Anushka Sanjay Shah vs Income Tax Officer (ITAT Mumbai) – Dated 26.03.2025 [IT(IT)A No.174/MUM/2025]
Capital Gain on Mutual Fund Units Not Taxable in India under India-Singapore DTAA
Short Conclusion:
In a key ruling dated 26th March 2025, the Hon’ble Income Tax Appellate Tribunal (ITAT), Mumbai has held that capital gains arising from redemption/sale of mutual fund units by a Singapore tax resident are taxable only in Singapore as per Article 13(5) of the India-Singapore DTAA. The Tribunal clarified that such mutual fund units are not equivalent to shares and hence, Article 13(4) of the treaty does not apply. Accordingly, the entire capital gains of Rs.1.35 Crore earned by the assessee on mutual fund transactions were held to be not taxable in India.
Facts of the Case:
- The assessee, Anushka Sanjay Shah, is a non-resident Indian (NRI) and a resident of Singapore for AY 2022–23.
- She filed her return declaring short-term capital gain (STCG) of Rs.1,35,66,638 from sale/redemption of debt and equity mutual funds.
- Relying on the India-Singapore DTAA, she claimed capital gains exemption under Article 13(5) stating that such gains are taxable only in Singapore.
- The AO rejected the claim and proposed full taxation in India. The Dispute Resolution Panel (DRP) upheld the AO’s view.
Assessee’s Contention:
- Gains arose from mutual fund units, not “shares”, and hence Article 13(4) does not apply.
- Instead, the case is governed by Article 13(5) of the India-Singapore DTAA, which states that gains not covered under prior paragraphs are taxable only in the resident country (i.e., Singapore).
- Relied upon judicial precedents:
- DCIT vs. K.E. Faizal [(2019) 178 ITD 383 (Cochin Trib)] – India-UAE DTAA
- Sanket Kanoi vs. DCIT [(2024) 168 taxman.com 418 (Delhi Trib)] – India-UAE DTAA
Revenue’s Contention:
- Capital gains arose from India and are thus taxable under the Indian Income-tax Act.
- AO argued that mutual fund units are akin to shares and should be taxed under Article 13(4) of the DTAA.
- DRP upheld that the source of income being in India makes the gains taxable in India regardless of the assessee’s residence.
Ruling by the Tribunal:
- ITAT Mumbai relied on the SEBI Mutual Fund Regulations, 1995 and the Securities Contracts (Regulation) Act, 1956, distinguishing mutual fund units from shares.
- It noted that mutual funds in India are formed as trusts, not companies, and hence units cannot be treated as shares.
- Concluded that Article 13(5) of the DTAA applies and such capital gains are not taxable in India.
- Allowed full exemption to the assessee on STCG of Rs.1.35 Cr.
Our Comments:
- The judgment reinforces clarity around capital gains taxation for NRIs investing in Indian mutual funds.
- By distinguishing mutual fund units from shares, the Tribunal avoids misclassification under treaty provisions.
- The case is consistent with past rulings involving India-UAE DTAA, where Article 13(5) was interpreted similarly.
Earlier Judgements on Similar Issue:
- DCIT vs. K.E. Faizal – Cochin ITAT (2019): Capital gains on mutual funds taxable only in UAE.
- Sanket Kanoi vs. DCIT – Delhi ITAT (2024): Gains on mutual fund units held to be taxable only in UAE.
Countries Enjoying Similar DTAA Treatment with India:
The following countries have similar DTAA provisions with India under Article 13(5), which permit taxation of capital gains only in the country of residence for assets not covered under specific clauses:
- Singapore
- UAE
- France
- Germany
- Netherlands
- Sweden
- Switzerland
- Italy
- Mauritius
(Note: Actual taxability subject to valid TRC, GAAR, and treaty compliance.)
To read the judgement CLICK ME.
Guidance on above article on Income Tax by:
Naman Maloo (C.A., B.Com)
He is currently working as Partner – Direct Tax with a renowned firm in Jaipur having experience in dealing Assessments before Income Tax authority, Tax Audit, International Taxation, Tax planning for NRI, Business planning and consultation.
E-mail: naman.maloo@jainshrimal.in | LinkedIn: Naman Maloo
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