VIVIAN BOSE,J.:

(1) THIS is an appeal by an assessee against a judgment and order of the High court at Bombay delivered on a reference made by the Income-tax Appellate tribunal. The Bombay High court refused leave to appeal but the assessee obtained special leave from this court.

(2) THE appellant deals in silver and shares and a substantial part of his holding is kept in silver bullion and shares. His business is run and owned by himself. His accounts are maintained according to the mercantile system. It is admitted that under this system stocks can be valued in one of two ways and provided there is no variation in the method from year to year without the sanction of the Incometax authorities an assessee can choose whichever method he wishes. In this case, the method employed was the cost price method, that is to say, the cost price of the stock was entered at the beginning of the year and not its market value and similarly the cost price was again entered at the close of the year of any stock which was not disposed of during the year. The entries on the one side of the accounts at the beginning of the year thus balance those on the other in respect of these items with the result that so far as they are concerned the books show neither a profit nor a loss on them. This was the method regularly employed and it is admitted on all hands that this was permissible under this system of accounting.

(3) THE accounting year with which we are concerned is the calendar year 1942. The silver bars and shares lying with the appellant at the beginning of the year were valued at cost price.

(4) IN the course of the year the appellant withdrew some bars and shares from the business and settled them on certain trusts, three in number. The appellant was one of the beneficiaries in all three trusts retaining to himself a reversionary life interest after the death of his wife who was given the first life interest. After certain other life interests the ultimate beneficiaries were charities. The appellant was the managing trustee expressly so created in two of the trusts and virtually so in the third. In his books the appellant credited the business with the cost price of the bars and shares so withdrawn and there lies the crux of the issue which we have to determine. There is no suggestion in this case that the bars and shares were withdrawn from the business otherwise than in good faith.

(5) ACCORDING to the appellant, the act of withdrawal resulted in neither income nor profit nor gain either to himself or to his business, nor was it a business transaction, accordingly it was not taxable.

(6) THE learned Attorney-General raised two contention. First, he said that as the bars and shares were brought into the business any withdrawal of them from the business must be dealt with along ordinary and well-known business lines, namely, that if a person withdraws an asset from a business he must account for it to the business at the market rate prevailing at the date of the withdrawal. He said that the mere fact that the appellant was the sole owner of the business can make no difference, for under the Act income is assessable under distinct beads and when we are working out the income of a business the rules applicable to business incomes must be applied whoever is the owner. His second contention was that if the act of withdrawal is at a time when the market price is higher than the cost price, then the State is deprived of a potential profit. He conceded that had the market rate been lower than the cost price, then the appellant would have been entitled to set off the loss on those transactions against his overall profit on the other transactions and thus obtain the advantage of a lower tax on the overall picture.

(7) WE are of opinion that the learned Attorney-Generals second contention is unsound because, for income tax purposes, each year is a self-contained accounting period and we