Calcutta High Court
Commissioner Of Income Tax vs Peerless General Finance And ... on 6 October, 2005
Equivalent citations: (2006)204CTR(CAL)198
Author: D.K. Seth
Bench: D.K. Seth, Maharaj Sinha
JUDGMENT D.K. Seth, J.
1. The questions:
Against the order of the learned Tribunal holding in favour of the assessee that the first year's subscription was a capital receipt, a reference under Section 256(2) was sought by the Revenue before this High Court. Following the decision in Peerless General Finance & Investment Co. Ltd. v. RBI (1992) 2 SCC 343, this High Court was pleased to hold that the case does not involve any question of law. This was challenged before the Supreme Court in Civil Appeal Nos. 824-825 of 2001. By an order dt. 3rd Dec., 2002, the apex Court was pleased to hold that the High Court was not correct and ultimately to direct the Tribunal to make a statement of 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 & Investment Co. Ltd. v. RBI 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 asst. yrs. 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 asst. yrs. 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 RBI dt. 15th May, 1987, had been made applicable from 15th May, 1987, and would only apply to the deposits made on or after 15th May, 1987, the Tribunal was justified in law as well as on the facts in holding that the said directions of the RBI were retrospective and must be applied in all pending proceedings ?
Revenue's argument:
2. Thus, the said three questions have come up before us for answer. Mr. Deepak Shome, learned senior counsel appearing on behalf of the Department, made elaborate argument in order to contend that having regard to the facts and circumstances of the case the decision in Peerless General Finance & Investment Co. Ltd. v. RBI (supra) (second Peerless case) did not lay down any absolute proposition that in every case irrespective of the facts and circumstances such receipts are to be treated as capital receipts, particularly, in relation to the asst. yrs. 1985-86 and 1986-87 involved in the present case. On the other hand, according to him, the second Peerless case (supra) was dealing with the RBI's directions effective from 15th May, 1987, in the context as to whether the said directions were ultra vires the fundamental rights guaranteed under Article 19(1)(g) and, secondly, if it was not so, then whether such a direction could be given by the RBI under Sections 45J and 45K, respectively, of the Reserve Bank of India Act. Therefore, the decision given in the said case is to be weighed within the context in which the ratio was laid down therein, particularly, when the said case related to the Peerless General Finance Company itself and was held that the directions of 1987 are applicable prospectively from 15th May, 1987, and not retrospectively and that under the said directions the question of depositing the entire amount of subscriptions would only apply to the deposits made after 15th May, 1987.
3. Admittedly, the first year's subscriptions for the relevant assessment years in their entirety were not deposited in terms of the said directions of 1987 issued by the RBI. The decision being a decision inter partes is binding and by reason of the finding that such receipts are held to be capital receipts according to the provisions of the Companies Act, 1956, Part II and Sch. VI as well as the principles of accounting, despite such finding, was not made applicable in the said decision to Peerless General Finance for the period prior to 15th May, 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:
4. Dr. Debiprosad Pal, learned senior counsel appearing on behalf of the assessee, on the other hand, contended that once it was held that this first year's subscription is a capital receipt according to the provisions contained in the Companies Act and the principles of accounting, it is to be so treated, irrespective of the fact as to how this was treated by the assessee or reflected in the accounts. This is to be treated as capital receipt. The decision of the apex Court is binding upon the party and it has a general application and it is not confined in its application only prospectively since in the second Peerless case (supra) this point has been laid down as an absolute legal proposition. He has relied on various decisions with which we shall be dealing at the appropriate stage. He has also raised various other points, which we shall deal with as and when necessary.
The perspective:
5. This question has to be looked into from two perspectives, i.e., (1) as to whether the second Peerless case (supra) has laid down a general legal proposition applicable to the assessee de hors the finding of facts binding the assessee, and (2) whether in the facts and circumstances of the case upon being so applicable the first year's subscription could be treated to be a capital receipt.
The second Peerless case and the context:
6. Before-we answer the question, we may look at the context in which the ratio was decided in second Peerless case (supra). A judgment is binding upon the party only to the extent it answers the question involved in it. When one is a party to the decision, then it is binding upon the party as was held in the said decision and it cannot be applied in any manner de hors what has been held in the said decision. In order to arrive at a particular answer if the judgment is supported by certain reasons, such reasons are to be treated as general proposition of law to support the answer; but it is the answer, i.e., the ultimate decision that binds the party not the ratio nor the reasoning de hors the ultimate decision.
