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TMI Blog2019 (7) TMI 598X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income Tax (Appeals)-II Kochi erred in holding that the units of equity oriented Mutual Funds and equity shares cannot be held to be the same. 3. The learned Commissioner of Income Tax (Appeals)-II Kochi ought to have considered the fact that the underlying instrument of any equity oriented Mutual Fund is nothing but a share and hence the gains arising from the sale of the underlying instrument, being the equity share results in Capital Gains. 4. The learned Commissioner of Income Tax (Appeals)-II Kochi erred in holding that as per the provisions of the India-UAE Double Taxation Avoidance Agreement the gain can be taxed only in the country of residence which is UAE. 5. The learned Commissioner of Income Tax (Appeals)-II Kochi o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instrument of any equity oriented mutual funds is nothing but a `share', and therefore, as per Article 13(4) of the Treaty, STCG would be taxable in India. Accordingly, he added a sum of Rs. 1,34,99,407. 4. Aggrieved by the above said addition under the short term capital gains, the assessee preferred an appeal to the first appellate authority. The assessee raised various contentions before the first appellate authority and the same was reproduced at pages 6 to 10 of the impugned order (portion of para 4.3 of the CIT(A) order). The CIT(A) decided the issue in favour of the assessee by holding that the short term capital gains derived by the assessee on account of sale of units of equity oriented mutual funds are not taxable in India. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deemed to accrue or arise in India. The income from transfer of units of an equity-oriented mutual funds situated in India is deemed to accrue or arrive in India and therefore is taxable in India even in the case of a non-resident. However, taxation in the case of non-resident is subject to the provisions of the relevant Treaty between India and the State of residency of the assessee. In the instant case, the provisions of India- UAE Treaty would be applicable. Section 90(2) of the I.T.Act states that the provisions of the Treaty shall apply to the extent they are more beneficial to the assessee as compared to the corresponding provisions of the Act. The Assessing Officer also does not state that the assessee is not entitled to the benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racting State may be taxed in that State. 5. Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3 and 4 above shall be taxable only in the Contracting State of which the alienator is a resident." (Emphasis supplied] 6.1 As per Article 13(5) of the Tax Treaty, income arising to a resident of UAE from transfer of property other than shares in an Indian company, are liable to tax only in UAE. On the other hand, Article 13(4) of the Tax Treaty provides that income arising to a resident of UAE from transfer of shares in an Indian company other than those specifically covered within the ambit of provisions of other paragraph of Article 13 may be taxed in India. Article 13(4) of the Tax Treaty covers wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... include inter alia - (a) shares, scrips, stocks, bonds, debentures, debenture stock or other body corporate; and (b) units or any other such instrument issued to the investors under any mutual fund scheme. 6.3 From the above definition of "securities", it is clear that "shares" and "units of a mutual fund" are two separate types of securities. Applying the above meaning to the provisions of the tax treaty, the gains arising from transfer of units of mutual funds should not get covered within the ambit of Article 13(4) of the tax treaty, and should consequently be covered under Article 13(5) of the tax treaty. Therefore, the assessee, who is a resident of UAE for the purposes of the tax treaty, STCG arising from sale of units of equity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32(3) (of the UTI Act) should be applied for the purposes for which the said deeming provision is specifically enacted, which in the instant case was confined only to deeming the UTI as a company, and the income from the units as a dividend. If as a matter of fact, the Legislature had contemplated making the unit as also a deemed share, then it would have stated so. In the absence of any such specific deeming in regards to units as shares, it would be erroneous to extend the provisions of Section 32(3) of units of UTI for the purpose of holding that the unit is a share." 6.6 In view of the aforesaid reasoning and the judicial pronouncement cited supra, we are of the view that the CIT(A) is justified in deleting the addition of Rs. 1,34,99, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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