When a partnership firm is dissolved and the erstwhile partner receives stock, it is a capital asset in his hands. When that asset is introduced into a business as stock, it gets converted into stock-in-trade. The value of this stock will have to be the market value on the date of introduction. The Tribunal’s reasoning that the assessee cannot value the stock introduced in the business at market value because that was not the price she paid for it is flawed because if the assessee on having received her distributed share of stock of jewellery from the dissolved firm had sold it, and thereafter commenced her proprietorship business of jewellery again; within short span; by buying the jewellery from the market from the proceeds of stock sold on dissolution of the erstwhile firms, the stock of the proprietorship concern would without doubt be valued at market value. The same principle would apply if the assessee used her share of the stock obtained from the dissolved firm in the new business

Though the provisions of block assessment are special, the argument that they are a complete Code and the other provisions cannot apply is not acceptable. S. 40A(3) applies to block proceedings Suresh Gupta 297 ITR 322 (SC) & M. G. Pictures 185 CTR (Mad)185 followed; Cargo Clearing Agency 218 CTR (Guj) 541 not followed

The AO held the transaction to be an “adventure in the nature of trade” and not normal investment on the basis that (a) assessee had borrowed funds at an exorbitant rate of 30% and (b) the shares were held by the lender till the entire loan was paid. However, this reasoning loses sight of the fact that merely because the shares had been purchased from borrowed funds obtained on high rate of interest would not change the nature of the transaction from investment to one in the nature of an “adventure in the nature of trade”. Moreover, as the shares were held for a long-period of 14 months, the intention of the assessee had always been that of making investment in shares and not dealing in shares. This is also apparent from the fact that the shares had not been treated as stock in trade by the assessee. The fact that the shares were in the physical possession of the lender was not relevant because the assessee was the owner thereof

As regards deductibility of the interest, though a branch and the HO are the “same person” in general law, Articles 5 & 7 of the DTAA provide that the PE shall be assessable as a separate entity. Under Article 7(3)(b) payment of interest by a bank’s PE to its HO is allowed as a deduction. The result is that the interest paid by the PE to the HO is deductible in computing the PE’s profits (Betts Hartley Huett 116 ITR 425 (Cal) distinguished)