Regular accounting method controls tax timing; dharmada receipts stay taxable absent a genuine enforceable trust.

Regular accounting treatment governed the timing of taxation unless the revenue lawfully displaced it, so losses on New Great Eastern Mill shares and on closure of the Jubbulpore and Katni grain businesses were allowed in the year when the assessee's method treated the transactions as complete. Wheat stock brought into account at actual cost was not to be revalued on an estimated lower market figure, because that would distort real profit or loss and create an artificial earlier loss. Dharmada receipts were includible in income because the alleged fund lacked the attributes of a genuine trust and no enforceable charitable obligation was shown.

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Issues: (i) Whether losses on New Great Eastern Mill shares and on the closure of the grain businesses at Jubbulpore and Katni could be allowed in the year of assessment on the basis of the assessee's regular system of accounting; (ii) whether the loss on wheat stock at Jubbulpore had to be valued at the assessee's original cost or at the Commissioner's estimated market value; (iii) whether dharmada receipts were includible in the assessee's income.

Issue (i): Whether losses on New Great Eastern Mill shares and on the closure of the grain businesses at Jubbulpore and Katni could be allowed in the year of assessment on the basis of the assessee's regular system of accounting.

Analysis: Section 13 of the Income-tax Act, 1922 required income, profits and gains to be computed according to the method of accounting regularly employed by the assessee, unless the Income-tax Officer found that income could not properly be deduced therefrom. The assessee had consistently adopted a system under which final gains or losses were ascertained when the relevant transactions came to an end. The same system had been accepted in other share dealings for the computation of gains, and the refusal to accept it only when losses arose was treated as inequitable. Until the department invoked the proviso to Section 13 and displaced the assessee's method, the regular system had to be accepted.

Conclusion: The losses were allowable in the year of assessment and the answer was in favour of the assessee.

Issue (ii): Whether the loss on wheat stock at Jubbulpore had to be valued at the assessee's original cost or at the Commissioner's estimated market value.

Analysis: The wheat stock had been brought into account at the price actually paid by the assessee. The Commissioner's method of revaluing the stock at a lower market rate would have implied an unclaimed loss in an earlier year and would have produced an arbitrary result. Since the same accounting method had been accepted for analogous items, considerations of justice and proper computation required the stock to be taken at the original cost in order to ascertain the real profit or loss of the business.

Conclusion: The loss was to be allowed on the assessee's basis, and the answer was in favour of the assessee.

Issue (iii): Whether dharmada receipts were includible in the assessee's income.

Analysis: The alleged dharmada fund was not shown to possess the attributes of a true trust. The assessee retained control over the fund, could alter or abolish the arrangement at will, and no enforceable obligation compelled application of the receipts to charity. The receipts therefore lacked the legal character necessary to exclude them from taxable income.

Conclusion: The dharmada receipts were properly included in income, and the answer was against the assessee.

Final Conclusion: The reference was answered partly in favour of the assessee and partly in favour of the revenue, with the first four questions answered in the affirmative and the fifth in the negative.

Ratio Decidendi: Where an assessee consistently employs a regular accounting method, the revenue must accept that method for computing taxable income unless it lawfully displaces it under the governing proviso; amounts are excluded from income only where a genuine enforceable trust or similar legal obligation is established.

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