ASHER TEXTILES LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question referred to this court for decision is a simple one, namely,

(2.) THE rule of accountancy adopted all over England and as also adopted in India is to construe the cost price as "original cost price" and not a notional cost price and liberty should be given to the assessee to adopt either the original cost price or the market value. THEre is no authority in support of the position that the cost price means notional cost price. On the contrary decisions in which the application of the rule was considered are against this contention, In the decision in -- 'Commr. of Income-tax and Excess Profits tax, Madras v. Messrs, Chari and Ram, Madura, 1949-17 I. T. R. 1, the question that arose for consideration was whether the assessee was bound to value different kinds of goods at the average cost and also value them at the average market price and then adopt the lower of the two or whether he was entitled when the prices of the goods varied to adopt in respect of such of the goods whose cost price was higher than the average market value and in respect of others the average of the cost price where the cost price was lower than the average market value. THE answer given by this court was that the latter view is correct and that the department was not entitled to insist that the assessee should adopt the former method. This court examined the decisions in England in which the scope of this principle of accountancy was fully considered. THE same view was taken in England in the case -- 'Inland Revenue Commissioners v. Cock Russell & Co. Ltd.', 1949-2-A11 E. R. 889 and in -- 'Commr. of Income-tax v. Chengalvaraya Chetti', 2 I. T. C. 14: 48 Mad 836, the assessee adopted some novel method of Valuing the opening stock. With a view to set off loss against profits in the first year, the assessee adopted the ccst price as the price of the opening stock and the market value as the price of the closing stock of that year. In the succeeding year, however, instead of taking the value of the closing stock as the value of the opening stock he again adopted the cost price as the value of the opening stock for the succeeding year. This, it was pointed out, was not warranted and was opposed to principles of commercial accountancy and the rule that in arriving at trading profits the trader has the option of choosing either the market value or the cost price whichever is lower cannot be applied in the manner in which it was done by the assessee in that case. THEse decisions, in our opinion, clearly point to the conclusion that the method which the assessee has adopted in valuing the closing stock in the present case is not supported either on principle or authority. In these circumstances the question referred to us must be answered in the negative and against the assessee. As the assessee has failed he must pay the costs of the respondent which we fix at Rs. 250.