A communication issued by the Central Board of Direct Taxes, as F. No. 142/15/2015-TPL, dated 5 December 2019.
An office memorandum of the Tax Policy and Legislation division circulating a draft notification for inputs from stakeholders and the general public. Section 9A gives a special regime to certain offshore funds managed from India: the fund management activity does not by itself constitute a business connection, and the fund is not said to be resident in India, provided a list of conditions is met. One of those conditions concerns the fund manager's remuneration.
This one does not fall neatly into the Board's usual classes — it is a letter, a memorandum, a consultation paper or something else the department has published in this collection. What it is, and what weight it carries, is set out below.
The memorandum records that section 9A provides a special taxation regime for certain offshore funds whose fund managers operate from India, under which the fund management activity shall not constitute a business connection in India and the fund shall not be said to be resident in India where the specified conditions are satisfied. The Finance (No. 2) Act, 2019 amended clause (m) of sub-section (3) so that the remuneration paid to the eligible fund manager must be not less than the amount calculated in such manner as may be prescribed. The draft rules prescribe that manner: 0.1 per cent of the assets under management for certain Category-I foreign portfolio investors, and for other funds 0.30 per cent of the assets under management, or 10 per cent of profits above the hurdle rate, or 50 per cent of the management fee less operational expenses. Comments were invited by 19th December, 2019 by e-mail.
Clause (m) of section 9A(3) originally required the fund manager to be paid remuneration at arm's length, which meant a transfer pricing exercise in every case and made the safe harbour unattractive. The 2019 amendment replaced that test with a prescribed figure, and that only works once a figure is prescribed. This memorandum puts the draft formula before the industry before it is notified, so that the numbers can be tested against the way these funds are actually run.
A consultation document, not an order, and it binds no one. The department need not act on any comment, and a fund manager takes no right from it. What governs is section 9A itself and the rule as eventually notified, which may differ from the draft. Neither the Tribunal nor a court is bound by anything the memorandum says about the section.
Issued on 5th December, 2019, on the amendment made by the Finance (No. 2) Act, 2019 to clause (m) of section 9A(3). Comments were to be sent by e-mail by 19th December, 2019.
Treat the percentages as a draft. A fund manager relying on the regime must satisfy clause (m) as it stands in the section and as prescribed by the rule finally notified, not by this memorandum. Note also that clause (m) is one condition among many in section 9A(3), so meeting the remuneration test alone does nothing for the fund.
not less than the amount calculated in such manner as may be prescribed
— the Central Board of Direct Taxes, communication F. No. 142/15/2015-TPL, 5 December 2019. Read it in the department’s own PDF.
| Under the Income-tax Act, 1961 | Now, in the Income-tax Act, 2025 |
|---|---|
| section 9A | section 9 |
What here is the Board’s and what is ours. The document is the Central Board of Direct Taxes’ own. Its number, its date and the words quoted above are reproduced from the Board’s own PDF, which is here. Everything else on this page is ours: the plain-English account of what the document is and what it does, the reading of which provision it turns on, the note on what to watch, and the choice of cases. Where our account and the document part, the document governs.
An order of the Board binds the department, not you and not a court. The Board writes to its own officers. An assessee may hold the department to an order or an instruction 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. This is the most common mistake made with this material, and it is worth making twice: a direction of the Board is not a section of the Act.
We did not read all of it. The department’s file returned only part of this document to us, so what is written above is written from the part we could read. Open the PDF before you rely on it.
What we could not settle. The draft rule was read in summary; the exact wording of the proposed rule and of each limb of the formula was not transcribed.