By Geeta Jani, Dhishat B. Mehta, Chartered Accountants
fiogf49gjkf0d
Article 13, India-Switzerland DTAA. Units of MF not deemed to be shares of companies even though MF may invest in shares – Gain on units not chargeable to tax in India.
Facts:
The taxpayer was a citizen of Switzerland. He had also submitted tax residence certificate issued by Swiss authorities. During the relevant assessment year, the taxpayer was a non-resident in terms of the Act and had received long-term and short-term capital gain from sale of mutual fund units.
The AO noted that the taxpayer had basically invested in Indian capital market and in Indian shares through selective investment routes known as mutual funds; the capital gain was basically attributable to gain in shares of companies in which mutual funds had made investments; therefore, effectively the gain was from alienation of shares of companies resident in India; and accordingly, treated the capital gain from sale of mutual fund units as that arising from sale of shares and held it to be taxable in India in terms of Article 13(5)(b) of India-Switzerland DTAA.
The taxpayer contended that the capital gain had arisen from sale of mutual fund units and that the Act has made clear distinction between shares issued by Indian companies and units issued by mutual funds and has also treated them differently. Accordingly, Article 13(6), and not Article 13(5), was applicable.
Held:
In the absence of any specific provision under the Act to deem the unit of MF as shares, it could not be considered as shares of companies and, therefore, the provisions of Article 13(5)(b) cannot be applied in case of units. As such, provisions of Article 13(6) are applicable as per which the capital gain on sale of units cannot be taxed in India.
