TMI Blog1960 (9) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... the outside market. The goods were later despatched to its depots in Bombay and Nagpur for eventual sale. 3. Ramachari aforesaid filed a suit against Anantharam for taking of accounts, in the proceedings of which accounts were rendered from 13th April, 1944, to 7th July, 1944, in respect of the Madurai shop and from 13th April, 1944, to 11th September, 1944, for the Bombay and Nagpur shops. As the books of the Bombay and Nagpur shops had not been closed on 11th September, 1945, in the accounts rendered, the estimated closing stocks at these two shops were valued at average cost. 4. The suit filed by Ramachari was decreed and the firm was declared to have been dissolved on 11th September, 1944, the date of notice of termination aforesaid, and that Anantharam was entitled to his share of profits of the firm up to 7th July, 1944, in the Madurai shop and up to 11th September, 1944, in the other two shops. According to the decree, the valuation of the closing stock in the Bombay and Nagpur shops adopted for purposes of the accounts filed, was also to be enhanced by ₹ 8,715 representing the difference between the average cost and the average selling price on 11th September, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ari and Anantharam. It manufactured and sold textiles known as Bombay dhavanis. Its central office was at Madurai, and it had its branches at Bombay and Nagpur. In the course of the account year from April 13, 1944, to April 12, 1945. disputes arose between the partners which led to the dissolution of the partnership. It resulted in the accounts being taken in respect of the Madurai shop from April 13, 1944, to July 7, 1944, and the accounts of the Bombay and Nagpur shops up to September 11, 1944. It would also appear that Ramachari took over the entire stock. In the suit between the two parties in this connection, it was decided by the High Court that in order to settle the claims inter se the parties, the stock as on the final dates of accounting should be valued at the market price. The original assessment for the assessment year 1945-46 had been completed on March 20, 1950. This was set aside on appeal by the Assistant Commissioner who directed that a fresh assessment should be made. It was found then that as against the value of the stock which Ramachari took away relating to the Nagpur and Bombay branches which was shown in the books as ₹ 22,286, the valuation as fix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stuck both at the opening and the closing of any year was being made at cost price in earlier years when the business was continuing. The assessee claims that he is entitled to adopt the same method even when the business is closed and the assessable entity ceases to exist. A somewhat vague claim was put forward that in such an event what remains on hand as stock-in-trade loses its character as such and becomes capital assets. We are not prepared to accept this proposition. It is obvious that when a business ceases, all its stock-in-trade has to be disposed of and brought to account in order to balance the books. The goods on hand do not lose the character of stock-in-trade, and this proposition put forward by the assessee has no authority to sustain it. On behalf of the assessee the decision in In re Chouthmal Golapchand [1938] 6 I.T.R. 733, 743, 745 has been relied upon. That was a business which was carried on by four partners, and in the relevant accounting year there was an opening stock of shares valued at the cost price of ₹ 85,331. During that accounting period the parties entered into an agreement to dissolve the firm on and from March 30, 1936, which was the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be a definite method of valuation adopted which should be carried through from year to year, so that in case of any deviation from strict market values in the entry of the stock at the close of one year it will be rectified by the accounts in the next year. It is obvious from the above that the privilege of valuing the opening and closing stocks in a consistent manner is available only to continuing businesses and that it cannot be adopted where the business comes to an end and the stock-in-trade has to be disposed of in order to determine the exact position of the business on the date of closure. In Chainrup Sampatram v. Commissioner of Income-tax [1953] 24 I.T.R. 481, 485 a firm carrying on business at Calcutta as bullion merchants transferred some part of the stock to Bikaner where the partners resided. Their value at cost was credited in the books of the firm. It was claimed by the Department that it amounted to a sale to the partners for their domestic use and the market value of bullion was taken to arrive at the taxable profits. The decision proceeded on a different point. The learned judges observed: It is wrong to assume that the valuation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owned and run by the assessee himself. In such circumstances, we are of opinion that it is wholly unreal and artificial to separate the business from its owner and treat them as if they were separate entities trading with each other and then by means of a fictional sale introduce a fictional profit which in truth and in fact is non-existent. Cut away the fiction and you reach the position that the man is supposed to be selling to himself and thereby making a profit out of himself which on the face of it is not only absurd but against all canons of mercantile and income-tax law. ....... The appellant has reflected the true state of his finances and given a truthful picture of the profit and loss in his business by entering the bullion and silver at cost when he withdrew them for a purely non-business purpose and utilised them in a transaction which brought him neither income nor profit nor gain. It seems to us that none of these cases has any application to the facts of the present case. There is no authority directly in point dealing with this question, where a partnership concern dissolves its business in the course of the accounting year, what is the basis on which the sto ..... X X X X Extracts X X X X X X X X Extracts X X X X
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