Capital gain treatment for listed share sales upheld where genuineness was not disproved and suspicion alone was insufficient.

Income from sale of listed shares was held to be capital gain rather than business income because the assessee's declared treatment of the transaction was supported by the record, and the Revenue failed to prove that the trades were sham or bogus. The CBDT circular favouring acceptance of an assessee's capital-gain treatment for listed shares held beyond 12 months applied only where genuineness was not in doubt; it did not assist the Revenue because mere suspicion based on price movement and trading pattern was insufficient to displace the assessee's position. The assessee's treatment was therefore upheld.

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Issues: Whether income from sale of shares was to be treated as capital gain or business income; and whether the CBDT circular governing such share transactions applied where the genuineness of the transaction was questioned.

Analysis: The relevant circular was issued to reduce disputes and recognises the assessee's declared intention in relation to listed shares, while also providing that listed shares held for more than 12 months would ordinarily not be put to dispute if the assessee treats the gain as capital gain. The circular, however, expressly excludes transactions where the genuineness of the transaction itself is questionable, such as bogus claims or sham transactions. On the record, the Revenue had not established that the share transactions were sham. The findings below rested largely on suspicion arising from price movements and trading patterns, which was insufficient to displace the assessee's treatment of the income.

Conclusion: The income from sale of shares was correctly treated as capital gain and not business income; the CBDT circular did not assist the Revenue on the facts.

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