become income in the hands of the assessee. This is an admitted position before us.3. In the present case, the assessee was asked to bring to tax such amounts as income for the two years in question, inasmuch as, according to the Assessing Officer, it had treated the whole amount as income, 3% of which is not disputed to be income before us for the years in question. The Assessing Officer treated these amounts as income inasmuch as under the accounting system followed by the assessee, these amounts were credited to the profit and loss account for the years in question as income. The Commissioner of Income Tax (Appeals) dismissed the appeal from the original assessment orders and confirmed the same. The Income Tax Appellate Tribunal, on the other hand, allowed the appeals by relying upon the judgment of this Court in Peerless General Finance and Investment Co. Limited and Another vs. Reserve Bank of India, (1992) 2 SCC 343     in which, according to the Appellate Tribunal, this Court finally decided the question in the assessee?s own case stating that such amounts cannot be treated to be 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 its accounts. So doing, the appeal against the Commissioner of Income Tax was allowed by the Income Tax Appellate Tribunal. In the first round, the High Court, by its judgment dated 09.09.1999, stated that since no question of law arose, the reference applications before it were dismissed. This Court, by an order dated 03.12.2002, set aside the High Court judgment and referred the following questions to the HighWhether the judgment of the Supreme Court in Peerless General Finance and Investment Co. Ltd. vs. Reserve Bank of India (1992) 2 SCC 343 lays down as an absolute proposition of law that all receipts of subscription in the hands of the assessee for the previous years relevant to the assessment years 1985-86 and 1986-87 must necessarily be treated as capital receipts?(b) If the answer to the first question is in the negative, on the facts and in the circumstances of the case, and having regard to the fact that the first year?s subscriptions were consciously offered as revenue receipt for taxation by the assessee in the returns of income filed in respect of assessment years 1985-86 and 1986-87, whether the Tribunal was justified in accepting the assessee?s contention that the first years? subscription was capital receipts and hence not taxable?(c) Whether on the facts and in the circumstances of the case and having regard to the observations of Hon?ble Supreme Court to the effect that the directions of Reserve Bank of India dated 15 th May, 1987 had been made applicable from 15 th May, 1987 and would only apply to the deposits made on or after 15 th May, 1987, the tribunal was justified in law as well as on the facts in holding that the said directions of the Reserve Bank of India were retrospective and must be applied in all pendingWhen remanded to the High Court, by the impugned judgment dated 06.10.2005, the High Court of Calcutta allowed the appeal against the Appellate Tribunal holding that a perusal of the subscription scheme of the appellant company would show that since forfeiture of the amounts deposited is possible, this amount should be treated as income and not as a capital receipt. Further, it relied heavily upon the fact that the assessee had itself treated such amounts as income and credited them to its profit 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.

Reasoning: 8. What is clear, even on general principle, on the facts of this case, is that subscriptions were received in the years in question from the public at large under a collective investment scheme, and these subscriptions were never at any point of time forfeited. Indeed, the supplementary affidavit filed before this Court states this as a fact, being based on an interim order of the High Court dated 03.09.1979 which obtained during the assessment years in question. This being the case, and surrendered certificates not being the subject-matter of the appeal before us, it is clear that even on general principles, deposits by way of amounts pursuant to these investment schemes made by subscribers which have never been forfeited can only be stated to be capital receipts.While it is true that there was no direct focus of the Court on whether subscriptions so received are capital or revenue in nature, we may still advert to the fact that this Court has also, on general principles, held that such subscriptions would be capital receipts, and if they were treated to be income, this would violate the Companies Act. It is, therefore, incorrect to state, as has been stated by the High Court, that the decision in Peerless General Finance and Investment Co. Limited (supra) must be read as not having laid down any absolute proposition of law that all receipts of subscription 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.We agree with the Tribunal that these deposits are really capital receipts and not revenue receipts.is also correct to state that there can be no estoppel against a settled position in law [See Commissioner of Income-Tax, Bombay vs. C. Parakh & Co. (India) Ltd. 29 ITR 661 at 665 and Commissioner of Income-Tax, Madras vs. V.MR.P. Firm, Muar (1965) 56 ITR 67. 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 to the surrounding circumstances etc. In the present case, there is no such question raised by Revenue. The question raised is completely different, and as has been held by us above, the character of the transaction being clearly a capital receipt in the hands of the assessee cannot possibly be taxed as income in the assessee?s?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.