LexCHAINRUP SAMPATRAM versus COMMISSIONER OF INCOME-TAX, WEST BENGAL.
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• S.C.R. SUPREME COURT REPORTS 211 High Court held that the profits for three months from the 1st January, 1946, to the 1st April, 1946, were not reserves which would attract the application of rule 2 of Schedule II. With this conclusion we agree. The assessee's appeal is, therefore, dismissed with costs. Appeal No. 157 allowed. Appeal No. 158 dismissed. Agent for the Rajadhyaksha. Commissioner of Income-tax: Agent for the company: I. N. Shroff. CHAINRUP SAMPATRAM v. COMMISSIONER OF INCOME-TAX, WEST BENGAL. G.H. [PATANJALI SAsTRI C. J., S. R. DAs, VIVIAN BosE, GHULAM HASAN and BHAGWATI JJ.] Indian Income-tax Act (XI of 1922), ss. 4(1)(b) and 14(~)(c) Ascertainment of profit by valuation of stock-Stock-in-trade removed to Native State-·Place where profit accrnes-Exemption itnder s. 14 (2) (c)-Principles underlying vali;ation of stock. The assessee firm which carried on business at Calcutta in bullion despatched during the accounting year to Bikaner, where its part- ners resided, a certain quantity of silver bars and showed them as having been sold to the partners. The Income-tax authorities disbelieved the story oi' the sale and, treating the bars as stock-in- trade and valuing them at their market value at the close of the year which was much higher than the cost, assessed the firm's profits at Rs. 2,20,887. The assessee contended that, even admit- ting that the bars were the stock-in-trade of the business, the increased value at the close of the year accrued at Bikaner and was exempt from tax in British India under s. 14(2)(c) of the Income- tax Act. The High Court held that the notional profit representing the appreciation in value of the stock-in-trade emerged out of the valuation and the profit accordingly arose at the time when, and at the place where, the valuation was made, and as the valuation was made at Calcutta s. 14(2)(c) did not apply and the profit was taxable, On appeal, 19:;3 Cornrnissioner of lnconze-tax, Bombay City v. The Oentur!I Spinning and JI[ anitfacturing Go. Ltd. 19:;3 Oct. 9. 212 SUPREME COURT REPORTS (1954] 1963 Held, that the view ol the High Court that the profit arose out of the valuation of the closing stock and the situs of its accrual or Ohciinrup arising was therefore where the valuation was made, Wfl.iS erroneous. Sainpatrani The conclusion of the IIigh Court that the profit did not accrue in .v.. Bikaner but at Calcutta could, ho~.vever, be supported on another Coni11iiss1oner of ground, viz., that the source of the pro.fit was the business and as lncome-taa:, the profit could be correctly ascertained according to the method West Bengal. adopteci by the assessee only after bringing into the trading account his closing stock wherever it may exist, the 'vhole of the profits must be taken to accrue or arise at the place of carrying on the hnsiness, viz., Calcutta. The principles underlying the method of ascerhaining profits by valuation of stock at the beginning and close of the year and of the rule that the closing stock is to be valued at cost or market value, \vhichever is the lo1ver; explained. Whimster and Co. v. Commissioners of Inland Revenue (12 Tax Oas. 813) and Commissioner of Income-tax, Madras v. Chenga/. varaya Chetty (I.f,.R, 48 Mad. 836) referred to. CrvrL APPELLATE JURISDICTION Civil Appeal No. 142 of 1952. Appeal by special leave granted by the Supreme Court by its order dated the 14th March, l!l52, from the Judgment and Order dated the 4th day of June, 1951, of the High Court of Judicature at Calcutta (Chakravartti and Das Gupta JJ.) Special Jurisdiction (Income-tax) in I.T.R. Nos. 7 and 6 of 1947 arising out of the Order dated the 26th day of March, 1946, of the Income-tax Appellate Tribunal, Calcutta Bench, in 66 R.A. No. 3 Bengal 1946-47 and 66 R.A. No. 4 Bengal 1946-4 7. N. 0. Ohattei:jee (8. N. M1tkhe1:ji, with him) for the appellant. 0. K. Daphtary, 8olicitor-General for India (G. N . .! oshi, with him) for the respondent. 1953. October 9. The Judgment of the Court. waR delivered by ·l • i .• PA1'AN.TALI SASTRI C. J.-This is an appeal by special leave from a judgment oft.he High Court of Judicature at Calcutta answering a reference by the Inconie-tax Appellate Tribunal under section 66 ( 2) of the Indian Income-tax Act, 1922, hereinafter referred to as "the ~~ Act". • It S.C.R. SUPREME COURT REPORTS 213 The appellant is a registered firm consistin
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