7. The 1987 directions of the RBI (1987 directions) effective from 15th May, 1987, sought to treat the first year's subscription as deposits. This was challenged in the second Peerless case (supra) by the Peerless General Finance as violative of Article 19(1)(g) of the Constitution of India on the ground that it would completely destroy the business of the assessee and 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 assessee 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 (supra), 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 RBI under Sections 45J and 45K of the Reserve Bank of India Act; but these directions were prospective and not retrospective [para 40, Peerless General Finance & Investment Co. Ltd. v. RBI (supra) at p. 382], and shall apply only in respect of deposits made after 15th May, 1987. This very finding itself binds the Peerless General Finance. In the second Peerless case (supra) 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 arriving at the conclusion to support the decision would be binding only to the extent and subject to the ultimate decision in the case. If it holds that the characteristic of such first year's subscription shall be so treated prospectively and allows an exception for the periods earlier, then the judgment and the decision bind as a whole. In the second Peerless case (supra) the apex Court was pleased to decide the characteristics of the first year's subscription prospectively from 15th May, 1987, as capital receipt. The exception of the period earlier to 15th May, 1987, is a decision in the second Peerless case (supra) that binds the assessee as not being such capital receipt amenable to the 1987 directions of the RBI. Having obtained the benefit of that decision and being excepted from the consequences/requirements of the said direction, now it is no more open to claim such benefit when the question is finally decided and has become effective and binding.
The finding of the learned Tribunal : An analysis:
8. In the above context, we may now analyse the finding of the learned Tribunal and examine how far the findings in the second Peerless case (supra) as to the characteristics of the first year's subscription could be applicable to the relevant assessment years having regard to the facts and circumstances of the case at hand.
9. There was no occasion for the assessee to deposit the entire amount of the first year's subscription relevant for the assessment years concerned prior to 15th May, 1987. The assessee has not been able to show that this first year's subscription in relation to the concerned assessment years was ever deposited in terms of the 1987 directions. On the other hand, the first year's subscription for this period, as was shown and reflected in its accounts, was appropriated on the basis of actuarial report, a fact not in dispute. The learned Tribunal on the other hand had proceeded on the basis that the Revenue could not prove that this amount was not refunded, namely, it had proceeded on the basis that the Revenue failed to prove a negative fact, which by no stretch of imagination could be within the power of the Revenue but was an exclusive knowledge of the assessee, who did not come out with any proof amounting to withholding of evidence leading to adverse inference. In the absence of any such proof, it cannot be said that the amount could be treated as capital receipt.
10. 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 IT 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 lapse on an application with a nominal 'alteration fee' of Re. 1 along with one instalment of subscription. The original date of commencement in that case will be changed and advanced to a later date so that the amount already paid may cover the period from the changed date to the date of actual revival of the certificate in keeping with mode and term of the said certificate. This facility can bo availed of only once during the tenure of the certificate.
6. Surrender value : The certificate may be surrendered to the company at any time after the payment of two full years' subscription and after the expiry of three full years from the date of the commencement. If, however, subscriptions have been paid, for minimum three full years the certificate may be surrendered even before the expiry of three years from the date of commencement. The surrender value is payable at the rate of 90 per cent (ninety per cent) of the subscription paid after the first year. If, however, subscriptions are paid for full seven years (i.e., 84 months) the surrender value after the expiry of seven years will be paid at 100 per cent of all the subscriptions including the first year's subscription.
7. Automatic paid-up certificate : If after payment of two full years' subscriptions, instalments be not paid for any reason whatsoever the certificate will not lapse. But it will automatically be converted into a non-participating paid-up certificate for a proportionately reduced endowment sum payable on the expiry of the term. In calculating the proportionately reduced endowment sum subscriptions paid for the actual period will be taken into account. No bonus shall be payable on a paid-up certificate. This clause is applicable for a certificate with endowment period of 12 years and above only.
