R U L I N G (By Mr. Justice Syed Shah Mohammed Quadri)

Transcription

1 BEFORE THE AUTHORITY FOR ADVANCE RULINGS (INCOME-TAX) NEW DELHI ========== Hon ble Mr. Justice Syed Shah Mohammed Quadri (Chairman) Mr. A.S. Narang (Member) Wednesday, the Fourteenth December Two Thousand Five A.A.R. NO. 659 OF 2005 Name & address of the applicant Commissioner concerned General Electric Pension Trust C/o GEAM Tax Department 3003, Summer Street, P.O. Box , Stamford, CT Director of Income-tax (International Taxation), Mumbai Present for the Department - Mr. Sharat Dev Kapila, Adv. Mr. Suresh Ramchandani, Adv. Present for the Applicant Mr. Nishith Desai, Advocate Ms. Shefali Goradia, C.A. and others R U L I N G (By Mr. Justice Syed Shah Mohammed Quadri) The applicant in this application under section 245Q(1) of the Income Tax Act,1961 (for short the Act ), is a trust established by General Electric Company and its participating affiliated companies (hereinafter referred to as GE ) by an indenture on December 28, The applicant is a tax resident of USA. The Trust forms part of a pension, profit sharing, or stock bonus plan qualified under section 401 (a) of the USA Internal Revenue Code. The trust was 1

2 formed for providing payment of pension and other benefits under the G.E. Pension Plan. The said trust indenture was amended from time to time and was restated in its entirety on July 1,2000. GE sponsors a number of pension plans for the benefit of its employees. The plan- contributory defined benefit pension plan, is for US employees of GE. Under the plan contributions are received from the GE and its employees. The plan states that the payment of all benefits shall be made solely from the assets of the applicant and except as otherwise required by law, GE shall have no obligation to make or continue to make from its own fund any payment of the benefits provided by it. The applicant has various portfolios under it, which focus on different types of investments, different sectors and different geographical regions. The applicant holds approximately US $ 43 billion in worldwide assets of which approximately US $ 80 million (approximately 0.19% of the worldwide assets) are invested in Indian securities. The applicant is managed by a Board of Trustees which has exclusive authority and discretion to manage and control the assets of the applicant. The Board has delegated to GE Asset Management (GEAM) the sole and the exclusive authority to manage the assets of the applicant. The applicant makes investments in India under the Foreign Institutional Investor ( FII ) regime formulated by the Securities and Exchange Board of India ( SEBI ). The applicant has been registered as a FII with the SEBI as a sub- 2

3 account of GEAM under the SEBI (Foreign Institutional Investors) Regulations Act, 1995 (for short - FII Regulations). Accordingly the applicant has been trading in securities in India continuously. The primary custodian of the applicant for investment held by it worldwide, is State Street Corporation which in turn appointed Deutsche Bank AG [Mumbai Branch] (for short the Bank ) as domestic custodian in India in respect of Indian investments of the applicant. As per the agreement, the main duties of the Bank include physical holding of securities, making and receiving payments for the purchase and sale of securities. The Bank renders such services for other FIIs in its ordinary course of business. GEAM has appointed several portfolio managers located in Stamford USA. They advise on the investments to be made by the applicant globally. The advice of all portfolios managers is analyzed and a decision for investment is taken by GEAM. The applicant states that it does not have any employee, branch, office or place of business in India nor does it have advisor or any agent in India. The sales and purchases of shares/securities in India are made through brokers and Bank holds securities on behalf of the applicant in India. The Government of the United States of America and the Government of the Republic of India entered into a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes and income on 18 th December, 1990 which was notified on 20 th December,

4 (hereinafter referred to as the Treaty ). On these facts, the applicant sought advance ruling of the Authority on the following questions: - 1. Whether on the facts and the circumstances of the case, the profits arising to General Electric Pension Trust (hereinafter referred to as the Applicant ) from the sale of portfolios investments in India will be treated as business income of the Applicant. 2. Whether in the absence of permanent establishment in India and in light of the provisions of Article 7 read with article 5 of 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 ), such business income of the applicant will be taxable in India? 2. The Director of Income-tax (International Taxation), Mumbai (hereinafter referred to as the Commissioner ) submitted the following comments to the application:- The applicant being a trust is an artificial juridical person under section 2 (31) of the Act. The applicant being a sub account is treated as a separate taxable entity from the FII. The tax liability of the applicant a non-resident has to be considered under section 5 read with section 9 (1) (i) of the Act. The definition of FII contained in clause (f) of section 2 of the FII Regulation and grant of registration under section 13 (1) (a) thereof clearly show that FII shall only make investment in India to realize capital gains on transfer of securities; that was also the position under clause 9 of 4

