1. The facts found and/or admitted in the present proceedings are of a short compass. Messrs. Dhanuka & Sons, the assessee, is a registered firm and at the material time had been carrying on business in purchase and sale of shares. It was also an investor in shares. In its accounts the opening stock as well as the closing stock of shares held in its business used to be valued at the market rate thereof prevailing on the said dates.
2. In the assessment year in question, viz., 1958-59, the relevant accounting period being the year ended Dewali S.Y. 2014, the assessee held certain shares of a company known as Messrs. Bengal Paper Mills Ltd. (hereinafter referred to as 'the said company'). 12,652 shares of the said company, as part of the opening stock of the assessee, were valued at Rs. 110 per share, and at closing 952 shares thereof valued at Rs. 80 per share were retained on the 19th October, 1957. 2,702 shares of the said company 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.
3. 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.
4. 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 said shares to its investment account also at market value. There would be a sale from the assessee as a trader to itself as an investor and, therefore, the assessee had suffered loss in its business. The AAC found that no sale was involved in the transaction, as a person could not sell to himself arid make a profit out of himself. He upheld the disallowance by the ITO.
5. Being aggrieved, the assessee preferred a further appeal to the Tribunal. It was contended before the Tribunal that on the 19th October, 1957, the assessee had transferred the said shares from its trading stock to its investment account at the prevailing market rate and that the loss following therefrom should have been allowed as a revenue loss. It was contended further that had the shares not been transferred to the investment account the loss would have to be allowed at the end of the year when the said shares would be valued. It was contended on behalf of the revenue on the other hand that there could not be a transaction with one's own self nor could there be any profit or loss out of such a transaction.
6. The Tribunal noted that the assessee admittedly had been valuing its shares at the market rate both in the beginning and at the end of the accounting period. Whether there would be any loss arising out of this particular transfer or whether the assessee would be entitled to treat the same as a loss, according to the Tribunal, would be determined by the principles of accountancy. The Tribunal noted further that there was no sale but a change-over from the trading stock to the investment account of the assessee. Appreciation or depreciation in the value of such stock continuously affected the commercial profit or loss of the assessee which crystallised only on the date when it would be sold or when it would be transferred from its business account to a non-business account or when it would be valued on the last day of the accounting period. Accordingly, the Tribunal held that the loss suffered by the assessee was a trading loss and directed the ITO to allow the same. The appeal of the assessee was allowed.
7. On an application of the Commissioner, West Bengal-II, Calcutta, under Section 66(1) of the Indian I.T. Act, 1922, the Tribunal has drawn up a statement of case and has referred for the opinion of this court the following question as a question of law arising out of its order:
'Whether, 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 ?'
8. 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 ease, 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.
9. Learned counsel for the assessee has contended on the other hand, that the assessee had two distinct businesses, viz., those of share-dealing and investment. He submitted that if the said shares had been sold by the assessee from its trading stock and re-purchased for the purpose of its investment, the loss, as in the instant case, would clearly be a trading as well as a revenue loss. If there was any dealing with the shares during the accounting year such dealing must be reflected in the books of account of the assessee at the prevailing market rate. The debits and credits if properly made would clearly show a loss suffered by the assessee.
10. In support of the respective contentions of the parties a number of decisions have been cited from the Bar. We propose to refer to the same in their chronological order :
(a) Sir Kikabhai Premchand v. CIT : 24ITR506(SC) . The facts in this case were that the assessee was a dealer in silver and also in shares. He maintained his accounts on mercantile basis and valued his stocks at cost price both at the beginning and at the end of the year. During the relevant year of account, the assessee withdrew some silver bars and shares from his business and settled the same on certain trusts where he was the managing trustee. In his books, the assessee credited his business with the cost price of the bars and shares as withdrawn. It was contended by the income-tax authorities that the assessee had derived an income on such a transfer which was the difference between the cost price of the silver bars and shares and their market value at the date of their withdrawal from his business. The Appellate Tribunal and the High Court upheld the contentions of the revenue. On further appeal, the Supreme Court held that no income did arise to the assessee as a result of the said transfer. A further advantage might have been stored up by the assessee for himself but the transaction not being a business transaction and the assessee having derived no immediate pecuniary gain, the transaction was not exigible to tax inasmuch as the I.T. Act did not provide for taxation of a potential future advantage.
