TMI Blog1978 (11) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... - This appeal by special leave arises out of an assessment to income-tax made on M/s. Groz-Beckert Saboo Ltd. (hereinafter referred to as "the assessee") for the assessment year 1962-63, the corresponding accounting being the financial year ending 31st March, 1962. The assessee set up in collaboration with M/s. Theodor Groz Soehne and Ernst Beckert, West Germany (hereinafter referred to as the "West German collaborators") a factory for fabrication and manufacture of hosiery needles and it was not disputed on behalf of the assessee that this factory started business sometime prior to the commencement of the relevant year of account. It appears that in the early part of the relevant accounting year, the assessee received from the West Germa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and sold the same in the market and the sale proceeds received by the assessee were credited in the trading account maintained in the books of account of the business, since they represented revenue receipts arising from the sale of the finished products. On 31st March, 1962, being the last date of the accounting year, the assessee closed the "Wire and Strip Gift Account" and the "Semi-Processed Needles Gift Account" by transferring the respective sums of Rs. 44,448.20 and Rs. 30,000 to the credit of the "Capital Reserve Account" and debited an aggregate sum of Rs. 74,448.20 to the trading account by making corresponding credit entries in the accounts of "Wire and Strip" and "Semi-Processed Needles". The net effect of these entries was tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... West German collaborators constituted revenue receipt and its value was, therefore, liable to be taxed as income in the hands of the assessee. The High Court held that the value of these goods could not be treated as revenue receipt because they had been received by way of gift and, in any event, even if they constituted revenue receipt they could, "in no sense be income" since they were taken out of the ambit of taxability by sub-s. (3) of s. 10 of the I.T. Act, 1961. The High Court accordingly answered the questions referred by the Tribunal in favour of the assessee and against the revenue. The revenue thereupon brought the present appeal with special leave obtained from this court. It was found as a fact by the Tribunal, and indeed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see was undoubtedly nil because these goods were received by the assessee from the West German collaborators free of cost, but they were introduced in the business and converted into its stock on 30th September, 1961, and, therefore, their market value as on 30th September, 1961, would represent the cost to the business and that would have to be taken into account in determining the profit arising from the sale of manufactured products. The entries made by the assessee in the books of account of the business on 30th September, 1961, clearly reflected this position. The assessee debited the sums of Rs. 44,448.20 and Rs. 30,000 representing respectively the market value of these raw materials and semi-finished needles to the stock accounts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be deducted from the sale proceeds of the finished products in arriving at the profit of the business. It is true that initially on 30th September, 1961, the credit ,entries for the sums of Rs. 44,448.20. and. Rs. 30,000 were made in "Wire and Strip Gift Account" and "Semi-Processed Needles Gift Account", respectively, and it was only on the last date of the account year, namely, 31st March, 1962, that these amounts were transferred to the credit of the capital reserve account. But that cannot make any difference to the correct legal inference to be drawn from the proved facts because the nomenclature of the account or accounts in which the credit entries were made is not material but what is really decisive is that these amounts were d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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