TMI Blog2005 (10) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... JUDGMENT D.K. Seth.-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 and Investment Co. Ltd. v. Reserve Bank of India [1992] 75 Comp Cas 12 (SC); [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 dated December 3, 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 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 necessari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... General Finance Company itself and were held that the directions of 1987 are applicable prospectively from May 15, 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 May 15,1987. 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 Reserve Bank of India. The decision being a decision inter-parties 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 Schedule 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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. The 1987 directions of the Reserve Bank of India (1987 directions) effective from May 15,1987, sought to treat the first year's subscription as deposits. This was challenged in the second Peerless case 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 asses-see 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 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 withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 100 has been paid. If the payment is less than ₹ 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 sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired 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: 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 had pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme 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 [1984] 2 SCC 402 and Smt. Kausalya Devi Bogra v. Land Acquisition Officer [1984] 2 SCC 324). 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 dated 6th February, 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. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts so decided bind the assessee. 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. Apparao (M.R.), AIR 2002 SC 1598, 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 May 15, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 1989-90 and 1990-91, namely, a period after the 1987 directions became effective. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the apex court in Peerless General Finance and Investment Co. Ltd. [1992] 75 Comp Cas 12 (SC) ; [1992] 2 SCC 343 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 assessment years 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 assessment years 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 that the deposits made after May 15, 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 May 15, 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. Xero ..... X X X X Extracts X X X X X X X X Extracts X X X X
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