SIR KIKABHAI PREMCHAND versus COMMISSIONER OF INCOME TAX (CENTRAL), BOMBAY.

Citation: [1954] 1 S.C.R. 219 · Decided: 09-10-1953 · Supreme Court of India · Bench: M. PATANJALI SASTRI · Disposal: Disposed off

Judgment (excerpt)

S.C.R. 
SUPREME COURT REPORTS 
219 
SIR KIKABHAI PREMCHAND 
v. 
COMMISSIONER OF INCOME TAX (CENTRAL), 
BOMBAY. 
PATANJALI SASTRI C.J., s. R. DAS, VIVIAN BOSE, 
GHULAM HASAN and BHAGWATI JJ. 
Indian Income-tax Act (XI of 1922), s. 13-Ascertainment of 
2)rofits-Assessee adopting mercantile system rind valuin(J stock at 
cost price at begimiing and close of each yerw·-Withdrawal of stock 
from biisiness-Whether business should be credited with mnrket 
price on date of withdrawal.. 
The assessee who carried on business in bullion and shares 
kept accounts in the mercantile system and the method adopted 
by him for ascertaining his profits was to value stock at the 
beginning and close of each year at cost price. In the accounting 
year he withdrew some silver bars and shares from the business 
and settled them in trusts, and in the accounts of the business he 
valued them at the close of the year at cost price: 
Held, per PATANJALI SASTRI C. J., S. R. DAS, VIVIAN BOSE 
and GHULAM HASAN ,J.T. (BHAGWATI J. dissenting)-that the 
assessee was entitled to value them at cost price and was not 
bound to credit the business with their market price at the close 
of the year for ascertaining his assessable profits for the year. 
BHAGWATI J.-So far as the business was concerned it made no 
difference whether the stock-in-trade was realised or withdrawn 
from the business and the business was entitled to be credited 
with the market value of the assets withdrawn as at the date of 
the withdrawal, whatever be the method employed by the assessee 
for the valuation of its stock-in-trade on hand at the close of the 
year. 
In re Chouthmal Gola.pchand (6 I.T.R. 733) and fo re Spanish 
.Prospecting Co. Ltd. ([1911] 1 Ch. 92) referred to. 
CIVIL 
APPELLATE 
JumsDICTION: Civil 
Appeal 
No. 144of1952. 
Appeal by special leave granted by the Supreme 
Court on 3rd October, 1950, from the Judgment and 
Decree dated the 14th day of September, 1949, of the 
.High Court of Judicature at Bombay (Chagla C.J. and 
Tendolkar J.) in its Original Civil Jurisdiction in 
Income-tax Reference No. 1 of 1949 arising out of the 
Order dated the 20th day of February, 1948, and 9th 
1953 
Oct. 9, 
1963 
Sir Kikabhai 
Premchand 
v. 
220 
SUPREME COURT REPORTS 
[1954] 
April, 1948, of the Income-tax Appellate Tribunal, 
Bombay Bench 'B', Bombay, in LT.A. No. 894 of 
1947-48. 
Oo1nniissioner of 
Inco1ne-taz, 
(Central) 
Bombay. 
R . .J. Kolah for the appellant. 
M. C. Seta.lvad, Attorney-General for India, (G. N. 
.Jo8hi, with him) for the Commissioner of Income-
tax. 
1953~ October 9. 
The Judgment of the Chief 
Justice ahd S. R. Das, Bose and Ghulam Hasan JJ. 
was delivered by Bose J. Bhagwati J. delivered a sepa-
rate dissenting judgment. 
BosE ,J.-· This is an appeal by an assessee against a 
judgment and order of the High Court at Bombay 
'delivered on a reference made by the Income-tax 
Appellate Tribunal. 
The Bombay High Court refused 
leave to appeal but the assessee obtained special leave 
from this court. 
The appellant deals in silver and shares and a sub. 
· stantial part of his holding is kept in silver bullion and 
shares. 
His business is run and. owned by himself. 
His accounts are maintained according to the mercan-
tile system. It is admitted that under this system 
stocks can be valued in one of two ways and provided 
there is no variation in the method from year to year 
without the sanction of the Income-tax authorities an 
assessee can choose whichever method he wishes. In 
this case, the method employed was the cost price 
method, that is to say, the cost price of the stock was 
entered at the beginning of the year and not its market 
value and similarly the cost price was again entered at 
the close of the year of any stock which was not dispos-
ed of during the year. The entries on the one side of 
the accounts at the beginning of the year thus balance 
those on the other in respect of these items with the 
result that so far as they are concerned the books show 
neither a profit nor a loss on them. This was the 
method regularly employed and it is admitted on all 
hands that this was permissible under this system of 
accounting. 
' ( 
s.c.R. 
SUPREME COURT REPORTS 
221 
The accounting year with whiCh we are concerned is 
1953 
the calendar year 1942. The silver bars and shares 
Sir Kikabhai 
lying with the appellant at the beginning of the year 
Pnmc1iand 
were valued at cost price; 
v. 
In the course of the year the appellant withdrew O

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