Law: Income Tax Act, 1922

Section: 13

Section 145 of the Income-tax Act, 1961 [Corresponding to section 13 of the Indian Income-tax Act, 1922] - Method of accounting - System of accounting - Assessment year 1949-50 - Assessee-firm which adopted cash system of accounting, filed a voluntary return declaring certain amount earned by exploitation of film - In computation of profits of business, assessee did not take credit for value of unexpired exploitation rights at end of previous year - However, in course of assessment, ITO estimated value of rights for unexpired period of exploitation to which firm was entitled and computed net profits accordingly - AAC as well as Tribunal upheld ITO's order substantially - High Court however held that assessee having adopted cash system of accounting, and Tribunal having assigned no reasons for discarding that system in computation of profits, Tribunal was in error in making assessment on basis of mercantile system of accounting - Whether, on facts, there was no warrant in instant case for assuming that revenue authorities and Tribunal had sought to displace method of accountancy adopted by assessee and, by applying proviso to section 13 of 1922 Act they made computation upon basis and in manner in which in their opinion profits would be properly deduced - Held, yes - Whether, therefore, High Court was in error in holding that because assessee had maintained his accounts on cash system it was not open to ITO to add to receipts from business value of stock in trade at end of year for purpose of properly deducing profits of business for year in question - Held, yes FACTS For the period 25-12-1947 to 2-8-1948, the assessee-firm which adopted the cash system of accounting filed a voluntary return declaring that certain amount were earned by the exploitation of the film. In the computation of the profits of the business, the firm debited the amount paid for acquiring the rights of exploitation of the film, but did not take credit for the value of the unexpired exploitation rights at the end of the 'previous year'. The ITO declined to accept the statement of account that the firm had earned till 2-8-1948, a net profit of only Rs. 28,643 as truly representing the…

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