The dominant intention of incorporation and the company's memorandum of association are crucial in determining the nature of income from the sale of shares.

B. Manohar , J.—Appeal by the. Revenue under Section 260A of the Income-tax Act (in short 'the Act'; being aggrieved by the order dated 17-3-2006 made in ITA No. 871/Bang./2004 passed by the Income Tax Appellate Tribunal, Bangalore Bench-B dismissing the appeal and confirming the order dated 27-1-2004 made in ITA No. 143/C-12(1)/CIT(A)-III/2002-03 passed by the Commissioner of Income Tax (Appeals)-III, Bangalore (in short 'CIT (Appeals)) modifying the assessment order dated 24-2-2003 passed by the Assessing Authority for the assessment year 1999-2000. The respondent-assessee is a company incorporated under the Companies Act, 1956. The returns of income for the assessment year 1999-2000 was filed on 23-11-2000 showing the total income of Rs.6,41,54,692/- out of which, Rs.6,41,50,338/- as a long term capital gain and Rs.4,354/- towards business income. The return was accompanied by the audited balance sheet and profit and loss account. The case was processed u/s 143(1) of the Act. Subsequently the case was selected for scrutiny notice under Section 143(2) was issued. Pursuant to the notice, the authorised representative of the assessee appeared and produced some documents. It was contended that the assessee-company was incorporated on 16-2-2000 consisting of three share holders, Sri. N.S. Raghavan and his wife, Jamna Raghavan and their relative V. Sarangarajan, with a share capital of Rs.3,000/-. Each one of them is holding 100 shares of Rs.10/- each. Apart from the three shareholders, their family members, Sriram, Nadathur and Sri. Anand Nadathur are the Directors of the company. The main object of the company is disclosed in the Memorandum of Association and it is an investment company

2. Two Directors of the Company, i.e. N.S. Raghavan and his wife Jamna Raghavan gifted 25000 shares of Infosys Technologies Limited, i.e. 12500 shares from each them who were originally holding the shares of M/s. Infosys System for a long time through a separate Gift Deed dated 23-2-2000 which was accepted by V. Sarangarajan on behalf of the company. Out of that, 5000 shares were sold on 07-3-2000 and profits were earned. The balance 20000 shares were shown under the investment at the value of Rs.89,875. By selling 5000 shares, the respondent-assessee earned the profit of Rs.6,41,54,690/-. Accordingly, the company has paid the tax on capital gain as applicable to the original donor as described under Section 49(i)(ii) of the Act.

3. The Assessing Authority doubted the transaction of gift stating that in a transaction of gift, the principal element is natural love and affection to the donee. The company is an artificial juridical person, which is identified by the owner's i.e., share holders who are themselves are the Directors of the Company, such love and affection to a artificial, juridical person is imaginary. Since the gift has been made by the Directors to the Company. In which they themselves are the shareholders, it amounts to gifting to oneself. Hence, the transaction held to be a not genuine transaction. Further held that immediately after the gift, the assessee has sold 5000 shares and earned income. Hence the main object of the company is to deal with the shares, stocks, etc., and the profit from the sale of shares should be assessed as business income. The Assessing Officer by his order dated 24-2-2003 has assessed the same as income from profit and gain of business and issued demand notice for a sum of Rs.2,65,29,360/- including interest.

4. Being aggrieved by the order dated 24-2-2003 passed by the Assessing Officer the assessee preferred an appeal before the CIT (Appeals) inter alia contending that the respondent-company is only an investment company and its intention is to buy invest, acquire and hold the shares, stocks and debentures. For the purpose of purchase of shares, 5000 equity shares gifted by the Directors have been sold for Rs.6,41,50,690/-. It is only a long term capital gain, for which, income tax has been paid.