Summary
Subscriptions received under the company’s investment schemes and never forfeited were capital receipts, despite their treatment as income in its accounts and returns. Their true character, including the obligation to repay subscribers, controlled tax treatment; accounting entries created no estoppel against the settled legal position. The earlier Peerless decision supported this conclusion on general principles independently of the prospective RBI directions.
Issues
- Whether un-forfeited scheme subscriptions became taxable income because the company credited them to its profit-and-loss account and offered them for taxation.
- Whether the prospective operation of the 1987 RBI directions displaced the earlier Peerless ruling’s general principles.
Held
- No subscriptions at issue had been forfeited, consistently with the interim order operating during the relevant years. Surrendered certificates were outside this appeal; on these facts the subscriptions were capital receipts. (¶¶ 2–3, 8)
- The earlier Peerless pronouncements recognised the capital character of such receipts on general principles. The High Court could not disregard them merely because that case primarily concerned RBI directions issued later. (¶ 9–10)
- The true nature and quality of receipts, rather than accounting descriptions, determines their character. There was no estoppel against the settled legal position, and the business reality supported capital treatment here. (¶¶ 10, 12–13)
Result
Appeal allowed; High Court judgment set aside and the Income Tax Appellate Tribunal’s judgment restored. No costs.