The assessing officer says my client's share gains are business income because he traded frequently. My client held the listed shares for more than twelve months and has always shown them as investment. Does the CBDT circular stop the officer?
Yes, on the Gujarat High Court's reading it does. Where listed shares and securities have been held for more than twelve months immediately preceding the transfer and the assessee desires to treat the gain as capital gain, clause (b) of the CBDT circular dated 29 February 2016 means the Assessing Officer shall not put that to dispute — the only rider being that the stand taken in one assessment year must be followed in later years.
Decided by the High Court (Akil Kureshi J and Biren Vaishnav J) on 2017-06-05, reported as Tax Appeal No. 307 of 2017 with Tax Appeal Nos. 308 and 309 of 2017 and Tax Appeal Nos. 311 to 316 of 2017 (Gujarat High Court). It bears on section 68, section 45, section 28, section 2(14), section 260A of the Income Tax Act 1961, in Capital Gains, Assessment & Scrutiny and How Tax Law Is Read matters.
This is the strongest answer to a frequency-and-volume assessment on listed shares, because it does not require the assessee to win the old multi-factor argument at all — it takes the dispute away from the officer. The limits are real: the circular's clause (b) reaches only LISTED shares and securities held for more than twelve months; where the assessee has itself opted to treat them as stock-in-trade, clause (a) makes the income business income whatever the holding period; and the circular's own fourth paragraph excludes transactions whose genuineness is questionable, which is why it is no answer to a penny-stock or accommodation-entry allegation. The consistency rider cuts both ways — an assessee who takes the capital-gains stand cannot switch to business treatment in a later year to use a loss.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
The Revenue appealed against a Tribunal order of 31 May 2016 in the case of an individual assessee, raising two issues. The first was an addition of Rs 86,15,001 under section 68 for assessment year 2006-07: the assessee had bought shares in April 2004 and sold them in May, June and July 2005, and the Assessing Officer treated the purchasers as bogus. The Tribunal had noted that the purchases fell in financial year 2004-05, that the return for assessment year 2005-06 had been scrutinised under section 143(3) read with section 147, and that none of the share purchases had been disturbed in that assessment. The second issue was whether Rs 3,27,96,032 was short-term and long-term capital gain or business income; the Revenue relied on the profit motive, the large number of transactions, holding periods many of which were under a month, and a high transaction-to-stock ratio. The Tribunal had taken the facts into account, referred to the CBDT circular dated 29 February 2016, and held the receipts taxable as capital gain.
All the appeals were dismissed. On the section 68 issue, where the purchase of the shares had been accepted as genuine in the scrutiny assessment for the earlier year, it was not open to the Assessing Officer to make an addition under section 68 when those shares were later sold on the premise that the purchasers were bogus, and no question of law arose. On the capital gains issue, the circular applied with full force and the Tribunal had correctly accepted the assessee's stand.
The Court recorded that whether to tax income from sale of shares as capital gain or business income is a frequent dispute, that courts had laid down various parameters, that the controversy had not subsided despite several pronouncements and that each case had to be considered individually leading to long drawn litigation, and that the CBDT had issued the 29 February 2016 circular in order to reduce litigation (paragraph 6). Reading the circular, the Court said two things emerged: the CBDT desired to obviate the difficulties of assessees and simultaneously to reduce litigation, and clause (b) of its paragraph 3 provides that in respect of listed shares and securities held for more than twelve months immediately preceding the date of transfer, if the assessee desires to treat the income as capital gain, the same shall not be put to dispute by the Assessing Officer — in other words the Revenue would not pursue the issue if the necessary ingredients are satisfied, the only rider being that the stand taken in a particular year would be followed in subsequent years and the assessee would not be allowed to adopt a contrary stand in those years (paragraph 7).
