COMMISSIONER OF INCOME-TAX Vs. CHENGALVARAYA CHETTI

JUDGEMENT

(1.) This is a case in which my learned brother, Kumaraswami Sastri, J., directed the Commissioner of Income-tax to state a case for the opinion of the High Court under Section 66 of the Income-tax Act.

(2.) The learned Judge did something further which the section does not provide for; he framed the question which he supposed to arise from the facts as set out in the Commissioner's report. With great respect to the learned Judge, I do not think that the question he framed was the real question raised in the case, and I think that the question as he has framed it is so beset with assumptions and begged questions that it would be impossible to decide fairly what the real point in this case is by any answer that could be given to the highly involved question he formulated.

(3.) The facts here are very simple. The assessees are a firm of piece-goods merchants in this City and they keep their books and render their accounts to the income-tax authorities in what is known generally as the mercantile system of accounts. It is obviously a very rough and ready method; but it is the one that they have adopted and the one that the income-tax authorities are prepared to accept (provided they are satisfied with the honesty of the items set out) as giving sufficiently, for practical purposes, an accurate figure on which they can assess income-tax. The method is this: You set out on the debit side your opening stock and add to that the purchase of stock made during the year, you then set out on the contra side of the account the sales during the year and then you add to that the value of the stock on hand at the close of the year. Then, of course, you add to the debit side the establishment charges and the interest, if any, paid to creditors and so forth during the year. I should add that the accepted rule is that the assessee in crediting the closing stock figure is to take either the cost price or the market value whichever be the less--a provision obviously intended to be in favour of the trader and which enables him more evenly to distribute his loss.