POPULAR AUTOMOBILES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee, the Income-tax Appellate Tribunal has referred the following question of law for the decision of this court:

(2.) THE respondent is the Revenue. We are concerned with the assessment year 1971-72. THE applicant/assessee was a firm of retail dealers in motor vehicles' spare parts. THE firm was dissolved on March 31, 1971. For the purpose of settlement of accounts, the closing stock of spare parts of value of Rs. 43,86,572 was distributed among the partners at the price at which the firm had purchased them. In the assessment, the Income-tax Officer took the view that the closing stock which was distributed among the partners on dissolution should have been valued not at the cost price but at the market price. After the applicant/assessee-firm was dissolved, two new firms, dealing in motor vehicle spare parts, were constituted. THE Income-tax Officer made an addition of Rs. 6,63,202 in the valuation of the closing stock of the spare parts adopting the market price. He relied on the decisions of the Madras High Court in G. R. Ramachari and Co. v. CIT [1961] 41 ITR 142 and A. L. A. Firm v. CIT [1976] 102 ITR 622. In appeal, the Commissioner of Income-tax (Appeals) deleted the addition. In further appeal by the Revenue, the Income-tax Appellate Tribunal held that the privilege of valuing the opening and closing stock in a consistent manner was available only to a continuing business and it would not be adopted where a business has come to an end and the stock on hand had to be disposed of in order to determine the exact position of the business on the date of the closure. THE Tribunal adverted to the view of the Madras High Court as stated in G. R. Ramachari and Co.'s case [1961] 41 ITR 142 and A. L. A. Firm's case [1976] 102 ITR 622 as also the decision of the Gujarat High Court in CIT v. Keshavlal Chandulal [1966] 59 ITR 120. THE Cochin Bench of the Tribunal in I. T. A. No. 584(Coch.) 1977-78 has followed the Madras decision. After adverting to the above, the Appellate Tribunal held that, on dissolution, there was a transformation of the entire properties of the firm into capital assets, so that even the stock-in-trade would partake of the character of capital assets, and in this perspective, in the light of the decisions of the Madras High Court and the decision of the Cochin Bench of the Tribunal, the closing stock has to be valued at the market value in order to arrive at the true profit earned by the assessee during the relevant previous year. THEreafter, at the instance of the asses-see/applicant, the Appellate Tribunal has referred the question of law, as formulated hereinabove, for the decision of this court.

(3.) COUNSEL for the applicant/assessee submitted that the decision of this court in Popular Workshops v. CIT [ 1987] 166 ITR 348 requires reconsideration. We were taken through the above decision as also the decisions of the Madras and Gujarat High Courts to substantiate the above plea. We perused the above decisions with care. We are not satisfied that the Bench decision of this court in Popular Workshops v. CIT [1987] 166 ITR 348 requires reconsideration. In Muhammed Ussain Sahib v. Abdul Gaffoor Sahib, AIR 1950 Mad 758, the court held as follows (headnote) :