Business profit test for share sales: surplus from securities is taxable when realisation is a normal business step.

Surplus on sale of shares and securities is taxable as business income where the realisation is a normal step in the assessee's business and the holdings are dealt with as part of trading operations rather than as mere investment. The controlling test is the connection between the sales and the business: it is not necessary that the share dealings, taken alone, constitute a separate securities business. On the stated facts, the company's financing and promotion activities, and its varied holdings in ordinary business course, supported treatment of the surplus as profits and gains of business.

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Issues: Whether the surplus realised by the company on sale of shares and securities was taxable income as profits and gains of business.

Analysis: The controlling test was whether the sales were so connected with the assessee's business that the resulting surplus could fairly be treated as business profits. It was not necessary that the transactions, taken by themselves, should amount to a separate business of buying and selling securities. It was enough if the realisation of securities formed a normal step in the course of the assessee's business. On the facts found, the company had been financing and promoting other companies, varied its holdings in the ordinary course of that business, and the shares were treated as part of its trading operations rather than as mere investment of surplus funds.

Conclusion: The surplus was taxable income and the finding of the High Court was upheld.

Ratio Decidendi: Where sale of securities is a normal step in the carrying on of the assessee's business, the surplus realised is taxable as business profit and not as a capital receipt.

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