Whether equity oriented funds are equivalent to shares from the standpoint of taxability under India Mauritius Treaty?
Key Issue:
Whether capital gains arising to a Mauritius-based investor from the sale of units of equity-oriented mutual funds (EOMFs) in India are taxable in India under Article 13(3A) of the India-Mauritius DTAA (which covers gains from alienation of shares) or are exempt under Article 13(4) (which covers gains from other properties)?
Delhi ITAT in the case of Emerging India Focus Funds v. ACIT [2025] 175 taxmann 1013, held that:
1. Shares represent ownership in a company under the Companies Act, 2013. Mutual Fund Units represent beneficial interest in a trust, not a company.
2. Units of equity-oriented mutual funds are not “shares” under the India-Mauritius DTAA.
3. Therefore, Article 13(3A) does not apply, and the gains are exempt in India under Article 13(4).
4. DRP erred in treating EOMFs as akin to shares by invoking purposive construction.
Conclusion:
ITAT has clarified that purposive interpretation may not override the express terms of a treaty in absence of ambiguity.
The copy of the order is as under:
