Share-sale surplus taxed as short-term capital gains where investment treatment and surrounding facts outweighed trading-style volume.

Shares shown as investments in the books, not valued as stock-in-trade, and subjected to securities transaction tax were treated as capital assets rather than trading stock. The Revenue's reliance on transaction volume, frequency, and financing of certain IPO applicants did not, without concrete evidence of nexus or collusion, establish that the shares were acquired as trading assets. The applicable test required a cumulative assessment of intention at purchase, treatment in accounts, continuity and frequency of dealings, and surrounding circumstances. On those facts, segregation based only on the mode of acquisition was unjustified, and the surplus was taxable as short-term capital gains, not business income.

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Issues: Whether surplus arising from sale of shares was taxable as business income or as short-term capital gains.

Analysis: The assessee had shown the shares as investments in its books, had not valued them as stock-in-trade, and had paid securities transaction tax. The Revenue relied on the volume and frequency of transactions and on the financing of certain IPO applicants, but no concrete material established any nexus or collusion showing that the shares were acquired as trading assets. The applicable test was the cumulative assessment of intention at purchase, treatment in accounts, frequency and continuity of dealings, and surrounding circumstances. On those facts, the artificial segregation made only on the basis of the mode of acquisition was not justified.

Conclusion: The surplus was taxable as short-term capital gains and not as business income; the assessee succeeded and the Revenue failed.

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