Despite Loan at High Rate of Interest, Share capital Gain can not be treated as Business Profit

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX

APPEAL No. 836 of 2009

HONORABLE MR. JUSTICE D.A.MEHTA HONOURABLE MS.JUSTICE H.N.DEVANI

COMMISSIONER OF INCOME TAX-I – Appellant(s) Versus

NIRAJ AMIDHAR SURTI – Opponent(s)

Appearance :

MR BB NAIK for Appellant

MR SN SOPARKAR with MRS SWATI SOPARKAR for Respondent

CORAM :  HONORABLE MR.JUSTICE D.A.MEHTA
and

HONORABLE MS.JUSTICE H.N.DEVANI

Date: 21/10/2010

JUDGMENT

(Per: HONORABLE MS.JUSTICE H.N.DE VANI

1. In this appeal under section 260A of the Income Tax Act, 1961 (the Act), appellant-revenue has proposed the following questions :

“[i] Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in coming to the conclusion that profit of transaction of purchase and sale of shares in the sum of Rs. 1,73,32,347/- is long term capital gain and not business income by treating the said transaction as “adventure in the nature of trade”?

[ii] Whether, on the facts and in the circumstances of the case, the orders passed by the Income Tax Appellate Tribunal and the Commissioner of Income Tax (Appeals) – II, Ahmedabad, are contrary to the evidence and material on the record of the case and hence, perverse or not?”

2. The respondent- assessee, filed return of income on 31.10.2001 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 Limited), the Assessing Officer came to the conclusion that the income shown from sale of shares of Euro Asian Securities Ltd. was, in fact, asses sable 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 asses sable 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 dis allowance of interest amounting to Rs.5,63,089/-. The revenue carried the matter in appeal before the Tribunal, but did not succeed.