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PETITIONER: SIR KIKABHAI PREMCHAND

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX (CENTRAL),BOMBAY.

DATE OF JUDGMENT: 09/10/1953

BENCH: BOSE, VIVIAN BENCH: BOSE, VIVIAN SASTRI, M. PATANJALI (CJ) DAS, SUDHI RANJAN HASAN, GHULAM BHAGWATI, NATWARLAL H.

CITATION:  1953 AIR  509            1954 SCR  214  CITATOR INFO :  E          1959 SC  82  (13)  R          1962 SC 186  (9)  D          1963 SC 477  (9)  D          1963 SC 577  (15,16,17,21)  R          1965 SC 342  (8)  RF         1966 SC   4  (19)  HO         1969 SC 812  (7)  RF         1973 SC 989  (21,22,25)

ACT:      Indian Income-tax Act (XI of 1922), s.  13-Ascertainment  of  profits-Assessee adopting mercantile system and  valuing  stock  at  cost price at beginning and close of  each  year-  Withdrawal of stock from business-Whether business should be  credited with market price on date of withdrawal.

HEADNOTE:    The  assessee  who carried on business  in  bullion  and shares kept accounts in the mercantile system and the method adopted  by  him for ascertaining his profits was  to  value stock at the beginning and close of each year at cost price. In  the  accounting year he withdrew some  silver  bars  and shares from the business and settled them in trusts, and  in the accounts of the business he valued them at the close  of the year at cost price    Held, per PATANJALI SASTRI C. J., S. R. DAS, VIVIAN BosE and  GHULAM  HASAN  JJ. (BHAGWATI  J.  dissenting)-that  the assessee  was entitled to value them at cost price  and  was not bound to credit the business with their market price  at the  close  of  the year  for  ascertaining  his  assessable profits for the year.    BHAGWATI J. So far as the business was concerned it made no  difference  whether the stock-in-trade was  realised  or withdrawn from the business and the business was entitled to be credited with the market value of the assets withdrawn as at  the  date  of the withdrawal,  whatever  be  the  method employed by the assessee for the valuation of its  stock-in- trade on hand at the close of the year.    In  re  Chouthmal Golapchand (6 I.T.R. 733)  and  In  re

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Spanish Prospecting Co. Ltd. ([1911] 1 Ch. 92) referred to.

JUDGMENT:    CIVIL  APPELLATE  jurisdiction: Civil Appeal No.  144  of 1952.       Appeal  by special leave granted by the Supreme  Court on  3rd October, 1950, from the’ Judgment and  Decree  dated the  14th  day  of September, 1949, of  the  High  Court  of Judicature  at Bombay (Chagla C.J. and Tendolkar J.) in  its Original Civil Jurisdiction in Income-tax Reference No. I of 1949  arising  out  of  the Order  dated  the  20th  day  of February, 1948, and 9th 220  April,  1948, of the Income-tax Appellate Tribunal,  Bombay Bench ’B’, Bombay, in I.T.A. No. 894 of 1947-48. R.   J. Kolah for the appellant. M.   C. Setalvad, Attorney-General for India, (G.  N. Joshi, with him) for the Commissioner of Income-tax.     1953.  October 9. The Judgment of the Chief Justice  and S.  R. Das, Bose and Ghulam Hasan JJ. was delivered by  Bose J. Bhagwati J. delivered a separate dissenting judgment.     Bose,  J.  This is an appeal by an  assessee  against  a judgment and order of the High Court at Bombay delivered  on a reference made by the Income-tax Appellate Tribunal.   The Bombay  High Court refused leave to appeal but the  assessee obtained special leave from this court.     The  appellant  deals in silver and shares  and  a  sub- stantial  part of his holding is kept in silver bullion  and shares.   His  business is run and owned  by  himself.   His accounts are maintained according to the mercantile  system. It  is admitted that under this system stocks can be  valued in one of two ways and provided there is no variation in the method from year to year without the sanction of the Income- tax  authorities an assessee can choose whichever method  he wishes.   In  this case, the method employed  was  the  cost price  method, that is to say, the cost price of  the  stock was entered at the beginning of the year and not its  market value and similarly the cost price was again entered at  the close  of  the year of any stock which was not  disposed  of during  the  year.   The  entries on the  one  side  of  the accounts at the beginning of the year thus balance those  on the other in respect of these items with the result that  so far  as they are concerned the books show neither  a  profit nor a loss on them.  This was the method regularly  employed and  it is admitted on all hands that this  was  permissible under this system of accounting. 221     The  accounting year with which we are concerned is  the calendar  year 1942.  The silver bars and shares lying  with the  appellant at the beginning of the year were  valued  at cost price.     In  the course of the year the appellant  withdrew  some bars  and  shares  from the business  and  settled  them  on certain  trusts, three in number.  The appellant was one  of the beneficiaries in all three trusts retaining to himself a reversionary  life interest after the death of his wife  who was given the first life interest.  After certain other life interests  the ultimate beneficiaries were  charities.   The appellant  was the managing trustee expressly so created  in two  of  the trusts and virtually so in the third.   In  his books  the  appellant credited the business  with  the  cost price of the bars and shares so withdrawn and there lies the crux  of the issue which we have to determine.  There is  no