The circular applies with full force in the present case. The Tribunal therefore correctly accepted the assessee's stand.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppYes, on the Gujarat High Court's reading it does. Where listed shares and securities have been held for more than twelve months immediately preceding the transfer and the assessee desires to treat the gain as capital gain, clause (b) of the CBDT circular dated 29 February 2016 means the Assessing Officer shall not put that to dispute — the only rider being that the stand taken in one assessment year must be followed in later years. This was decided by the High Court (Akil Kureshi J and Biren Vaishnav J) and bears on section 68, section 45, section 28, section 2(14), section 260A of the Income Tax Act 1961. It is reported as Tax Appeal No. 307 of 2017 with Tax Appeal Nos. 308 and 309 of 2017 and Tax Appeal Nos. 311 to 316 of 2017 (Gujarat High Court). This is the strongest answer to a frequency-and-volume assessment on listed shares, because it does not require the assessee to win the old multi-factor argument at all — it takes the dispute away from the officer. The limits are real: the circular's clause (b) reaches only LISTED shares and securities held for more than twelve months; where the assessee has itself opted to treat them as stock-in-trade, clause (a) makes the income business income whatever the holding period; and the circular's own fourth paragraph excludes transactions whose genuineness is questionable, which is why it is no answer to a penny-stock or accommodation-entry allegation. The consistency rider cuts both ways — an assessee who takes the capital-gains stand cannot switch to business treatment in a later year to use a loss. If it applies to you, the first step is this: Tabulate each scrip with its acquisition date, transfer date and holding period, and separate the lots held over twelve months — clause (b) only protects those.
The Revenue appealed against a Tribunal order of 31 May 2016 in the case of an individual assessee, raising two issues. The first was an addition of Rs 86,15,001 under section 68 for assessment year 2006-07: the assessee had bought shares in April 2004 and sold them in May, June and July 2005, and the Assessing Officer treated the purchasers as bogus. The Tribunal had noted that the purchases fell in financial year 2004-05, that the return for assessment year 2005-06 had been scrutinised under section 143(3) read with section 147, and that none of the share purchases had been disturbed in that assessment. The second issue was whether Rs 3,27,96,032 was short-term and long-term capital gain or business income; the Revenue relied on the profit motive, the large number of transactions, holding periods many of which were under a month, and a high transaction-to-stock ratio. The Tribunal had taken the facts into account, referred to the CBDT circular dated 29 February 2016, and held the receipts taxable as capital gain. The matter was decided on 2017-06-05 by the High Court (Akil Kureshi J and Biren Vaishnav J). On those facts the High Court held as follows. All the appeals were dismissed. On the section 68 issue, where the purchase of the shares had been accepted as genuine in the scrutiny assessment for the earlier year, it was not open to the Assessing Officer to make an addition under section 68 when those shares were later sold on the premise that the purchasers were bogus, and no question of law arose. On the capital gains issue, the circular applied with full force and the Tribunal had correctly accepted the assessee's stand.
The Court recorded that whether to tax income from sale of shares as capital gain or business income is a frequent dispute, that courts had laid down various parameters, that the controversy had not subsided despite several pronouncements and that each case had to be considered individually leading to long drawn litigation, and that the CBDT had issued the 29 February 2016 circular in order to reduce litigation (paragraph 6). Reading the circular, the Court said two things emerged: the CBDT desired to obviate the difficulties of assessees and simultaneously to reduce litigation, and clause (b) of its paragraph 3 provides that in respect of listed shares and securities held for more than twelve months immediately preceding the date of transfer, if the assessee desires to treat the income as capital gain, the same shall not be put to dispute by the Assessing Officer — in other words the Revenue would not pursue the issue if the necessary ingredients are satisfied, the only rider being that the stand taken in a particular year would be followed in subsequent years and the assessee would not be allowed to adopt a contrary stand in those years (paragraph 7). In the words reproduced by the source cited on this page: "The circular applies with full force in the present case. The Tribunal therefore correctly accepted the assessee's stand."