5 the old regulation. Section 115AD of the Act which falls in the chapter of Special Provisions suggests that the income of a FII could be in the nature of interest, dividend or capital gains. The fact that deductions under section 28 to 44C and section 57 are not allowed in computing the income from securities would also indicate that the intention of the legislature was not to allow a FII to take up business venture. Though any income payable to a nonresident is subjected to deduction of tax at source under section 196D of the Act, no tax is to be deducted at source from capital gains and the FII has to specify the agent for the purpose of section 163 of the Act. This would show that the investments cannot be made for trading but only for earning capital gains- short term and long term. Had the applicant been permitted to trade in the securities by way of sales and purchases, the term would have been used as stock-in-trade and not investment. It is submitted that Indo-US treaty would not apply to the applicant in view of clause (b) of para 1 of article 4 of the Treaty. The applicant is a non-resident of USA for Treaty purpose. Even if the Treaty applies, having regard to the distributive rule the capital gains is taxable in India under article 13 of the Treaty. Even if it is assumed that the applicant is receiving business income from the securities, it has a permanent establishment in India, so the income is chargeable to tax. In short, the Commissioner submitted that the income arising 5

6 to the applicant from the purchases and sales of the securities is in the nature of capital gains and therefore liable to tax both under the Act as well as under the Treaty; the applicant being a trust enjoys tax exemption in USA and in view of the clause(b) of para 1 of article 4 cannot avail of the benefit of the Treaty; the applicant has PE in India therefore the income from the securities is liable to be taxed in India. 3. In the light of the respective pleas of the parties, the following points arise for consideration: i. What is the nature of income of the applicant from transactions in securities? ii. iii. iv. Whether the applicant is entitled to avail the benefits of the Treaty? Whether the applicant has a PE in India? What is the tax liability of the applicant in India? 4. Mr. Desai, the learned Counsel appearing for the applicant, would submit that under the Trust the applicant has the power to trade in securities and the enormity of sales and purchases of securities in India by it would show that the income of the applicant is its business income. Mr. Desai argues that for the purposes of income-tax, the nature of income has to be considered under the Act and the terminology used in the FII Regulations, cannot be taken into consideration to determine the nature of transactions. It is submitted that the magnitude and frequency of the transaction as 6

7 per the attachment-viii of the application would show that the nature of transaction is carrying out business in securities. He relied on the judgements of the Supreme Court in Raja Bahadur Visheshwara Singh and Ors. v. Commissioner of Income-tax, Bihar and Orissa 1, Dalhousie Investment Trust Co. Ltd. v. Commissioner of Income Tax (Central), Calcutta 2, Commissioner of Income-tax, Nagpur v. Sutlej Cotton Mills Supply Agency Ltd. 3, Commissioner of Income tax (Central) Calcutta v. Associated Industrial Development Co. Pvt. Ltd. 4 and the following rulings of the Authority:- (i) XYZ/ABC Equity Fund 5 (ii) Fidelity Advisor Series VIII 6 (iii) Morgan Stanley & Co. International Limited 7 5. Mr. Kapila has submitted that the applicant is a sub-account of a FII as such separate taxable entity under the provisions of the FII s scheme. The applicant is only to invest in India in securities which means that it can only invest in securities as capital assets and not as stock-in-trade for the purpose of carrying on trade/ business. Even from the special provision- section 115AD of the Act, it follows that the income of the applicant can be either long 1 [1960] 41 ITR [1967] 68 ITR 486 (SC) 3 [1975] 100 ITR 706 (SC) 4 [1971] 82 ITR 586 (SC) 5 [2001] 250 ITR 194 (AAR) 6 [2004] 271 ITR 01 (AAR) 7 [2005] 272 ITR 416 (AAR) 7

