CA Ashwin Jain
Anushka Sanjay Shah Vs ITO (ITAT Mumbai)
Taxation of Mutual Fund Gains Under India-Singapore DTAA: In a significant ruling, the Mumbai ITAT held that capital gains earned by a non-resident (Singapore tax resident) from the sale/redemption of mutual fund units in India, when covered under Article 13(5) of the India-Singapore DTAA, are not taxable in India.
Summary: In the case of Anushka Sanjay Shah vs ITO, the ITAT Mumbai addressed the taxability of short-term capital gains arising from the redemption of mutual fund units held by a non-resident Indian taxpayer, who is a tax resident of Singapore. The assessee had declared capital gains of ₹1.35 crore from mutual fund redemptions (₹88.75 lakh from debt funds and ₹46.91 lakh from equity funds) and claimed exemption under Article 13(5) of the India-Singapore Double Taxation Avoidance Agreement (DTAA). The Assessing Officer (AO), however, held that the gains were taxable in India, asserting that the mutual fund units derived substantial value from assets located in India, thus rejecting the DTAA benefit.
The Dispute Resolution Panel (DRP) upheld the AO’s view, leading the assessee to appeal before the Tribunal. The assessee argued that mutual fund units are not equivalent to company shares and fall under Article 13(5) of the DTAA, which provides that capital gains from property not covered by earlier paragraphs of the Article are taxable only in the country of residence. Citing prior rulings, including Satish Beharilal Raheja (Indo-Swiss DTAA) and K.E. Faizal (India-UAE DTAA), the assessee emphasized that units of mutual funds cannot be equated with shares for treaty purposes and are therefore not taxable in India.