11. Special provision for refund or paid-up in case of death : In case of death of a certificate-holder, the nominee or legal representative may have the certificate converted into a paid-up one, or may, take refund of the full amount of subscriptions already paid if the certificate is in force on the date of death, provided the death of the certificate-holder takes place after six months from the date of acceptance of the concerned proposal and provided further that the intimation of such death supported by the death certificate from a legal authority is received by the company within 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 available, i.e., the amount would be forfeited. In the case of death of a certificate-holder within six months of acceptance of the proposal, the first year's subscription is forfeited. In the case of death after six months of such acceptance, unless intimated (supported by death certificate) within six months of the death, no claim shall be admissible. The consequence of inadmissibility is forfeiture.
These clauses are indicative of the characteristics of the first year's subscription. If the amount is forfeited then it no more remains a loan or deposit. It becomes an income in cases where death of the certificate-holder takes place within six months of acceptance of the proposal or where the death having taken place after six months is not intimated within six months of death or intimated without death certificate within six months of death. It would be an income if only the first years' subscription and part of another year is paid or in other words, two full years' subscription is not paid, i.e., the certificate will lapse. The coinage of the terms is very cleverly camouflaged. The first year's subscription would be an income on account of its being non-refundable unless seven years' subscription is paid.
Thus, it appears that the basis on which the learned Tribunal proceeded to hold that these were capital receipts is incorrect on the face of the record for which no amount of imagination is required. It is as plain and as simple as that. If the finding appears to be contrary to the scheme of the certificate simply on a plain reading and the questions referred to are required to be answered on such basis then the Court cannot ignore or overlook the same and answer the question oblivious of the relevant facts. In any event the entire situation is to be analysed for the purpose of answering the question referred to when the answer is dependent on the ascertainment of the characteristic of the receipt.
The first year's subscription relevant to the assessment years : Whether the assessee can claim as capital receipt:
11. These clauses are to be considered on the basis of the accounting system of the assessee where it had appropriated 97 per cent of the first year's subscription setting apart 3 per cent to pay such liability. Therefore, only this 3 per cent can be treated as capital receipt, which is so treated and the 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 (supra) 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 (supra). 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 (supra) making the application of 1987 directions prospective and effective from 15th May, 1987, onwards only. The assessee cannot blow hot and cold at the same time.
12. It is true that the claim of the Revenue to treat this first year's subscription as anticipated profit cannot be upheld, inasmuch as the income is to be treated as an income of a particular year, it cannot include a future income. But if under the mercantile system an income is shown to have been earned in a particular year and reflected in the accounts, then it becomes taxable as an income in that year in which it is so entered in the accounts under the mercantile system of accounting. In fact, this amount was liable to be shown as liabilities in the books of account and the balance sheets together with interest, bonus, premium and other advantage accrued or payable to the depositors. Without the 1987 directions, the assessee would never have shown the same as such. And it was not shown as such for the relevant assessment years. This is apparent from the very fact that the assessee had challenged the 1987 directions not only on the ground of being violative of Article 19(1)(g) but also as ultra vires the powers conferred on the RBI under Sections 45J and 45K of the Reserve Bank of India Act, 1934, and had never intended to contend otherwise and had accepted the decision of the apex Court that the assessee would be liable to do so only in respect of the deposits received after 15th May, 1987, and took the advantage of not showing the deposits received prior to 15th May, 1987, as such.
