TaxTMI 
TaxTMI 
2005 (10) TMI 48
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....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 [1992] 75 Comp Cas 12 (SC); [1992] 2 SCC 343 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 May 15, 1....
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....e such finding, was not made applicable in the said decision to Peerless General Finance for the period prior to May 15, 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: Dr. Debiprosad Pal, learned se....
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....d that the directions were in excess of the power conferred under sections 45J and 45K of the Reserve Bank of India Act. In fact, the asses-see had opposed the idea of treating first year's subscription as deposit, a capital receipt. In this context with the assistance of the reasons given in the second Peerless case, the apex court had held that the 1987 directions were not violative of article 19(1)(g) and that these were issued within the power conferred upon the Reserve Bank of India under sections 45J and 45K of the Reserve Bank of India Act; but these directions were prospective and not retrospective (paragraph 40, Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India [1992] 75 Comp Cas 12 (SC); [1992] 2 SCC 343 at page 382), and shall apply only in respect of deposits made after May 15, 1987. This very finding itself binds the Peerless General Finance. In the second Peerless case the Revenue was not a party. It may not bind the Revenue; but it is definitely binding on the assessee. The decision being binding on the assessee the ultimate decision would be binding. A party cannot claim any right de hors the ultimate decision. The ratio laid down for ....
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....the amount could be treated as capital receipt. The learned Tribunal had noticed in its judgment clauses 5, 6, 7 and 11 of the scheme and then came to a finding that the learned Tribunal was unable to find that any of those clauses entitled the assessee to retain the subscription of any year of the subscriber. This finding appears to be contrary to the said clauses and cannot be the foundation for the facts it had found to arrive at the conclusion. However, Dr. Pal contended that no ground of perversity having been referred to under section 256(2) of the Income-tax Act 1961, the finding of fact cannot be interfered with. True, the perversity has not been a question referred to; but when the questions referred to require an answer, one cannot close one's eyes even if it appears that such finding has no foundation or basis particularly when it goes to the root of the question. In order to appreciate the situation, we may quote beneficially the said clauses 5, 6, 7 and 11 of the scheme as hereunder: "5. Special revival scheme: A lapsed certificate, on which at least Rs. 100 has already been paid, may be revived at any time before the date of maturity from the date of laps....
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....thin six months from the date of death. No claim shall be admissible after the said period." The above clauses show that a certificate can be revived if at least Rs. 100 has been paid. If the payment is less than Rs. 100, it cannot be revived. However, such an option to revive can be exercised only once and if it is revived, the payment is to be made according to the scheme. The scheme prescribes that a certificate can be surrendered only after the payment of two full years' subscription and that too after the expiry of three full years from the commencement and on such surrender only 90 per cent, of the subscription paid after the first year would be repayable and only in case where seven full years' subscription is paid then only 100 per cent, subscription would be payable. It is only if after two years payment of full subscription further subscription is not paid the certificate would not lapse and the subscriber would be entitled to refund after the full term, however, without any bonus. This facility is available only in respect of the certificate with endowment period of 12 years or above. In the case of endowment period of less than 12 years, this facility is not ....
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....e appropriation of 97 per cent, cannot be treated as capital receipt when it was neither deposited nor treated as loan or deposit. The appropriation of this amount can be nothing but an income since it was so appropriated and treated by the assessee in the year of the receipt, i.e., relevant to the assessment year concerned. Now it does not lie on it to claim otherwise simply because the second Peerless case had pointed out that such a claim of the assessee was contrary to the provisions contained in the Companies Act and the principles of accounting giving an exemption from the consequences of its being treated as capital receipt necessitating deposit of the entire amount of subscription in terms of the 1987 directions. Admittedly, these have not been deposited in terms of the ratio of the second Peerless case. It cannot claim benefit under the 1987 directions for the same amount for which it had availed of the exemption by reason of the decision in the second Peerless case making the application of 1987 directions prospective and effective from May 15, 1987, onwards only. The assessee cannot blow hot and cold at the same time. It is true that the claim of the Revenue to treat ....
