Stock derivatives are distinct from shares, so gains fall outside the DTAA share-gains article and are taxed only in residence state.

Stock derivatives are legally distinct from shares, so gains from their alienation do not fall within the India-Mauritius DTAA provision taxing gains from "shares" under Article 13(3A). Because a derivative is a separate financial contract and not an interest in share capital, the treaty term cannot be expanded to cover derivative trading merely by reference to the underlying asset. The residual rule in Article 13(4) therefore applies, and the gain is taxable only in the State of residence.

---

---

Issues: Whether gain arising from trading in stock derivatives is taxable in India under Article 13(3A) of the India-Mauritius DTAA as gain from alienation of shares, or whether such gain falls under Article 13(4) and is taxable only in the State of residence.

Analysis: Shares and derivatives are legally and commercially distinct assets. A derivative is a separate financial contract deriving value from an underlying asset, but it is not itself a share or an interest in share capital. The treaty language in Article 13(3A) refers specifically to "shares", and cannot be expanded to cover derivative transactions merely because the underlying reference asset is shares. Where the treaty does not define the term with sufficient breadth, the ordinary legal meaning and the domestic law understanding support treating derivatives as separate from shares. Consequently, gains from alienation of stock derivatives do not fall within the specific charging limb for shares under Article 13(3A).

Conclusion: Gain from trading in stock derivatives is not taxable in India under Article 13(3A) of the India-Mauritius DTAA and is covered by Article 13(4), making it taxable only in the State of residence. The issue is decided in favour of the assessee.

---