COMMISSIONER OF INCOME TAX Vs. KISHENLAL BADRILAL
HIGH COURT OF ANDHRA PRADESH
COMMISSIONER OF INCOME TAX
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JAGANMOHAN REDDY, J. -
(1.)THE IT Tribunal at Bombay has referred the following questions of law for determination under s.
66(1) of the Indian IT Act:
(1) Whether the loss of Rs. 4,132 suffered by the assessee in speculation business done in Bombay can be set off against the assessee's income from business in Hyderabad in the previous year relevant to the asst. yr. 1357F.?
(2) Whether the assessee was entitled in law to value the stock of cotton at the end of the immediately preceding year (and thereby at the commencement of this year) at market rate, though the same was higher than cost price?
(2.)FROM the statement of the case it appears that the assessee who is an HUF submitted his returns for the Samvat year 2003 -04 (25th Oct., 1946, to 12th Nov., 1947). The family gets its
income from house property, agriculture, commission business in the name of Ramnarayan
Shivnarayan of Partur and a yarn and cloth business in the name of Shivnarayan Bros. at
Secunderabad. A return filed by the assessee showed a loss of Rs. 4,132 in speculation in Bombay
which was sought to be deducted from the profits of the family business. The ITO rejected this
contention and refused to adjust the amount in computing the profits of the business. On appeal,
the AAC held that the transaction relating to this speculation was controlled from Hyderabad and
that the loss should be considered to have accrued within the State. The Appellate Tribunal,
however, relying on the case of CIT vs. Murlidhar Mathurawalla Mahajan Association (1948) 16 ITR
146 (Bom) directed the ITO to allow the assessee to set off the amount of Rs. 4,132 against his profits from the business in this State. In our view, the Tribunal was right in so directing.
(3.)WE had in the case of CIT vs. Baliram Santhoba (1954) 25 ITR 309 (Hyd) held that such a loss incurred in Bombay could be set off against the profits earned in this State. The learned advocate
for the Department frankly and quite rightly submitted that in the light of that judgment he cannot
press the point raised by the Department. Having regard to the view expressed in the aforesaid
case, the first question will be answered in the affirmative.
With respect to the second question it appears that the assessee has been maintaining his account from Samvat year 1997 - 98 to Samvat year 2003 -04 which is the accounting year
corresponding to 25th Oct., 1946, to 12th Nov., 1947, without striking balances or computing
profits or losses. It may be well to remember that Hyderabad State had no taxation laws till 1352
F., in which year excess profits tax was levied. Prior to that merchants did not maintain regular
accounts, or if they did maintain regular accounts, they were not in the habit of preparing balance
sheets or profit and loss accounts. The assessee appears to be one of those many persons and
though he kept regular accounts, he was not in the habit of closing his accounts to profit and loss
regularly each year. With respect to the stocks, he merely showed book balances in the cotton
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