Capital gains treatment upheld for share investments managed through portfolio services and funded by borrowings.

Profit from sale of shares held through a portfolio management scheme was treated as capital gains because the shares were retained as investments, and the assessee did not maintain its own trading infrastructure or personnel; the use of a professionally managed scheme was only a method of prudent investment and did not convert the activity into business. Borrowed funds used to acquire shares likewise did not alter the capital character of the investment, since borrowing by itself does not establish trading activity. The Tribunal's view that the transactions remained capital in nature was upheld, and no substantial question of law was found to arise.

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Issues: (i) whether profit on sale of shares invested through a portfolio management scheme was assessable as business income or capital gains; (ii) whether investment in shares out of borrowed funds converted the activity into a trading business.

Issue (i): Whether profit on sale of shares invested through a portfolio management scheme was assessable as business income or capital gains.

Analysis: The shares were held as investments and were managed through a professionally operated portfolio management scheme. Mere use of such a facility, without the assessee maintaining its own business infrastructure or engaging its own personnel for share trading, did not alter the character of the holding. The mode adopted was only a prudent method of investment aimed at better returns and did not transform the investment activity into a business.

Conclusion: The profit was assessable as capital gains and not as business income, in favour of the assessee.

Issue (ii): Whether investment in shares out of borrowed funds converted the activity into a trading business.

Analysis: The use of borrowed funds for acquiring capital assets is not prohibited by law. The borrowing, by itself, did not establish a trading or business character in the transaction. The Tribunal's view that such investment could still retain its capital nature was consistent with the governing circular and the surrounding facts.

Conclusion: The borrowed funds did not change the character of the transaction, in favour of the assessee.

Final Conclusion: No substantial question of law arose and the Revenue's challenge to the Tribunal's view failed.

Ratio Decidendi: Investment in shares through a portfolio management scheme, without the assessee's own trading infrastructure, retains the character of capital investment, and the mere use of borrowed funds does not by itself convert such investment into business activity.

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