THE PEERLESS GENERAL FINANCE AND INVESTMENT COMPANY LTD. versus COMMISSIONER OF INCOME TAX

Citation: [2019] 18 S.C.R. 957 · Decided: 09-07-2019 · Supreme Court of India · Bench: R.F. NARIMAN, SANJIV KHANNA · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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THE PEERLESS GENERAL FINANCE
AND INVESTMENT COMPANY LTD.
v.
COMMISSIONER OF INCOME TAX
(Civil Appeal No. 1265 of 2007)
JULY 09, 2019
[R. F. NARIMAN AND SANJIV KHANNA, JJ.]
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
[2019] 18 S.C.R. 957
957
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SUPREME COURT REPORTS
[2019] 18 S.C.R.
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.
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Case Law Reference
[1992] 1 SCR 406
relied on
Para 3
(1971) 1 SCC 477
distinguished
Para 6
[1965] 3 SCR 818
relied on
Para 6
[1987] 2 SCR 1
referred to
Para 9
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1265
of 2007.
From the Judgment and Order dated 06.10.2005 of the High Court
at Calcutta in ITR No. 1 of 2005.
S. Ganesh, Abhijit Chatterjee, Sr. Advs., S. Sukumaran, Anand
Sukumar, Sameer Rohatgi, Bhupesh Kumar Pathak, Ms. Meera Mathur,
K. Rajeev, Advs

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