Adventure in the nature of trade: share sale surplus treated as business profit on surrounding facts

Surplus from share dealings was treated as business profit where the surrounding facts showed an adventure in the nature of trade. The character of the transaction had to be judged from the total effect of all relevant circumstances, including the nature of the commodity, the assessee's ordinary business, the intention at purchase, later conduct, and whether the arrangement bore a scheme for profit-making; an intention to resell at a profit gives rise to a strong but rebuttable presumption of trade. On the facts, the shares formed part of a chain of financing, commodity dealings, and immediate resale in a rising market, with no investment motive such as dividend yield or long-term holding.

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Issues: Whether the surplus arising from the purchase and sale of shares was assessable as business profits under section 10 of the Income-tax Act, 1922, or was a capital accretion from an investment transaction.

Analysis: The character of a transaction must be determined from the total effect of all relevant facts and circumstances, and no single test is conclusive. Relevant factors include the nature of the commodity, the assessee's usual course of business, the intention at the time of purchase, the conduct after purchase, the surrounding incidents, and whether the transaction bears the imprint of a scheme for profit-making. A purchase made with an intention to resell at a profit raises a strong but rebuttable presumption of trade. On the facts, the shares were acquired as part of a chain of transactions beginning with the pledge of jewels, the borrowing of funds, the purchase and sale of gold, and the immediate purchase and resale of shares in a rising market. The shares were not bought for dividend yield or long-term investment, and the assessee had prior speculative dealings in shares and allied commodities.

Conclusion: The surplus was rightly treated as business profit, and the transaction was an adventure in the nature of trade. The question was answered in favour of the department.

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