Share transaction

Short-term capital gains vis-à-vis business profits — Supreme Court affirms findings of Bombay High Court in CIT v Gopal Purohit relating to tests for determining whether share gains assessable as short-term capital gains or business profits in CIT v Gopal Purohit — In favour of: The assessee; Petition(s) for Special Leave to Appeal (Civil)....../2010 (CC 16802/2010).

The Bombay High Court held that the assessee could maintain two separate portfolios, one relating to the assessee’s investment in shares and another relating to business activities involving dealing in shares. The delivery-based transactions were rightly treated as being in the nature of investment transactions giving rise to capital gains.

Though the principle of res judicata was not attracted, there ought to be uniformity in the treatment and consistency when the facts and circumstances were identical.

When the assessee had followed a consistent practice with regard to the nature of the activities, the manner of keeping records and the presentation of shares as investment at the end of the year in all the years, there was no justification for a different view to be held by the AO.

While the entries in the books of accounts alone were not conclusive in determining the nature of the income, it does have a bearing as to whether the shares were held on capital account or on revenue account.

Decided on: 15 November 2010.