As a permanent resident in Canada is my capital gain on sale of Indian shares exempted under the double taxation avoidance treaty between India and Canada?

You must report World Wide Income on your Canadian tax return and claim any corresponding income tax for the foreign income tax credit that you paid to a foreign country on foreign income.

The matter here is that in India there is no long term capital gain tax (from sale of shares) so I cannot claim any here and Article 13 of the treaty between Canada and India says, in Para 2, that gains "may be taxed in both Contracting States. So what is one expected to do, report gain for now and wait for CRA to take a call on whether to tax or not and do the needful then?

Are you paying any tax in India?

Yes, on my pension and other investment incomes.

You would claim the foreign tax credit on the foreign sources of income that you have included on your Canadian Tax Return. If you have not paid tax on a certain source of investment income in a foreign country due to the tax laws of that country reporting it on the Canadian tax return will not result in double taxation.