CHAINRUP SAMPATRAM vs. COMMISSIONER OF INCOME-TAX, WEST BENGAL.

CIVIL APPEAL No. 142/1952Supreme Court[1954] 1 S.C.R. 21109 October 1953Bench: 5 JudgesAuthor: M. PATANJALI SASTRI, SUDHI RANJAN DAS, VIVIAN BOSE, GHULAM HASAN, NATWARLAL HARILAL BHAGWATI8 pages
AI SummaryDismissed

What were the facts?

The assessee, a registered firm carrying on business as bullion merchants in Calcutta, dispatched 582 silver bars to Bikaner during the accounting year 1941-42, showing them as sold to the partners. The Income-tax authorities disbelieved the sale, treating the bars as stock-in-trade. They valued these bars at their market price at the close of the year, which was higher than the cost, and assessed the firm's profits at Rs. 2,20,887 for the assessment year 1942-43. The assessee claimed exemption under Section 14(2)(c) of the Indian Income-tax Act, 1922, arguing that the profit accrued in Bikaner, an Indian State. The High Court held the profit arose from valuation at Calcutta and was taxable. The firm appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the High Court's view that the profit arose out of the valuation of closing stock and its situs was where the valuation was made, was erroneous. However, the Court agreed with the High Court's conclusion that the profit was taxable, but on different grounds. The Court reasoned that the source of profit is the business itself, and the place of accrual is where the business is carried on. Since the assessee's business was carried on in Calcutta, and the silver bars were part of the stock-in-trade of that business, the entire profits of the year must be taken to have accrued or arisen at Calcutta. The valuation of closing stock is a necessary part of determining trading results and not the source of profit. Therefore, Section 14(2)(c) did not apply. The appeal was dismissed.

What were the issues?

1. Whether, in the circumstances of the case and on a true construction of Section 4(1)(b) and Section 14(2)(c) of the Indian Income-tax Act, 1922, the sum of Rs. 2,20,887 was legally assessable to tax? Assessee's contentions: - The increased value of the silver bars at the close of the year accrued at Bikaner, where the bars were located. Therefore, this profit was exempt from tax in British India under Section 14(2)(c) as it arose within an Indian State. Revenue's contentions: - The High Court's reasoning that the profit arose from the valuation and its situs was where the valuation was made was erroneous. However, the conclusion that the profit was taxable could be supported on the ground that the source of profit was the business, and as profits are ascertained by bringing closing stock into the trading account, the entire profit accrues at the place of business, which is Calcutta.

Which sections of the Income-tax Act were involved?

Section 4(1)(b),Section 14(2)(c),Section 66(1),Section 66(2),Section 4-A,Section 4-B

AI-generated summary — verify with the full judgment below

• S.C.R. SUPREME COURT REPORTS 211 High Court held that the profits for three months from the 1st January, 1946, to the 1st April, 1946, were not reserves which would attract the application of rule 2 of Schedule II. With this conclusion we agree.

The assessee's appeal is, therefore, dismissed with costs.

Appeal No. 157 allowed.

Appeal No. 158 dismissed.

Agent for the Rajadhyaksha.

Commissioner of Income-tax: Agent for the company: I. N. Shroff. CHAINRUP SAMPATRAM v. COMMISSIONER OF INCOME-TAX, WEST BENGAL. G.H. [PATANJALI SAsTRI C. J., S. R. DAs, VIVIAN BosE, GHULAM HASAN and BHAGWATI JJ.] Indian Income-tax Act (XI of 1922), ss. 4(1)(b) and 14(~)(c)­ Ascertainment of profit by valuation of stock-Stock-in-trade removed to Native State-·Place where profit accrnes-Exemption itnder s. 14 (2) (c)-Principles underlying vali;ation of stock.

The assessee firm which carried on business at Calcutta in bullion despatched during the accounting year to Bikaner, where its part- ners resided, a certain quantity of silver bars and showed them as having been sold to the partners. The Income-tax authorities disbelieved the story oi' the sale and, treating the bars as st

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 66(1)

All 184 judgments and leading authorities on Section 66(1) →

Recent GST High Court judgments

Search GST case law →