8 term or short term capital gains; had it been allowed to earn business income as contended, the application of provisions of section 28 to 44C of the Act would not have been excluded, therefore the income of the applicant is not a business income but only capital gains. The nature of the income of the applicant, submits Mr.Kapila, is capital gains and not the business income because a FII can only make investment and cannot embark upon trading activity. The securities held by the applicant are referred to as investment and not as stock-in-trade, therefore the income of the applicant would be liable to tax as capital gains in India. 6. So far as the nature of the income of the applicant is concerned, it is no doubt true that the provisions of the FII investors scheme under both the old guidelines and the amended guidelines suggest that the investment in shares would be to acquire the capital assets, the requirement of Section 18 of the FII s regulations also speaks on realization of capital gains of investment from the corpus. Section 115 AD a special provision in the Act -provides special rate for taxation of short term capital gains as well as long term gains. However, in Fidelity Advisor Series VIII (Supra 6), the Authority observed: whether the company is an investment company or trading company or whether any amount received by a person is a revenue receipt or a capital receipt is a mixed question of law and fact which has to be decided on the facts and in the circumstances of each case. 8

9 And having discussed the decisions of the Hon ble Supreme Court in Raja Bahadur Visheshwara Singh and Ors. v. Commissioner of Income-tax, Bihar and Orissa (Supra 1), Dalhousie Investment Trust Co. Ltd., v. Commissioner of Income Tax(Central), Calcutta(Supra 2), Commissioner of Income Tax, Nagpur v. Sutlej Cotton Mills Supply Agency Ltd. (Supra 3), the ruling of the Authority in the case of XYZ/ABC Equity Fund (supra 5), A.V. Thomas & Co. Ltd. v. CIT 8, CIT v. P.K.N. Co. Ltd 9, Commissioner of Income-tax v. Associated Industrial Development Co. P. Ltd. (Supra 4), the Authority formulated the following principles:- (i) (ii) (iii) where a company purchases and sells shares, it must be shown that they were held as stock- intrade and that existence of the power to purchase as sell shares in the memorandum of association is not decisive of the nature of transaction; substantial nature of transactions, manner of maintaining books of accounts, magnitude of purchases and sales and the ratio between purchases and sales and the holding would furnish a good guide to determine the nature of transactions; ordinarily purchase and sale of shares with the motive of earning a profit, would result in the transaction being in the nature of trade/an 8 48 ITR ITR 65 9

10 adventure in the nature of trade; but where the object of the investment in shares of a company is to derive income by way of dividend etc. then the profits accruing by change in such investment (by sale of shares) will yield capital gain and not revenue receipt. On considering the facts and the circumstances of that case, it was held that the applicant therein had invested in shares and securities in Indian companies as business assets and profits from the purchases and sales of those shares/securities were in the nature of business income. 7. Again in Morgan Stanley & Co. International Limited (Supra 7), after discussing the above mentioned cases, the aforementioned principles were restated. We, therefore, consider it unnecessary to discuss the same cases over again in this case. It would suffice to mention that in the light of the above principles we shall examine the facts of the case. 8. Keeping the above principles in mind, we shall advert to the facts of this case. It is noticed from the investment management agreement between the applicants trust and GEAM that the trustee and investment managers, consistent with sound business judgement, are required to maintain a continuous programme for the assets and to use reasonable best efforts to increase the value of the assets of causing them to be invested and reinvested from 10

11 time to time and in accordance with investment guidelines. Accordingly the applicant got registered with a SEBI as sub account of FII. A perusal of attachment VIII filed by the applicant shows substantial nature of transactions and magnitude of the purchases and sales of shares/securities in various in companies in India. Nothing is produced before us to show that the object of the investment in the shares of Indian companies was to derive only the income by way of dividend. The material relied upon by the Commissioner referred to above, namely, registration under FII Regulations, etc. to show that the investment should be only for the purpose of purchasing shares as capital assets and reference the special provision section, 115AD of the Act, for that purpose is, in our view, far from clinching to hold that the activities of purchases and sales entered into by the applicant was not in the nature of trade/business. Therefore, we are not persuaded to hold that the investment in shares/securities in Indian companies could only be for acquiring capital assets and not for trading in shares and securities. 9. The second point relates to the entitlement of the applicant to avail the terms of the Treaty. It is a common ground that the Government of the United States of America and the Government of the Republic of India entered into treaty which was notified on 20 th December, Whereas Mr. Kapila having invited our 11

