Mutual Fund Gains of Singapore Resident Not Taxable in India under DTAA: ITAT Mumbai
ITAT Mumbai recently has held that Mutual Fund Gains of Singapore Resident Not Taxable in India under DTAA.
Let us have a Short Overview of the case:
Anushka Sanjay Shah, a non-resident Indian and tax resident of Singapore, filed her return for AY 2022–23 declaring income of Rs. 4.53 Cr and disclosed short-term capital gains (STCG) of Rs. 1.35 crore from mutual fund redemptions. She claimed exemption under Article 13(5) of the India–Singapore DTAA. The Assessing Officer, however, taxed the gains in India, and the DRP upheld this view stating that the mutual fund units derived substantial value from Indian assets.
The assessee argued that mutual fund units are not shares and hence Article 13(4), which deals with shares of Indian companies, does not apply. Since units are issued by trusts, not companies, they cannot be equated with “shares” under Indian or treaty law. Therefore, the gains fall under Article 13(5), which provides that gains from alienation of such property shall be taxable only in the country of residence, i.e., Singapore.
In support, she relied on key decisions: Satish Beharilal Raheja v. ITO, where it was held that mutual fund units are not shares and thus exempt under DTAA, and DCIT v. K.E. Faizal, which reiterated that such units, being issued by Indian mutual fund trusts, are not covered under Article 13(4). The Tribunal in both cases emphasized that absent a deeming fiction, mutual fund units could not be taxed as shares.
The ITAT considered these precedents and emphasized that mutual fund units are distinct from shares, citing definitions under the Companies Act and SEBI Regulations. It ruled that the term “shares” in the DTAA must align with Indian laws where no such equivalence exists. Thus, the gains from sale of mutual fund units by a Singapore resident fall squarely under Article 13(5) and are not taxable in India.
Concluding the matter, the ITAT held that the capital gains of Rs. 1,35,66,368 were not chargeable to tax in India under the beneficial provisions of the India–Singapore DTAA. The appeal was accordingly allowed. This judgment reinforces that units of mutual funds cannot be equated with shares, and non-residents can claim treaty protection under Article 13(5) in such cases
The copy of the order is as under:
