Circular No. 4/2017

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What this is

Circular No. 4/2017 was issued by the Central Board of Direct Taxes on 20 January 2017. Its subject is %e0%a4%aa%e0%a4%b0%e0%a4%bf%e0%a4%aa%e0%a4%a4%e0%a5%8d%e0%a4%b0 %e0%a4%b8%e0%a4%82. 41/2016 %e0%a4%8f%e0%a4%ab.%e0%a4%a8%e0%a4%82. 500/43/2012 %e0%a4%8f%e0%a4%ab%e0%a4%9f%e0%a5%80%e0%a4%8f%e0%a4%82%e0%a4%a1%e0%a4%9f%e0%a5%80%e0%a4%86.

What it does

Keeps Circular No. 41/2016 dated 21 December 2016 on the indirect transfer provisions in abeyance for the time being. Nothing in that circular is to operate while the representations against it are examined.

Why it was issued

After Circular No. 41/2016 was issued, Foreign Portfolio Investors, Foreign Institutional Investors, venture capital funds and other stakeholders represented that it did not address the possibility of the same income being taxed multiple times, and those representations were under consideration.

Who it reaches

Foreign Portfolio Investors and Foreign Institutional Investors with Indian holdings
Venture capital funds and other pooled offshore structures
Advisers who had applied Circular No. 41/2016 to a multi-tier structure
Assessing Officers dealing with indirect transfer questions under section 9(1)(i)

The instrument, as the Board published it

The department publishes this one only as a PDF, so the words below were read out of that PDF by machine. That reading can carry its own mistakes — a misread number, a broken line. Check the signed document before you rely on a figure in it.

F.No 500/431201 2-FT&TRJV
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
(FT&TR-Division)
New Delhi, 8 January, 2017.

Circular No. 41/2016 [F. No. 500/43/2012-FT&TR] dated 21.12.2016

The Central Board of Direct Taxes had issued Circular No. 41/2016 on 21st December, 2016 regarding Indirect Transfer Provisions under the Income Tax Act, 1961.

2. After the issue of circular No. 41/2016, representations have been received from various FPIs, FIIs, VCFs and other stakeholders. The stakeholders have presented their concerns stating that the circular does not address the issue of possible multiple taxation of the same income. The representations made by the stakeholders are currently under consideration and examination.

3. Pending a decision in the matter, operation of Circular No. 41 of 2016 dated 21st December, 2016 is kept in abeyance for the time being.

Copy to:-

1. The Chairman, Members and officers of the CBDT of the rank of Under Secretary and above
2. PS to the Revenue Secretary
3. All Pr. Chief Commissioners of Income Tax & All Directors General of Income Tax with a request to bring to attention of all officers
4. Pr. Director General of Income Tax, NADT, Nagpur
5. Pr. DGIT (Systems), ARA Centre, Jhandewalan Extension, New Delhi
6. Pr. DGIT (Vigilance), New Delhi
7. ADG (PR, PI& OL), Mayur Bhawan, New Delhi for printing in the quarterly tax bulletin and for circulation as per usual mailing list (100 copies)
8. C&AG, New Delhi
9. Web Manager for uploading on incometaxindia.gov.in & placing on public domain
10. Data Base Cell for uploading on irsofficeronline
11. Guard File

What to watch

Abeyance is not withdrawal; the circular says only that operation is suspended for the time being.
It gives no substantive guidance of its own on indirect transfers, so a position cannot be built on this text alone.
The multiple-taxation concern was later addressed on the merits by Circular No. 28/2017 dated 7 November 2017.
The record is inconsistent: the document is indexed as Circular No. 4/2017 dated 20 January 2017 but the text is dated 8 January 2017 and is headed by reference to Circular No. 41/2016; treat the numbering with care.

Where you meet it

You meet it when the department or a counterparty cites Circular No. 41/2016 on indirect transfers, and the answer is that its operation was suspended.

What it names

It mentions. Circular No. 41/2016

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.