Trading loss on internal transfer of shares rejected where no third-party transaction or realised business loss occurred.

A transfer of shares from a trading account to an investment account did not, by itself, give rise to an allowable trading loss. The internal movement of stock-in-trade was not a sale or other commercial transaction with a third party, so no real profit or loss was crystallised at that stage. Any loss could arise only when the shares were later dealt with in the investment account and an actual gain or loss was realised. The claimed amount was therefore not deductible as a trading loss, and the issue was decided against the assessee.

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Issues: Whether the loss of Rs. 81,060 claimed on transfer of 2,702 shares from trading account to investment account was allowable as a trading loss.

Analysis: The transfer was a withdrawal of stock-in-trade from the assessee's business and not a sale or commercial transaction with a third party. No actual profit or loss arose on such an internal transfer, and the amount could not be treated as a trading loss merely because the shares were shifted from one account to another during the accounting year. The loss, if any, would arise only when the shares were later dealt with in the investment account and a real gain or loss was crystallised.

Conclusion: The claimed amount was not allowable as a trading loss; the question was answered in the negative and against the assessee.

Ratio Decidendi: A transfer of stock-in-trade by an assessee from its trading account to its investment account does not by itself create an actual trading loss or profit, because there is no transaction with a third party and no realised business result.

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