INDO COMMERCIAL BANK LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) WITH reference to the assessment of the assessee bank in the assessment year 1952-53 and 1953-54 -the corresponding years of account were the calendar years 1951 and 1952 - the Tribunal referred two questions under section 66 (I) of the Income-tax Act for the determination of this court. The first question ran :

(2.) THE relevant facts for the determination of this question were never in dispute. THE assessee which carries on a banking business held securities and shares as part of its stock-in-trade or circulating capital. THEse securities and shares were all along valued at cost both at the commencement and at the close of each year of account. In 1950 the assessee bank claimed a loss on the basis of the fall in the market prices, but without changing the basis of valuation it had all along adopted and without any entries in its books of account. That claim was disallowed in the assessment year 1951-52. THE fall in the market prices of the securities which began in 1950 continued in 1951, and to a lesser extent in 1952. To meet that abnormal fall the Reserve Bank allowed the scheduled banks to value their holdings of securities at the current market prices and adjust the resulting loss against the current profits or against the amounts permitted to be drawn from the statutory reserves. THE assessee bank valued the securities at cost at the commencement of 1951, but valued them at the market value was considerably lower at the end of 1951. THE difference was Rs. 5,91,250, which the assessee bank claimed as a trading loss in the assessment year 1952-53. Consistent with the valuation at the end of 1951 the valuation at the commencement of the next year of account 1952 was at the market value. At the end of 1952 the securities were valued again at the market value, which had registered a further fall during the year. THE difference between the opening valuation and the closing valuation in 1952 was Rs. 18,491, which the assessee claimed as a loss in the corresponding assessment year 1953-54. Both items were shown as trading losses in the books of account.

(3.) THE same plea, that a mode of valuation once adopted can never be changed, was presented in a different form. THE learned counsel for the department submitted that the mode or method of valuing the closing stock was a method of accounting within the meaning of section. Section 13 permitted an assessee to choose his method of accounting. But what section 13 required was that that method of accounting should be regularly employed. THE further submission of the learned counsel was that arbitrary changes at the will of the assessee would be inconsistent with the statutory requirement of regular employment of the chosen method of accounting, and therefore no change from a system of accounting regularly employed in the past was ever permissible.