Ratio decidendi : What is binding: Second Peerless case vis-a-vis the assessee:
13. Dr. Pal submitted that the ratio decided in the second Peerless case (supra) is that the first year's subscription is a loan or deposit within the meaning of the Companies Act and the principles of accounting, which is binding in view of Article 141 of the Constitution of India and would be applicable to all pending cases. There is no doubt about the proposition that what was held is a ratio decided and the same is binding under Article 141 and would be applicable to all pending cases. But there is a distinction between the precedent based on a ratio decided and the effect of the judgment upon the party to the decision in which the ratio is decided on particular facts. The party to the decision is bound not only by the ratio decided but also the decision on facts in the judgment itself. A party to the said proceeding cannot claim that the precedent would apply irrespective of the decision on facts given in the said case. The party would be bound by the decision given on facts on the basis of the ratio decided. Admittedly, in the second Peerless case (supra) after having decided the ratio in the case of the assessee, it was made applicable in respect of the deposits/subscriptions received after 15th May, 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 15th May, 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 (supra), relied upon by Dr. Pal, the apex Court in para 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 binding is the ratio of the decision and not any finding of facts. it is the principle found out upon a reading of a judgment as a whole, in the light of the questions before the Court that forms the ratio and not any particular word or sentence. To determine whether a decision has 'declared law' it cannot be said to be a law when a point is disposed of on concession and what is binding is the principle underlying a decision. A judgment of the Court has to be read in the context of questions which arose for consideration in the case in which the judgment was delivered. An 'obiter dictum' as distinguished from a ratio decidendi is an observation by Court on a legal question suggested in a case before it but not arising in such manner as to require a decision. Such an obiter may not have a binding precedent as the observation was unnecessary for the decision pronounced, but even though an obiter may not have a binding effect as a precedent, it cannot be denied that it is of considerable weight. The law which will be binding under Article 141 would, therefore, extend to all observations of points raised and decided by the Court in a given case. So far as constitutional matters are concerned, it is a practice of the Court not to make any pronouncement on points not directly raised for its decision. The decision in a judgment of the Supreme Court cannot be assailed on the ground that certain aspects were not considered or the relevant provisions were not brought to the notice of the Court (see Ballabhdas Mathuradas Lakhani v. Municipal Committee and AIR 1973 SC 794). When the Supreme Court decides a principle it would be the duty of the High Court or a subordinate Court to follow the decision of the Supreme Court. A judgment of the High Court which refuses to follow the decision and directions of the Supreme Court or seeks to revive a decision of the High Court which had been set aside by the Supreme Court is a nullity. [See Narinder Singh v. Surjit Singh and Smt. Kausalya Devi Bogra v. Land Acquisition Officer ]. We have to answer the first question bearing in mind the aforesaid guiding principles. We may refer to some of the decisions cited by Mr. Rao in elaborating his arguments contending that the judgment of this Court dt. 6th Feb., 1986 cannot be held to be a law declared by the Court within 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. Sharma v. Shri Sri Krishna Sinha (1959) Supp. 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".
14. Dr. Pal also relied on the decisions in State of U.P. v. Synthetics & Chemicals Ltd. ; CIT v. Sun Engineering Works (P) Ltd. ; Arnit Das v. State of Bihar and Amar Nath Om Parkash v. State of Punjab to support his contention that the second Peerless case (supra) is binding on the assessee on the principles of precedent. We do not find that these decisions did lay any proposition different from what has been stated in Director of Settlements v. M.R. Apparao (supra) and Union of India v. Dhanwanti Devi (1996) 6 SCC 44 (para 9).
15. These decisions clearly indicate that the binding nature of a decision is of two kinds-one is in relation to the facts and the other is in relation to the principles of law. Now a principle of law declared would be treated as precedent and binding on all. The finding of facts would bind only the parties to the decision itself and it is the ultimate decision that binds. Therefore, this ratio would not apply to the party to the decision, in respect of the facts since decided applying such ratio, in a subsequent proceeding involving the same question on facts. In such cases a party to the decision would also be bound by the facts decided. Though, in the second Peerless case (supra) the principles of law were so declared, yet, these principles of law were not made applicable in respect of deposits/subscriptions received by the assessee prior to 15th May, 1987. When, on facts, in the second Peerless case (supra), a particular decision has been given in respect of the claim of the assessee, it would bind the assessee in respect of such facts, since the ratio decided was made applicable only in relation to those facts prospectively from 15th May, 1987, making a watertight compartment w.e.f. 15th May, 1987-one prospective and the other retrospective. This ratio in the case of the assessee was made applicable only in respect of prospective deposits and not in respect of retrospective deposits. The facts so decided bind the assessee.
16. The assessee being bound by and having taken advantage of the said decision, it can no more contend otherwise as discussed earlier. In Director of Settlements v. M.R. Apparao (supra), the apex Court had clarified this distinction as to what is binding. The finding of facts has no binding force, as the facts of two cases may not be similar. The reason why the Supreme Court has said that the finding of facts would not bind because the case may be dissimilar. But when the decision on facts is in respect of a party in relation to the same set of facts, which was very much involved in the decision itself in relation to which the law was so declared, the finding of facts would definitely bind the party to the extent 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 15th May, 1987, were exempted from the application of the ratio decided or in other words the ratio decided was 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 (supra) on facts, so far as the assessee is concerned, in relation to the deposits received by it prior to 15th May, 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 capital receipt:
17. Admittedly, a receipt has to be treated under the head on which it becomes taxable. It cannot be treated otherwise even if it is transferred to the P&L a/c as was held in the decisions in CIT v. India Discount Co. Ltd. ; Sutlej Cotton Mills Ltd. v. CIT and CIT v. Sahara Investment India Ltd. . It is true that a particular income is taxable under a particular head and it cannot be taxed on any other head even if it is so done by the assessee in view of the fact that the doctrine of estoppel does not. operate against the statute as was held in CIT v. V. MR. P. Firm, Muar and that the principles of res judicata do not apply in assessment proceedings under the fiscal law as was held in M.M. Ipoh v. CIT and Dwarkadas Kesardeo Morarka v. CIT .
