M. Katju, J.
This is an income-tax application under section 256(2) of the Income Tax Act seeking reference of the following questions to us for our opinion :
"1. Whether in view of the findings recorded by the Tribunal that the facts as narrated by the departmental authorities have not been disputed, accepting deposits on loan under various schemes and converting them into income was a regular trading activity of the assessee liable to tax under Income Tax Act ?
2 Whether the ITAT was justified in holding that the entire deposit received by the assessee was capital receipt when in the terms and conditions of the application form itself, there is a condition that a part of the deposit will be deducted as Administrative and Process Charges if prematurity payment is taken by the depositor ?
3. Whether the ITAT was justified in treating the deposits as of capital nature when in the cases of CIT v. Karam Chand Thapar (1996) 222 ITR 112 (SC) and CIT v. Lakshmi Vilas Bank Ltd. (1996) 220 ITR 305 (SC), the Apex court has held that any amount deducted/ retained /forfeited by the assessee was its income made in the course of its business and had to be assessed accordingly ?
4. Whether the Tribunal was justified in holding that the department has failed to discharge the burden of proving that the amount of deposits was taxable under the Income Tax Act ?
5. Whether on the facts and in the circumstances of the case the Tribunal was justified in deleting the credits made to its profit and loss account by the assessee after holding first proviso to section 145(1) of the Act is not applicable? Whether since the profit of the Company cannot be ascertained by taking 20% of the collection as revenue receipt and debiting the amount of various expenses on ad hoc basis hence, the first proviso to section 145(1) of the Act was applicable ?
6. Whether the Tribunal was justified in accepting the revision of income by the assessee in 1994 even though the return could have been revised upto 31-3-1993 ?
7 Whether the Income Tax Appellate Tribunal was justified in relying upon the decision of the Hon'ble Apex Court in Peerless General Finance & Investment Co. Ltd. for deciding the question whether a deposit which was treated initially as a capital can be converted into revenue receipt by completely overlooking the facts that the said deposit was not in respect of the proceedings arising out of the Income Tax Act especially when the activities and facts of Peerless Company case are not identical with that of the assessee-company ?"
Heard Shri Shambhu Chopra, learned counsel for the Income-tax department and Shri Soli Dastur, Shri Percy Pardiwalla and Shri S.D. Singh for the assessee.
The assessee is a Company registered under the Indian Companies Act. It does not business of collecting deposits from the public under different finance schemes. The relevant assessment year is 1991-92. In respect of this assessment year, the assessee had declared a loss of Rs. 6,24,147 but the assessing officer completed assessment on an income of Rs. 26,00,650.
It appears that during this assessment year the sum of Rs. 17,64,054 was collected by the assessee from the depositors, and in the profit and loss account of the assessee a sum of Rs. 3,17,529 was credited under the head 'Administrative and Process Charges'. This amount represented 20% of the gross collection made from the account holders. This was according to the accounting policy of the assessee. The assessing officer was of the opinion that the method of accounting followed by the assessee for working out the Administrative and Process Charges was improper and arbitrary and hence it applied the proviso to section 145(1) of the Income Tax Act.
In its letter dated 1-3-1994 addressed by the assessee to the assessing officer, it was claimed by the assessee that the credit to the profit and loss account of Administrative and Process Charges being part of the deposit received under the schemes had been erroneously credited to the profit and loss account, and the same may be withdrawn since the deposit received under the scheme was capital in nature, and hence no part thereof was liable to tax.
The assessee-company filed a revised computation of income in which it was stated that the assessee-company had erroneously transferred a part of the deposits to the credit of the profit and loss account, and that the collections received under the deposit schemes. What were the capital receipts by virtue of the contractual relationship between the assessee and the depositors and that treatment of any receipt in the account of the assessee was not a true determinative of its character.
However, the assessing officer rejected the assessee's claim and treated the amounts in question as the income of the assessee. The assessing officer took 15% of the opening balance and 30% collection of the year as the income of the assessee vide order of the Asstt. Commissioner dated 22-3-1994, Annexure-1 to the application under section 256(2) filed before us.
In appeal the Commissioner (Appeals) modified the order of the Asstt. Commissioner, and he took the income of the assessee as 30% of the collection during the year. In other words he deleted 15% of the opening balance from the income. However, on further appeal the Tribunal held in favour of the assessee by observing that no part of the deposits was income of the assessee but they were capital receipts in nature.
