Presence of Eligible Fund Manager in India not to constitute Business Connection in India – Section 9A - International Taxation - Income Tax

Presence of Eligible Fund Manager in India not to constitute Business Connection in India Section 9A In the case of an eligible investment fund, the fund management activity carried out through an eligible fund manager acting on behalf of such fund shall not constitute business connection in India of the said fund. An eligible investment fund shall not be said to be resident in India for the purpose of that section merely because the eligible fund manager, undertaking fund management activities on its behalf, is situated in India. The eligible investment fund means a fund established or incorporated or registered outside India, which collects funds from its members for investing it for their benefit and fulfils the following conditions, namely:- The fund is not a person resident in India; The fund should be a resident of a country or a specified territory with which India entered into DTAA as per section 90 or section 90A ; The aggregate participation or investment in the fund, directly or indirectly, by persons resident in India does not exceed 5% of the corpus of the fund; Provided that for the purposes of calculation of the said aggregate participation or investment in the fund, any contribution made by the eligible fund manager during the first three years of operation of the fund, not exceeding ₹25 crore, shall not be taken into account; The fund and its activities are subject to applicable investor protection regulations in the country or specified territory where it is established or incorporated or is a resident; The fund has a minimum of 25 members who are, directly or indirectly, not connected persons; Any member of the fund along with connected persons shall not have any participation interest, directly or indirectly, in the fund exceeding 10%.; The aggregate participation interest, directly or indirectly, of ten or less members along with their connected persons in the fund, shall be less than 50%.; The fund shall not invest more than 20% of its corpus in any entity; The fund shall not make any investment in its associate entity; The monthly average of the corpus of the fund shall not be less than ₹ 100 crore: provided that if the fund has been established or incorporated in the previous year, the corpus of fund shall not be less than ₹ 100 crore at the end of a period of 12 months from the last day of the month of its establishment or incorporation; however, this condition shall not be applicable to a fund which has been wound up in the previous year; The fund shall not carry on or control and manage, directly or indirectly, any business in India; The fund is neither engaged in any activity which constitutes a business connection in India nor has any person acting on its behalf whose activities constitute a business connection in India other than the activities undertaken by the eligible fund manager on its behalf; 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: Note: Conditions specified in clauses (e), (f) and (g) shall not apply in case of an investment fund set up by the Government or the Central Bank of a foreign State or a sovereign fund, or such other fund notified by the Central Government i.e., an investment set up by a Category -I or Category-II Foreign portfolio Investor registered under the SEBI (Foreign Portfolio Investors) Regulations, 2014, made under the SEBI Act, 1992. The eligible fund manager, in respect of an eligible investment fund, means any person who is engaged in the activity of fund management and fulfils the following conditions, namely:- the person is not an employee of the eligible investment fund or a connected person of the fund; the person is registered as a fund manager or an investment advisor in accordance with the specified regulations; the person is acting in the ordinary course of his business as a fund manager; the person along with his connected persons shall not be entitled, directly or indirectly, to more than twenty per cent. of the profits accruing or arising to the eligible investment fund from the transactions carried out by the fund through the fund manager. Every eligible investment fund shall, in respect of its activities in a financial year, furnish within 90 days from the end of the financial year, a statement in the prescribed form, to the prescribed income-tax authority containing information relating to the fulfilment of the conditions specified in this section and also provide such other relevant information or documents as may be prescribed.