1951 (6) TMI 16 - HC - Income Tax

Summary

Issues Involved:
1. Inclusion of Rs. 2,20,887 in the firm's income for the assessment year 1942-43.
2. Jurisdiction of the High Court under Section 66 of the Indian Income-tax Act.
3. Application of Section 14(2)(c) of the Indian Income-tax Act.
4. Determination of where the income accrued or arose.
5. Valuation of stock-in-trade at cost price versus market price.

Issue-wise Detailed Analysis:

1. Inclusion of Rs. 2,20,887 in the firm's income for the assessment year 1942-43:
The primary issue was whether the sum of Rs. 2,20,887, representing the appreciation in the value of 582 bars of silver sent to Bikaner, should be included in the firm's income. The Income-tax Officer added this amount to the firm's income, considering it as part of the firm's stock-in-trade, despite the firm's claim that the silver was sold to the partners. The Tribunal upheld this inclusion, determining that the entries in the books were a camouflage to reduce profits in British India.

2. Jurisdiction of the High Court under Section 66 of the Indian Income-tax Act:
The High Court's jurisdiction under Section 66 was questioned, particularly whether it could decline to answer a question referred by the Tribunal under Section 66(2) if it did not arise out of the Tribunal's order. The Court noted that its jurisdiction is purely advisory and limited to resolving conflicts on specific questions of law that were raised and dealt with by the Tribunal. However, since the High Court had already directed the question to be referred, it had to be answered on the merits.

3. Application of Section 14(2)(c) of the Indian Income-tax Act:
The assessee argued that the appreciation in the value of the silver accrued or arose in Bikaner, an Indian State, and thus should not be taxable in British India under Section 14(2)(c). The Commissioner contended that the income accrued in British India or was deemed to have been received there. The Court discussed the applicability of Section 14(2)(c), concluding that the notional profit from the appreciation of the stock-in-trade should be considered as arising where the business is situated and the valuation is made, which in this case was Calcutta.

4. Determination of where the income accrued or arose:
The Court examined whether the notional profit from the appreciation in the value of the silver accrued or arose in Bikaner or Calcutta. It was determined that such notional income, resulting from stock valuation, should be considered as arising at the place of business where the valuation is made. Therefore, the profit was deemed to have accrued in Calcutta, where the firm's business was situated and the valuation was carried out.

5. Valuation of stock-in-trade at cost price versus market price:
The assessee argued that the stock should be valued at cost price, which would result in no profit. However, this point was not covered by the question referred to the Court and had been abandoned before the Appellate Assistant Commissioner. The Court held that the firm had to value its stock-in-trade at the market price prevailing at the end of the accounting year, and the appreciation was correctly included in the firm's income.

Conclusion:
The High Court answered the question in the affirmative, determining that the sum of Rs. 2,20,887 was assessable to tax. The Court concluded that the notional profits from the appreciation of the silver stock accrued in Calcutta, where the business was situated and the valuation was made. The Commissioner was entitled to the costs of the reference.