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Tax experts feel CBDT circular not definitive
June, 18th 2007
Distinction between shares held as stock-in-trade vs investment


"The circular does not add anything new and was only a collection of certain judicial pronouncements and AAR ruling on Fidelity Group."

The recent circular of the central board of direct taxes (CBDT) on making a distinction between shares held as stock-in-trade and those held as investment has evoked mixed reactions from tax experts, with many lamenting that the circular was not definitive and at best had persuasive guidance on the assessing officer.

However, a number of tax experts felt that the circular of June 14 was much better than the bullet-pointed draft instructions brought out for public comments by the department in May last year.

"It (circular) gives more clarity than the draft instructions as it provides guiding principles that the assessing officer could now follow. The principles laid down are well settled. The aspect that the same assessee could have both portfolio (trading as well as investment) is welcome and was not featured in the draft instruction," said Mr Kamlesh Vikamsey, Former President of the Institute of Chartered Accountants of India.

The circular has also brought in some anxiety among those representing foreign institutional investors (FIIs) as they contend that the circular has not removed uncertainty and that the intensity of assessments and investigations could increase.

Good guidance

"This circular is certainly not going to provide more certainty to FII taxation. There is good guidance, but how does it provide greater certainty. If you really want to provide greater certainty, there should have been a firmer indication from the department that the intent is to tax FIIs' incomes as capital gains," Mr Sudhir Kapadia, Head of Tax, KPMG said.

He said that the circular does not add anything new and was only a collection of certain judicial pronouncements and AAR ruling on Fidelity Group.

Mr Aseem Chawla, Partner, Amarchand & Mangaldas, said that there was no definite prescription in the circular to remove doubts on FII taxation. "The circular at best provides persuasive guidance and not conclusive prescription in determining characterisation of income. Since the circular mentions that the assessing officer needs to examine particular fact of each case, it has persuasive value," he said.

Echoing similar view, Mr Rahul Garg, Executive Director, PricewaterhouseCoopers, said: "I don't think that the uncertainty in FII taxation has been removed. Uncertainty still remains. There is no greater certainty (arising from the circular)," said Mr Garg.

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