R.F. Nariman, J. - (1.) The question raised in this appeal is as to whether receipts of subscriptions in the hands of the assessee-Company for the previous years relevant to the assessment years 1985-86 and 1986- 97 should be treated as income and not capital receipts inasmuch as the assessee has in its books of accounts shown this sum as income.
(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 343in 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 High Court: "(a) Whether 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 15th May, 1987 had been made applicable from 15th May, 1987 and would only apply to the deposits made on or after 15th 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 pending proceedings?";