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suggestion  in  this  case that the  bars  and  shares  were withdrawn from the business otherwise than in good faith.     According  to  the  appellant,  the  act  of  withdrawal resulted  in  neither income nor profit nor gain  either  to himself  or  to his business, nor was it a  business  trans- action, accordingly it was not taxable.     The  learned  Attorney-General  raised  two  contention. First, he said that as the bars and shares were brought into the  business any withdrawal of them from the business  must be dealt with along ordinary and well-known business  lines, namely, that if a person withdraws an asset from a  business he  must account for it to the business at the  market  rate prevailing at the date of the withdrawal.  He said that  the mere fact that the appellant was the sole owner of the busi- ness  can  make no difference, for under the Act  income  is assessable under distinct beads and when we are working  out the  income of a business the rules applicable  to  business incomes  must be applied whoever is the owner.   His  second contention  was that if the act of withdrawal is at  a  time when  the market price is higher than the cost  price,  then the State is deprived 39 222 of a potential profit.  He conceded that had the market rate been  lower  than the cost price, then the  appellant  would have been entitled to set off the loss on those transactions against  his  overall profit on the other  transactions  and thus  obtain  the advantage of a lower tax  on  the  overall picture.    We  are  of opinion that the  learned  Attorney-General’s second  contention  is  unsound  because,  for  income   tax purposes,  each year is a self-contained  accounting  period and we can only take into consideration income, profits  and gains made in that year and are not concerned with potential profits  which may be made in another year any more than  we are with losses which may occur in the future.    As  regards the first contention, we are of opinion  that the  appellant was right in entering the cost value  of  the silver and shares at the date of the withdrawal, because  it was not a business transaction and by that act the  business made  no profit or gain, nor did it sustain a loss, and  the appellant derived no income from it. He may have stored up a future  advantage for himself but as the  transactions  were not  business ones and as he derived no immediate  pecuniary gain the State cannot tax them, for under the Income-tax Act the State has no power to tax a potential future  advantage. All  it  can tax is income, profits and gains  made  in  the relevant accounting year.     It  was conceded that if these assets had been  sold  at cost  price the State could have claimed nothing, for a  man cannot  be compelled to make a profit out of any  particular transaction.   It was also conceded that if the  silver  and stocks  had  lain where they were,, then again  there  would have  been no advantage to the State because  the  appellant would  have been entitled to enter their closing  values  at cost  at the end of the year.  The learned  Attorney-General even  conceded  that  if they bad been sold at  a  loss  the appellant  would have been entitled to set that off  against his other gains, but he said that that is because all  those are business transactions and that is the way the law  deals with such matters when they occur in the ordinary course of 223 business.  But, he argued, when there is a withdrawal and no sale or its equivalent, the matter is different.  As this is a  business,  any  withdrawal of the assets  is  a  business

