Case Law Details
The Peerless General Finance And Investment Company Ltd. Vs CIT (Supreme Court of India)
Receipts of subscriptions pursuant to collective investment schemes is to be treated as capital receipts even if it is shown as income in books of accounts
Conclusion: Receipts of subscriptions in the hands of the assessee-company should be treated as capital receipts as subscriptions were received in the years in question from the public at large under a collective investment scheme and deposits by way of amounts pursuant to these investment schemes made by subscribers which had never been forfeited could only be stated to be capital receipts.
Held: 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. 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. It was held what was clear, even on general principle, was 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. This being the case, and surrendered certificates not being the subject-matter of the appeal, it was clear that even on general principles, deposits by way of amounts pursuant to these investment schemes made by subscribers which had never been forfeited could only be stated to be capital receipts. The “theoretical” aspect of the present transaction was that assessee treated subscription receipts as income. The reality of the situation, however, was that the business aspect of the matter, when viewed as a whole, lead inevitably to the conclusion that the receipts in question were capital receipts and not income.
FULL TEXT OF THE SUPREME COURT JUDGMENT
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