TMI Blog1978 (7) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... had been transferred from the trading account of the assessee to its investment account at Rs. 80 per share two days before the closing of the assessee's accounts. At its assessment the assessee claimed a loss on account of transfer of the said 2,702 shares from its trading account to its investment account aggregating to Rs. 81,060. The ITO held that the loss claimed by the assessee did not arise on account of any dealing in the said shares or on the valuation thereof on the date of the closing of the accounts, such loss was being claimed on mere transfer of the said shares from the assessee's share account to its investment account for which no loss could accrue. A profit or loss could only arise when a particular item was either sold or taken to the closing stock and valued according to the method followed. The ITO, therefore, added back the said sum of Rs. 81,060 to the income of the assessee. Being aggrieved by the order of the ITO, the assessee preferred an appeal to the AAC. It was contended in the appeal that the opening stock of the shares of the said company having been brought into the assessee's account at market value, the assessee would be entitled to transfer the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her on the facts and in the circumstances of the case, the Tribunal was right in holding that the loss of Rs. 81,060 claimed by the assessee on transfer of 2,702 shares of Bengal Paper Mills Ltd. from trading account to investment account was allowable as a trading loss ? " At the hearing Mr. Suhas Sen, learned counsel for the revenue, has contended before us that in order to claim a trading loss the assessee had to establish either that the shares held as trading stock had been sold in the course of its business during the year at a lesser price than the value of the opening stock or had been carried to the closing stock at the end of the year and the market value thereof on that date was lower than that at the opening. A transfer during the middle of the year not being a sale, could not result in any loss or gain, and the value of the shares transferred would be nil. In the instant case, the transfer from a trading account to an investment account was not a commercial transaction. There could not be a contract with one's own self. Therefore, in such a transaction there could not be any question of trading loss or trading gain. Learned counsel for the assessee has contended on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh income tax statutes. The assessee also carried on a separate activity in running racing stables which was not liable to be taxed being a recreational enterprise. The assessee bred horses at her stud farm for her racing stables. In the relevant accounting year there was a transfer of five horses from the stud farm to the stables. The question arose whether the stud farm trading account could be credited only with the cost of production of the animals transferred or their market value. It was contended on behalf of the revenue that it was the market value of the horses transferred and not the cost of their production with which the account must be credited. The opinion of the House of Lords was that where a person carried on a trade and disposed of part of his stock in trade not by way of sale in the course of trade but for his own use, enjoyment or recreation, he must bring into his trading account for income-tax purposes the market value of that stock-in-trade at the time of such disposition and that accordingly the amount to be credited to the stud farm account on the transfer of the horses was their market value and not the cost of breeding them. (c) CIT v. Bai Shirinbai K. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket value which gave a fairer measure of assessable trading profit. It is significant that the House of Lords reached that conclusion not without dissent. If the facts of the case which we are now considering were similar to the facts of Kikabhai's case [1953] 24 ITR 506 (SC), it might have been necessary for us to re-examine the ratio of that decision. It is necessary to state here, however, that the decision of the House of Lords in Sharkey v. Wernher [1956] 29 ITR 962 (HL) is not an authority which is binding on us. It is only an authority of persuasive value entitled to great respect." The Supreme Court upheld the decision of the Bombay High Court and laid down the law as follows (at page 95) : " What then is the basis for computing the actual profits in the present case ? We think that the basis must be, as the High Court has put it, the ordinary commercial principles on which actual profits are computed. We think that the approach of the High Court was correct and normally the commercial profits out of the transaction of sale of an article must be the difference between what the article cost the business and what it fetched on sale. So far as the business or trading act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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