Tests to distinguish shares held as “stock-in-trade” and as “investments”

Where the assessee was a stock broker but it was consistently following the practice of holding some shaes as ‘stock in trade’ and other shares as ‘investments’ and the question arose whether the profits on the sale of shares held as investments constituted a capital gain or business profits, HELD:

(i) The assessee had been consistent in its practice of treating some shares as stock and others as a capital asset. While the shares held as capital asset were valued at cost in the accounts, the shares held as stock-in-trade were valued at the lower of cost or market value;

(ii) There is no bar on a stock broker holding shares as an investment. The mere fact that the assessee is an expert in share trading does not mean that he cannot hold shares as a capital asset. The magnitude of the transaction does not change the nature of the transaction.

Note: ACIT vs. Motilal Oswal was followed.

See Also: Circular No. 4/2007 dated 15.06.2007 and Taxation of Securities Transactions by CA Gautam Nayak