Capital loss on preference shares treated as investment, not trading stock, because transaction's true nature depended on surrounding circumstances.

Loss on the sale of preference shares was treated as a capital loss rather than a deductible trading loss because the transaction, viewed in its surrounding circumstances, was an investment and not an adventure in the nature of trade. The solitary share dealing, absence of regular share-trading activity, close connection between the companies, dividend-oriented purpose, and treatment of the shares as investments in the accounts all supported that characterisation. The company's memorandum power to deal in shares was relevant but not decisive. The governing principle applied was that the true nature of the transaction depends on its intrinsic character and actual course of operations, not merely on corporate objects or trading capacity.

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Issues: Whether the loss arising from the sale of preference shares was a deductible trading loss or a capital loss, and whether the Tribunal misdirected itself in holding that the transaction was an investment and not an adventure in the nature of trade.

Analysis: The transaction was examined in the light of its surrounding circumstances, including the solitary nature of the share dealing, the character of the shares as second preference shares, the absence of any regular share-dealing activity, the close connection between the companies involved, the purpose of obtaining dividend income, and the indication in the accounts that the shares were held as investments. The company's power under its memorandum to deal in shares was relevant but not decisive. The governing principle applied was that the true character of the transaction depends on its intrinsic nature and the actual course of operations, not merely on the company's objects or its capacity to trade in shares.

Conclusion: The loss was held to be a capital loss and not deductible as a trading loss. The Tribunal had not misdirected itself in law.

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