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2019 (7) TMI 598 - AT - Income TaxShort term capital gain - Assessee 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 - taxable in India or UAE as per Article 13(4)/13(5) of DTAA - transfer of a capital asset situated in India shall be deemed to accrue or arise in India - Assessee sold equity linked mutual funds and derived STCG - HELD THAT:- The term “share” is not defined under the tax treaty. As per Article 3(2) of the tax treaty, any term not defined under the tax treaty shall, unless the context otherwise requires, have the meaning which it has under the laws of the country whose tax is being applied. Therefore, the term “share” would carry the meaning ascribed to it under Act, and if no meaning is provided under the Act, then the meaning that the term carries under other allied Indian laws would need to be applied. The Act does not define the term “share”. Section 2(84) of the Indian Companies Act, 2013 defines the term “share” to mean “a share in the share 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 that the CIT(A) is justified in deleting the addition as short term capital gain - Appeal filed by the Revenue is dismissed.
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