In a landmark ruling, the Mumbai bench of the Income-Tax Appellate Tribunal (ITAT) has held that in view of Article 13 of DTAA between India and Singapore, the Capital Gains arising on mutual fund investments in hand of non residents is not taxable in India. Anushka Sanjay Shah , the assessee against the order of the Income-tax Officer Int. Tax Ward 4(2)(1), Mumbai [“AO”] dated 21.12.2024 passed u/s. 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 [ “Act”].

It was argued that the DRP erred in endorsing the order of the AO to assess the capital gains on mutual fund units arising from are taxable in India thereby affirming the addition of Rs. 1,35 66,368 made by the AO. The DRP and AO erred in holding that the short term capital gains on capital gain on debt fund of Rs.88,75,230/- and short term capital gain on equity fund of Rs.46,91,140/- under the head income from capital gain is taxable in India and benefits of Article 13(5) under the India -Singapore treaty are not applicable to the assessee. The assessee is a non-resident Indian and filed return declaring income of Rs. 4,53,768/- on 27.06.2022. The case was selected for scrutiny. The assessee had shown income from short-term capital gain on debt funds of Rs. 88,75,230/- and short-term capital gain on equity funds of Rs. 46,91,140/- in respect of which deduction was claimed under the Double Taxation Avoidance Agreement ( DTAA ).

The assessee had claimed that capital gains earned on the transfer of equity shares can not be charged as she is a tax resident of Singapore and the provisions of Article 13 of DTAA are applicable. Worried About SME IPO Pitfalls? Gain Clarity with This Advanced Course! Register Now Read More: Ambedkar Jayanti 2025: His Economic Vision vs. India’s Fiscal Reality Today The AO did not accept the contentions of the assessee and proposed to tax on the entire amount in the draft assessment. The assessee filed objections before the DRP. However, the action of the AO was endorsed by DRP which held that the capital gains arising from the units of mutual funds that derived substantial value from assets located in India are taxable in India. Before the tribunal, the assessee has submitted a breakup of short-term equity and debt mutual funds and claimed that the investment was made directly by the assessee and not by the portfolio manager. Bank statements show investments made to mutual funds and sale consideration credited directly by mutual funds to the assessee’s bank account.

With regard to the application of DTAA, it was submitted that the short term capital gains arising from sale/redemption of mutual fund units would fall within the ambit of Para 5 of Article 13 of DTAA between India and Singapore. It was observed that in light of tax treaties with countries such as Singapore, the United Arab Emirates, Spain, Portugal, the Netherlands, and Mauritius, the gains on capital assets other than immovable property and share investments are only subject to taxation in the nation in which the individual resides. In the light of the provisions of India Singapore DTAA , the two member bench of Smt Beena Pillai, Judicial Member & Smt. Renu Jauhri, Accountant Member viewed that the assessee is entitled to deduction in respect of shortterm capital gains of Rs. 1,35,66368/- under the DTAA between India and Singapore is allowable and allowed the appeal.