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Issues Involved:
1. Entitlement to claim a loss by revaluing lands taken over in the course of money-lending business. 2. Whether the revaluation must be confined to lands taken over in the accounting year. Issue-wise Detailed Analysis: 1. Entitlement to Claim a Loss by Revaluing Lands: The central question was whether the assessee could claim a loss by revaluing lands taken over during their money-lending business for income tax assessment purposes. The relevant section of the Income Tax Act is Section 13, which mandates that income, profits, and gains should be computed based on the method of accounting regularly employed by the assessee. However, if no method is regularly employed or if the method is inadequate in the opinion of the Income Tax Officer (ITO), the computation shall be made as determined by the ITO. The judgment emphasized that the assessee must follow a consistent accounting method and cannot frequently change it to prevent accurate income estimation. The ITO is tasked with determining the real income, profits, and gains accrued in each accounting year as a matter of fact. Losses must be incurred within the same year to be deductible; losses from previous years are irrelevant for the current year's assessment. In this case, the assessee, a firm of Chettyar money-lenders, took over lands in satisfaction of debts. They argued that the value of the land received should not be equated to the debt amount but should be revalued based on actual market value. The court agreed, noting that the value of the land in the books may not reflect its true market value, especially since the lands were taken over due to the debtor's inability to pay otherwise. The court held that the ITO must ascertain the real profits and gains for the accounting year, considering the true value of the lands. The assessee should not be bound by the book value if it can prove that the figure is arbitrary and does not reflect the actual value. 2. Revaluation Confined to Lands Taken Over in the Accounting Year: The court addressed whether revaluation should be confined to lands taken over in the specific accounting year. It concluded that each transaction must be considered on its own merits, and the land received should be treated as part of the working assets, not fixed capital. If the estimated value of the lands in the accounting year exceeds the principal sum lent, the excess should be treated as profits and gains chargeable to income tax. Conversely, if the value is less, no tax is chargeable for that year. The court emphasized that the final adjustment of the assessment should be made in the year the lands are sold, allowing for an accurate determination of profits or losses. Until the sale, the assessment remains in suspense. Separate Judgments: Baguley, J.: Baguley, J., concurred, adding that the assessee's book entries were not definitive for calculating profits. The value of the land should reflect its market value, not the nominal value agreed upon in debt settlements. Ba U, J.: Ba U, J., also agreed with the judgment. Conclusion: The court answered the first part of the question affirmatively, allowing the assessee to revalue the lands for loss claims. The second part was also answered affirmatively, confining revaluation to lands taken over in the accounting year. The assessee was awarded costs.
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