Capital gains treatment for listed share sales stands where transactions are genuine and no sham is proved.
CBDT Circular No. 6 of 2016 was applied to accept an assessee's declared treatment of listed share-sale income as capital gains where the genuineness of the transactions was not shown to be doubtful. The circular's exception for bogus or sham transactions did not apply because the Revenue relied mainly on suspicion, price movement and trading patterns, without establishing that the transactions were fake. On that basis, the share-sale income was to be treated as capital gains rather than business income, and the Revenue's challenge failed.
Issues: Whether income arising from sale of listed shares was to be taxed as capital gains or business income, and whether the exclusion in the CBDT circular applied where the Revenue alleged price rigging but did not establish sham or bogus transactions.
Analysis: The Tribunal relied on CBDT Circular No. 6 of 2016, which was issued to reduce disputes on the character of share-sale income and accepts the assessee's declared treatment in specified situations. The circular preserves an exception only where the genuineness of the transaction itself is questionable, such as bogus capital gain claims or sham transactions. The record did not show that the transactions were sham; the Revenue's case rested mainly on suspicion and on perceived price fluctuations and trading patterns. In such circumstances, the exclusion clause did not apply and the assessee's treatment of the shares was required to be respected.
Conclusion: The income from sale of shares was correctly treated as capital gains and not business income. The Revenue's challenge failed.
Final Conclusion: The appeal was dismissed, and the assessee's characterization of the share-sale income was sustained.
Ratio Decidendi: Where the genuineness of listed share transactions is not shown to be questionable and the assessee consistently treats them as investments, the CBDT circular requires acceptance of capital gains treatment rather than reclassification as business income.
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AI Drafter ✕
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