D.K.SETH, J. - (1.) THE questions : Against the order of the learned Tribunal holding in favour of the assessee that the first year's subscription was a capital receipt, a reference under section 256(2) was sought by the revenue before this High Court. Following the decision in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India : 1991CriLJ1391 , this High Court was pleased to hold that the case does not involve any question of law. This was challenged before the Supreme Court in Civil Appeal Nos. 824 -825 of 2001. By an order dated 3 -12 -2002, the Apex Court was pleased to hold that the High Court was not correct and ultimately to direct the Tribunal to make a statement of case and refer to the High Court for its opinion the following questions : '(a) Whether the judgment of the Supreme Court in Peerless General Finance and Investment Co. Ltd. v. Reserve bank of India : 1991CriLJ1391 lays down as an absolute proposition of law that all receipts of subscriptions 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 the assessment years 1985 -86 and 1986 -87, whether the Tribunal was justified in accepting the assessee's contention that the first year's subscriptions were capital receipts and hence not taxable ? (c) Whether, on the facts and in the circumstances of the case and having regard to the observation of the Hon'ble Supreme Court to the effect that the directions of the Reserve bank of India dated 15 -5 -1987, had been made applicable from 15 -5 -1987, and would only apply to the deposits made on or after 15 -5 -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?' Revenue's argument:
(2.) THUS , the said three questions have come up before us for answer. Mr. Deepak Shome, learned senior counsel appearing on behalf of the department, made elaborate argument in order to contend that having regard to the facts and circumstances of the case the decision in Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India : 1991CriLJ1391 (second Peerless case) did not lay down any absolute proposition that in every case irrespective of the facts and circumstances such receipts are to be treated as capital receipts, particularly, in relation to the assessment years 1985 -86 and 1986 -87 involved in the present case. On the other hand, according to him, the second Peerless case was dealing with the Reserve bank of India's directions effective from 15 -5 -1987, in the context as to whether the said directions were ultra vires the fundamental rights guaranteed under article 19(1)(g) and, secondly, if it was not so, then whether such a direction could be given by the Reserve bank of India under sections 45J and 45K, respectively, of the Reserve bank of India Act. Therefore, the decision given in the said case is to be weighed within the context in which the ratio was laid down therein, particularly, when the said case related to the Peerless General Finance Company itself and were held that the directions of 1987 are applicable prospectively from 15 -5 -1987, and not retrospectively and that under the said directions the question of depositing the entire amount of subscriptions would only apply to the deposits made after 15 -5 -1987. Admittedly, the first year's subscriptions for the relevant assessment years in their entirety were not deposited in terms of the said directions of 1987 issued by the Reserve bank of India. The decision being a decision inter -parties is binding and by reason of the finding that such receipts are held to be capital receipts according to the provisions of the Companies Act, 1956, Part II and Schedule VI as well as the principles of accounting, despite such finding, was not made applicable in the said decision to Peerless General Finance for the period prior to 15 -5 -1987. He also contended that the first year's subscription was not treated as deposits in the accounts ; on the other hand, 97 per cent. of the first year's deposit was appropriated by the Peerless General Finance and that according to the terms of the certificate if the second year's subscription is not paid, the same was supposed to be forfeited and there was nothing to show that the Peerless General Finance had refunded the first year's subscription at any point of time. He has also drawn our attention to various provisions contained in the terms and conditions of the certificate in support of his contention that the assessee never treated the same as a deposit or loan or capital receipt though according to the accounting system and the provisions contained in the Companies Act this was supposed to be so treated. It was not reflected in the accounts as such. He had made various other arguments. We may refer to the same at appropriate time as would be necessary for deciding this case. Assessee's arguments :
(3.) DR . Debiprosad Pal, learned senior counsel appearing on behalf of the assessee, on the other hand, contended that once it was held that this first year's subscription is a capital receipt according to the provisions contained in the Companies Act and the principles of accounting, it is to be so treated, irrespective of the fact as to how this was treated by the assessee or reflected in the accounts. This is to be treated as capital receipt. The decision of the Apex Court is binding upon the party and it has a general application and it is not confined in its application only prospectively since in the second Peerless case this point has been laid down as an absolute legal proposition. He has relied on various decisions with which we shall be dealing at the appropriate stage. He has also raised various other points, which we shall deal with as and when necessary. The perspective;