Capital gains on listed shares upheld where delivery-based transactions reflected genuine investment, not trading.

Gains from genuine, delivery-based sale of listed shares were treated as capital gains because the transactions were supported by demat records, contract notes and banking channels, and the shares were consistently recorded as investments in the books. Long-term gains on shares held for more than 12 months were covered by CBDT Circular No. 6/2016, and the absence of bogus or sham transactions supported capital treatment. For short-term gains, the lack of trading infrastructure, systematic trading indicators or organised business activity showed an investment intent, and borrowed funds alone did not convert the transactions into business income. The addition was therefore unsustainable and the Revenue's challenge failed.

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Issues: Whether the gains arising from sale of listed shares were assessable as capital gains or taxable as business income.

Analysis: The gains arose from delivery-based share transactions supported by demat records, contract notes and banking channels, and the shares were consistently shown as investments in the books of account. The long-term gains related to shares held for more than 12 months, with no allegation of bogus or sham transactions, and were covered by CBDT Circular No. 6/2016, which requires acceptance of the capital gains character where listed shares are treated as investments. For the short-term gains, the absence of trading infrastructure, frequency indicative of systematic trading, or organized business activity, together with the consistent investment treatment, supported the conclusion that the assessee intended to invest and not to trade. Mere use of borrowed funds did not, by itself, convert investment transactions into business transactions.

Conclusion: The gains were rightly assessed under the head capital gains and not as business income, and the addition made by the Assessing Officer was not sustainable.

Final Conclusion: The deletion of the addition was upheld and the Revenue's challenge failed.

Ratio Decidendi: Where listed share transactions are genuine, delivery-based and consistently reflected as investments, the character of the income remains capital gains unless the revenue establishes material indicia of trading or a business activity.

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