Law: Income Tax Act, 1961

Section: 145

Section 145 of the Income-tax Act, 1961 [Corresponding to section 13 of Indian Income-tax Act, 1922] - Method of accounting - Valuation of stock - Assessee-company dealing in shares valued its stock at cost - It received bonus shares in respect of certain ordinary shares held by it - Assessee sold original shares and calculated loss valuing bonus shares at their face value - Whether correct method of valuing shares was to spread cost of original shares to total shares (i.e., original and bonus shares) and calculate loss accordingly - Held, yes FACTS The assessee-company was a dealer in shares. It maintained its books on the cost basis and valued the opening and closing stock at cost. It received certain bonus shares in respect of original shares held by it. The assessee-company sold the original shares and calculated the loss valuing the bonus shares at their face value. The Appeal to the Assistant Commissioner failed. On further appeal the Tribunal spread the cost of the original shares to the total shares (original and bonus shares) and calculated the loss accordingly. On reference, the High Court held in favour of the assessee. On the revenue's appeal to the Supreme Court : HELD The Tribunal's method was the correct method of spreading the price of the original shares over the original and the bonus shares and calculating the profit or loss accordingly. The instant appeal was, therefore, to be allowed. Note : The case was decided in favour of the revenue. CASES REFERRED CIT v. Gold Mohore Investment Co. Ltd. [1969] 74 ITR 62 (SC), CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567 ; [1964] 7 SCR 210 (SC). JUDGMENT Hidayatullah, CJ.-This case arises from the judgment and order of the High Court of Calcutta dated August 27, 1963, in Income-tax Reference No. 66 of 1954. The case has been certified to this court under section 66A(1) of the Income-tax Act, 1922. The assessee-company is a dealer in shares. The company maintains its books on the cost basis and values the opening and closing stock at cost. The account year (financial year) involved in this appeal is the year ending March 31, 1949, corresponding to the assessment year 1949-50. The account year…

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