We have carefully perused the Tribunal's appellate order, and we are in agreement with the same.
Shri Soli Dastur, learned senior counsel for the assessee submitted before us that a loan or a deposit is a capital receipt and is not income. We agree with this contention. For example, when a person deposits some money in a bank that amount does not become the income of the bank but is rather the capital of the bank (in the form of borrowed capital). Income is ordinarily that which flows out of capital. No doubt any amount which is earned by the assessee on these deposits made with it, minus any legitimate expense incurred in the business, would amount to income of the assessee, but the deposits themselves can obviously not amount to income.
Shri Shambhu Chopra, learned counsel for the department submitted that the amounts in question were really income in nature. However, we do not agree with this submission of the learned counsel for the department.
In paragraph 18 of the Tribunal's appellate order it is mentioned that the new schemes promulgated from 1986 did not contain forfeiture clauses. In paragraph 28 of the Tribunal's appellate order it is mentioned that the learned counsel for the appellant Shri Dastur made a statement in the court that during the year there was no forfeiture of any deposit and this statement remained uncontroverted by the department.
In Peerless General Finance & Investment Co. Ltd. v. Reserve Bank of India (1992) 1 SCJ 486, the Supreme Court on similar facts held that the deposits were capital receipts and not revenue receipts, (vide paragraphs 67 and 68 of the aforesaid judgment). That case also pertains to a finance company which used to collect deposits, and credited part of it to the profit and loss account, as in the present case. Hence the ratio of the said decision, in our opinion, applies to this case also.
It is well settled in income-tax law that book keeping entries are not decisive or determinative of the true nature of the entries as held by the Supreme Court in CIT v. India Discount Co. Ltd (1970) 75 ITR 191 (SC) and in Godhra Electricity Co. Ltd. v. CIT(I997) 225 ITR 746 (SC). It has been held in those decisions that the court has to see the true nature of the receipts and not go only by the entry in the books of account.
We agree with the Tribunal that these deposits are really capital receipts and not revenue receipts. In Chowringhee Sales Bureau (A) Ltd. v. CIT(1973) 87 ITR 542 (SC) which was followed in Sinclair Murray & Co. (P.) Ltd v. CIT (1974) 97 ITR 615 (SC), the Supreme Court observed:
"... It is the true nature and quality of the receipts and not the head under which it is entered in the account books as would prove decisive. If a receipt is a trading receipt, the fact that it is not so shown in the account books of the assessee would not prevent the assessing authority from treating it as trading receipt...." (p. 548)
It has been held by the Supreme Court that the primary liability and onus is on the department to prove that a certain receipt is liable to be taxed vide Parimisetti Seetharamamma v. CIT (1965) 57 ITR 532 (SC).
In paragraph 18 of the Tribunal's order it has been mentioned that the department has been unable to discharge the onus which was cast on it to prove that the deposits were revenue receipts and therefore liable to tax. We agree with the view taken by the Tribunal.
For the reasons given above we are of the opinion that no referable question of law arises out of the Tribunal's appellate order.
Sri Chopra, learned counsel for the department has relied on the decision of the Supreme Court in CIT v. Karam Chand Thapar (1996) 222 ITR 112 (SC) in which it was observed that an amount initially not received as a trading receipt can later become a trading receipt. In our opinion this decision has no application to the facts of the present case because here we are not concerned with a receipt which was not initially a trading receipt and subsequently become a trading receipt. Here we are concerned with the question as to whether the deposits in question are capital receipts or revenue receipts.
Sri Chopra then relied on the decision of the Supreme Court in CIT v. Lakshmi Vilas Bank Ltd. (1996) 220 ITR 305 (SC). In our opinion that decision is also distinguishable because in that case the deposit was forfeited and the result of the transaction was that the Bank became full owner of the security and the amount lying in deposit with it became its own money. In the present case there is no such finding that the deposit was forfeited or that at the end of the transaction the security deposit became the property of the assessee or that it changed from a capital receipt to a revenue receipt. Hence that decision is clearly distinguishable.
For the reasons given above we find no referable question of law arising out of the Tribunal's order.
The application is therefore rejected.