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Issues Involved:
1. Whether the loss claimed by the assessee on the transfer of shares from trading account to investment account is allowable as a trading loss. Summary: Issue 1: Allowability of Loss on Transfer of Shares from Trading to Investment Account The assessee, a registered firm engaged in the purchase and sale of shares, transferred 2,702 shares of Bengal Paper Mills Ltd. from its trading account to its investment account at Rs. 80 per share, claiming a loss of Rs. 81,060. The ITO disallowed the loss, stating that no profit or loss could arise from a mere transfer within the same entity, as there was no sale involved. The AAC upheld this view, emphasizing that a person cannot sell to oneself and make a profit or loss. The Tribunal, however, allowed the appeal, holding that the loss was a trading loss since the shares were valued at market rate at both the beginning and end of the accounting period. The Tribunal noted that appreciation or depreciation in value affects commercial profit or loss, crystallizing only upon sale or transfer to a non-business account. Upon reference, the High Court considered precedents including Sir Kikabhai Premchand v. CIT and CIT v. Bai Shirinbai K. Kooka. The Court concluded that the facts were more aligned with Kikabhai's case, where no income arose from a transfer within the same entity. The Court held that there was no actual profit or loss in such internal transfers, and any gain or loss would only arise upon future dealings with the transferred shares. Thus, the High Court answered the question in the negative, ruling that the loss claimed by the assessee was not allowable as a trading loss. The revenue's position was upheld, and there was no order as to costs.
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