Clause - 004 - Amendment of section 9.

THE FINANCE BILL, 2017

Clause 4 of the Bill seeks to amend section 9 of the Income-tax Act relating to income deemed to accrue or arise in India. Clause (i) of sub-section (1) of the said section provides that certain incomes mentioned therein shall be deemed to accrue or arise in India. Explanation 5 to the said clause provides that an asset or capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.

It is proposed to insert a new Explanation 5A so as to clarify that the Explanation 5 shall not apply to an asset or capital asset mentioned therein and held by a non-resident by way of investment, directly or indirectly, in a Foreign Institutional Investor, as referred to in clause (a) of the Explanation to section 115AD, and registered as Category- I or Category-II foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992. The proposed amendment is clarificatory in nature.

This amendment will take effect retrospectively from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-2013 and subsequent years.

 

Asset-situs rule clarified: Explanation 5A exempts shares held through registered foreign portfolio investors from deemed India-situs. Explanation 5A clarifies that the Explanation deeming foreign shares or interests as situated in India does not apply where a non-resident holds those assets by investment, directly or indirectly, through a Foreign Institutional Investor registered as a foreign portfolio investor under the applicable regulations; the amendment is described as clarificatory and given retrospective effect in the Budget proposal.