Share investment versus trading income: delivery-based transactions and past acceptance supported capital gains treatment over business income.

Profit from sale of shares and mutual funds was treated as capital gains rather than business income where the assessee reflected the shares as investments, the transactions were delivery-based, and the holdings were maintained for a fairly long period. Consistency with the treatment accepted by the Revenue in earlier years supported the same classification on identical facts, and the distinction between investment activity and trading activity in shares was reinforced by CBDT guidance and judicial precedent. The income was therefore assessable under the heads of short-term capital gain and long-term capital gain, not as business income.

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Issues: Whether profit arising from sale of shares and mutual funds was assessable as business income or as short-term capital gain and long-term capital gain.

Analysis: The assessee had shown the shares as investments, the transactions were delivery-based, and the shares were held for a fairly long period. In earlier years, the Revenue had accepted the same treatment as capital gains. On the identical facts, the view taken in the preceding year could not be departed from. The CIT(A) also relied on the relevant CBDT circular and judicial precedent supporting the distinction between investment activity and trading activity in shares.

Conclusion: The income from sale of shares and mutual funds was correctly assessable under the heads of short-term capital gain and long-term capital gain, and not as business income, in favour of the assessee.

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