CIT vs. Suresh R. Shah (Bombay High Court)

Despite speculation activity and short period of holding, shares gain is STCG & not business profits

The assesseee, a textile consultant, offered LTCG of Rs. 19.97 crores and STCG of Rs. 1.71 crores. The AO held that the LTCG and STCG had to be assessed as business profits on the grounds that (i) the assessee had engaged in speculation activities, (ii) the volume of shares was high, (iii) the frequency of purchase and sale was extremely high, (iv) the holding period for most of the scrips ranged from a few days to few months and in certain cases and (v) the dividend was meager. This was reversed by the CIT (A) & Tribunal on the basis that (a) the assessee had not only invested in shares but also maintained fixed deposits & PPF. Investments in shares were 75% of the total investments & the sales of shares was to balance the portfolio, (b) the LTCG shares were held for several years, (c) the STCG shares consisted of 7 scrips which gave rise to 93% of the STCG profits, (d) the shares were shown as investment in the balance sheet in the earlier years, (e) the assessee had not borrowed funds & (f) STT was paid. On appeal by the department to the High Court, HELD dismissing the appeal:

The appellate authorities have come to a finding of fact after examining the relevant material that the assessee is an investor in shares and not a trader. This finding of fact is not perverse. As held in Gopal Purohit 228 CTR (Bom) 582, there is no bar for an assessee to maintain two separate portfolios, one relating to investment in shares and another relating to business activities involving dealing in shares.