ITAT Mumbai Upholds Tax Certainty for Category III AIFs

In a significant ruling delivered in the case of 360 One Core Aggressive, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has reinforced crucial tax principles for Category III Alternative Investment Funds (AIFs).

The Tribunal held that gains from securities transactions of such funds must be taxed as capital gains—not as business income—thereby upholding the principle of consistency in tax treatment. Additionally, the ruling clarified that unit premium determined based on Net Asset Value (NAV) is not taxable, even in the absence of a separate valuation report, provided adequate documentation supports the position.

For fund managers and AIF structures, this decision underscores the critical importance of maintaining robust NAV-based documentation, including Private Placement Memoranda (PPM), contribution agreements, and investor records to defend key tax positions.

The ruling serves as a welcome affirmation, providing much-needed certainty on taxation matters for India's growing AIF industry.