(b) Sharkey (Inspector of Taxes) v. Wernher  29 ITR 962. This is a decision of the House of Lords. The facts were that the assessee carried on a stud farm and raised racing horses. This activity came within the definition of 'husbandry' and was taxable under the relevant English 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. Kooka : 46ITR86(SC) . The facts in this case were that the assessee, a lady, held by way of investment a large number of shares. In the assessment year in question, the ITO held that the assessee had converted her investment in shares into her stock-in-trade and had carried on a business in shares. The ITO calculated the profits earned by deducting from the sale proceeds the market price of the shares at the beginning of the accounting year. On appeal, the AAC enhanced the income of the assessee by including therein a capital gain. In a further appeal to the Tribunal, it was held that the market value of the shares on the date they were converted into stock-in-trade by the assessee should be considered for ascertaining the profits. On a reference, the Bombay High Court held that the assessable profits was the difference between the sale price and the market price prevailing on the commencement of the assessment year. The matter came up before the Supreme Court on a final appeal. The Supreme Court considered its earlier decision in Kikabhai's case and came to the conclusion that the facts in Kikabhai's case and the principles laid down therein were different from the case before it. The Supreme Court observed as follows (at page 92): 'From what has been stated above it would at once appear that Kikabhai's case : 24ITR506(SC) was the converse of the present case. In Kikabhai's case a part of the stock-in-trade was withdrawn from business; there was no sale nor any actual profit. The ratio of the decision was simply this. Under the Income-tax Act the State has no power to tax a potential future advantage and all it can tax is income, profits and gains made in the relevant accounting year. In the case under our consideration the admitted position is that there has been a sale of the shares in pursuance of a trading or business activity and actual profits have resulted from the sale. The question in the present case is not whether the State has a power to tax potential future advantage, but the question is how should actual profits be computed when admittedly there has been a sale in the business sense and actual profits have resulted therefrom.'
11. The Supreme Court also considered Sharkey's case  29 ITR 962 and observed as follows (at page 95):
'In Sharkey v. Wernher the House of Lords held that the proper figure should be the market 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 : 24ITR506(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  29 ITR 962 is not an authority which is binding on us. It is only an authority of persuasive value entitled to great respect.'
12. 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 activity was concerned, the market value of the shares as on April 1, 1945, was what it cost the business. We do not think that there is any question of a notional sale here. The High Court did not create any legal fiction of a sale when it took the market value as on April 1, 1945, as the proper figure for determining the actual profits made by the assessee. That the assessee later sold the shares in pursuance of a trading activity was not in dispute ; that sale was an actual sale and not a notional sale ; that actual sale resulted in some profits. The problem is how should these profits be computed. To adopt the language of Lord Radcliffe, the only fair measure of assessing trading profits in such circumstances is to take the market value at one end and the actual sale proceeds at the other, the difference between the two being the profit or loss, as the case may be. In a trading or commercial sense, this seems to us to accord more with reality than with fiction.'
13. On a careful consideration of the respective submissions of the parties and the decisions cited before us, it appears that the facts in the present case are more in conformity with the facts in Sir Kikabhai Premchand : 24ITR506(SC) than with the facts in Bai Shirinbai K. Kooka : 46ITR86(SC) . In the instant case, there has been withdrawal of a part of the stock-in-trade from the assessee's business. This withdrawal was not in the course of a business transaction with a third party. In fact, strictly speaking, there has been no transaction at all because a person cannot be said to have a transaction with one's own self. We do not agree with the contention of Mr. Sen that such a transfer should be reflected in the books at nil value. In our opinion, the transaction will have to be entered in the account at the value in which the item was being carried, that is, at the market value of the opening stock. Had it been a case of a sale or transfer to a third party, it is only then the question of crediting the account with the current market value would arise. If instead of the middle of the accounting year, the transfer was effected either at the beginning or at the end of the year from its opening or closing stock, it would be the market value of either the opening or the closing stock with which the account would have to be credited. But a withdrawal of such stock during the accounting year would be reflected in the accounts by the value at which such stock was being carried.
14. Further, in our view, there cannot be any actual profit or loss in such transfers where no third party is involved and the items are kept in a different account of the assessce himself. The question of gain or loss would arise in the facts of the instant case only in future when the stocks transferred to the investment account might be dealt with by the assessee. If such shares be disposed of at a value other than the value at which it was transferred from the business stock, the question of capital loss or capital gain would arise.
15. For the reasons as stated above, the revenue succeeds in this reference. The question is answered in the negative. There will be no order as to costs.
C.K. Banerji, J.
16. I agree.