FIDELITY NORTHSTAR FUND Vs. STATE

JUDGEMENT

(1.) IN this batch of forty cases, thirty applications are filed by Fidelity Group of USA, nine by the Fidelity Group of Canada and one by the Matthews INdia Fund. All these applications are filed under Section 245Q(1) of the INcome-tax Act, 1961 (for short 'the Act') to seek advance rulings of the Authority on the questions mentioned therein. INasmuch as the germane questions in all the applications are common, we propose to decide them together. The applicants have taken up application No. AAR/694 of 2006 filed by Fidelity Hastings Street Trust (from USA group) as representative of facts in all other cases. The applicant in AAR/694 of 2006 (for short 'the applicant') is a scheme of investment fund organized as a Massachusetts Business Trust under the laws of Commonwealth of Massachusetts (USA). It is set up to provide investors a continuous source of managed investments in securities. It is registered under the INvestment Company Act 1940 of USA and is treated as a Corporation for purposes of taxation in USA. The beneficial interest in the funds is divided into transferable shares of one or more separate and distinct series. The applicant is being managed by a Board of Trustees, which has the authority and discretion in regard to investment/re-investment of its fund and the power to declare and pay dividends. It makes investment in different parts of the world including INdia. It is registered with the Securities Exchange Board of INdia (SEBI) as a sub-account of Fidelity Management and Research Company (FMR). Under the Foreign INstitutional INvestors regime the applicant invests in shares in INdian companies. To comply with the SEBI regulations the applicant appointed Brown Brothers and Harrimon Company as its global custodian who in turn appointed Citibank NA, Mumbai as its correspondent to act as domestic custodian for the applicant. Both the global custodian and the domestic custodian are acting in the ordinary course of their business and are performing similar custodial services for many other FIIs. The applicant is regulated by the laws in force in the commonwealth of Massachusetts USA and by the Securities Exchange Commission. The investment manager of the applicant, FMR, is located outside INdia and it has no presence in INdia. The applicant does not have any branch office or place of business in INdia. It purchases and sells shares/securities in INdia through brokers and the securities are held by the domestic custodian on behalf of the applicant. It is mentioned that the name of the applicant has undergone change and the changed name is Fidelity Hastings Street Trust Fidelity Discovery Fund w.e.f. August 23rd, 2003, which has been acknowledged and approved by the SEBI. On these facts the applicant seeks advance ruling of the Authority on the following questions:

(2.) Whether on the facts and in the circumstances of the case, the Applicant can be regarded as having a Permanent Establishment ('PE') in India in accordance with Article 5 of the Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income 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')?

(3.) WHETHER on the facts and in the circumstances of the case, if it is found that the Applicant has a permanent establishment in India under the Treaty and if the income is found to be in the nature of business income, the business income of the Applicant in India from the sale of portfolio investments will be taxable in India at the rate of 20% in light of Section 115AD of the Income Tax Act, 1961 (hereinafter referred to as the "ITA")?