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matter  and  the  only feasible way of  regarding  it  in  a business  light is to enter the market price at the date  of the  withdrawal  and  whether that  happens  to  favour  the assessee or the State is immaterial.  We do not agree.     It is well recognised that in revenue cases regard  must be  had to the substance of the transaction rather  than  to its   mere   form.   In  the  present   case,   disregarding technicalities,  it is impossible to get away from the  fact that the business is owned and run by the assessee  himself. In  such circumstances we are of opinion that it  is  unreal and a artificial to separate the business from its owner and treat  them as if they were separate entities  trading  with each other and then by means of a fictional sale introduce a fictional profit which in truth and in fact is non-existent. Cut  away the fictions and you reach the position  that  the man is supposed to be selling to himself and thereby  making a profit out of himself which on the face of it is not  only absurd  but against all canons of mercantile and  income-tax law.  And worse.  He may keep it and not show a profit.   He may sell it to another at a loss and cannot be taxed because he  cannot  be compelled to sell at a profit.  But  in  this purely fictional sale to himself he is compelled to sell  at a  fictional profit when the market rises in order  that  he may  be  compelled  to  pay to Government  a  tax  which  is anything but fictional.     Consider this simple illustration.  A man trades in rice and also uses rice for his family consumption.  The bags are all stored in one godown and he draws upon his stock as  and when  he finds it necessary to do so, now for his  business, now for his own use.  What he keeps for his own personal use cannot be taxed however much the market rises; nor can he be taxed  on  what he gives away from his own  personal  stock, nor, so far as his shop is concerned, can he be compelled to sell at a profit.  If he keeps two sets of books and enters 224 in one all the bags which go into his personal godown and in the  other the rice which is withdrawn from the godown  into his  shop,  rice  just sufficient to meet  the  day  to  day demands of his customers so that only a negligible  quantity is left over in the shop after each day’s sales, his private and  personal dealings with the bags in his personal  godown could  not be taxed unless he sells them at a profit.   What be  chooses to do with the rice in his godown is no  concern of  the Income-tax department provided always that  he  does not  sell it or otherwise make a profit out of it.   He  can consume it, or give it away, or just let it rot.  Why should it make a difference if instead of keeping two sets of books he  keeps  only  one ? How can he be said to  have  made  an income personally or his business a profit, because he  uses ten  bags out of his godown for a feast for the marriage  of his  daughter ? How can it make any difference  whether  the bags are shifted directly from the godown to the kitchen  or from  the  godown  to  the shop and from  the  shop  to  the kitchen, or from the shop back to the godown and from  there to the kitchen ? And yet, when the reasoning of the  learned Attorney-General  is pushed to its logical  conclusion,  the form of the transaction is of its essence and it is  taxable or not according to the route the rice takes from the godown to  the  wedding feast.  In our opinion, it  would  make  no difference  if the man instead of giving the  feast  himself hands  over  the  rice to his daughter as  a  gift  for  the marriage festivities of her son.      The  appellant’s  method of book-keeping  reflects  the true  position.   As he makes his purchases  he  enters  his stock at the cost price on one side of the accounts.  At the

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close of the year he enters the value of any unsold stock at cost  on the other side of the accounts thus cancelling  out the entries relating to the same unsold stock earlier in the accounts;  and then that is carried forward as  the  opening balance in the next year’s accounts.  This cancelling out of the  unsold  stock from both- sides of the  accounts  leaves only the transactions on which there have been actual  sales and gives the 225 true  and actual profit or loss on his year’s dealings.   In the same way, the appellant has reflected the true state  of his finances and given a truthful picture of the profit  and loss  in his business by entering the bullion and silver  at cost when he withdrew them for a purely non-business purpose and utilised them in a transaction which brought him neither income nor profit nor gain.      There is no case quite in point.  The learned Attorney- General  relied  on Gold Coast Selection  Trust  Limited  v. Humphrey  (H.   M. Inspector of Taxes) (1),  but  there  the assessee  received a new and valuable asset in exchange  for another  in the ordinary course of his trade.  It  was  held that  he  was  bound to account for the receipt  at  a  fair market  valuation, for though the receipt was not  money  it was  capable  of  being valued in terms of  money.   In  the present  case, the assessee’s business received  nothing  in exchange for the withdrawal of the assets, neither money nor money’s  worth, therefore the only fair way of treating  the matter  was  to do just what the appellant  did,  namely  to enter  the  price  at which the assets were  valued  at  the beginning of the year so that the entries would cancel  each other  out and leave the business with neither a gain nor  a loss on those transactions.      The learned Attorney-General contended that if that was allowed  great loss would ensue to the State because  all  a man need do at the end of the year would be to withdraw  all assets  which had risen in value and leave only those  which had  depreciated and thus either show a loss or  reduce  his taxable profits.     This  argument can only prevail on the  assumption  that the  State  can tax potential profits  because,  except  for that,  the  State would neither gain nor lose in a  case  of this  kind.  Had the assets been left where they were,  they would  have been valued at the end of the year as they  were at  the beginning, at the cost price and we would  still  be where we are now.  But the assumption that there would be  a gain at some future (1)  30 Tax Cas. 209 226 indefinite  date is mere guess work for equally there  might be  loss.  Apart, however, from that the  learned  Attorney- General’s  rule is equally capable of abuse. A man could  as easily   withdraw  from  the  business  assets   which   had depreciated  and enter in his books the  depreciated  market value and leave at cost price the assets which had risen.      There  are  two cases which bear a  superficial  resem- blance  to  this case.  They are In the  matter  of  Messrs. Chouthmal  Golapchand (1) and In re The Spanish  Prospecting Company Limited (1).     We  refrain  from  expressing any  opinion  about  them, especially  as they appear to reach  different  conclusions, because  the facts are not the same and the questions  which arose  on the facts there were not argued here.  They  raise matters of wider import which will require consideration  in a  suitable case.  These cases were not cases of a  business owned  and  run  by a single owner and  so  the  fiction  of

