REGULAR SALE & PURCHASE OF SHARES IS TREATED AS INCOME FROM BUSINESS INSTEAD OF INCOME FROM CAPITAL GAINS
Courts
have laid down principles for deciding the question as to when income from sale
of shares can be said to be income from business. The following are some of the
important decisions in this regard:
(a)
Whether a transaction of sale and purchase of shares were trading transactions
or whether they were in the nature of investments is mixed question of law and
fact. Learned CIT(A) v. H. Holck Larsen, [1986] 60 ITR 67.
(b) It is possible for an
assessee to be both an investor as well as a dealer in shares. Whether a
particular holding is by way of investment or formed part of stock in trade is
a matter which is within the knowledge of the assessee and it is for the
assessee to produce evidence from his records as to whether he maintained any
distinction between shares which were hold by him as investments and those hold
as stock in trade. (CIT v. Associated Industrial Development Co. Ltd., [1971]
82 ITR 586 (SC).
(c)
Treatment in the books by an assessee will not be conclusive. If the volume,
frequency and regularity with which transactions are carried out indicate
systematic and organized activity with profit motive, then it would be a case
of business profits and not capital gain. CIT v. Motilal Hirabhai Spg. &
Wvg. Co. Ltd., [1978] 113 ITR 173 (Guj); Raja Bahadur Visheshwara Singh v. CIT
[1961] 41 ITR 685 (SC).
(d)
Purchase without an intention to resell where they are sold under changed
circumstances would be capital gains. CIT v. PKN Co. Ltd. [1966] 60 ITR 65
(SC). Purchase with an intention to resell would render the gain profit on sale
business profit depending on the circumstances of the case like nature and
quantity of article purchased, nature of the operation involved. Saroj Kumar
Mazumdar v. CIT [1959] 37 ITR 242 (SC).
