Law: Income Tax Act, 1922

Section:

Income-tax---Accounting---Cash system of accounting---Valuation of closing stock ---Assessee engaged in sales circulation business ---Assessee receiving monies from a subscriber---Subscriber to sell coupons to three other persons and when cycle was complete subscriber to get a gift article and as regards incomplete cycle assessee not obliged to send gift or return money ---Assessee not entitled to deduct value of gift articles re mine with him from gross receipts of business. The assessee was engaged in a business under the name and style of "Srinivasa Circulation Scheme", which involved the assessee inviting a person to choose a gift and becoming entitled to that gift on his paying a sum of Rs. 5 and thereafter three persons whom he was required to suggest paying Rs. 15 each for obtaining similar coupons and giving the names of other purchasers of similar coupons. Any person who sent the money order or bank draft for Rs. 45 alongwith the coupon duly filled up would receive the article that was mentioned in the coupon together with three sets of nine coupons. In the assessment for the assessment year 1974-75, the Income-tax Officer added the value of closing stock of gift articles to the amount received by the assessee and thereafter deducted the value of the opening stock and the amount spent on the purchase of gift articles. The addition of the closing stock of gift articles was disputed by the assessee. The assessee claimed that the subscription from the completed cycle alone should be treated as the income and not the amount received from the subscribers who did not complete the cycle. The Tribunal held that the system of accounting followed by the assessee should be accepted or in the alternative the gross calculation made by the assessee should be taken into account and, therefore, the value of the gift articles relatable to those subscribers should be deducted for arriving at the total income. On a reference: Held, that under the Scheme operated by the assessee, the assessee received monies from all those who subscribed to the Scheme. The assessee was liable to send gift articles only to those subscribers whose cycle was complete and to the other three…

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