Shares investment or stock

Yes, he can

YES YOU CAN DO THAT, in terms of circular issued by CBDT vide circular no.6/2016 dt.29/02/2016.

Disputes, however, continue to exist on the application of these principles to the facts of an individual case since the taxpayers find it difficult to prove the intention in acquiring such shares/securities. In this background, while recognizing that no universal principal in absolute terms ca.n be laid down to decide the character of income from sale of shares andsecurities (Le. whether the same is in the nature of capital gain or business income), CBDT realizing that major part of shares/securities transactions takes place in respect of the listed ones and with a view to reduce litigation and uncertainty in the matter, in partial modification to the aforesaid Circulars, further instructs that the Assessing Officers in holding whether the surplus generated from sale of listed shares or other securities would be treated as Capital Gain or Business Income, shall take into account the following

a) Where the assessee itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, the income arising from transfer of such shares/securities would be treated as its business income,

b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years;

c) In all other cases, the nature of transaction (i.e. whether the same is in the nature of capital gain or business income) shall continue to be decided keeping in view the aforesaid Circulars issued by the CBDT.

thanx

I have some doubts regarding circular No 6/2016 issued by CBDT for “Issue of taxability of surplus on sale of shares and securities - Capital Gains or Business Income”.

In Point 3 (b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years

Now assuming I purchased two stocks A and B on 1 May 2014 at Rs 100 each. At Balance sheet closing date (i.e. 31 Mar 2015), Stock A was shown as stock-in-trade (Also was mark to marked to Rs 90 which was prevailing price) and B was shown as capital investment at original cost price. Subsequent on 1 Jun 2015 (i.e. 13 months from date of purchased) both A and B were sold. Normally the criteria for deciding whether profit from a stock held for more than 12 months is its treatment on intermittent balance sheet. (whether carried as stock-in-trade or capital investment).

The circular states that for securities held for a period of more than 12 months, the assesee should take a stand which should also continue in subsequently years. Since both stocks A and B were held for more than 12 months, I want to understand the implication of the above circular in this case.

1. Is it trying to say that income from stock A and B should be either both treated as capital gains or both as business income ? In that case if one chooses to mark them as capital gains, then what should be treated  the purchase price of Stock A, since it was marked to market on year end closing date ?
2. Alternatively, does it imply that paragraph 3(b) is applicable only for stocks which were shown under capital investment on balance sheet? But then the assess already had to treat the income from such asset as capital gains and he was never allowed to mark it as business income.