Share investment through a portfolio manager was treated as short-term capital gain, not business income, on holistic facts.

Profit from sale of listed shares routed through a portfolio manager was held to be assessable as short-term capital gain, not business income. The analysis applied CBDT Circular No. 6/2016, which recognises an assessee's choice to treat listed shares and securities as investment or stock-in-trade. On the facts, the use of surplus own funds and investment through a portfolio arrangement did not by itself show an adventure in the nature of trade. The transactions had to be tested holistically on conduct and surrounding circumstances, rather than solely on purchase-sale activity or the extent of discretion given to the portfolio manager.

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Issues: Whether the profit arising from sale of shares routed through a portfolio manager was assessable as business income or as short term capital gain.

Analysis: The assessee had invested surplus funds in listed shares and securities through a portfolio investment arrangement. The assessee's case was supported by Circular No. 6/2016 of the Central Board of Direct Taxes, which recognises the assessee's option to treat listed shares and securities as investment or stock-in-trade. The surrounding facts, including use of own funds and investment through a portfolio arrangement, did not establish an adventure in the nature of trade. On the principles applied in the jurisdictional decision relied upon, the nature of the transactions had to be tested holistically from the conduct and surrounding circumstances, and not merely from the fact of purchase and sale or the level of discretion given to the portfolio manager.

Conclusion: The income from sale of shares was not business income and was to be assessed as short term capital gain.

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