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treating  the business as a separate entity from  its  owner actually trading with him, which we are asked to apply here, does  not  arise.  In the next place, the  businesses  there were not con-tinuing as here.     In the Calcutta case, a partnership was would up and the question  related to the valuation of assets  consisting  of stocks and shares, on the dissolution.  In the English case, a  company with no fixed capital was under  liquidation  and the  question  was  whether  the  market  value  of  certain debentures  which  the  company had purchased  ought  to  be brought  into the profit and loss account so as  to  augment the  profits  actually  shown  in  the  balance-sheet.   The company wished to treat those debentures as of no value  and thus  show a much smaller profit than would  otherwise  have been the case.  On the answer to that question hung the fate of two servants of the company who, under the terms of their agreement  with  the  company,  could  only  be  paid  their salaries out of the profits of the company.  In our opinion, neither case is apposite here. (1) [1938] 6 I.T.R. 733.     (2) [1911] 1 Ch, 92, 227 The questions referred were:-      "  (1)  Whether in the circumstances of  the  case  any income arose to the assessee as a result of the transfer  of shares and silver bars to the trustees ?      (2)  If  the  answer  to the question  (1)  is  in  the affirmative,  whether the method employed by  the  Appellate Assistant Commissioner and upheld by the Appellate  Tribunal in computing the assessee’s income from the transfer is  the proper method for computing the income?"     Our  answer  to  the  first  question  is  that  in  the circumstances of this case no income arose to the  appellant as a result of the transfer of the shares and silver bars to the trustees.  In view of that the second question does  not arise.    The appeal is allowed with costs.     BHAGWATI J.-This appeal by special leave from a judgment of the High Court of Judicature at Bombay on a reference  by the Income-tax Appellate Tribunal under section 66(1) of the Indian  Income-tax  Act (XI of 1922) raises  an  interesting question as to the valuation of an asset withdrawn from  the stock-in-trade of a running business.     The  assessee was in the year-of account (calendar  year 1942)  a dealer in shares and silver.  On the 21st  January, 1942,  be  withdrew  from the business  certain  shares  and silver bars and executed two deeds of trust and on the  19th October,  1942, he withdrew further shares and  silver  bars and  executed  a  third  deed  of  trust.   The  terms   and conditions  of the deeds of trust are not material  for  the purpose of this appeal.    The assessee kept his books of account on the  mercantile basis and the method employed by him in the past for valuing the closing stock of his stock-in-trade was valuation at the cost price thereof.  The deeds of trust were valued for  the purpose  of  stamp  at the market value of  the  shares  and silver bars prevailing at the dates of their execution.  The assessee  however  showed the transfer of these  shares  and silver bars to 228 the  trustees  in  the books of account at  the  cost  price thereof  thus setting off the debit shown in respect of  the same at the beginning of the year of account.  He  contended that the market value of the said shares and silver bars  on which  the stamp duty was based could not be the  basis  for computing   his   income  from   the   stock-in-trade   thus

