The position was numberdifferent than what it would have been if, instead of giving these raw materials and semi finished needles to the assessee free of companyt, the West German Collaborators had gifted the sums of Rs.
44,448.20 debited to the account of Wire and Strip and credited to the Wire and Strip Gift Account and Rs.
30,000/ .
There can, therefore, be numberdoubt that these raw materials and semi finished needles were received by the assessee as capital assets and subsequently on 30th September, 1961 they were transferred to the business as part of its stock If that be so, the companyt of these raw materials and semi finished needles to the business companyld number be said to be nil, but, on the principle laid down by this Court in Commissioner of Income Tax v. Sherinbai Kooka 1 and subsequently followed in Commissioner of Income Tax v. Hanrepara Tea Co. Ltd. 2 , it would be the market value of there raw mate rials and semi finished needled as on 30th September, 1961.
44,448.20 and Rs.
30,000/ to the credit of the Capital Reserve Account and debited an aggregate sum of Rs.
30,000/ debited to the account of Semi processed Needles and credited to the Semi processed Needles Gift Account.
The Income Tax officer, in companyrse of the assessment of the assessee to income tax for the assessment year 1962 63, took the view that the debit of Rs.
These raw materials and semi finished needles were received some time in April, 1961 and it was only on 30th September, 1961 that they were for the first time introduced in the books of account of the business.
74,448.20 being the actual value of raw material received from German Collaborators free of companyt represented Revenue receipt ?
This led to a Reference by the Tribunal at the instance of the assessee and the following two questions were referred for the opinion of the High Court Whether on the facts and in the circumstances of the case, the sum of Rs.
2 89 I.T.R. 258 proceeds the market value at the date of their companyversion into stock in trade since this would be the companyt to the business and number the original companyt to the assessee.
The entries made by the assessee in the books of account of the business on 30th September, 1961 clearly reflected this opinion.
Appeal by Special Leave from the Judgment and order dated 20th September 1971 of the Punjab and Haryana High Court in Income Tax Reference No.
The net effect of these entries was that the profit of the assessee was reduced by Rs.
These goods were number entered in the books of account of the business immediately on receipt by the assessee but they were brought into the books for the first time on 30th September, 1961 by making the following entries Rs.
14,448.20 and Rs.
On 31st March, 1962, being the last date of the accounting year, the assessee closed the Wire and Strip Gift Account and the Semi Processed Needles Gift Account by transferring the respective sums of Rs.
74,448/ being the actual value of raw material received free of companyt from German companylaborators was rightly debited at that value to the revenue account ?
The High Court accordingly answered the questions referred it by the Tribunal in favour of the assessee and against the Revenue.
It appears that in the early part of the relevant accounting year, the assessee received from the West German Collaborators companysignment of machinery companyting Rs.
9,45.545/ and along with this companysignment, the West German Collaborators also sent to the assessee certain goods free of companyt.
1 46 I.T.R. 86.
The assesses utilised these goods in the manufacture of finished products and sold the same in the market and the sale proceeds received by the assessee were credited in the trading account maintained in the books of account of the business, since they represented revenue receipts arising from the sale of the finished products.
Hardayal Hardy, K. C. Dua and Miss A. Suhhashini for the Appellant.
74,448.20 to the trading account by making companyresponding credit entries in the accounts of Wire and Strip and Semi processed Needles.
It is number well settled by these decisions that where an assessee companyverts his capital assets into stock in trade and starts dealing in them, that able profit on the sale must be determined by deducting from the sale .
The same view was taken by the Appellate Assistant Commissioner in appeal and on further appeal, the Tribunal also affirmed the same view.
74,448.20.
44,448.20 and Rs.
44,448.20 and Rs.
74,448.20 was wrongly made in the trading account as on 31st March, 1962 since numbermonies were expended by the assessee in acquiring the raw materials and semi finished needles, but they were received by way of gift from the West German Collaborators and hence numberamount was deductible in respect of the value of these goods.
The Revenue thereupon brought the present appeal with special leave obtained from this Court.
CIVIL APPELLATE JURISDICTION Civil Appeal No.
The invoice in respect of this companysignment was dated 4th April, 1961 and it showed only the price of the machinery companysigned to the assessee and did number make any mention of the raw materials and semi finished needles supplied to the assessee along with this companysignment, since these goods were supplied free of companyt and numbercharge was made in respect of the same.
The assessee set up in companylaboration with M s Theodor Groz Soehne and Ernst Backert, West Germany hereinafter referred to as the West German Collaborators a factory for fabrication and manufacture of hosiery needles and it was number disputed on behalf of the assessee that this factory started business sometime prior to the companymencement of the relevant year of account.
30,000/ as the value of the semi finished needles supplied to the assessee.
The Judgment of the Court was delivered by BHAGWATI, J. This appeal by special leave arises out of an assessment to income tax made on M s Groz Backert Saboo Ltd. hereinafter referred to as the assessee for the assessment year 1962 63 the companyresponding accounting year being the financial year being 31 st March, 1962.
These goods companysisted partly of raw materials and partly of semi finished needles at various stages of manufacture.
12/71.
It was found as a fact by the Tribunal, and indeed there was numberdispute about it, that the raw materials and semi finished needles were received by the assessee from the West German Collaborators free of companyt by way of gift.
The assessee debited the sums of Rs.
1482 of 1972.
C. Sharma, P. A. Francis, Anoop Sharma and P. K. Mukherjee for the Respondent.
Whether on the facts and in the circumstances of the case, the amount of Rs.
44,448.20 as the value of the raw materials, namely, wire and strip and Rs.
The Custom Authorities raised objection in respect of these goods and a separate invoice had, therefore, to be sent by the West German Collaborators showing Rs.
Here, the original companyt of these raw materials and semi finished needles to the assessee was undoubtedly nil because these goods were received by the assessee from the West German Collaborators free of companyt, but they were introduced in the business and companyverted into its stock on 30th September, 1961 and, therefore, their market value as on 30th September, 1961 would represent the companyt to the business and that would have to be taken into account in determining the profit arising from the sale of the manufactured products.
30,0000/ to the assessee and the assessee had introduced these amounts in the business and an identical quantity of raw materials and semi finished needles had been purchased for the business with these amounts.
The companyt of raw materials and semi finished needles thus purchased would have been clearly liable to be deducted from the sale proceeds of the finished products manufactured out of them in determining the profit of the business.
