Derivative gains under India-Mauritius DTAA were treated as non-share property, not taxable in India under the shares clause.

Derivative transactions were held to be financial contracts distinct from shares, so gains from such transactions could not be treated as gains from alienation of shares under Article 13(3A) of the India-Mauritius DTAA. The tribunal relied on the limited meaning of shares under company law, the separate recognition of derivatives under securities law, and the absence of any ownership rights in the underlying company. As the instruments were not shares merely because shares could be an underlying asset, the gains fell within Article 13(4) as alienation of property other than shares. The income was therefore not taxable in India on that basis, and the addition was deleted.

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Issues: Whether income from derivative transactions was taxable in India under Article 13(3A) of the India-Mauritius DTAA as gains from alienation of shares, or taxable only in Mauritius under Article 13(4) as gains from alienation of property other than shares.

Analysis: Derivatives were held to be financial contracts distinct from shares. The definition of shares under the Companies Act was treated as limited to a share in the share capital of a company, while securities under that Act and the allied securities law include derivatives as a separate class. The nature of derivatives, their dependence on an underlying asset, and the absence of any ownership rights in the underlying company showed that they cannot be equated with shares merely because shares may form one possible underlying asset. Support was also drawn from the treaty context and prior tribunal reasoning distinguishing shares from other instruments such as mutual fund units and rights entitlements.

Conclusion: The derivative gains were not covered by Article 13(3A) and fell within Article 13(4) of the India-Mauritius DTAA. The addition made by treating such income as taxable in India was deleted, in favour of the assessee.

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