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transferred.  The Income-tax authorities did not accept this contention and assessed the profit at the difference between the  cost price of the said shares and silver bars  and  the market  value thereof at the date of their  withdrawal  from the   business.   The  Income-tax  Officer,  the   Appellate Assistant  Commissioner  as also  the  Income-tax  Appellate Tribunal  rejected this contention of the assessee  and  the Income-tax  Appellate Tribunal submitted at the instance  of the assessee a case under section 66(1) of the Act referring the  following  two questions for the decision of  the  High Court :-     "(1) Whether in the circumstances of the case any income arose  to  the  petitioner as a result of  the  transfer  of shares and silver bars to the trustees ?     (2)If  the  answer  to  the  question  (1)  is  in   the affirmative,  whether the method employed by  the  Appellate Assistant Commissioner and upheld by the Appellate  Tribunal in  computing the petitioner’s income from the  transfer  is the proper method for computing the income ? "     The  High  Court  answered both  the  questions  in  the affirmative.     It  was  not disputed before  the  Income-tax  Appellate Tribunal that the shares transferred were the stock-in-trade of  the business.  As regards the silver bars  the  Tribunal found that the assessee had been making purchases and  sales frequently  and that the silver also was stock-in-trade  and not  a capital investment.  Both the shares and  the  silver bars  were thus part of the stock-in-trade of the  business. They  had been purchased by the assessee from time  to  time and  formed part of the stock-in-trade of the  business  and had  been  shown at the cost price thereof in the  books  of account of the previous years and also at the opening of the year of account, 229    If  the  shares  and  the silver  bars  which  were  thus withdrawn  from  the  stock-in-trade  of  the  business  had continued to form part of the stock-in-trade at the  closing of the year of account, the value of these shares and silver bars  would  also  have  been shown at  the  cost  price  in accordance  with  the system of accounts maintained  by  the assessee.  The question however which falls to be determined is what is the effect of these assets having been  withdrawn from the stock-in-trade of the business.     So  far  as the business itself is concerned  the  asset which  has been brought in is of a particular value  at  the date when it has been so brought in and it is then valued in the  books  of account at its cost.  In the  course  of  the business  however  the asset appreciates or  depreciates  in value in accordance with the fluctuations of the market.  If the  cost  price basis is adopted for the valuation  of  the stock-in-trade at the close of the year this appreciation or depreciation  in the value as the case may be would  not  be reflected  in  the accounts.  If however  the  market  value basis  is  adopted for such Valuation, the  asset  on  being valued  at the market rate thereof at the close of the  year might  show  a loss and this loss would be  allowed  by  the Income-tax  authorities in computing the profit or  loss  of the  business.  In either event, the assessee would have  to carry  over  the  asset  in the  books  of  account  of  the subsequent year at the valuation adopted at the close of the previous  year  and  the assessee would not  be  allowed  to change  the basis of valuation thus adopted unless he  chose to  adopt  at  the  end of  the  subsequent  year  or  years valuation  at  the cost price or the  market  value  thereof whichever was lower.  This process would continue until  the

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asset is realised.  When the asset is realised the  assessee would have to show the actual price realised by the sale  of the asset in the books of account and the difference between the price thus realised and the value shown in the beginning of  the year of account would be the profit or loss  as  the case may be, in regard to that asset and that profit or loss 31 230 would  be  allowed  by the  Income-tax  authorities  in  the computation of profit or loss for that year of account.  The adoption  of the one or the other basis of  valuation  would not however make any difference in the ultimate result.   On the   cost  price  basis  of  valuation   all   intermediate fluctuations  of  price  during  the  interval  between  the bringing of the I asset in the business and the  realisation of  it would be eliminated and the only thing considered  in the  accounts would be the difference between the  price  of the  asset  when it was brought into the  business  and  the price  thereof  when the asset was realised.  On  the  other hand,  the market value basis would bring into account  each year the fluctuations in the market value of the asset as at the  close  of  every year of account until  the  asset  was realised  with  the result that in each and  every  year  of account a rectification would have to be made in the  result of the trading of the previous year which was not  correctly reflected  in the accounts by reason of the assessee  having adopted  the  market  value obtaining at the  close  of  the previous  year as the value of the asset.  This  process  of rectification  would continue from’ year to year  until  the asset was realised in a particular year of account when  the actual  price  realised on the sale of the  asset  would  be brought  into account in that year.  The ultimate result  of these  operations  so far as the asset itself  is  concerned would  be  no different.  Because if regard be  had  to  the various  fluctuations  in the market value which  have  been reflected  in the accounts of the intermediate period,  what the business actually gains or loses would be the difference between  the cost price of the asset when it was brought  in and  the  price at which it was sold when  it  was  actually realised.   The  only advantage which the  assessee  obtains would be that he would be able to anticipate in a particular year the loss that may be made on the asset in the following year  or years, which however might have to be rectified  in the following year or years if the prices rose again.     Is there any difference in the position when instead  of the asset being realised is withdrawn from the stock- 231 in-trade  of  the  business  ? So far  as  the  business  is concerned  the  asset ceases to be a part of  the  stock-in- trade whether it is realised or is withdrawn from the stock- in-trade.   The  asset after it has been  brought  into  the business  appreciates or depreciates in value in  accordance with the fluctuations of the market and that appreciated  or depreciated  asset continues to be a part of  the  stock-in- trade  of  the business until it is realised  or  withdrawn. This appreciation or depreciation in value is not  reflected in the books of account when the cost price basis is adopted for the valuation of the stock-in-trade at the close of  the year  of  account,  but  is  certainly  reflected  as  above indicated in the books of account at the close of each  year of account when the market value basis is adopted.  In  each case  however the actual profit or loss to the  business  as the case may be in relation to the price at which the  asset was  brought  into the business would be determined  at  the date  when the asset is realised, That would be the  measure

