Share sale gains treated as long-term capital gain where listed shares were held as investments, not stock-in-trade.

Shares purchased through an IPO and held for more than 12 months, with no borrowed funds used, were treated as investments rather than stock-in-trade because the assessee consistently reflected them as investments in its balance sheet and the same treatment had been accepted in earlier years. The departmental circular also supported this approach for listed shares held beyond the lock-in period where investment treatment is consistently followed. The gain on sale was therefore assessable as long-term capital gain, not business income.

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Issues: Whether the gain arising from sale of shares was assessable as long-term capital gain or as business income.

Analysis: The shares were purchased through IPO and held for more than 12 months, exceeding the lock-in period. The holding pattern, the absence of borrowed funds, the assessee's treatment of the shares as investments in the balance sheet, and the prior acceptance of similar treatment in earlier years supported the conclusion that the shares were acquired for investment and not as stock-in-trade. The departmental circular also supported the treatment of listed shares held for more than 12 months as investment where the assessee consistently follows that approach.

Conclusion: The gain on sale of shares was correctly assessed as long-term capital gain and not as business income.

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