Circular No.6/2016 Government of India - Income Tax …

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),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)

3 Wheretheassesseeitself,irrespectiveofthe periodofholdingthe 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. However,this stand, once taken by theassessee in aparticularAssessment Year, shall remain applicable insubsequentAssessmentYears also and thetaxpayersshallnotbeallowedtoadoptadif ferent/contrarystand in this regard insubsequentyears.

4 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)DeputySecret aryGovernmentof isreiteratedthatthe aboveprincipleshave beenformulatedwitht hesaleobjectiveofreduci nglitigationandmaintainingconsistencyin approach on the issueoft reatmentof incomederived fromtransferofshares and securities .

5 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!. 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