If shares are held for over 12 months and consistently treated as investments, the resulting income should be treated as capital gains & not as Business Income
“ITAT Favors Growmore Research, Linked to Harshad Mehta: Capital Gains Treated as Investment Income Under CBDT Circular No. 6/2016”
The Income Tax Appellate Tribunal (ITAT) recently delivered a significant ruling in favor of Growmore Research and Assets Management Ltd., a company linked to the late Harshad Mehta, for the Assessment Year 1993-94.
Let us have a Short Overview of the case:
Capital Gains vs. Business Income
The Assessing Officer (AO) sought to reclassify Rs. 1.99 crore as business income instead of capital gains. However, ITAT upheld Growmore’s position, relying on CBDT Circular No. 6/2016, which states that if shares are held for over 12 months and consistently treated as investments, the resulting income should be treated as capital gains unless proven otherwise.
ITAT ruled the gains as long-term capital gains, citing Growmore’s consistent treatment of these shares as investments.
Unexplained Income from RPCL Shares
The AO also added Rs. 16.56 lakh as unexplained income, alleging unaccounted RPCL shares. Growmore successfully explained that these shares stemmed from debenture conversions, with a portion already taxed in AY 1992-93.
ITAT ruled this addition as double taxation and directed its deletion.
Key Takeaway:
This ruling emphasizes the importance of:
Maintaining clear investment records
Adhering to CBDT Circular No. 6/2016 to avoid unjustified reclassification of income
Challenging arbitrary tax assessments with proper documentation
This case reinforces that regulatory clarity, when followed diligently, protects taxpayers from unfair taxation practices.
The Copy Of the order is as under:
