A two-judge bench of the Supreme Court comprising Justice R F Nariman and Justice Sanjiv Khanna held that the deposits collected by a finance company are capital receipts and not revenue receipts.
The bench also held that the primary liability and onus is on the Dept to prove that a certain receipt is liable to be taxed.
The assessee-Company had floated various schemes which require subscribers to deposit certain amounts by way of subscriptions in its hands, and, depending upon the scheme in question, these subscribed amounts at the end of the scheme are ultimately repaid with interest. The scheme at hand also contains forfeiture clauses as a result of which if, mid-way, a certain amount is forfeited, then the said amount would immediately become income in the hands of the assessee. This is an admitted position before us.
The bench observed that whether a loan of money could be called a deposit, would depend upon the facts of each case, having regard to the surrounding circumstances etc.
“In the present case, there is no such question raised by Revenue. The question raised is completely different, and as has been held by us above, 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,” the bench said.
“The “theoretical” aspect of the present transaction is the fact that the assessee treated 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,” the bench added.
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