Facts

The assessee dealt in silver and shares and a substantial part of his holding were kept in silver bullion and shares. His business was run and owned by himself and  his accounts were maintained according to the mercantile system. The stocks of silver bars and shares werevalued at cost.

In the course of the year the appellant withdrew some bars and shares from the business and settled them on certain trusts. The assessee credited the business  with the cost price of the bars and shares withdrawn.

Issue

Whether act of withdrawal resulted in income, profit or gain either to the assessee   or to his business?

Views

The act of withdrawing silver bars and shares was not  a  business transaction and by that act the business made no profit or  gain, nor  did  it  sustain a  loss, and the appellant derived no income from it. The assessee may have stored up a future advantage for himself but as the transactions were not business ones and     as the assessee derived no immediate pecuniary gain the State cannot tax them,   for under the Income-tax Act the State has no power to tax a potential future advantage. The State can tax only income, profits and gains made in the relevant accounting year. The business is owned and run by the assessee himself. It is wholly unreal and artificial to separate the business from its owner and treat them    as if they were separate entities trading with each other and then by means of a fictional saleintroduce a fictional profit which in truth and in fact is non-existent.

Held

A person cannot make a  profit from dealing with himself. (AY.  1943-44) (CA  No. 144 of 1952 dt. 9-10-1953)

Editorial: In CIT v.  Hind Construction Ltd (1972) 83 ITR 211 (SC), the Court  held that no one can sell his goods to himself. A sale contemplates a seller and a purchaser. If a person re-values his goods and shows a higher value for them in   his books, he cannot be considered as having sold these goods and made profits therefrom.

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– Mahatma Gandhi