1965 (4) TMI 4 - HC - Income Tax

Tribunal was justified in taking the view that the proper valuation of the stocks has been made by valuing both the opening and closing stocks at cost so that there should be no profit or loss in respect of the unsold shares

Summary

Issues:
Valuation of stocks for assessment year 1949-50 under the Income-tax Act, 1922.

Analysis:
The judgment delivered by Justice Masud pertains to a reference under section 66(2) of the Income-tax Act, 1922, regarding the assessment year 1949-50. The primary issue in question was whether the Appellate Tribunal correctly valued the stocks by considering both opening and closing stocks at cost to eliminate any profit or loss concerning unsold shares. The assessee, a holder of shares, valued the shares at the beginning of the year at Rs. 1,80,589 and at the end of the year at Rs. 1,65,869, claiming a loss of Rs. 15,002. The Income-tax Officer treated this as a loss from the revaluation of investment, disallowing the claimed loss. The Tribunal found that the assessee was a dealer in shares and held the shares as part of his stock-in-trade, disagreeing with the Income-tax Officer's valuation method.

The counsel for the assessee relied on legal precedents such as Gemini Pictures Circuit Ltd. v. Commissioner of Income-tax and Chainrup Sampatram v. Commissioner of Income-tax to argue that the valuation of shares should reflect the true profits or losses and that closing stock should be valued at cost price or market price, whichever is lower. However, the department's counsel contended that the assessee had not consistently followed a specific valuation method for shares in the past, citing the need for a definite and consistent valuation method. The court agreed with the department's argument, emphasizing the importance of a consistent valuation method for determining profit or loss in share dealings.

Justice Masud concluded that as the assessee had not adopted a consistent valuation method and had valued stocks arbitrarily in the past, the department was justified in valuing both opening and closing stocks at cost. Since there were no sales or purchases of shares during the accounting year, the court determined that there was neither profit nor loss regarding the shares for that year. Therefore, the question was answered in the affirmative against the assessee, who was directed to pay the costs of the reference.

Justice Mitter concurred with the decision, and the question was ultimately answered in the affirmative, upholding the department's valuation method and disallowance of the claimed loss by the assessee.