Despite borrowing, gains on shares assessable as STCG & not business profits
The assessee earned gains from shares of which Rs. 7.61 crores was out of delivery-based transactions and offered as STCG while Rs. 4.26 crores was out of futures & options and offered as business profits. The AO & CIT (A) assessed the STCG as business profits on the ground that (a) there was no LTCG, (b) there was no dividends, (c) there were hundreds of transactions during the year, (d) the assesee had borrowed interest-bearing funds for purchase of shares & (e) the average holding period was 41 days. On appeal by the assessee, HELD allowing the appeal:
In the books, the delivery based transactions were accounted as investment and a distinction from the non-delivery transactions is maintained. The transactions were with a limited number of companies (8) and the average number of transactions in one month were 8. The CBDT Circular permits the assessee to deal in the shares of one scrip and treat some as trading and some as a capital investment. The fact that the assessee borrowed funds for investing in shares cannot constitute a factor as in none of the case laws or CBDT circular it has been held that borrowings will not be allowed in investment transactions. Investment in capital assets can also be carried out by use of borrowed funds. There is no bar notified by the law, judicial pronouncement or CBDT Circular.