Market value as cost for succession stock: opening stock may be valued at market price on vesting for income-tax purposes.

Where stock-in-trade is acquired by inheritance or testamentary disposition and introduced into a new business, the appropriate income-tax valuation for opening stock is its market value on the date of vesting, because that market value constitutes the cost or value to the new owner; this applies notwithstanding the predecessor's book values or continuity of prior accounts. The mercantile requirement of consistent valuation (cost or market, whichever lower) is acknowledged, but succession without purchase permits market value on vesting to be treated as the first purchase value for the successor's business, benefitting the assessee accordingly.

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Issues: Whether, on succession to a business by testamentary disposition, the opening stock of the new business may be valued at the market price on the date of vesting (market value) for income-tax purposes.

Analysis: The mercantile system requires valuation of opening and closing stock for computation of profits, generally at cost or market whichever is lower, applied consistently. Where a person acquires stock by inheritance or bequest and thereafter puts that stock into a new business, the value of the stock to that owner is its market value on the date when it is put into the business; that market value represents the cost to the new owner. Authorities recognising that the relevant figure is the value to the owner were applied, and decisions distinguishing acquisition by purchase from acquisition by succession were relied upon to show that market value on vesting is the appropriate measure when no purchase price is paid. Continuity of the predecessor's accounting or book value does not automatically fix the opening stock value for the successor's new business.

Conclusion: The opening stock of the successor's business must be taken at the market value on the date of vesting; the assessee is entitled to show the first purchase (stock taken into the new business on succession) at the market price on the date of vesting, and the question is answered in the affirmative in favour of the assessee.

Ratio Decidendi: When a taxpayer acquires stock-in-trade by inheritance or bequest and puts it into a new business, the cost for income-tax valuation is the market value of the stock on the date of vesting, as that market value represents the value of the property to the new owner.

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