Commercial share dealing, not investment, governed the tax treatment; genuine sales supported deduction of the resulting loss.

Shareholding is treated as stock-in-trade, rather than investment, where the surrounding facts show repeated purchase and sale of shares with a commercial motive; the character of the transaction depends on a mixed question of law and fact, assessed by factors such as the subject matter, holding period, frequency, surrounding circumstances and motive. On the stated facts, the assessee's share dealings were not isolated and were part of a business in shares. The sales were also found genuine because the sale proceeds were received through brokers and banking channels, and suspicion alone was insufficient to prove sham transactions. The resulting loss was therefore deductible.

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Issues: Whether the assessee's holding of the shares was an investment or stock-in-trade, and whether the sales of those shares were genuine so as to permit deduction of the resulting loss.

Analysis: The character of a shareholding for tax purposes is not a pure question of fact but a mixed question of law and fact. In determining whether a transaction is part of trade, relevant considerations include the subject-matter, period of holding, frequency of similar transactions, surrounding circumstances of sale, and motive. The assessee had bought and sold shares and securities on several occasions before and after the relevant year, and the purchase and sale of the Vanguard shares were not isolated. On the facts, the only reasonable inference was that the shares were held and dealt with as part of a business in shares with a commercial motive, and not merely as an investment. As to genuineness, the circumstances relied on by the revenue created suspicion but did not establish that the sales were sham transactions. The sale proceeds were actually received through brokers and banking channels, and there was no positive material to show that no real sale took place.

Conclusion: The shares formed part of the assessee's stock-in-trade, the sales were genuine, and the loss was deductible; the answer was in favour of the assessee.

Ratio Decidendi: Where the surrounding facts show commercial dealing in shares, the transaction is to be treated as trade notwithstanding an asserted investment character or a fiscal motive, and a factual finding of non-genuineness cannot stand when it is unsupported by the primary circumstances of the actual sale.

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