Law:

Section:

Section 28(i) of Income-tax Act, 1961 – Business income – Chargeable as – Assessment year 1962-63 – Assessee set up in collaboration with foreign company a factory for fabrication and manufacture of hosiery needles – It received certain goods free of cost from foreign company which consisted partly of raw material and partly of semi-finished needles – Assessee's claim was that while calculating profits from sale of finished goods, value of said raw materials and semi-finished needles were liable to be deducted ITO held that since no monies were expended by assessee in acquiring raw materials and semi finished needless but they were received by way of gift from foreign collaborators, hence, no amount was deductible in respect of value of those goods – AAC as well as Tribunal affirmed ITO's view – On reference, High Court, however, accepted assessee's claim – Whether since raw materials and semi-finished needles were introduced in business and converted into stock, their market value on date of conversion would represent cost to business which was liable to be deducted from sale proceeds of finished products in arriving at profits of assessee's business – Held, yes – Whether, therefore, High Court was correct in accepting assessee's claim – Held, yes FACTS During the assessment year 1962-63, the assessee set up in collaboration with a foreign company, a factory for fabrication and manufacture of hosiery needles, and received from them consignment of machinery and alongwith that, certain goods free of cost, these goods consisted partly of raw materials and partly of semi-finished needles. These goods were brought into books by making debit and credit entries under ‘Wire & strip Gift A/c.' and ‘Semi-Processed needles Gift A/c.'. The assessee 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. On the last date of the accounting year, the assessee closed the ‘Wire and Strip Gift Account' and the…

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