FIDELITY ADVISOR SERIES VIII Vs. STATE

JUDGEMENT

(1.) SYED Shah Mohammed Quadri, J. (Chairman) 1. In this application Under Section 245Q(1) of the Income-tax Act, 1961 (for short "the Act"), the applicant (Fidelity Advisor Series VIII) is a non-resident company in India. It is a tax resident of the United States of America, It is registered under the provisions of the Investment Company Act, 1940 of the USA. It is a trust, set up to provide investors a continuous source of managed investments in securities. The investment of the applicant is mainly in equity security with a view to provide long-term capital appreciation to its investors under a scheme of an investment fund organised as a Massachusetts Business Trust governed by the laws of the Commonwealth of Massachusetts, USA. The applicant is registered with the Securities and Exchange Board of India (SEBI) as a sub-account of "Fidelity Management and Research Company" and a "Foreign Institutional Investor" under the SEBI (Foreign Institutional Investors) Regulations, 1995. It has invested in equity shares of various companies in India and in other countries like Hong Kong, Indonesia, Korea, Singapore and United Kingdom. Under the FII regime the applicant has invested in the listed Indian companies. As per regulation 16(1) of the SEBI FII Regulations, 1995, all registered FIIs are required to appoint a domestic custodian in India. Accordingly, an FII or a global custodian acting on behalf of the FII is required to enter into an agreement with a domestic custodian of securities for the FII. The applicant appointed M/s. Brown Brothers Harriman (Luxembourg) S. A. as its global custodian for its investments. The global custodian, in turn, appointed M/s. Standard Chartered Bank (SCB) as its correspondent to act as domestic custodian. It is stated that the global custodian and the domestic custodian are acting in the ordinary course of business. The SCB performs services for the applicant as well as other FIIs in India. From the investments made by the applicant in several companies in India it receives dividends, interest and capital gains. The applicant does not have any branch office or a place of business in India nor does it have any employee of its own in India. It does not have any advisor or agent in India. The business operations of purchase and sale of securities in India are carried on through brokers in India and the Indian securities are held by the SCB. The Government of Republic of India and the Government of the United States of America concluded a convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income Under Section 90 of the Act 1961 which was notified on December 20, 1990 (referred to in this ruling as "the Treaty").

(2.) On these facts the applicant sought an advance ruling of the Authority Under Section 245R(1) of the Act on the following questions : (i) Whether, on the facts and in the circumstances of the case, the income from portfolio companies and the gains arising from the sale of portfolio investments in India will be treated as part of the Fidelity g Advisor Series VIII; Fidelity Advisor Emerging Asia Funds' (hereinafter referred to as "the applicant") business income and hence be covered within the provisions of article 7 of the Convention dated December 20, 1990, regarding the Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital gains entered into between the Government of the Republic of India and the Government of the United States of America (hereinafter referred to as "the Treaty") and thus not be taxable in India ? (ii) Whether, on the facts and circumstances of the case, the applicant will be absolved from filing a tax return in India, under the provisions of section 139 of the Indian Income-tax Act, 1961 (hereinafter referred as the "HA"), if its entire income is subject to tax only in the United States of America ? (iii) Whether, on the facts and the circumstances of the case, any penal provisions of the ITA would be invoked due to non-filing of tax returns by the applicant Under Section 139 of the ITA ?

(3.) THE applicant filed its rejoinder to the comments of the Commissioner. It is reiterated that the income arising on the sale of Indian investments (shares, etc.) is in the nature of business income and that the applicant does not have a permanent establishment in India.