COMMISSIONER OF INCOME TAX Vs. NIRAJ AMIDHAR SURTI

JUDGEMENT

(1.) In this appeal under Section 260A of the Income Tax Act, 1961 (the Act), Appellant-Revenue has proposed the following questions:

(2.) The Respondent-Assessee, filed return of income on 31-2001 declaring total income of Rs. 58,69,534 for the assessment year 2001-02. The Assessee is a chartered accountant, has derived income from his profession and also from purchase and sale of shares shown as short-term and long-term capital gain and also interest income. He had also shown income from speculation business. After examination of the books of accounts and details of purchase and sale of shares of Euro Asian Securities Ltd. (substituted by shares of Home Trade Ltd.), the assessing officer came to the conclusion that the income shown from sale of shares of Euro Asian Securities Ltd. was, in fact, assessable as business income of the Assessee. According to the assessing officer the dealing in the shares of Euro Asian Securities Ltd. was an adventure in the nature of trade and assessable as business income. The assessing officer framed assessment under Section 143 (3) of the Income Tax Act, 1961 (the Act) vide assessment order dated 9-10-2003 determining the total income at Rs. 1,90,11,008 and treated an amount of Rs. 1,72,86,250 as income from adventure in the nature of trade and also disallowed interest of Rs. 5,63,089. Being aggrieved, the Assessee preferred appeal before Commissioner (Appeals), who allowed the appeal of the Assessee by treating receipts of Rs. 1,72,86,250 as capital gains and not income from business and also deleted disallowance of interest amounting to Rs. 5,63,089. The revenue carried the matter in appeal before the Tribunal, but did not succeed.

(3.) Assailing the impugned order of the Tribunal, Mr. B.B. Naik, learned senior advocate appearing on behalf of the revenue submitted that the Tribunal had erred in coming to the conclusion that the sale and purchase of shares during the year under consideration was not "adventure in the nature of trade", but that the receipt was capital gain. It was submitted that the Tribunal had failed to take into consideration the fact that the investor generally purchases shares in his own name by making proper application to the company when the shares are to be allotted, whereas, in the present case, the Assessee had not made any application to any company for allotment of shares but shares were purchased from Maniram Consultants & Investments (P) Ltd. (hereinafter referred to as "Maniram Consultants"), and thereafter, the shares were sold by the Assessee which clearly indicates that it was not with intention to make long-term investment but that the said transaction was an "adventure in the nature of trade". Therefore, the receipts of the said transaction have to be treated as business income and not long-term capital gain. It was pointed out that the Assessee entered into an agreement with Maniram Consultants and the said company granted loan of Rs. 12,50,000 to the Assessee. Maniram Consultants had purchased the said shares in its own name and, thereafter, when the said amount of Rs. 12,50,000 was repaid by the Assessee with interest, the shares were given to the Assessee and the Assessee sold them immediately thereafter. The Assessee had not deducted interest payment from the sale proceeds of the said shares but had deducted the same from "business income". It was submitted that if the transaction was to be treated as a capital asset transaction, the interest payment for the borrowed capital should have been deducted from the sale proceeds.