Thursday, June 15, 2006


Central Board of Direct Taxes (CBDT) has issued certain tests vide draft Supplementary Instructions to the main Instructions No. 1827 dated 31.8.1989 to distinguish between shares held as 'Investment' or as 'Stock in trade'. CBDT has invited comments on this draft supplementary instruction from stakeholders which may be forwarded to Director (TPL-1) Room No. 147D, North Block,New Delhi or through email at On issuance's of these instructions, one can't take the benefit of ambiguity in the law in treating share held as investment or stock in trade as per his choice.

This circular is against the initial commitment of the Government while they imposed Security Transaction Tax (STT). It was clarified by the Finance Minister at that time that STT is being imposed to simplify the taxation on share transactions and investors will have an option to treat the share dealings as business transaction or as investment.
This circular need to be withdrawn by the Government as it will increase litigation.
The Government should :

  • Accept the treatment by the assessee as per Books of Accounts, or
  • Treat all cases of holding as follows :
  • Less than one month holdings as Business Income,
  • One month to twelve months holdings as Short Term Gains and
  • More than twelve months holdings as Long Term Gains

Unless the assesseee opts to offer these as business income. Efforts of Government should be to develop faith of assessees in the system. Government need to trust people and should not now become greedy. Litigation needs to be avoided.


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