whether capital gain or business income

[mahesh mundhra]

my  client have income from few trans actions of shares and thereby gained some profits all along he has shown this income as income from capital gain this year ito wanted to consider this income from business instead of capital gain my question is do we have any supporting judgement which can give relief as counter department logic

[DEV KUMAR KOTHARI]

When shares held are 'capital asset' ( not stock-in-trade) the income on transfer will fall u/h 'capital gains'. Furthermore when transactions are few and not voluminous, and in past admittedly activity is considered as investment activity, and gains  on transfer are assessed as capital gains, then there is no question of treating  income on transfer of shares, held as investment, as  business  income.

You may refer to judgment of Bombay HC in case of Gopal Purohit, Calcutta HC in case of Bhagawati Pd. Agarwal,  and a recent judgment of Gujrat HC  in which it has been held that even  if investment is made out of borrowed funds, gains will be capital gains when shares transferred are capital asset of assessee.

You may also refer to some of my articles on this website to make out case by raising various contentions.

AI Summary

Capital gains classification of share profits upheld where shares are capital assets, not stock-in-trade, and few transactions indicate investment.
Where shares constitute a capital asset rather than stock-in-trade, proceeds on transfer are treated as capital gains. Frequency and volume of transactions, historical treatment as investments, and absence of sustained trading support capital gains treatment. Acquisition with borrowed funds does not automatically convert investment into trading; gains remain capital gains when shares retain capital asset character.