Case Law Details
Gujarat High Court in CIT vs. Rewashanker A. Kothari, (2006) 283 ITR 338 (Guj.), after examining earlier judgments on the question has laid down several parameters / tests which have to be applied to find out when income from transactions in shares / securities should be treated as income from business or the gain which has to be taxed under the head “capital gains”. The parameters/tests are as under:-
“(a) The first test is whether the initial acquisition of the subject-matter of transaction was with the intention of dealing in the item, or with a view to finding an investment. If the transaction, since the inception, appears to be impressed with the character of a commercial transaction entered into with a view to earn profit, it would furnish a valuable guideline.
(b) The second test that is often applied is as to why and how and for what purpose the sale was effected subsequently.
(c) The third test, which is frequently applied, is as to how the assessee dealt with the subject-matter of transaction during the time the asset was with the assessee. Has it been treated as stock-in-trade, or has it been shown in the books of account and balance sheet as an investment. This inquiry, though relevant, is not conclusive.
(d) The fourth test is as to how the assessee himself has returned the income from such activities and how the Department has dealt with the same in the course of preceding and succeeding assessments. This factor, though not conclusive, can afford good and cogent evidence to judge the nature of the transaction and would be a relevant circumstance to be considered in the absence of any satisfactory explanation.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
