9911796707
TMI Blog1971 (9) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... . Gheodor Groz Soehne and Ernst Beckert. The first accounting year of this company ended on 31st March,1961. The present controversy relates to the assessment year 1962-63, the account year ending 31st March, 1962. The relevant facts are that the assessee-company entered into an agreement with the collaborators. Under this agreement, the collaborators had to supply the machinery and were to get shares in the company. In the invoice dated 4th April, 1961, for machinery costing Rs. 9,45,545 there is no mention of any other material. But, along with the machinery "working-in-material" was supplied, but its value was not indicated in the invoice. An objection was raised by the Customs authorities and a separate invoice was sent by the colla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of that material. The Income-tax Officer rejected the assessee's contention and held that the material was received by the assessee during the course of business from the German collaborators and formed part of its stock and its sale-proceeds would be revenue receipts in the hands of the assessee company. As no expense had been incurred by the assessee to acquire this material, the Income-tax Officer did not accept the assessee's claim that the trading account could be debited with the amount of Rs. 74,448, the value of the material. The assessee preferred an appeal to the Appellate Assistant Commissioner claiming that the amount of Rs. 74,448 could not be treated as its income. In fact, the effect of the order of the Income-tax Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the revenue account. In our opinion, the overriding consideration which would go beyond all other factors, is the fact that the materials received were in the nature of raw materials and semi-finished products, and, therefore, relatable to the revenue account. It is a well-known principle that all the expenditure relating to trading stocks or purchase price of the trading stocks go to revenue account. Similarly, all the proceeds from the sale of raw materials or finished products are part of the trading profits. In fact, one of the crucial tests in "capital revenue" questions is to see whether the expenditure relates to trading stocks or not. If they do then they are trading expenditure. As the materials received belong to trading sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account?" The entire basis of the decision of the Tribunal is that as the goods received free of cost from the German collaborators were treated as stock-in-trade by the assessee, they would necessarily form part of revenue. This basis loses sight of the fact that to acquire stock-in-trade some expense has to be incurred. We have not been able to appreciate how a gift of raw material or even ex gratia delivery of raw material free of cost can be treated as income. The departmental authorities as well as the Tribunal have treated the value of the gift as income in the hands of the assessee. Even accepting the view that income is a term of very wide connotation and all incomings would be income, yet we are not able to accept that the valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as income. It is also not the case of the department that there as been a repetition of such gifts to the assessee-company. It is a peculiar case where in order to give impetus to the company, the collaborators who were also partners in the company, gave certain raw materials free of cost to enable the company to function without delay. We are unable to hold that the Tribunal is right in coming to the conclusion that the departmental authorities correctly included the value of the material supplied free of cost as income of the assessee. We asked Mr. Awasthy, learned counsel for the department, as to what would be the position if instead of raw materials, a gift in cash had been made to the company and the company had proceeded to buy raw ..... X X X X Extracts X X X X X X X X Extracts X X X X
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