notification no. 14/2016 f.no. 142/15/2015 tpl / so 1101 e income tax 5th amendment rules 2016

1 [TO BE PUBLSIHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (ii)] GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE (CENTRAL BOARD OF DIRECT TAXES) (INCOME – TAX) Notification New Delhi, the 15th March, 2016 S.O. 1101(E).- In exercise of the powers conferred by section 9A read with section 295 of the Income-tax Act, 1961(43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:- 1. (1) These rules may be called the Income-tax (5th Amendment) Rules, 2016. (2) They shall come into force from the date of their publication in the Official Gazette. 2. In the Income-tax Rules, 1962 (hereinafter referred to as the said rules), after rule 10UC the following rules shall be inserted, namely:- “10V. Guidelines for application of section 9A.-(1) Where the investment in the fund has been made directly by an institutional entity, the number of members and the participation interest in the fund shall be determined by looking through the said entity, if it, - (a) independently satisfies the conditions mentioned in clauses (c), (e), (f) and (g) of sub- section (3) of section 9A; (b) has been setup solely for the purpose of pooling funds and investment thereof; and (c) is resident of a country or specified territory with which an agreement referred to in sub- section (1) of section 90 or sub-section (1) of section 90A has been entered into. (2) For the purposes of clause (c) of sub-section (3) of section 9A, where direct investor in the fund is a person other than a natural person, the fund shall undertake appropriate due diligence to ascertain the indirect participation, if any, of a person resident in India and the extent thereof: Provided that where such direct investor is, the Government or the Central bank or a sovereign fund or a multilateral agency or appropriately regulated investor in the form of pension fund or University fund or a bank or collective investment vehicles such as mutual funds, the fund shall obtain a declaration in writing from the direct investor regarding the participation, if any, of a person resident in India and the indirect participation in the fund of any person resident in India may be determined by the fund on the basis of such declaration. 2 Explanation.– For the purposes of this sub-rule an investor shall be considered to be appropriately regulated if it is regulated or supervised by the securities market regulator or the banking regulator of the country outside India of which it is resident, in the same capacity in which it has made investment in the fund. (3) A fund shall not be denied the benefit of being an eligible fund for the purposes of section 9A, if, - (a) non-fulfilment of any of the conditions specified in clauses (c), (d) and (e) of sub-section (3) of section 9A, - (i) is for the reasons beyond the control of the fund and it does not exceed a period of ninety days; (ii) does not exceed a period of eighteen months beginning from the date on which the fund is setup or is not beyond the final closing of the fund, whichever is earlier, and bonafide efforts are made to satisfy the conditions specified in the clauses (c), (d) and(e) of sub-section (3) of section 9A; (iii)is for the reason that the fund is in the process of being wound up and it does not exceed a period of one year beginning from the date on which the process of winding has begun; or (b) there is delay in furnishing the statement referred to in sub-section (5) of section 9A and such delay does not exceed a period of ninety days. (4) For the purposes of clause (k) of sub-section (3) of section 9A, a fund shall be said to be controlling or managing a business carried out by any entity, if the fund directly or indirectly holds such rights in, or in relation to, the entity, which results in the fund holding the share capital or a voting power or an interest exceeding twenty six per cent. of the total share capital of, or as the case may be, total voting power or total interest in, the entity. (5) Subject to the provisions of sub- rules (6), (7) and (8), for the purposes of determining the arm’s length price in respect of any remuneration, paid by the eligible investment fund to an eligible fund manager, referred to in clause (m) of sub-section (3) of section 9A, the provisions of the Act shall apply as if,- (i) the transaction between the eligible investment fund and the eligible fund manager is an international transaction; and (ii) the eligible investment fund and the eligible fund manager are associated enterprises. (6) The fund manager shall keep and maintain information and documents as required under section 92D and the rules made thereunder. 3 (7) The fund manager shall, in addition to any report required to be furnished by it under section 92E, obtain a report from the accountant in respect of activity undertaken for the fund and furnish such report on or before the specified date in the Form No. 3CEJ duly verified by such accountant in the manner indicated therein and all the provisions of the Act shall apply as if it is a report to be furnished under section 92E. Explanation.- For the purposes of this sub-rule “specified date” shall have the same meaning as assigned to “due date” in the Explanation 2 below sub-section (1) of section 139. (8) Where the fund manager has either not maintained the document or information as required under section 92D and the rules made thereunder or not produced the document or information before the Assessing Officer or the Transfer Pricing Officer, as the case may be, then, the Assessing Officer or the Transfer Pricing Officer, as the case may be, shall, before determining the arm’s length price for the purposes of clause (m) of sub-section (3) of section 9A, provide an opportunity to the fund to produce the information and documents necessary for the determination of the arm’s length price and the arm’s length price shall be determined after considering the documents or information, if any, provided by the fund. (9) If in any previous year, it is determined that the remuneration paid or payable by a fund to the fund manager is not in accordance with the provisions of clause (m) of sub-section (3) of section 9A, then the benefits of section 9A shall not be denied to the fund which otherwise satisfies all other conditions specified in section 9A. (10) Nothing contained in sub-rule (9) shall apply to a fund if the remuneration paid or payable by the fund to the fund manager has been determined to be not at arm’s length price, - (a) for a period of three previous years in succession; or (b) for any three out of the preceding four previous years. 10VA. Approval of the fund.- (1) An investment fund may at its option seek approval of the Board regarding its eligibility for the purposes of section 9A. (2) The fund seeking approval may make an application in writing, enclosing relevant documents and evidence, to Member (Income-tax), Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, North Block, New Delhi. (3) The application under sub-rule (2) shall be made three months before the beginning of the previous year for which the fund seeks the approval. (4) A committee as notified by the Board, shall examine the application and submit its recommendations regarding grant of approval or otherwise and the conditions, if any, subject to which such an approval is to be granted.