Section 9A of the Act provides for a safe harbour in respect of offshore funds. It provides that in the case of an eligible investment fund, the fund management activity carried out through an eligible fund manager located in India and acting on behalf of such fund shall by itself not constitute business connection in India of the said fund. Further, an eligible investment fund shall not be said to be resident in India merely because the eligible fund manager undertaking fund management activities on its behalf is located in India. The benefit under section 9A is available subject to the conditions provided in sub-sections (3), (4) and (5) of the said section.

Sub-section (3) of section 9A provides for the conditions for the eligibility of the fund. These conditions, inter-alia, are related to residence of fund, corpus, size, investor broad basing, investment diversification and payment of remuneration to fund manager at arm’s length.

Offshore Account

Representations have been received for relaxing certain conditions in the implementation of regime of fund managers. To give an impetus to fund management activities in India, certain constraints are proposed to be removed by suitably amending section 9A of the Act, so as to provide that,-

i) the corpus of the fund shall not be less than one hundred crore rupees at the end of a period of six months from the end of the month of its establishment or incorporation or at the end of such previous year, whichever is later; and

ii) the remuneration paid by the fund to an eligible fund manager in respect of fund management activity undertaken by him on its behalf is not less than the amount calculated in such manner as may be prescribed.

These amendments will take effect retrospectively from 1st April, 2019 and shall apply to the assessment year 2019-20 and subsequent assessment years.

[Clause 5]

Extract of Clause 5 of Finance Bill 2019

5. Amendment of section 9A.

In section 9A of the Income-tax Act, in sub-section (3),––

(i) in clause (j), in the first proviso, for the words “at the end of such previous year”, the words “at the end of a period of six months from the last day of the month of its establishment or incorporation, or at the end of such previous year, whichever is later” shall be substituted;

(ii) in clause (m), for the words “the arm’s length price of the said activity”, the words “the amount calculated in such manner as may be prescribed” shall be substituted.

Note on Clause 5 of Finance Bill 2019

Clause 5 of the Bill seeks to amend section 9A of the Income-tax Act relating to certain activities not to constitute business connection in India.

Sub-section (3) of the said section provides for the conditions to be fulfilled for being an eligible investment fund.

Clause (j) of the said sub-section provides that the monthly average of the corpus of the fund shall not be less than one hundred crore rupees. The first proviso to said clause further provides that where the fund has been established or incorporated in the previous year, the corpus of fund shall not be less than one hundred crore rupees at the end of such previous year.

It is proposed to amend the said proviso so as to provide that where the fund has been established or incorporated in the previous year, the fund shall be required to fulfill the condition of maintaining the corpus of one hundred crore rupees within a period of six months from the last day of the month of its establishment or incorporation, or at the end of such previous year, whichever is later.

Further, clause (m) of said sub-section provides that the remuneration paid by the fund to an eligible fund manager in respect of fund management activity undertaken by him on its behalf is not less than the arm’s length price of the said activity.

It is proposed to amend the said clause so as to provide that the remuneration paid by the fund to an eligible fund manager in respect of fund management activity undertaken by him on its behalf is not less than the amount calculated in such manner as may be prescribed instead of the arm’s length price of the said activity.

These amendments will take effect retrospectively from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-2020 and subsequent assessment years.

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