SHREE VEERSHAIV CO.OP.BANK LTD,,KOLHAPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX,, KOLHAPUR

ORDER PER INTURI RAMA RAO, AM: These are 4 appeals filed by the assessee directed against the two different orders of ld. Commissioner of Income Tax (Appeals)-2, Kolhapur. Three appeals are directed against the common order of the ld. Commissioner of Income Tax (Appeals)-2, Kolhapur dated 01.12.2016 for the assessment years 2009-10, 2012-13, 2013-14 and another appeal is directed against the order of the ld. Commissioner of Income Tax (Appeals)-2, Kolhapur dated 01.09.2017 for the assessment year 2014-15 respectively.

8. On the other hand, ld. Sr. DR vehemently opposed the submissions of the ld. Sr. Counsel of the appellant and submitted that the provisions of the Maharashtra State Co-operative Society Act, 1960 cannot be override the provisions of the Income Tax Act, it have no relevance to decide the issue of taxability or otherwise of receipt of Membership fee.

9. We heard the rival submissions and perused the material on record. The only issue which requires to be adjudicated in the present appeal is whether the Membership fee received by the appellant society from members constitutes revenue receipt or capital receipt? It is undisputed fact that the appellant society had transferred the subscription or membership fee to the reserve fund. This treatment given in the books of account is stated to be in accordance with the provisions of the bylaws of the appellant society and also in conformity with the provisions of the Maharashtra State Co-operative Society Act, 1960. The Hon’ble Apex Court in the case of Peerless General Finance & Investment Company Ltd. (supra) vide para 10 held as follows :- “10. While it is true that there was no direct focus of the Court on whether subscriptions so received are capital or revenue in nature, we may still advert to the fact that this Court has also, on general principles, held that such subscriptions would be capital receipts, and if they were treated to be income, this would violate the Companies Act. It is, therefore, incorrect to state, as has been stated by the High Court, that the decision in Peerless General Finance and Investment Co. Limited (supra) must be read as not having laid down any absolute proposition of law that all receipts of subscription at the hands of the assessee for these years must be treated as capital receipts. We reiterate that though the Court's focus was not directly on this, yet, a pronouncement by this Court, even if it cannot be strictly called the ratio decidendi of the judgment, would certainly be binding on the High Court. Even otherwise, as we have stated, it is clear that on general principles also such subscription cannot possibly be treated as income. Mr. Ganesh is right in stating that in cases of this nature it would not be possible to go only by the treatment of such subscriptions in the hands of accounts of the assessee itself. In this behalf, he cited a decision of the Division Bench of the Allahabad High Court in Commissioner of Income Tax vs. Sahara Investment India Ltd., reported as Volume 266 ITR page 641 in which the Division Bench followed Peerless General Finance and Investment Co. Limited (supra), and then held as follows: “In Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India (1992) 75 Comp Cas 12, the Supreme Court on similar facts held that the deposits were capital receipts and not revenue receipts (vide paragraphs 67 & 68 of the aforesaid judgment). That case also pertains to a finance company which used to collect deposits, and credited part of its deposits 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 vs. India Discount Co. Ltd. [1970] 75 ITR 191 and in Godhra Electricity Co. Ltd v. CIT [1997] 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 P. Ltd. V. CIT [1973] 87 ITR 542 (SC) which was followed in Sinclair Murray and Co. P. Ltd. V. CIT [1974] 97 ITR 615, the Supreme Court observed (page 619): “It is the true nature and quality of the receipt and not the head under which it is entered in the account books that 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. 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). Sri Chopra then relied on the decision of the Supreme Court in CIT v. Lakshmi Vilas Bank Ltd. [1996] 220 ITR 305. 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 changed from a capital receipt to a revenue receipt. Hence, that decision is clearly distinguishable.” This Court, on 21.07.2015, in appeal against the said judgment held as under: “After reading of the decision of the High Court, we find that the High Court has rightly relied upon the judgment of this Court in “Peerless General Finance & Investment Co. Ltd. & Anr. v. Reserve Bank of India” (1992) 2 SCC 343. Since the case is squarely covered by the judgment, we do not find any merit in these appeals and petitions which are accordingly, dismissed.” It is also correct to state that there can be no estoppel against a settled position in law [See Commissioner of Income-Tax, Bombay vs. C. Parakh & Co. (India) Ltd. 29 ITR 661 at 665 and Commissioner of Income-Tax, Madras vs. V.MR.P. Firm, Muar (1965) 56 ITR 67.”