The true nature of receipts, burden of proof, and the distinction between capital and revenue receipts are central legal principles established in the judgment.

( 1 ) THIS is an income-tax application under Section 256 (2) of the Income-tax Act, 1961, seeking reference of the following questions to us for our opinion :

"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 the Income-tax Act ? whether the Income-tax Appellate Tribunal 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 ? whether the Income-tax Appellate Tribunal was justified in treating the deposits as of capital nature when in the cases of CIT v. Karam Chand Thapar [1996] 222 ITR 112 and CIT v. Lakshmi Vilas Bank Ltd. [1996] 220 ITR 305, 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 ? 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 ? whether, on the facts and circumstances of the case, the Tribunal was justified in deleting the credits made to its profit and loss account by the assessee after holding the 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 per cent. 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 ? whether the Tribunal was justified in accepting the revision of income by the assessee in 1994 even though the return could have been revised up to March 31, 1993 ? whether the Income-tax Appellate Tribunal was justified in relying upon the decision of the honble apex court in Peerless General Finance and Investment Co. Ltd. [1992] 75 Comp Cas 12, 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 ?"

( 2 ) HEARD Shri Sambhu Chopra, learned counsel for the Income-tax Department, and Shri Soli dastur, Shri Percy Pardiwalla and Shri S. D. Singh for the assessee.

( 3 ) THE assessee is a company registered under the Indian Companies Act. It does the 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 the assessment on an income of Rs. 26,00,650.

( 4 ) 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 per cent. 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 he applied the proviso to Section 145 (1)of the Income-tax Act.

( 5 ) IN its letter dated March 1, 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 adminis

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