Fund Management activities through Fund Managers registered under SEBI Mutual Funds Regulations not amount to “Business Connection” in India: Govt [Read Notification]

The Central Government has notified that the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 are applicable to the sections 9 and 9A of the Income Tax Act, 1961. With this, the Fund management activity through Fund managers registered under SEBI Mutual Funds Regulations 1996 not to constitute business connection in India

The government, in the year 2016, had relaxed eligibility conditions under Section 9A of the Indian Income Tax Act (for not constituting a business connection in India) applicable to foreign investment funds carrying out fund management activities in India.

Section 9 of the Act provides that any income of a non-resident that arises or accrues from or through a business connection in India is taxable in India.

The term “business connection” under the Indian Income Tax Act is similar to permanent establishment provisions under tax treaties, but wider in scope. Furthermore, Sec. 9A of the Indian Income Tax Act encapsulates safe harbour provisions whereby an “eligible investment fund” shall not be regarded as having a “business connection” in India merely because an “eligible fund manager” undertaking fund management activities on its behalf is located in India.

According to the Act, the benefits under the safe harbour provisions are subject to compliance with certain conditions. Additionally, these provisions are to be applied in accordance with the guidelines to be prescribed by the Indian Central Board of Direct Taxes in this respect.

The notification issued last day said that “In exercise of the powers conferred by clause (e) of sub-section (9) of section 9A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) as the regulation for the purposes of the said section. 2. This notification shall come into force from the date of its publication in the Official Gazette.”