In Brief
A finance company collected subscriptions from the public under collective investment schemes with terms requiring repayment with interest at scheme maturity. The company recorded these subscription receipts as income in its profit-and-loss accounts for assessment years 1985-86 and 1986-87. The tax authority sought to tax them as income. The Supreme Court held that such subscription amounts are capital receipts, not income, provided they were never forfeited. The true legal nature of a receipt—determined by substance and the actual facts—governs its tax treatment, not how the assessee recorded it in accounts. An assessee cannot be estopped from claiming the correct legal classification merely by its own accounting entries. The appeal was allowed and the tribunal's decision restored.
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