Income Tax Act, 1961 – AYs 1985-86 and 1986-97 – Subscriptions received from public at large under collective investment scheme – Difference between capital receipts and revenue receipts – Assessee-company floated scheme which required subscribers to deposit amounts by way of subscriptions, and, at the end of the scheme, the subscribed amounts were repaid with interest – Scheme also contained forfeiture clause – Dispute whether receipts of subscriptions in the hands of assessee-company should be treated as income or capital receipts – Held: The amount deposited with the assessee-company by way of subscriptions are capital receipts as they have to be repaid with interest to depositors as per the scheme – If such subscriptions were treated to be income, this would violate the Companies Act – However, the amount/ subscription forfeited mid-way will become income or revenue receipts in the hands of the assessee-company.
Income Tax Act, 1961 – AYs 1985-86 and 1986-97 – Subscriptions received from public at large under collective investment scheme floated by assessee-company – Treatment of subscription amounts as revenue receipts for the impugned assessment years – Held: Not correct – The amounts received on subscription being capital receipts and there being no forfeiture in the impugned assessment years, the amounts in question had to be treated as capital receipts.
Income Tax – Account books – Nature of receipts – Book keeping entries, whether decisive or determinative of the true nature of the entries – Held: Mere book keeping entries will not determine the true nature of the receipts / transactions – “Theoretical” and “business” aspects of receipts/ transactions distinguished – On facts, subscriptions were received from public at large under collective investment scheme floated by assessee-company – The “theoretical” aspect of the transaction was that the assessee treated the 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 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 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 hands.
Doctrines/Principles – Doctrine of estoppel – Subscriptions received from public at large under collective investment scheme floated by assessee-company – Assessee in its books of accounts showed this sum as income – However, real position in law, qua deposits made by subscriptions, is that they are in the nature of capital receipts – Held: There can be no estoppel against a settled position in law – In view thereof, assessee company could not be stopped from making a claim that the subscription amounts were in the nature of capital receipts – Income Tax.
Peerless General Finance and Investment Co. Limited and Another v. Reserve Bank of India (Second Peerless case), (1992) 2 SCC 343 : [1992] 1 SCR 406; Poona Electric Supply Co. Ltd., Bombay v. Commissioner of Income-Tax, Bombay AIR 1966 SC 30 : [1965] 3 SCR 818; Commissioner of Income-Tax, Bombay v. C. Parakh & Co. (India) Ltd. 29 ITR 661; Commissioner of Income-Tax, Madras v. V.MR.P. Firm, Muar (1965) 56 ITR 67; Commissioner of Income Tax v. Sahara
Investment India Ltd. Volume 266 ITR 641 –
relied on.
Ram Janki Devi and Another v. M/s Juggilal Kamlapat (1971) 1 SCC 477 – distinguished.
Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. and Others (1987) 1 SCC 424 : [1987] 2 SCR 1 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.