Circular No.6/2016 Government of India - Central …

1 ,NewDelhi,the29t hofFebruary, 2016 Sub: Issueoftaxabilityofsurpluson saleofshares andsecurities- Capital Gainsor BusinessIncome -Instructionsinorderto reducelitigation- (14)ofSection 2oftheIncome-taxAct, 1961('Act')defines theterm"capitalasset" to includepropertyofany kind held by anassessee,whetheror notconnectedwithhisbusiness orprofession,butdoesnotinclude anystock-in-tradeor personal assetssubjecttocertainexceptions. As regards shares andothersecurities, the same can be heldeitheras capitalassets orstock-in-trade/tradingassets or particularinvestmentinshares orothersecurities,whetherthe same is in thenatureofa capitalasset orstock-in-trade, isessentially afact-specificdeterminationand has led to alototuncertaintyandlitigation in the the years, thecourtshave laiddowndifferentparameters todistinguishthe shares held asinvestmentsfromthe shares held asstock-in-trade.

2 The Central BoardofDirect Taxes ('CBDT) hasalso, throughInstructionNo. 1827, dated August 31, 1989 ed June 15,2007,summarizedthesaidprinciplesforgu idance of the ,however,continueto exist on theapplicationoftheseprinciplest o the factsofanindividual case sincethetaxpayersfind itdifficulttoprovetheintentioninacquirin gsuchshares/securities. Inthisbackground,while laiddowntodecidethecharacterofincomefrom saleofsharesandsecurities( same is in thenatureofcapital gain or businessincome)

3 ,CBDT realizingthatmajorpartofshares/securitie stransactionstakes place in respectofthe listed ones andwitha viewto reducelitigationanduncertaintyin thematter,inpartialmodificationto the aforesaid Circulars,furtherinstructsthatthe AssessingOfficersinholdingwhetherthesurp lusgeneratedfromsaleoflistedshares orothersecuritieswouldbetreatedasCapital GainorBusinessIncome, shall takeintoaccount thefollowing-a)Wheretheassesseeitself,ir respectiveoftheperiodofholdingthe listed shares andsecurities,opts totreatthemasstock-in-trade,theincome arisingfromtransferofsuchshares/securiti eswouldbetreatedas its business income,b) Inrespectoflisted shares andsecuritiesheldfora periodofmore than 12monthsimmediatelypreceding the dateofitstransfer,iftheassesseedesires totreattheincomearisingfromthetransferth ereofas Capital Gain, the same shallnotbe puttodisputeby theAssessingOfficer.

4 However,this stand, once taken by theassessee in aparticularAssessment Year, shall remain applicable insubsequentAssessmentYears also and thetaxpayersshallnotbeallowedtoadoptadif ferent/contrarystand in this regard insubsequentyears;c) In allothercases, thenatureoftransaction( same is in thenatureofcapitalgain or business income) shallcontinueto be decided keeping inviewtheaforesaidCirculars issued by is, however, clarifiedthatthe above shall not apply in respectofsuch transactionsinshares/securitieswhere the genuinenessofthetransactionitselfisquest ionable,such as bogusclaimsofLong Term CapitalGain / Short Term CapitalLossor anyothersham (RohitGarg)

5 DeputySecret aryGovernmentof isreiteratedthatthe aboveprincipleshave beenformulatedwitht hesaleobjectiveofreduci nglitigationandmaintainingconsistencyin approach on the issueoft reatmentof incomederived fromtransferofshares and securities. All the relevantprovisionsofthe Actshallcontinuetoapply on the transactionsinvolvingtransferofshares and to:-1)Chairman,CBlnandallM embers,omI2)OSDtoRevenueSecretary3)All )AllJS/CsIT,CBDT5)ADG(PR,PP & Ol) withrequestforplacingonofficialhandle of thedepartment6)Add!

6 CIT,Data baseCell for uploading on DepartmentalWebsite7)Web managerforuploading on incomet in public domain8)ITCC, Central Board of Direct Taxes(3 copies)9)Guard file(RohitGarg)DeputySecretaryGovernment of India