The central legal point established in the judgment is the requirement to assess the character of income, particularly in relation to capital gains and income from business, based on the intention of the assessee and the nature of the transactions.

( 1 ) THE Income Tax Appellate Tribunal, Ahmedabad bench "c" has referred the following two questions under Section 256 (1) of the Income Tax act, 1961 (the Act) at the instance of the commissioner of Income Tax, Rajkot. "[1] Whether the Appellate Tribunal is right in law and on facts in setting aside the order made by the c. I. T. U/s 263 of the I. T. Act" [2] Whether the Appellate Tribunal is right in law and on facts in observing that the income was required to be taxed as capital gain and not as business income""

( 2 ) THE assessment year is 1987-88 and the relevant previous year is the year commencing on 1st July 1985 and ending on 30th June 1986. The assessee was originally assessed u/s 143 (1) of the Act on 28-7-1987. The Commissioner of Income Tax, rajkot (CIT) issued notice u/s 263 of the Act on 19/2/1990. The assessee submitted a detailed reply dated 2/3/1990. However, the CIT passed an order on 12/3/1990 in the following terms:"[3]. The assessees contentions have been considered. Considering the nature of this transaction year after year, it was clear that the assessee was doing business in shares and shares produced by him were also as stock in trade. Simply show in the shares as investment in the books cannot prove the contention of the assessee that shares were held as investment. What is to be seen is the intention of the assessee at the time of purchase of shares. Prima facie, it is clear from the records that the assessee was dealer in shares. The assessment was made u/s 143 (1) and the Income Tax Officer did not inquire into the real nature of the transaction. Failure on the part of the Assessing Officer to inquire into the real nature of the transaction which prima facie appear in the nature of business resulted in an assessment which is erroneous and prejudicial to the interest of revenue. Besides, full facts were not on record when the I. T. O. made the assessment. [4]. In view of the above facts, the assessment made by the Assessing officer is set aside and he is directed to re-do the same after considering the above points and after giving the assessee reasonable opportunity of presenting his case. "

( 3 ) THE assessee carried the matter in appeal before the Tribunal. After hearing both the sides, the tribunal made an order on 11/6/1992 holding that the CIT had incorrectly exercised jurisdiction under Section 263 of the Act and also, in the process, holding that, on facts, the commissioner had failed to point out any error committed by the Assessing Officer.

( 4 ) MR. B. B. NAIK, the learned standing counsel appearing on behalf of applicant revenue has been heard. Though served, there is no appearance on behalf of respondent assessee.

( 5 ) MR. NAIK assailed the impugned order of Tribunal on two counts. Firstly, it was submitted that the Commissioner having merely sent back the matter to the Assessing Officer to re-do the assessment after considering the points stated by him in his order and after giving the assessee a reasonable opportunity of presenting his case, the Tribunal ought not to have interfered as no prejudice had been caused to the assessee. Secondly, it was contended that the Commissioner not having expressed any final opinion on merits of the matter, the Tribunal could not have entered into the discussion on merits. That the Tribunal had, therefore, incorrectly examined the facts of the case and recorded findings on merits of the controversy.

( 6 ) AS can be seen from the extracted portion of the order of Commissioner, he has expressed prima facie opinion to the effect that the assessee was doing business in shares and the shares purchased by the assessee were held as stock in- trade. By holding that the assessing officer had failed to inquire into the real nature of the transaction, the Commissioner also opined prima facie that the transactions available on record reveal that the assessee was a dealer in shares. It is in this context that when the contention raised by Mr. Na