RAM LAL BECHAIRAM Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) -

(2.) THE facts of this case are very simple. Messrs. Ram Lal Bechai Ram, a trading undivided Hindu family, had their head office together with a cloth shop at Semohi in the Jaunpur district in British India. THEy maintained also a branch cloth shop at Bhadohi in the Benares State. THEy were the residents of Jaunpur in British India. In their books at Bhadohi the firm maintained an account in the name of their own Semohi shop. Conversely in the Semohi books they had similarly an account in the name of the Bhadohi shop. From time to time goods were sent from one shop to the other. In the year in question, that is, in the assessment year 1938-39 it was found that cloth worth Rs. 65,203-13-9 was sent from the Bhadohi shop to the Semohi shop. THE invoice price of these goods was not, however, their cost price to the Bhadohi shop but is included a profit margin equal to the profit that the Bhadohi shop would or might have derived from its customers in Bhadohi had the cloth been actually sold by that branch to customers in Benares State. In other words its own head branch in British India was notionally treated by the Bhadohi branch as its trading customer in the ordinary course of business. THE Semohi shop remitted to its Bhadohi branch in the course of the same year sums amounting to Rs. 59,175-13-0 only, leaving a credit balance of Rs. 6,028 in favour of Bhadohi in the Semohi books.

(3.) THE Income-tax department appealed against this decision before the Tribunal which held that the goods brought into British India were stock-in-trade which was meant to be resold at the first available opportunity, that they were not a capital asset and the decision of the Privy Council in the case of the Ahmedabad Mills was thus distinguishable. THE Tribunal allowed and restored the order of the Income-tax Officer and held that the sum of Rs. 9,573 was taxable under Section 4(2) of the Act as profits made outside British India and brought into British India.