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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 ..... ng admittedly been transacted at Bikaner. We agree with the High Court that the question referred should be answered in the affirmative though on different grounds. Appeal dismissed. - C.A. 142 OF 1952 - - - Dated:- 9-10-1953 - Judge(s) : GHULAM HASAN., N. H. BHAGWATI., PATANJALI SASTRI., S. R. DAS., VIVIAN BOSE JUDGMENT The Judgment of the Court was delivered by PATANJALI SASTRI, C.J.--- This is an appeal by special leave from a judgment of the High Court. of Judicature at Calcutta answering a reference by the Income-tax Appellate Tribunal under Section 66(2) of the Indian Income-tax Act, 1922, hereinafter referred to as " the Act ". The appellant is a registered firm consisting of two brothers as partners with equa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta had to remove the valuable stock-in-trade to a safe place in Bikaner just as many other Calcutta businessmen did at that time. The partners of the firm then noticed the upward trend of the silver market, and decided to take advantage of the camouflage afforded by the entries in the books of account and the story of sale to partners, so that the profit of the year of account could be substantially reduced artificially. " The appeal was accordingly dismissed. The application by the firm under Section 66(1) of the Act asking for a reference to the High Court of six questions as questions of law arising out of the order of the Tribunal was also rejected. Thereupon the firm moved, the High Court under Section 66(2), and the Court direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional profit " represented by the appreciation in value of the stock-in-trade " emerges out of the valuation and only when it so emerges it arises or accrues. The source of the profit is thus the valuation, and its situs is where the valuation is made. What is valued is the firm's business at the site of the firm and all the stock-in-trade of the firm is necessarily drawn into the valuation wherever they may be physically situated. The profit which is the result of the stock valuation of a business is thus sui generis, a type by itself, to which the ordinary notions of a physical accrual will not apply. It comes into existence when the valuation is made and since it arises out of the valuation it arises, in respect of the whole stock-in-tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom this rigid doctrine one exception is very generally recognised on prudential grounds and is now fully sanctioned by custom, viz., the adoption of market value at the date of making up accounts, if that value is less than cost. It is of course an anticipation of the loss that may be made on those goods in the following year, and may even have the effect, if prices rise again, of attributing to the following year's results a greater amount of profit than the difference between the actual sale price and the actual cost price of the goods in question " (extracted in paragraph 281 of the Report of the Committee on the Taxation of Trading Profits presented to British Parliament in April 1951). While anticipated loss is thus taken into account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illustration of the rule in its practical working is to be found in the case of Commissioner of Income-tax, Madras v. Chengalvaraya Chetti. In 1921 the assessee purchased a large stock of piece-goods at Rs. 13-8-0 a piece. At the end of the year the market value fell to Rs. 6 a piece, and he made out a loss by valuing the whole stock at the market rate, including the unsold pieces in hand at the end of the year. The loss was allowed in his assessment to income-tax. In the following year (1922), however, he entered the same unsold goods as opening stock at the cost price of Rs. 13-8-0. Some of those pieces remained unsold at the end of 1922 also and he credited their value at Rs. 8-8-0 a piece, the market rate then prevailing, and showed a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost price of part of the silver despatched to Bikaner was less than the market price at the end of the year, the reference did not raise any question regarding the basis on which the amount in dispute, viz., Rs. 2,20,887, was arrived at. On the other hand, the question referred assumed that the said sum was correctly computed and put in issue only its assessability in law on a true construction of Section 4(1)(b) and Section 14(2)(c) of the Act. Again, it is a misconception to think that any profit " arises out of the valuation of the closing stock " and the situs of its arising or accrual is where the valuation is made. As already stated, valuation of unsold stock at the close of an accounting period is a necessary part of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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