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of  the appreciation or depreciation in value of  the  asset which  till then formed a part of the stock-in-trade of  the business,  and would I also be the measure of  the  ultimate profit or loss as the case may be of the business in  regard to that particular asset.  When the asset is withdrawn  from the  stock-in-trade  of  the business  the  position  in  my opinion  would be no different.  So far as the  business  is concerned  the asset would go out and cease to be a part  of its  stock-in-trade and this again would be the  measure  of the  profit or loss as the case may be of the  business  qua that  particular  asset.   To  my  mind  it  makes  not  the slightest  difference  whether an asset is realised  in  the course  of the business or is withdrawn from  the  stock-in- trade  of the business.  An asset which has  appreciated  or depreciated  in value as the case may be in accordance  with the  fluctuations of the market ceases to be a part  of  the business,  by the one process or the other.  So far as  the, business is concerned it is entitled to credit in its  goods account the price of that asset as has been realised by  the sale  thereof  or the market value of that asset as  at  the date of its withdrawal, 232        Looking  at the matter from assessee’s point of  view also  it does not make any the slightest difference  whether he  realises  the  asset in the course of  the  business  or withdraws it from the business and utilises it in any manner he chooses.  Having brought into the business an asset which was  of a particular value at that time, he  withdraws  from the business that asset at a time when it has appreciated or depreciated in value.  The business would be entitled to the appreciation  or depreciation in value of that asset  in  so far as the asset had become a part of the stock-in-trade  of the business.  When the asset is withdrawn by the  assessee, the  assessee  obtains  in  his  hands  by  reason  of  such withdrawal an asset which at the time of the withdrawal  has appreciated  or depreciated in value as the case may  be  in comparison  with its value at the time when it  was  brought into the business and the assessee on such withdrawal  would be  able to deal with or dispose of an asset which had  thus appreciated  or  depreciated in value.  In  my  opinion  the manner  of his dealing with the asset after he withdraws  it from   the   stock-in-trade  of  the  business   is   really immaterial.   What  is material to consider is what  is  the value of the asset which he was withdrawn from the stock-in- trade of the business and that value can only be  determined by  the  market  value of the asset as at the  date  of  its withdrawal.     It  was urged that the withdrawal of the asset from  the stock-in-trade of the business was not a business  operation and  that  an entry on the credit side  crediting  the  cost price  of  the particular asset would therefore  be  enough. This  argument  however  does  not  take  into  account  the appreciation  or the depreciation in the value of the  asset on  the  date of the withdrawal as compared with  its  value when  it was initially brought into the business.   It  also does not take into account the fact that the assessee  might have  adopted  the market value basis for valuation  of  the stock-intrade  on hand at the close of the previous year  or years of account.  The entry on the debit side at the begin- ning  of  the year of account would not then  represent  the cost price of the asset but would represent 233 the  market value of the asset at the close of the  previous year  of account.  What would then be the rational basis  on which  the  credit  entry  should be made  at  the  date  of

