Deposits collected from public by Sahara is Capital Receipt

By | September 21, 2016
(Last Updated On: September 21, 2016)

Held

It may be mentioned that the matter has come up before this Hon’ble Court in the assessee’s case reported in CIT v.Sahara Investment India Ltd. [2004] 266 ITR 641 (All.), where it was held that “When a person deposits some money in a back that amount does not become the income of the bank but it rather the capital of the bank in the form of borrowed capital. Income is ordinarily that which flows out of capital”.

In the instant case, the assessee has collected the funds from the public/depositors, who have deposited the money to earn interest. Hence, the amount deposited by them is the capital, out of which, the income will have to be generated. So, the money deposited is nothing but the capital in nature as rightly observed by the jurisdictional high court (supra).

HIGH COURT OF ALLAHABAD

Commissioner of Income-tax, (Central) Kanpur

v.

Sahara Investment India Ltd.

DR. SATISH CHANDRA AND VISHNU CHANDRA GUPTA, JJ.

IT APPEAL NOS. 28 OF 2004 & 199 & 200 OF 2005

JANUARY  21, 2014

Alok Mathur for the Appellant. W.U. Ahmed and Amit Shukla for the Respondent.

ORDER

1. All the present appeals have been filed by the Department under Section 260A of the Income-Tax Act, 1961 against the judgments and orders dated 11.07.2005 and 17.11.2003, passed by the Income Tax Appellate Tribunal, Lucknow in ITA Nos. 2056/ALLD/96; 332/ALLD/94 & 432/ALLD/94; and 514/Alld/1995, for the assessment years mentioned above.

2. On 15.12.2005, a Coordinate Bench of this Court has admitted the Appeal Nos. 199 of 2005; and 200 of 2005 on the following substantial questions of law:—

“1. Whether on the facts and circumstances of the case the Hon’ble Tribunal was justified in law in holding that the first proviso to Sec. 145(1) of the Act did not apply in the present case.
2. Whether the Hon’ble Tribunal on the facts and circumstances of the case was justified in law in allowing the revision of returned income through revised computation filed by the respondent after expiration of the statutory time limit for revision of return of income.
3. Whether the Hon’ble ITAT was justified in law in holding that the entire deposit received by the respondent was a capital receipt when as per the terms and conditions of the application form itself, there is a condition that a part of the deposit will be deducted as Administrative & Process Charges if premature payment is taken by the depositors.”

3. On 24.01.2013, a Coordinate Bench of this Court has framed the following additional substantial questions of law:—

“Whether the revised return was filed by the assessee not in prescribed format required under Section 139(5) of the Income Tax Act read with Rule 12 of the Income Tax Rules, hence revised return could not have been entertained and entire process suffers from substantial illegality”.

4. Regarding the I.T.A. No. 28 of 2004, it may be mentioned that on 01.04.2008, a Coordinate Bench of this Court has observed that the questions involved in the present appeal are also involved in the Income Tax Appeal No. 199 of 2005. The appeal was admitted on the similar questions, which was framed in ITA No. 199 of 2005 (supra).

5. The brief facts of the case are that the assessee is engaged in the business of running financial schemes. During the assessment years under consideration, the assessee-company collected the deposits from the public under various schemes through its sister concern M/s. Sahara India, acting as agent. The assessee-company had show 20% of the collections as its revenue receipt. For this purpose, the assessee has filed return on 18.04.1991, where the assessee has shown the receipts as revenue receipt. However, in reply to the notice under Section 142(1), the assessee has claimed the same as capital receipt. But, the plea of the assessee was rejected, while passing the assessment order dated 26.03.1993, under Section 143(3) of the Act. Being aggrieved, the assessee has preferred an appeal before the first appellate authority, who vide its order dated 23.12.1993 has remanded the matter to the Assessing Officer for fresh adjudication. Not being satisfied, both the parties have filed cross appeals before the Tribunal, who vide its impugned order dated 11.07.2005, has decided the appeal in favour of the assessee. Being aggrieved, the Department has filed the present appeal No. 199/2005.

6. In the meantime, when the matter was remanded to the Assessing Officer, he has passed a fresh consequential order dated 25.03.1996, against which, the assessee has preferred an appeal before the first appellate authority, who vide its order dated 16.10.1996 has set aside the issue and remanded the matter back to the Assessing Officer. Against the said order, the assessee has preferred an appeal before the Tribunal, who has decided the said appeal vide its impugned judgment and order dated 11.07.2005 and deleted the additions. Being aggrieved, the Department has filed present appeal No. 200 of 2005. Hence, both the appeals are before us.

7. With this background, Sri Alok Mathur, learned Standing Counsel for the Department has justified the order passed by the Assessing Officer. He submits that the collection amount was shown by the assessee himself as revenue receipt. Now the same stand cannot be changed.

8. It is also a submission of the learned counsel for the revenue that without filing the revised return, the claim cannot be made by the assessee. This aspect of the matter was not examined by the Tribunal. So, the impugned order may kindly be set aside and restore to the Tribunal.

9. On the other hand, Sri J.N. Mathur, learned Senior Counsel assisted by Sri Wasiquddeen Ahmad, learned counsel for the assessee has justified the impugned order passed by the Tribunal. He submits that no revised return was ever filed by the assessee. Vide objection submitted in response to the notice under Section 142(1) of the Act, the claim was made that the receipts are capital receipt.

10. Learned counsel has drawn attention to Para-12 of the order passed by the Assessing Officer dated 26.03.1993, where it is clearly mentioned that no revised return or revised computation of the income-tax was ever filed. So, he submits that separately, no claim was made by the assessee. The entire claim was made by the assessee in the original return. It is only through the objection in response to the notice under Section 142(1), the nature of the receipt was changed and the same was finally accepted by the Tribunal. So, question no. 2 is not emerging from the impugned order.

11. After hearing both the parties and on perusal of the record, it appears that the sole issue is pertaining to the nature of the receipt. Originally, the assessee has shown 20% deposits as revenue receipt, but later, it was claimed as capital receipt.

12. It may be mentioned that the matter has come up before this Hon’ble Court in the assessee’s case reported in CIT v.Sahara Investment India Ltd. [2004] 266 ITR 641  (All.), where it was held that “When a person deposits some money in a back that amount does not become the income of the bank but it rather the capital of the bank in the form of borrowed capital. Income is ordinarily that which flows out of capital”.

13. In the instant case, the assessee has collected the funds from the public/depositors, who have deposited the money to earn interest. Hence, the amount deposited by them is the capital, out of which, the income will have to be generated. So, the money deposited is nothing but the capital in nature as rightly observed by the jurisdictional high court (supra).

14. In view of above, the answer to the substantial questions of law is in favour of the assessee and against the Department.

15. In the result, all the appeals filed by the Department are hereby dismissed.

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