TaxTMI 
TaxTMI 
1978 (11) TMI 2
X X X X Extracts X X X X
X X X X Extracts X X X X
....eferred to as the "West German collaborators") a factory for fabrication and manufacture of hosiery needles and it was not disputed on behalf of the assessee that this factory started business sometime prior to the commencement of the relevant year of account. It appears that in the early part of the relevant accounting year, the assessee received from the West German collaborators consignment of machinery costing Rs. 9,45,545 and along with this consignment, the West German collaborators also sent to the assessee certain goods free of cost. These goods consisted partly of raw materials and partly of semi-finished needles at various stages of manufacture. The invoice in respect of this consignment was dated 4th April, 1961, and it showed on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and the "Semi-Processed Needles Gift Account" by transferring the respective sums of Rs. 44,448.20 and Rs. 30,000 to the credit of the "Capital Reserve Account" and debited an aggregate sum of Rs. 74,448.20 to the trading account by making corresponding credit entries in the accounts of "Wire and Strip" and "Semi-Processed Needles". The net effect of these entries was that the profit of the assessee was reduced by Rs. 74,448.20. The ITO in the course of the assessment of the assessee to income-tax for the assessment year 1962-63, took the view that the debit of Rs. 74,448.20 was wrongly made in the trading account as on 31st March, 1962, since no monies were expended by the assessee in acquiring the raw materials and semi-finished needles, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e" since they were taken out of the ambit of taxability by sub-s. (3) of s. 10 of the I.T. Act, 1961. The High Court accordingly answered the questions referred by the Tribunal in favour of the assessee and against the revenue. The revenue thereupon brought the present appeal with special leave obtained from this court. It was found as a fact by the Tribunal, and indeed there was no dispute about it, that the raw materials and semi-finished needles were received by the assessee from the West German collaborators free of cost by way of gift. These raw materials and semi-finished needles were received some time in April, 1961, and it was only on 30th September, 1961, that they were for the first time introduced in the books of account of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....termining the profit arising from the sale of manufactured products. The entries made by the assessee in the books of account of the business on 30th September, 1961, clearly reflected this position. The assessee debited the sums of Rs. 44,448.20 and Rs. 30,000 representing respectively the market value of these raw materials and semi-finished needles to the stock accounts of "Wire and Strip" and "Semi-Processed Needles" which would clearly show that these goods were treated by the assessee as having been introduced in the business as part of its stock at their market value represented by the sums of Rs. 44,448.20 and Rs. 30,000. The position was no different than what it would have been if, instead of giving these raw materials and semi....