Circular No. 6 of 2016: Issue of taxability of surplus on sale of shares and securities. The CBDT has accepted that inspite of its circular no. 4 of 2007 dated 15th June 2007 and instruction no. 1827 dated 31st August 1989 on the matter of characterization of income from sale of shares and securities, there remains difficulty in application of the principles emanating from the above circulars in individual cases thereby leading to litigation.The CBDT, with a view to provide certainty, clarity and reduce litigation with respect to the above matter, provides that the Circular No 6 of 2016 would alter its earlier circulars with regards to the points provided therein.
Issue of taxability of surplus on sale of shares and securitiesThe aspect of providing clarity on taxation on gains arising from sale of shares and securities was covered in the report submitted by The Income Tax Simplification Committee set up under the chairmanship of Justice R.V. Easwar (retd.). With the presence of binding CBDT circulars and several judicial precedents in this regard, the controversy had refused to settle. The committee had recommended amending the provisions of the Act, to bring clarity and certainty, towards taxation of gains on sale of shares and securities. The committee had recommended that amendment should be made under the Act to resolve the controversy of characterization of such receipts.
- (i). If the shares and securities are held for more than 12 months and are not declared as Stock in trade, it would be characterized as Capital Gains.
- (ii). If the shares and securities are held for a period of 12 months or less and the surplus do not exceed rupees five lakhs, the gains would be characterized as Capital Gains at the option of teh assessee.
- In other cases, the characterization would be governed by the CBDT circulars and judicial precedents.
- Where an assessee himself prefers to treat his listed shares and securities as stock in trade, the income arising on transfer of the same would be income from business and profession. This would be irrespective of the period of holding of such securities.
- If for listed shares and securities the period of holding is more than 12 months and the assessee desires to treat the income arising on transfer of the same as capital gains, the same shall have to accepted by the assessing officer. However the stand once taken by the assessee would have to be followed consistently by him and he would not be allowed to take a contrary stand in subsequent assessment years.
- For cases other than those covered above, the issue would be decided based on the principles established by the earlier CBDT circulars.