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....y would be bound by the decision given on facts on the basis of the ratio decided. Admittedly, in the second Peerless case after having decided the ratio in the case of the assessee, it was made applicable in respect of the deposits/subscription received after May 15, 1987, prospectively and was made inapplicable in respect of the parties to the proceedings in relation to subscriptions or deposits received by it prior to May 15, 1987. The binding nature of a decision has been clearly explained in Director of Settlements v. M.R. Apparao, AIR 2002 SC 1598 and the other decisions cited by Dr. Pal. In Director of Settlements v. M.R. Apparao, AIR 2002 SC 1598, relied upon by Dr. Pal, the apex court in paragraph 7 had held that: "article 141 of the Constitution unequivocally indicates that the law declared by the Supreme Court shall be binding on all courts within the territory of India. The aforesaid article empowers the Supreme Court to declare the law. It is, therefore, an essential function of the court to interpret a legislation. The statements of the court on matters other than law like facts may have no binding force as the facts of two cases may not be similar. But what is bin....
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....hin the ambit of article 141 of the Constitution. Mr. Rao relied upon the judgment of this court in the case of Pandit M.S.M. Shartna v. Shri Sri Krishna Sinha [1959] Suppl. 1 SCR 806, wherein the power and privilege of the State Legislature and the fundamental right of freedom of speech and expression including the freedom of the press was the subject matter of consideration. In the aforesaid judgment it has been observed by the court that the decision in Gunupati Keshavram Reddy v. Nafisul Hasan, AIR 1954 SC 636 relied upon by the counsel for the petitioner which entirely proceeded on a concession of the counsel cannot be regarded as a considered opinion on the subject. There is no dispute with the aforesaid proposition of law". Dr. Pal also relied on the decisions in State of U.P. v. Synthetics and Chemicals Ltd. [1992] 87 STC 289 (SC); [1991] 4 SCC 139 at page 162; CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297 (SC); [1992] 4 SCC 363; Arnit Das v. State of Bihar [2000] 5 SCC 488 and Amar Nath Om Parkash v. State of Punjab [1985] 1 SCC 345 at page 362 (paras. 10 and 11) to support his contention that the second Peerless case is binding on the assessee on the principl....
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....ent the law declared and made applicable in those facts. In case the same set of facts are sought to be reopened in a subsequent proceeding seeking to apply the same principle of law, since decided in the earlier case, then it would amount to a review of the decision, which is otherwise impermissible. When on the basis of the principles so declared on the facts involved in the earlier case, the deposits received prior to May 15, 1987, were exempted from the application of the ratio decided or in other words the ratio decided were not made applicable in respect of the self-same deposits since involved in the present case, it is decided conclusively for all time to come and it binds the party and the question can no more be reopened. In this case, it is not a question of precedent. In this case, it is the binding nature of the decision in the second Peerless case on facts, so far as the assessee is concerned, in relation to the deposits received by it prior to May 15, 1987, that binds the assessee. This decision is binding on the assessee both on law and on fact. Therefore, the assessee cannot get out of it. The principles of law: The characteristics of the receipts: Whether capit....
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.... cannot be applied in such cases. It is a question of lifting the veil to identify the real characteristics of the amount. Though notionally and principally it might have a different characteristic, but on hard reality it was not so shown and not so treated, it cannot be put to a different head when on facts it appears to have been appropriated by the assessee as an income in the absence of any proof that it was even restored as a liability or has been so shown at any point of time. The principle, therefore, would not help. When the assessee was compelled to do so only by the 1987 directions it had obtained and availed of the exemption in respect of the concerned assessment years in the second Peerless case. After having done so, it cannot now say otherwise, since the Reserve Bank of India could not enforce the 1987 directions to compel the assessee to deposit the first year's subscription of the relevant assessment year in terms of the 1987 directions, neither the Reserve Bank of India could take any steps for not depositing this first year's subscription for these assessment years in terms of the 1987 directions as against the assessee. The assessee cannot be allowed to e....