Capital receipts from collective investment schemes remain non-taxable income where no forfeiture occurs and accounting entries cannot alter legal character.

Subscription receipts collected under collective investment schemes were treated as capital receipts because they were raised from the public with an obligation to repay, with interest, at the end of the scheme. Since no forfeiture had occurred in the relevant years, the amounts retained had not been converted into income by any forfeiture event. The assessee's accounting treatment could not change the true legal character of the receipts, and there was no estoppel against the correct legal position. The subscription receipts were therefore capital in nature and not taxable income, and treatment in the books could not justify classification as revenue receipts.

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Issues: Whether subscription receipts collected under the assessee's collective investment schemes for the relevant assessment years were capital receipts or income, and whether the assessee's treatment of those receipts in its accounts could alter their true legal character.

Analysis: The receipts were collected from the public under investment schemes and were intended to be repayable with interest at the end of the scheme. The record showed that, for the years in question, no forfeiture had in fact taken place, so the subscriptions that remained with the assessee had not been converted into income by any forfeiture event. The earlier decision concerning the same assessee was read as recognising, on general principle, that such subscriptions are capital in nature and cannot be credited to the profit and loss account consistently with the Companies Act. The Court also held that the accounting treatment adopted by the assessee was not determinative of the true legal nature of the receipts, and that there could be no estoppel against the correct position in law.

Conclusion: The subscription receipts were capital receipts and not taxable income, and the High Court was wrong in treating them as revenue receipts on the basis of the books of account.

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