Market value on conversion governs profit computation when investment shares become stock-in-trade before sale.

When shares originally held as investment are converted into stock-in-trade and later sold, trading profit is computed on ordinary commercial principles by taking the market value at the date of conversion as the business cost. The earlier investment purchase price is only a historical fact and does not govern the computation of real business profits on the eventual sale. The cited Supreme Court authority was treated as distinguishable because it dealt with a fictional sale and potential profits, not an actual sale and actual trading gains.

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Issues: Whether, where shares originally held as investment were converted into stock-in-trade and later sold by the business, the assessable profit was to be computed by deducting the original purchase price or the market value prevailing on the date of conversion into stock-in-trade.

Analysis: The assessable profits of a business are its real commercial profits, to be ascertained on ordinary commercial principles. When the assessee converted the shares into stock-in-trade on 1 April 1945, the relevant inquiry was what those shares cost the business at that time, not what they had cost the assessee as investor before the business commenced. The earlier purchase price represented only a historical fact and could not govern the computation of trading profits arising from a later real sale. The Supreme Court decision relied upon concerned a fictional sale and potential profits, whereas the present case involved an actual sale and actual profits, so that decision did not control the computation here.

Conclusion: The assessable profit on the sale of the shares was correctly computable as the difference between the sale price and the market price prevailing on 1 April 1945, and not the difference between the sale price and the original purchase price.

Ratio Decidendi: Where an asset acquired for investment is later introduced into a business as stock-in-trade, the profit on its eventual sale must be computed on commercial principles by taking its market value at the date of conversion as the business cost.

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