Share sale surplus taxable as income where facts showed profit motive rather than capital investment

The tax treatment of surplus from the sale of deferred shares turns on the character of the acquisition and the assessee's real intention at the time of purchase. Where shares are acquired to secure or strengthen voting power, they may constitute a capital asset, but that conclusion depends on proof of a genuine investment purpose. On the stated facts, repeated share dealings, the absence of dividends on the deferred shares, the small holding relative to issued capital, and no later attempt to increase the holding supported an inference of profit motive. The excess realised was therefore treated as income from an adventure in the nature of trade rather than a capital receipt.

---

---

Issues: Whether the excess realised on the sale of deferred shares was income assessable to tax or a capital receipt arising from an acquisition made only to secure controlling power in the managed company.

Analysis: The determining factor was the character of the transaction and the assessee's real intention at the time of acquiring the shares. A company acquiring shares to strengthen its voting power and not to earn profit may hold a capital asset, but that conclusion depends on proof of the stated intention. On the facts, the assessee's repeated share dealings, the absence of dividends on the deferred shares, the comparatively small holding in relation to the total issued capital, and the lack of any later attempt to increase its holding supported the inference that the shares were acquired with a view to profit. The transaction was therefore treated as an adventure in the nature of trade rather than an investment for capital purposes.

Conclusion: The excess realised was assessable as income and not exempt as a capital receipt.

---