The burden of proof is on the Department to establish the conversion of shares into stock-in-trade, and the overall conduct of the assessee is crucial in determining the nature of the shares and the treatment of income from their sale.

K.S. Jhaveri, J.

1. By way of this Appeal, the Appellant - assessee has challenged the judgment and order dated 31.03.2006 of the Income Tax Appellate Tribunal, Rajkot Bench in ITA No. 451/Ahd./2005 for the Assessment Year : 1993-1994, whereby the Tribunal reversed the decision of CIT (Appeals) and confirmed the order of the Assessing Officer.

2. While admitting the matter on 06.03.2007, the following substantial question of law was framed by the Court for consideration:-

"Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that all the shares sold by the assessee were held by him on business account and not on investment account?"

3. The facts of the case are as under:-

"The appellant - assessee sold in the Assessment Year : 1993-1994, 600 TISCO shares which she had acquired in Financial Year : 1989-1990 and 1700 Essar Shipping shares which she had acquired on 09.07.1991. In her return, she showed a capital gain of Rs. 3,53,964/- by taking the index cost thereof as the cost price. The Assessing Officer found that upto the Assessment Year : 1992-1993, there was no borrowing by the appellant and the appellant was purchasing the shares from her own capital. In the Assessment Year : 1993-1994, the assessee borrowed from a Bank and purchased the shares, and therefore, came to a conclusion that she purchased the shares on business account. The appellant preferred an appeal before CIT (Appeals), wherein it was pointed out that upto the Assessment Year : 1992-1993, both in Income Tax and Wealth Tax, the appellant has been held to be an investor. The CIT (Appeals) held that in the Wealth Tax, the appellant's investments in shares were held to be capital assets and there was no evidence of the appellant converting them into stock in trade nor had the appellant borrowed from the Bank to purchase the shares. The appellant was an investor and not a dealer. The Tribunal reversed the order of the CIT (Appeals) and upheld the order of the Assessing Officer. Being aggrieved by the judgment and order of the Income Tax Appellate Tribunal as stated hereinabove, this Appeal has been preferred."

4. Learned Counsel for the appellant has submitted that the Tribunal has erred in holding that the income earned by the assessee on sale of shares is liable to be taxed as business profits and not as capital gain. It is further submitted that the Tribunal failed to appreciate that in all the Assessment Years upto 1992-93, both in Income Tax and Wealth Tax, the assessee was held to be an investor and there is no justification for holding her to be a trader without seeing the facts of the year in which she purchased the shares, sold in the Assessment Year : 1993-1994 and instead seeing the facts of the Assessment Year : 1993-1994, which also did not justify the finding of a trader. It is further submitted that the Tribunal failed to appreciate that in a case where the assessee is accepted to be an investor of shares for a long past, a heavy onus lies on the Department to prove that the shares so held on investment account were converted into stock-in-trade by the assessee, and that this onus was not discharged by the Department in the facts of the case.

5. On the other hand, learned Counsel for the respondent - Department has taken this Court to the findings of the CIT (Appeals) and paragraph 4 of the said findings reads as under:-

"4. The submissions are carefully considered. It is seen that the appellant was treated as a Wealth-tax assessee and her investment in shares as capital assets. There is no evidence that this was converted into stock-in trade by the appellant during the relevant accounting period. The appellant did not borrow from the Bank and has paid no interest on the investments which are sold and the surplus from which disclosed as long term capital gain. Even if the appellant paid interest on borrowings for such investments, that by itself would not be decisive of the issue as to whether the