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withdrawal?  Should it be the cost price of the asset  which was  not  at all reflected into the accounts except  at  the initial  stage when the asset was brought into the  business or  the  market value of the asset when it was  withdrawn  ? Surely  the  method  of accounts  keeping  cannot  make  any difference  to  the actual position, whether  an  asset  has appreciated or depreciated in value and what profit or  loss if any accrued to the business when the asset was  withdrawn from  the stock-in-trade of the business.  There is  also  a further fact to be considered and it is that when the  asset is  withdrawn from the stock-in-trade of the business  there would be of necessity an entry in the account of the  person withdrawing it debiting the price of that asset to him.   If the  assessee  withdraws  from  the  stock-in-trade  of  the business an asset which has thus appreciated or  depreciated in  value, is there any justification whatever for  debiting him  with  the cost price of that asset and not  the  market value  of  the asset as at the date of withdrawal?   In  the event of the asset having appreciated in value the  assessee should be debited in his account with the appreciated market value of the asset inasmuch as he withdraws from the  stock- in-trade  of the business an asset which is at that date  of that market value.  If however the asset has depreciated  in value  the  assessee should certainly not  be  mulcted.   He withdraws  from the stock-in-trade of the business an  asset which  is of a depreciated value as compared with its  value when  it  was brought into the business and  he  should  not certainly be debited with a higher price even though it  may be  the  cost  price as appearing in the  books  of  account according to the particular system of accounting adopted  by the assessee.      I  am therefore definitely of the opinion that even  in the case of withdrawal as in the case of the realisation  of the  asset the business is entitled to credit in  the  goods account the market value of the asset as at the date of  its withdrawal whatever be the method adopted 234 by  it  for valuation of its stock-in-trade on hand  at  the close of a year of account.      Shri  R.  J. Kolah appearing for the  appellant  parti- cularly  relied upon a decision of the Calcutta High  Court, In  the  matter of Messrs.  Chouthmal Golapchand  (1).   The assessees   there  were  the  firm  of  Messrs.    Chouthmal Golapchand  constituted by four partners with equal  shares, and they had at the beginning of the accounting year 1935-36 an  opening  stock  of shares valued at cost  price  of  Rs. 85,331.  On the 8th January, 1936, the partners resolved  to dissolve the firm with effect from the 30th March, 1936, and in  view  of the pending dissolution  they  divided  amongst themselves  on the 9th March, 1936, these shares which  were then  valued  at the rates prevailing in the  market  at  an aggregate sum of Rs. 51,966.  There was a difference of  Rs. 33,365  between the value of the opening’ stock,  viz.,  Rs. 85,331, and the then market valuation of Rs. 51,966 and this difference  was  claimed by the assessees as a loss  in  the assessment.   This claim of the assessees was  negatived  on the  ground  that there was nothing to show  that  loss  had occurred  in  the  year of account.   The  assessees  having adopted  the system of valuing the shares at cost  price  at the end of every year and the opening of the next year,  the cost price of the shares was taken to have been their  value at  the beginning of the year of account and  the  partition was taken as not amounting to a sale of the shares with  the result  that there was no evidence of any loss.  With  great respect  to the learned Judges I do not see my way to  agree

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with  the reasoning of this judgment.  Apart from  the  fact that this distribution of shares amongst the partners was in view of the impending dissolution of the firm and  different considerations may arise when one considers the distribution of  the  assets  of  a  dissolved  partnership  amongst  its partners, the judgment does not take count of the fact  that at  the  date  of the partition the assets  which  had  been brought   into  the  business  at  the  earlier  dates   had depreciated in value and it was these depreciated (1)  [1938] 6 1. T. R. 733. 235 assets  which were the subject-matter of  partition  between the  partners.   Even if the partition be not treated  as  a sale it was a transfer of property, the property of the firm being  transferred  to the individual partners  thereof  and each  partner obtaining an absolute interest in  the  shares thus transferred to him by the firm to the exclusion of  the other partners therein.  So far as the firm was concerned it was  certainly a transfer of the property to the  individual partners and even as regards the partners themselves it  was a  transfer of the interest of the partners inter se in  the shares respectively transferred absolutely to each of  them. If it were necessary to do so I would certainly say that the case  was  erroneously decided. [See also  the  judgment  of Fletcher  Moulton  L. J. in In re Spanish  Prospecting  Co., Ltd. (1)].     The  result therefore is that the answers given  by  the High Court to both the questions referred to it were correct and the appeal must be dismissed with costs.                                       Appeal allowed. Agent for the appellant: Rajinder Narain. Agent for the respondent: G. H. Rajadhyaksha.