Mutual fund units are not shares of an Indian company, so treaty gains on their sale fall outside the shares article.

Mutual fund units are not treated as shares of an Indian company absent a specific statutory deeming provision. The treaty provisions on gains from alienation of shares therefore do not apply to their sale by a non-resident resident in Switzerland. As a result, the capital gains fall within the residuary provision for gains from alienation of property other than that specifically covered by the earlier paragraphs, and are not taxable in India under the India-Switzerland tax treaty.

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Issues: Whether capital gains arising from the sale of mutual fund units by a non-resident assessee resident in Switzerland were taxable in India under Article 13(5) of the India-Switzerland tax treaty, or fell under Article 13(6) as gains from alienation of property other than shares.

Analysis: Article 13(4) and Article 13(5) of the treaty deal with gains from alienation of shares, while Article 13(6) applies to gains from alienation of property other than that specifically covered by the earlier paragraphs. The central question was whether mutual fund units could be treated as shares of an Indian company. The deeming provisions relied upon in the earlier Supreme Court decision concerning UTI units were held to operate only for the limited purpose for which they were created and did not convert units into shares. In the absence of any specific statutory deeming provision treating mutual fund units as shares, they remained distinct from shares of a company.

Conclusion: Mutual fund units are not shares of Indian companies, so Article 13(5) does not apply. The capital gains fall under Article 13(6) and are not taxable in India.

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