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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 ..... re capital of a company and includes stock . Further, the term company has been defined to mean a company incorporated under the Companies Act, 2013 or under any previous company law . Under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1995, mutual funds, in India can be established only in the form of trusts , and not companies . Therefore, the units issued by Indian mutual funds will not qualify as shares for the purpose of Companies Act, 2013. 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 oriented mutual funds and debt oriented mutual funds should not be liable to tax in India in accordance with the provisions of Article 13(5) of the tax treaty. We are of the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be cancelled and that of the AO may be restored. 3. Brief facts of the case are as follows: The assessee, an individual, is non-resident for the relevant assessment year, viz., A.Y. 2012-2013. The assessee had sold units of equity oriented mutual funds during the relevant assessment year and derived short term capital gains (STCG) on the same amounting to ₹ 1,34,99,407. For the assessment year 2012-2013, the return of income was filed on 31.07.2012 by claiming the short term capital gain amounting to ₹ 1,34,99,407 as exempt to tax in India by virtue of Article 13(5) of India-UAE Treaty. The assessment was completed u/s 143(3) of the I.T.Act vide order dated 30.03.2015. The Assessing Officer held that the underlying 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 ₹ 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 appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aty 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 beneficial provisions of the DTAA entered between India and UAE. The Assessing Officer negated the assessee s contention by holding Article 13(4) of the Treaty would apply and not Article 13(5) of the Treaty. To understand the issue in controversy, it is necessary to reproduce Article 13 of the India-UAE Tax Treaty and the same reads as follow:- ARTICLE 13 : CAPITAL GAINS 1. Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in paragraph (2) of Article 6 and situated in the other Contracting State may be taxed in that other State. 2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of perform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company has been defined to mean a company incorporated under the Companies Act, 2013 or under any previous company law . Under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1995, mutual funds, in India can be established only in the form of trusts , and not companies . Therefore, the units issued by Indian mutual funds will not qualify as shares for the purpose of Companies Act, 2013. Further, under the Securities Contract (Regulation) Act, 1956, a security is defined to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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