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Issues Involved:
1. Correct method for ascertaining the value of stocks of footwear for tax purposes. 2. Whether the taxpayers' method of stock valuation accurately reflects profits for the year 1959. 3. Interpretation of "market value" in the context of stock valuation for income tax purposes. Issue-wise Detailed Analysis: 1. Correct Method for Ascertaining the Value of Stocks of Footwear for Tax Purposes: The primary issue is the correct method for ascertaining the value of stocks of footwear held by the taxpayers at the beginning and end of the accounting period, specifically January 1, 1959, and December 31, 1959. The taxpayers have historically used a method involving an average "mark-up" percentage of retail selling price to determine stock value, which the Crown had accepted for many years. However, the Crown challenged this method for the period of 1959, arguing that for tax purposes, stock should be valued at cost unless the market value is lower. The taxpayers' method, which they term as "replacement values," is based on expected reduced retail prices and desired mark-up percentages. The Crown contends that the market value should be the price expected to be realized in the retail market, which often results in higher values than the taxpayers' replacement values. 2. Whether the Taxpayers' Method of Stock Valuation Accurately Reflects Profits for the Year 1959: The taxpayers' method of presenting accounts has been described as "sophisticated" and has been accepted by their auditors and the Crown for over 20 years. However, the Crown now argues that this method does not accurately reflect the full amount of profits or gains for the year 1959. The taxpayers argue that their method is commercially sensible and provides a true picture of their trading results over the years. The court, however, must decide whether this method accurately reproduces the profits or gains for the year 1959 in isolation, as required for income tax purposes. The court concludes that the method must produce the full profits or gains for each year, and the taxpayers' method does not meet this requirement for the year 1959. 3. Interpretation of "Market Value" in the Context of Stock Valuation for Income Tax Purposes: The court examines the interpretation of "market value" in the context of stock valuation for income tax purposes. The taxpayers argue that "market value" should refer to the price in the market where the goods were bought for resale. The Crown contends that "market value" should be the price expected to be realized in the retail market. The court agrees with the Crown, stating that the relevant market for the taxpayers' retail trade is the retail market, and the market value is the price expected to be realized in that market. The court also addresses the issue of overhead costs and salesmen's commission, concluding that these should be considered in determining the market value. Separate Judgments: Russell L.J.: Russell L.J. emphasizes that market value should be the price expected to be realized in the retail market. He states that the taxpayers' method of ascertaining replacement values is legitimate for presenting accounts but does not meet the requirement for tax purposes. He concludes that the appeal should be dismissed. Salmon L.J.: Salmon L.J. discusses the importance of conservative accounting practices and the need to accurately reflect profits for each year for tax purposes. He agrees with the Crown's contention that the taxpayers' method does not accurately reproduce the profits for the year 1959. He also concludes that the appeal should be dismissed. Megaw L.J.: Megaw L.J. focuses on the interpretation of "market value" and agrees that it should be the price expected to be realized in the retail market. He also addresses the issue of overhead costs and salesmen's commission, concluding that the Crown's method of computation is correct. He agrees that the appeal should be dismissed. Conclusion: The court unanimously dismisses the appeal, agreeing that the taxpayers' method of stock valuation does not accurately reflect the full amount of profits or gains for the year 1959 for income tax purposes. The court concludes that the relevant market for determining market value is the retail market, and the market value should be the price expected to be realized in that market. The appeal is dismissed with costs, and leave to appeal is granted.
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