Composite test for share transactions treats limited trading and investment treatment as short term capital gain, not business income.

Income from sale of shares was assessed as short term capital gain rather than business income because no single factor was conclusive and the character of the holding had to be determined from the overall pattern. The Court applied a composite test, noting that the shares were reflected as investments in the books, the number and frequency of transactions were limited, there was no significant or continuous trading activity, and dividend income was not decisive by itself. It also recognised that liquidation of an investment in response to market conditions does not, on its own, convert it into trading stock. On the facts, the overall conduct indicated investment activity, not a business of share trading.

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Issues: Whether the income from sale of shares was assessable as business income or as short term capital gain.

Analysis: The Court applied a composite test and held that no single factor was conclusive. Relevant circumstances included the manner in which the shares were reflected in the assessee's books, the limited number of transactions in most scrips, the relatively low frequency of trades, the absence of significant and continuous trading activity, and the fact that dividend income did not by itself determine the character of the holding. The Court also noted that investment may be liquidated in response to market conditions without losing its character as investment. On the facts, the shares were shown as investments and the overall pattern did not indicate trading as a business.

Conclusion: The income was correctly treated as short term capital gain and not as business income.

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