12 attention to articles 1 and 4 (1)(b) of the Treaty, would submit that the applicant being tax exempt is not subjected to tax in USA, so it cannot be treated as a tax resident of USA and cannot avail the benefit of the terms of the Treaty. The claim of the applicant to the benefit of the Treaty is thus disputed by him. On these contentions, it would be necessary to refer to the relevant provisions of article 1 of the Treaty which deals with General Scope of the Treaty. Para 1 of article 1 which is material, reads as under:- Article 1:General Scope 1. This Convention shall apply to persons who are residents of one or both of the Contracting States, except as otherwise provided in the Convention. Para 1 of article 1, extracted above, says that the Treaty shall apply to persons who are residents of one or both of the Contracting States, except as otherwise provided in the Convention. It is plain that the Treaty applies to persons who are residents of one or both of the States but the scope of the application of the Treaty to such residents is subservient to any contra-provision of the Treaty. Article 4 of the Treaty deals with Residence. Para 1 of article 4 which is relevant for the present discussion, is in the following terms:- 12

13 Article 4 : Residence 1. For the purposes of this Convention, the term resident of a Contracting State means any person who, under the laws of that State is liable to tax therein by reason of his domicile, residence, citizenship, place of management, place of incorporation, or any other criterion of a similar nature, provided however, that (a) this term does not include any person who is liable to tax in that State in respect only of income from sources in that State: and (b) in the case of income derived or paid by a partnership, estate, or trust, this term applies only to the extent that the income derived by such partnership, estate, or trust is subject to tax in that State as the income of a resident, either in its hands or in the hands of its partners or beneficiaries. The provision, quoted above, defines the term resident of a Contracting State for the purpose of the Treaty to mean any person who under the laws of that State is liable to tax therein by reason of his domicile, residence, citizenship, place of management, place of incorporation, or any other criterion of a similar nature. In view of clause (c) of para 1 of article (3) (definition clause), the term Contracting State and the other Contracting State would mean India or United States (as the context requires). In the context of article 4 resident of a Contracting State would mean a resident of USA. But this is subject to proviso (a) & (b) of para 1 thereof. Proviso (a) says that resident of a contracting state does not include any person who is liable to tax in that state in 13

14 respect only of income from sources in that state. Proviso (b) which is germane, states that in the case of income derived or paid by a partnership, estate, or trust, this term applies only to the extent that the income derived by such partnership, estate, or trust is subject to tax in that State as the income of a resident, either in its hands or in the hands of its partners or beneficiaries. Leaving the unnecessary portions of the proviso, for the purpose of the present discussion, it would read that in the case of income derived or paid by a trust, the term resident of contracting state (USA) applies only to the extent that the income derived by trust is subject to tax in that state (USA) as the income of a resident either in its hands or in the hands of the beneficiaries. It is worth pointing out that the phrase liable to tax in para (1) and the phrase subject to tax in proviso(b) are not synonymous. If both were to be read as synonymous, proviso(b) would become otiose. Whereas para(1) speaks of being in the tax net, proviso is concerned with actual taxation. Thus it would follow that the term resident of USA for the purpose of the treaty would mean a person who under the laws of USA is liable to tax therein by reason of his domicile, residence, citizenship, place of management, place of incorporation, or any other criterion of a similar nature; however, in the case a trust, the term resident of USA would apply only to the extent that the income derived by such trust is subject to tax in USA as the income of a resident either in its hands or in the hands of its beneficiaries. Applying this test of residence to the applicant, it becomes clear that though under the 14

15 laws of the USA, the applicant is liable to tax by reason of its place of management and place of incorporation and as such the tax resident yet having regard to the wording of proviso (b), the applicant being tax exempt in the USA can be treated a tax resident of the USA for the purpose of the Treaty only to the extent that the income derived by the applicant is subject to tax in the USA as the income of a resident either in its hands or in the hands of beneficiaries to avail the terms of the Treaty. It has been noticed above that para (1) of article 1 provides that the convention (treaty) shall apply to persons who are residents of one or both of the Contracting States, except as otherwise provided in the Convention (treaty). It has already been pointed out that proviso (b) which governs para (1) of article 4, renders the applicant a resident of USA only to the extent that the income of the trust is subject to tax in the USA. It is an admitted case of both the parties that the applicant enjoys exemption from payment of USA tax under section 501C of USA Act and nothing is brought on record to show that the income from securities of Indian companies is being taxed in USA in the hands of beneficiaries of the trust. 10. Mr. Desai relied on paras of Technical Explanation of article 4 of USA Treasury Department Draft Model Income- Tax Convention. It would be apt to refer to article 4 of the US Model, before noting paras of the technical explanation of US Treasury Department, which is in the following terms: - 15