18. The question was also dealt with in the decision in CIT v. Sahara Investment India Ltd. (supra). But that was a case which would not help us in the present context. Inasmuch as this decision was dealing with the asst. yr. 1991-92, namely, long after the 1987 directions were issued. Similarly, the decision in Peerless General Finance & Investment Co. Ltd. v. CIT (Appeal No. 927 of 1993 with Appeal No. 926 of 1993) disposed of on 16th Jan., 1996, by the Division Bench presided over by the Hon'ble Bhagabati Prosad Banerjee, J. and the Hon'ble Dibyendu Bhusan Dutta, J., as their Lordships then were, would not help us since in that case the assessment years involved were 1989-90 and 1990-91, namely, a period after the 1987 directions became effective.
19. The characteristic of the receipt has to be determined on the basis of the actual appropriation of the amount based on the conduct of the assessee. It is the characteristic of the amount, which is the determining factor. Even if it was a liability, even if it was a loan or deposit, but if it is not so treated and if it is appropriated as an income showing the same as such in the accounts through actuarial report justifying the appropriation of 97 per cent of the amount setting apart 3 per cent as liability and there being no proof that this 97 per cent was restored and deposited in terms of the 1987 directions, the hard reality has to be accepted. The notional principle 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 (supra). After having done so, it cannot now say otherwise, since the RBI 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 RBI 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 eat the cake and have it too and get the better of both ends.
20. Sometimes the legal principles may create situations, which may be far from reality and truth. The Court cannot close its eyes and go by the legal principles oblivious of the hard reality and the truth. In such a case the Court has a duty to pierce the veil and look to the real identity behind it. The principle laid down in the second Peeiless case (supra) would apply to pending cases as was held in Maj. General A.S. Gauraya v. S.N. Thakur . But it would not be applicable in respect of the deposits received before 15th May, 1987, and particularly to the assessee, a party to the said decision, where the assessee had obtained the benefit of the prospectivity of the 1987 directions and a concession and exemption in respect of the deposits received prior to 15th May, 1987 and 97 per cent of such subscriptions have been appropriated as an income without treating the same as liability. The assessee being a party to the proceeding cannot claim any relief beyond what was held in the said decision as pointed out earlier.
Conclusion:
21. Having regard to the above discussion, in our view, the learned Tribunal was wrong in appreciating the impact or effect of the second Peerless case (supra) so far as the assessee is concerned who is bound by the same in respect of the first year's subscription/deposits received by it prior to 15th May, 1987. As such the decision of the learned Tribunal cannot be sustained.
22. The guestions referred to us, therefore, having regard to the principles discussed above, are answered in the following manner:
(a) that the decision of the apex Court in Peerless General Finance & Investment Co. Ltd. (supra) did not lay down any absolute proposition of law that all receipts of subscription at the hands of the assessee for the previous years relevant to the asst. yrs. 1985-86 and 1986-87 must necessarily be treated as capital receipts:
(b) having regard to the facts and circumstances of the case the learned Tribunal was wrong in treating the first year's subscription relevant to the asst. yrs. 1985-86 and 1986-87 as capital receipts and hence not taxable; and
(c) the decision of the apex Court in the second Peerless case (supra) that the deposits made after 15th May, 1987, were to be treated in the manner directed in the 1987 directions are applicable to all pending proceedings so far as such deposits relate to the period after 15th May, 1987, particularly, in relation to the assessee.
The questions referred to us are answered as above. The learned Tribunal may dispose of the appeal before it according to the answer given by us in this reference. The reference thus succeeds and is thus answered.
There will, however, be no order as to costs.
Maharaj Sinha, J.
23. I agree.