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Issues: Whether the income arising from sale of shares held in the investment portfolio could be assessed as business income instead of short-term and long-term capital gains.
Analysis: The assessee maintained separate investment and trading portfolios, separate demat and bank accounts, and distinct entries in the books of account. The arrangement had been followed in earlier years and had been accepted by the department. The CBDT circular on the subject recognises that a taxpayer may maintain two portfolios, one for investment and one for trading, and that no single factor is decisive; the totality of circumstances must be considered. On the record, the share transactions from the investment portfolio were separately identified and there was no material showing intermingling of the two portfolios. The adverse inference drawn by the Assessing Officer was held to be based on conjectures and surmises. The Tribunal also accepted the finding that the long-term capital gain on the transfer of shares of VRL could not be recharacterised as short-term capital gain, since the evidence showed allotment more than twelve months earlier. The unexplained denial of speculation loss was also noticed and the direction to allow carry forward was left undisturbed.
Conclusion: The treatment of the share transactions as capital gains was upheld and the addition as business income was not sustained. The assessee succeeded on the substantive issue.
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