16 Article 4 Except as provided in this paragraph, for the purposes of this convention, the term resident of a Contracting State means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, citizenship, place of management, place of incorporation, or any other criterion of a similar nature. (a). (b) A legal person organized under the laws of a Contracting State and that is generally exempt from tax in that State and is established and maintained in that State either :- (i) exclusively for a religious, charitable, educational, scientific, or other similar purpose; or (ii) to provide pensions or other similar benefits to employees pursuant to a plan is to be treated for purposes of this paragraph as a resident of that Contracting State A perusal of the article 4 of US Model, noted above, shows that the term resident of Contracting State is defined to mean any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, citizenship, place of management, place of incorporation, or any other criterion of a similar nature. Clause (b) thereof says that a legal person organized under the laws of a Contracting State and that is generally exempt from tax in that State and is established and maintained in that State either (i) exclusively for religious, charitable, educational, scientific, or other similar purpose; or (ii) to provide pensions or other similar benefits to employees pursuant to 16

17 a plan, is to be treated for purposes of this paragraph as a resident of that Contracting State. Now Paras 54 & 55 relied upon by the learned counsel for the applicant are as follws:- 54. Sub-paragraph (b) provides that certain tax-exempt entities such as pension funds and charitable organizations will be regarded as residents regardless of whether they are generally liable for income tax in the State where they are established. An entity will be described in this subparagraph if it is generally exempt from tax by reason of the fact that it is organized and operated exclusively to perform a charitable or similar purpose or to provide pension or similar benefits to employees. The reference to similar benefits is intended to encompass employee benefits such as health and disability benefits. 55. The inclusion of this provision is intended to clarify the generally accepted practice of treating an entity that would be liable for tax as a resident under the internal law of a state but for a specific exemption from tax (either complete or partial) as a resident of that state for purpose of paragraph 1. The reference to a general exemption is intended to reflect the fact that under US law, certain organizations that generally are considered to be tax-exempt entities may be subject to certain excise taxes or to income tax or their unrelated business income. Thus, a US pension trust, or an exempt 501(c) organization (such as a US charity) that is generally exempt from tax under US Law is considered a resident of the United States for all purposes of the treaty. Para 54 says that sub-paragraph (b) of US Model provides that certain tax-exempt entities such as pension funds and charitable organizations will be regarded as residents regardless of whether they are generally liable for income tax in the State where they are established. Para 55 clarifies the generally accepted practice of 17

18 treating an entity that would be liable for tax as a resident under the internal law of a State but for a specific exemption from tax (either complete or partial) as a resident of that state for purpose of paragraph 1. The reference to a general exemption is intended to reflect the fact that under USA law, certain organizations that generally are considered to be tax-exempt entities may be subject to certain excise taxes or to income tax or their unrelated business income. Thus, a US Pension Trust or an exempt under section 501(c) organization (such as a US charity) that is generally exempt from tax under US Law is considered a resident of the United States for all purposes of the treaty. In this technical explanation obviously the term treaty refers to the US Model Convention. It is evident that proviso (b) of article 4 of the Treaty (i.e. Indo-US treaty referred to above) is differently worded. Indeed, as pointed out above, the import of article 1(1) read with article 4 (1)(b) is to exclude to the extent that the income of a trust is not subject to tax in that state (USA) from the definition of resident of a Contracting State (USA) for purposes of the treaty (USA-India treaty). 11. Mr. Desai filed a xerox copy of the tax resident certificate issued by the Department of Treasury Internal Revenue Service Philadelphia, PA in regard to the applicant, which is extracted below:- 18

19 DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE Seal PHILADELPHIA, PA CERTIFICA TION PROGRAM Date: 04/08/2004 Taxpayer : GENERAL ELECTRIC PENSION TRUST TIN : Tax Year : 2004 I certify that, to the best of our knowledge, the above-named entity is a trust forming part of a pension, profit sharing, or stock bonus plan qualified under section 401(a) of the U.S. Internal Revenue Code, which is exempt from U.S. taxation under section 501(a), and is a resident of the United States of America for purposes of U.S. taxation. Certified for Australia Form 8106 (Rev ) Catalog Number 43134V Sd/- Daniel J. Nally Field Director, Philadelphia Accounts Management Center A perusal of the copy of the certificate of residence, extracted above, shows that the applicant is a trust forming a part of a pension, profit, sharing, or stock bonus plan qualified under section 401(a) of the U.S. Internal Revenue Code, which is exempt from U.S. Taxation under section 501(a), and that it is a resident of USA for purposes of U.S. taxation. (Emphasis supplied). At the end of the left hand corner of the certificate Certified for Australia is endorsed. It is thus obvious that this certificate is issued for purposes of being used in Australia and not in India. Obviously it has no relation to the treaty (USA India Treaty). Therefore, it has no relevance in interpretating the Treaty in this case. At any rate it is important to note that residence for the purpose of US taxation 19

