29 June 2013
What are the factors determining the nature of income arising on sale of shares i.e. whether the income is taxable as capital gains or business income?
What would be the period of holding to determine whether the capital gains on renunciation of right to subscribe for additional shares is short-term or long-term?
Guest
Guest
(Expert)
29 June 2013
There is a circular of income tax.
""CIRCULAR NO. 4/2007, DATED 15-6-2007""
It will definitely help you in solving your querry
29 June 2013
There is no hard and fast rules to determine the nature of income ie., whether classified under capital gains or income from business. However the following guide lines will help since it is a matter of judgement.
(i) What is the intention of the assessee at the time of purchase of the shares. This can be found out from the treatment it gives to such purchase in its books of account.
(ii)Whether assessee has borrowed money to purchase and paid interest thereon? Normally, money is borrowed to purchase goods for the purposes of trade and not for investing in an asset for retaining.
(iii) What is the frequency of such purchases and disposal in that particular item? If purchase and sale are frequent, or there are substantial transactions , it would indicate trade.
(iv) Whether purchase and sale is for realizing profit or purchases are made for retention and appreciation in its value? Former will indicate intention of trade and later, an investment.
(v) How the value of the shares has been taken in the balance sheet? If the shares are valued at cost, it would indicate that they are investments or where they are valued at cost or market value or net realizable value ,whichever is less, it will indicate that shares are treated as stock-in-trade.
(vi) How the company (assessee) is authorized in memorandum of association/ articles of association? Whether for trade or for investment? If authorized only for trade, then whether there are separate resolutions of the board of directors to carry out investments in that commodity? And vice versa.
CAclubindia
