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TMI Blog1953 (10) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... as partners with equal shares. The firm was carrying on business at Calcutta as bullion merchants dealing mainly in silver and kept its books of account on the mercantile basis. In the course of the year of account 1997 (Ramnavami) corresponding to 1941-42, 582 bars of silver (some from the old stock in hand at Calcutta and some purchased elsewhere during the year) were sent to Nikaner where the partners resided, and their value at cost was credited in the books of the firm. In the assessment of the firm for the year 1942-43, it was alleged that the said silver bars had been sold to the partners for their domestic use but the Income-tax authorities hold that the alleged sale was not genuine and that the said silver bars still formed part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Court directed the Tribunal to refer the following question of law for its decision :--- " Whether in the circumstances of the case and on a true construction of Section 4(1)(b) and Section 14(2)(c) of the Indian Income-tax Act, the sum of Rs. 2,20,887 was in law assessable to tax ? " The reference was heard by Chakravartti and Das Gupta, JJ., who answered the question in the affirmative. The firm being admittedly resident and ordinarily resident within the meaning of Sections 4-A and 4-B in what was then known as British India, its total income would include also income accruing or arising to it without British India under Section 4(1)(b)(ii). The firm, however, claimed exemption in respect of the said sum under Section 14(2)(c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le stock-in-trade, at the site of the firm whose stock-in-trade is being valued irrespective of where parts of the stock-in-trade may be ". While we agree with the conclusion that no part of the profits of the firm in the accounting year can be said to have accrued or arisen at Bikaner, the reasoning by which the learned Judges arrived at that conclusion seems to us, with all respect, to proceed on a misconception. It is wrong to assume that the valuation of the closing stock at market rate has, for its object, the bringing into charge any appreciation in the value of such stock. The true purpose of crediting the value of unsold stock is to balance the cost of those goods entered on the other side of the account at the time of their purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into account, anticipated profit in the shape of appreciated value of the closing stock is not brought into the account, as no prudent trader would care to show increased profit before its actual realisation. This is the theory underlying the rule that the closing stock is to be valued at cost or market price whichever is the lower, and it is now generally accepted as an established rule of commercial practice and accountancy. As profits for income-tax purposes are to be computed in conformity with the ordinary principles of commercial accounting, unless of course, such principles have been superseded or modified by legislative enactments, unrealised profits in the shape of appreciated value of goods remaining unsold at the end of an accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d showed a loss on the year's trading. The Income-tax authorities refused to allow the loss thus calculated, and assessed him as having made a profit on the footing that the opening stock of 1922 should have been valued at Rs. 6 a piece and the unsold pieces at Rs. 8-8-0 a piece. The assessment was upheld as properly made, though, it will be seen, the transactions of 1922, or even of the two years taken together, ended actually in a loss. Thus, while the valuation of the unsold stock at the end of each year at market rate which was less than cost was accepted, the valuation of the unsold goods carried over as opening stock of 1922 at Rs. 6 a piece consistently with their valuation as the closing stock of 1921 was insisted upon in order to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the process of determining the trading results of that period, and can in no sense be regarded as the " source " of such profits. Nor can the place where such valuation is made be regarded as the situs of their accrual. The source of the profits and gains of a business is indubitably the business, and the place of their accrual is where the business is carried on. As such profits can be correctly ascertained according to the method adopted by an assessee only after bringing into the trading account his closing stock wherever it may exist, the whole of the profits must be taken to accrue or arise at the place of carrying on the business. On the finding of the Income-tax authorities that the 582 bars of silver lying at Bikaner had not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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