Share-sale profits as short-term capital gains where distinct investment and trading portfolios are maintained.

Where an assessee maintains separate investment and trading portfolios, shares acquired pursuant to board resolutions for investment, recorded in the investment register and held in the demat investment portfolio, are to be treated as investments. The limited number of companies involved, the consistent treatment in earlier years, and the absence of dividend or a short holding period did not, by themselves, justify reclassifying the holdings as stock-in-trade. The Delhi HC accordingly upheld assessment of the sale proceeds as short-term capital gains and not business income, sustaining the Tribunal's view against the Revenue's challenge.

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Issues: Whether the profit on sale of shares was assessable as business income or as short-term capital gains.

Analysis: The assessee maintained separate portfolios for investments and stock-in-trade. The shares in question were acquired pursuant to board resolutions for investment, were reflected in the investment register, and were kept in the demat investment portfolio. The transactions related to a limited number of companies and the surrounding facts supported the assessee's consistent treatment of such shares as investments in earlier years. Mere absence of dividend on the sold shares or the short holding period, by itself, did not justify reclassifying the investment portfolio as trading stock.

Conclusion: The profit from sale of the shares was rightly assessable as short-term capital gains and not as business income, in favour of the assessee.

Final Conclusion: The Revenue's challenge to the Tribunal's view failed and the assessment of the share-sale profits under the capital gains head was sustained.

Ratio Decidendi: Where an assessee maintains distinct investment and trading portfolios and the shares are demonstrably held as investments, profits on their sale are to be assessed under the capital gains head and not as business income.

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