Share trading characterization: prior assessment history and total conduct determine whether share losses are business losses.

Whether losses on sale of shares were business losses turned on whether the assessee was a dealer in shares or merely an investor. The Bombay HC treated the inquiry as a mixed question of fact and law and held that all material circumstances had to be considered, including the assessee's prior and subsequent assessment history. Consistent treatment as a dealer in earlier and later years was relevant evidence of the character of the transactions. The Tribunal erred in relying on isolated facts and in drawing an unsupported distinction between public and private company shares. On the totality of circumstances, the share dealings were trading transactions and the losses were deductible as business losses.

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Issues: Whether the losses suffered by the assessee on sale of shares in the relevant assessment years were allowable as business losses, depending on whether he was a dealer in shares and not merely an investor.

Analysis: The relevant inquiry was not a pure question of fact but a mixed question of fact and law. In determining whether the assessee was carrying on the business of dealing in shares, the Tribunal was required to consider all material facts, including the assessee's prior and subsequent assessment history. Those orders constituted good and cogent evidence of the character of the transactions. The Tribunal erred in ignoring the consistent treatment of the assessee as a dealer in shares in several assessment years, in placing undue reliance on isolated circumstances, and in drawing an unsupported distinction between public and private company shares. The timing of sales and any incidental tax reduction did not, by themselves, displace the trading character of the transactions.

Conclusion: The assessee was a dealer in shares in the relevant years, and the losses on sale of shares were deductible as business losses.

Final Conclusion: The reference was answered in favour of the assessee, with costs awarded against the revenue.

Ratio Decidendi: In deciding whether share transactions constitute business dealings, prior and subsequent assessment conduct is relevant evidence, and the question is a mixed question of fact and law to be resolved on the totality of material circumstances.

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