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Issues involved: Determination of whether income from share transactions should be treated as business income or income from other sources.
Summary: The case involved a reference under section 256(1) of the Income Tax Act, 1961, regarding the treatment of surplus realized by an assessee on purchases and sales of shares. The Income Tax Officer initially classified the surplus as "Income from other sources," contending that the transactions did not amount to a business due to various reasons including the nature of shares and parties involved. The assessee appealed to the Appellate Authority Commissioner (AAC) and then to the Tribunal, which found that the transactions indicated a business intent based on volume, frequency, and continuity. The Tribunal emphasized that dealing with shares of private companies could still constitute a business. However, the Tribunal also discussed the essential elements of a sale and concluded that the transactions did not meet the criteria of voluntary sales. The High Court analyzed the definition of "business" as per Supreme Court precedents, emphasizing the continuous exercise of an activity with a profit motive. It disagreed with the Tribunal's conclusion that the transactions were not voluntary sales, stating that the presence of volition is crucial for a sale to occur. The Court found no justification for the view that the transactions were imposed by a third party, emphasizing that the agreements were made by the involved companies. Ultimately, the Court held that the income from share transactions should be taxed as business income, not income from other sources. The questions referred to the Court were answered in favor of the assessee, who was also awarded costs. This judgment clarifies the distinction between income from business and income from other sources in the context of share transactions, emphasizing the importance of volition and profit motive in determining the nature of transactions for tax purposes.
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