20 would only satisfy the requirement of para 1 of article 4 which we have not doubted in the present discussion even without reference to that certificate. In resolving the quandary which arises by virtue of proviso (b) to para 1 of article 4 of the treaty, this certificate is of no assistance. 12. From the above discussion, it follows that for purposes of the treaty, the applicant is not a resident of Contracting State (USA) and therefore it cannot avail the benefit of the terms of the Treaty in this case. In view of the conclusion, arrived at by us, it is unnecessary to decide the point whether the applicant has a PE in India within the meaning of article 5 of the treaty and consequently the effect of absence of PE on the taxability of the business income under article 7 of the said treaty. 13. In a case of enterprise of a contracting state with which India has treaty, the provisions of the Act will apply only when they are more beneficial to it provided the enterprise is entitled to invoke the provisions of the treaty. It has been held above that the applicant is not entitled to invoke the provisions of the treaty, therefore, the applicant a non-resident- will be taxable under the Act. In regard to taxability of business income of a non-resident arising or accruing in India, it would be apposite to notice sections 5 (2) and 9 (1) (i) of the Act. 20

21 Section 5(2) of the Act is in the following terms:- (2) subject to the provisions of Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which (a) (b) is received or is deemed to be received in India in such year by or on behalf of such person ; or accrues or arises or is deemed to accrue or arise to him in India during such year. Sub-section (1) of Section-5 relates to total income of a resident. The applicant is a non-resident in India so sub-section (2) thereof will be attracted. It contains two clauses (a) and (b) and two explanations. Clause (a) says that the total income of a non-resident shall include all income from whatever source derived, which is received or is deemed to be received in India in any previous year by or on behalf of such person. The import of clause (b) is that the total income of a non-resident includes all income, from whatever source derived which accrues or arises or is deemed to accrue or arise to him in India during any previous year. This takes us to Section 9(1)(i) and the explanation thereto which are pertinent here and read as follows:- 9. (1) The following incomes shall be deemed to accrue or arise in India:- (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, [ * ] or through the transfer of a capital asset situate in India. 21

22 Explanation 1 For the purposes of this clause- (a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India; (b) to (d) xxxxxxx A perusal of the provisions extracted above shows that all income accruing or arising whether directly or indirectly, inter alia, through or from any business connection in India shall be deemed to accrue or arise in India. Explanation (a) indicates that for the purpose of the aforementioned clause where the business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. To attract the provisions referred to above, it must be shown that (i) the applicant has business connection in India; and (ii) income accrues or arises (whether directly or indirectly) from such business connection in India. In such a situation explanation(a) limits the quantum of taxable income deemed to accrue or arise only to such part of the income as is reasonably attributable to the business operations carried out in India. 22

23 14. In the light of the above discussion, we rule on question Nos:- 1. that profits arising to General Electric Pension Trust (hereinafter referred to as the Applicant ) from the sale of portfolio investments in India will be treated as business income of the applicant; 2. that as the applicant is not entitled to avail the benefits of the terms of the treaty, such business income of the applicant will be taxable in India under the Act. Pronounced in the open Court of the Authority on this 14 th day of December, Sd/- (JUSTICE S.S.M. QUADRI) CHAIRMAN Sd/- (A.S. NARANG) MEMBER F.No. AAR/659/2005 Dated. (A) (B) This copy is certified to be a true copy of the advance ruling and is sent to: 1. The applicant. 2. The DIT(International Taxation)Mumbai. 3. The Joint Secretary (FT&TR- I & II)), M/Finance, CBDT, North Block, New Delhi. 4. Guard file. In view of the provisions contained in Section 245S of the Act, this ruling should not be given for publication without obtaining prior permission of the Authority. (Ashok K. Pandey) Addl. Commissioner of Income Tax(AAR) 23

24 24