It was decided by the High Court on 2017-06-05 and is reported as Tax Appeal No. 307 of 2017 with Tax Appeal Nos. 308 and 309 of 2017 and Tax Appeal Nos. 311 to 316 of 2017 (Gujarat High Court). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 68, section 45, section 28, section 2(14), section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. All the appeals were dismissed. On the section 68 issue, where the purchase of the shares had been accepted as genuine in the scrutiny assessment for the earlier year, it was not open to the Assessing Officer to make an addition under section 68 when those shares were later sold on the premise that the purchasers were bogus, and no question of law arose. On the capital gains issue, the circular applied with full force and the Tribunal had correctly accepted the assessee's stand. It arises in Capital Gains, Assessment & Scrutiny and How Tax Law Is Read matters, on section 68, section 45, section 28, section 2(14), section 260A of the Income Tax Act 1961, and was decided by Akil Kureshi J and Biren Vaishnav J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show the treatment adopted in the preceding and succeeding returns and confirm it is the same; volunteer that consistency, because the circular makes it the price of the protection. Cite the circular by its date, 29 February 2016, as well as its number, and quote clause (b) in full rather than paraphrasing it. Be ready for the fourth paragraph of the circular: if the officer's real case is that the transactions are sham, meet that case on evidence, because the circular expressly does not apply where genuineness is questionable. For lots held twelve months or less, fall back on the earlier tests in Circular 4/2007 and on the two-portfolio line.
Still good law. Seven later decisions cite this judgment, all from the Tribunal; no Supreme Court or High Court decision cites it, so there is no higher affirmance and no traceable pending challenge. The Cuttack Tribunal applied it as the ground of its own decision in DCIT, Corporate Circle-1(2) v M/s National Aluminium Company (27 April 2018): at para 39, dealing with ground 11, the Bench held 'We respectfully follow the decision of the Hon'ble High Court and we direct the AO to treat the income as capital gains and not as business income and this ground of appeal of assessee is allowed', relying on Pr CIT v Ramniwas Ramjivan Kasat [2017] 248 Taxman 484 and the endorsement in it of CBDT Circular 6/2016. The same Bench followed the same course in the assessee's later appeals of 29 June 2018 and 23 September 2019, and the Mumbai Tribunal takes the judgment up in Robust Marketing Services Private Ltd v ACIT (29 July 2019). The proposition that the officer is bound by the assessee's election under Circular 6/2016 for listed shares held for more than twelve months therefore has a working following. Nothing overruling, doubting or confining it was found. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment refers to the circular only as 'the circular of the CBDT dated 29.2.2016' and does not print its number; the number, Circular No. 6/2016, and the full text including the fourth paragraph excluding transactions of questionable genuineness were read from the reproduction of the circular in the ITAT Delhi order in Lustre Merchants Pvt. Ltd. v. DCIT (30 October 2019), corroborated on a second route. The Gujarat High Court's reproduction of the circular skips from its paragraph 3 to its paragraph 5, because it reproduced only the relevant portion — the fourth paragraph is present in the circular itself. The transfers in this case were in financial years 2005-06 and later, long before 23 July 2024, so the 2024 rate changes have no bearing on it; the circular's clause (b), however, is not a rate provision and applies whichever side of that date the transfer falls. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
All the appeals were dismissed. On the section 68 issue, where the purchase of the shares had been accepted as genuine in the scrutiny assessment for the earlier year, it was not open to the Assessing Officer to make an addition under section 68 when those shares were later sold on the premise that the purchasers were bogus, and no question of law arose. On the capital gains issue, the circular applied with full force and the Tribunal had correctly accepted the assessee's stand.
TaxSphere, “PCIT v Ramniwas Ramjivan Kasat — Circular 6/2016 binds the officer on listed shares held over twelve months”, https://taxnotice.vittsphere.com/caselaw/case/pcit-v-ramniwas-ramjivan-kasat-circular-6-2016-binds-the-assessing-officer/ (validity last checked 2026-09-08)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
My client held shares of the amalgamating company as stock-in-trade and received shares of the amalgamated company under the court-sanctioned scheme. Is there business income at that point, or only when those shares are sold?
My client keeps a separate investment portfolio and a separate trading portfolio in shares. The officer says the whole activity is business. Can he do that?
We are a UK company registered as an FII, trading index and stock futures and options on Indian exchanges through brokers and custodians. Is that income taxable in India?
The Assessing Officer has measured the 8 km from the municipal limit to the edge of my village, not to my field, and has measured it as the crow flies. Which is right?
