Share dealing as business activity where company articles and profit motive show commercial trading, not passive investment

A company's purchase and sale of Rohtas shares was treated as a business transaction rather than a mere investment. The company's articles expressly authorised it to acquire and deal in shares and to invest funds as its directors considered fit. The surplus funds were deployed in shares of a sister concern, and the acquisition and sale were found to serve the company's own commercial interests. On that basis, the activity was regarded as carried on within its commercial powers and for profit in the course of business, not as passive realisation of an investment.

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Issues: Whether the assessee's purchase and sale of Rohtas shares was a business transaction or merely an investment transaction.

Analysis: The assessee company had express objects in its articles to acquire and deal in shares and to invest moneys as the directors thought fit. The surplus funds were placed in shares of a sister concern whose acquisition and sale were found to promote the assessee's own interests. The transaction was therefore not treated as a mere passive realisation of investment, but as an activity carried on within the company's commercial powers and for profit in the course of its business.

Conclusion: The transaction in the Rohtas shares was a business transaction and not a mere investment transaction, and the answer to the reference was in the affirmative, against the assessee and in favour of the Revenue.

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