Facts
- The applicant is a public company incorporated in Canada. It is engaged in the business of banking and other financial services. It also trades in securities (including derivatives) in various parts of the world.
- The applicant is registered as a Foreign Institutional Investor (FII) with Securities Exchange Board of India (SEBI) and is mainly dealing in the derivatives segment of the Indian Stock Exchanges.The applicant is trading in stock / index futures and stock / index options. It has also proposed to undertake the purchase and sale of shares and futures that are carried on as a part of an ?index arbitrage activity?.
- The applicant sought a ruling on following issues:
(i) whether the income from futures and options contracts (derivative transactions) and income from trading in equity shares or other securities are in the nature of Business Income; and
(ii) In the absence of its Permanent Establishment (PE) in India, whether the above referred business income would be taxable in India.
Contentions of the Applicant
- The derivative transactions are undertaken as a part of trading activities i.e. the object in purchasing derivative is to resell them at an appropriate time and earn income. At times the applicant sells the derivatives and buys them later. The number of transactions undertaken is substantial and carried out frequently. Therefore, the character of income from this source should be ?Business income?.
- The representative office of the applicant in India does not play any role in carrying out the transactions in derivatives etc. The applicant has no PE in India and hence its business income from trading in derivatives, shares and other securities on Indian Stock Exchanges is not taxable in India in terms of the Article 7 of the tax treaty between the India and Canada.
Contentions of the Revenue
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