Law:

Section:

Profits of trade-Valuation of unsold stock-"Cost or market value, whichever in lower"-Whether valued at replacement value or retail market value if lower than east The taxpayers carried on the trade of shoe retailers. Most of the goods sold by them were bought wholesale. They maintained very large stocks, and the amount unsold at the end of a trading year was generally about a third of the amount sold in that year. The price paid by the taxpayers to wholesalers was calculated by reference to a "mark-up" fixed periodically by the directors, which was the percentage margin between wholesale buying price and retail selling price which would produce the net rate of profit considered appropriate. A substantial part of the stock-in-hand at the end of a year would be sold either at reduced prices in the January sales, or at still lower prices in later sales. Those reduced gross prices were sometimes lower than the wholesale prices, sometimes the net price was lower, and sometimes the sales resulted in a reduced profit, for some 3U years the taxpayers had valued the unsold stock-in-hand at the replacement value, i.e., the price which they would pay for that type of stock in the wholesale market. Until 1959 that method had been accepted by the Inland Revenue. For the year 1960-61 the taxpayers were assessed to income tax on the basis that their stock in-hand at the beginning and end of the relevant accounting period, January l and December 31, 1959, ought to be valued either at cost or at the market value, whichever was the less, the market value being the price obtainable on a retail sale less selling expenses. The taxpayers appealed to the special commissioners, who decided in favour of the Crown. Cross J dismissed an appeal, on the ground that the words "market value" in the formula-accepted by the law from the practice of accountants for valuation of stock-in-trade-"cost or market value, whichever is the less" prima facie connoted the price obtainable in the market which offered the best price and that the evidence did not support existence of an invariable accountancy practice of interpreting "market value" in such a way as to give the trader an option of valuing…

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