CBDT vide Notification No. 89/2020 dated 02.11.2020 notified the MIC Redwood 1 RSC Limited, Abu Dhabi, United Arab Emirates, as Sovereign Wealth Fund (SWF) for availing tax exemption under section 10(23FE) of the Income Tax Act, 1961 (“Act”).
Union Budget 2020 has introduced a new section 10(23FE) in order to promote investment of sovereign wealth funds, including the wholly owned subsidiary of Abu Dhabi Investment Authority (ADIA).
The MIC Redwood 1 RSC Limited of Abu Dhabi has been provided 100% income-tax exemption on any income from interest, dividend and long-term capital gains arising from an investment made by it on or after 02-11-2020 but on or before the 31-03-2024 shall be entitled to the exemption subject to the fulfilment of specified conditions therein. MIC Redwood 1 RSC Limited of Abu Dhabi became the first notified SWF which will be availing this exemption under the newly enacted provisions by the Finance Act, 2020. The exemption under section 10(23FE) in respect of the investment made by it in India on or after 02-11-2020 but on or before the 31st day of March 2024.
The notification further notifies the audit report to be filed by the notified SWF - MIC Redwood 1 RSC Limited of Abu Dhabi.
Earlier, CBDT vide Notification No. 44/2020 dated 06.07.2020 widens the definition of infrastructure under section 10(23FE) to align it with Harmonised List of Infrastructure notified by Department of Economic Affairs (DEA) and vide Circular No. 15/2020 dated 22.07.2020 issued Order u/s 119 to provide for filing of an application in Form No. I for getting notified under section 10(23FE) by a Sovereign Wealth Fund (SWF). Thereafter, CBDT vide Notification No. 67/2020 dated 17.08.2020 had prescribed additional conditions to be satisfied by a pension fund for availing the exemption from income in the nature of dividend, interest or long-term capital gains arising from an investment made by it in India, whether in the form of debt or share capital or unit under section 10(23FE). One of the important conditions is filing of a certificate in Form No. 10BBC from a Chartered Accountant.
New Rule 2DB and Rule 2DC are inserted in the Income Tax Rules, 1962 for the purpose.
As per media reports, the process of notification of the MIC Redwood 1 RSC Limited was completed in a record time. On 18th September 2020, the MIC Redwood 1 RSC Limited made an application for seeking tax-exemption notification as per the CBDT guidelines. Amidst the challenges of Covid-19, all deliberations and meetings between applicant and tax authorities were held virtually through video conferencing and communications were made only through emails. The MIC Redwood 1 RSC Limited submitted its final replies on 20th October 2020 and after that, the process of notification including consultation with Ministry of Law & Justice for legal vetting of the notification, etc., have been completed in less than two weeks; and with the completion of all legal and other formalities, the notification granting 100% tax-exemption was issued on 2nd November 2020.
In order to incentivise long-term investment by the SWFs of the foreign governments in the priority sectors, Finance Act, 2020 has amended the Income Tax Act, 1961 and inserted a new section 10(23FE) to grant 100% income-tax exemption to the income of a notified SWF in respect of its investment made in the specified infrastructure sectors on or before 31-03-2021. CBDT had issued a notification on 6th July 2020 to broaden the scope of this exemption and made all sub-sectors of Harmonised Master List of the infrastructure eligible for this income-tax exemption.
The notification prescribes the following conditions which the fund will have to fulfil to get the exemption-
1. The SWF has to file its return of income in India,
2. The SWF shall get its books of account audited by a Chartered Accountant.
3. The Fund shall furnish a quarterly statement electronically in Form II in respect of each investment made by it during the said quarter
4. The Fund shall maintain a segmented account of income and expenditure in respect of such investment which qualifies for exemption under section 10(23FE)
5. The SWF shall continue to be owned and controlled, directly or indirectly, by the Government of the Abu Dhabi and continue to be regulated under the law of the Government of Abu Dhabi
6. The Fund shall not undertake any commercial activity whether within or outside India
7. The Fund shall not carry out asset management activity for any person
The notification categorically states that violation of any of the conditions as stipulated in section 10(23FE) and this notification shall render the assessee ineligible for the tax exemption.
Read the full text of the Notification No. 89/2020 dated 02.11..2020 on notifying Abu Dhabi’s SWF MIC Redwood 1 RSC Limited for Tax Exemption u/s 10(23FE)
MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 2nd November, 2020
(INCOME-TAX)
S.O. 3952(E).—In exercise of powers conferred by sub-clause (vi) of clause (b) of the Explanation to clause (23FE) of section 10 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), the Central Government hereby specifies the sovereign wealth fund, namely, the MIC Redwood 1 RSC Limited, Abu Dhabi, United Arab Emirates, (hereinafter referred to as “the assessee”) as the specified person for the purposes of the said clause in respect of the investment made by it in India on or after the date of publication of this notification in the Official Gazette but on or before the 31st day of March, 2024 (hereinafter referred to as “said investments”) subject to the fulfilment of the following conditions, namely:-
(i) the assessee shall file return of income, for all the relevant previous years falling within the period beginning from the date in which the said investment has been made and ending on the date on which such investment is liquidated, on or before the due date specified for furnishing the return of income under sub-section (1) of section 139 of the Act;
(ii) the assessee shall get its books of account audited for the previous years referred to in clause (i) by any accountant specified in the Explanation below sub-section (2) of section 288 of the Act and furnish the Audit Report in the format annexed as Annexure to this notification herewith at least one month prior to the due date specified for furnishing the return of income under subsection (1) of section 139 of the Act.
(iii) the assessee shall furnish a quarterly statement within one month from the end of each quarter electronically in Form II as annexed to the Circular No 15 of 2020, dated the 22nd July, 2020 with F. No. 370142/26/2020-TPL, issued by the Ministry of Finance, Department of Revenue, Central Board of Direct Taxes (Tax Policy and Legislation Division), in respect of each investment made by it during the said quarter;
(iv) the assessee shall maintain a segmented account of income and expenditure in respect of such investment which qualifies for exemption under clause (23FE) of section 10 of the Act;
(v) the assessee shall continue to be owned and controlled, directly or indirectly, by the Government of the Abu Dhabi and at no point of time any other person should have any ownership or control, directly or indirectly, in the assessee;
(vi) the assessee shall continue to be regulated under the law of the Government of Abu Dhabi; (vii) the earnings of the assessee shall be credited either to the account of the Government of Abu Dhabi or to any other account designated by that Government so that no portion of the earnings inures to any private person;
(viii) (a) the assessee does not and shall not have any loan, borrowing, advances, deposits or investment in it of any kind directly or indirectly from any person other than the Government of the Abu Dhabi;
(b) The assessee shall only invest the surplus fund of the Government of Abu Dhabi and that Government shall not raise any loan, debt etc. directly or indirectly, from the market or any entity to make the said investment;
(ix) the asset of the assessee shall vest in the Government of Abu Dhabi upon dissolution;
(x) the assessee does not and shall not undertake any commercial activity whether within or outside India other than the said investment or investment of similar nature;
(xi) the assessee shall have monitoring mechanism to protect the said investment with investee but shall not manage day to day operations of the investee or appoint executive directors in the investee company or participate in the decision making process or control them; and
(xii) the assessee shall not carry out asset management activity for any person other than itself.
2. Violation of any of the conditions as stipulated in the said clause (23FE) and this notification shall render the assessee ineligible for the tax exemption.
3. This notification shall come into force from the date of its publication in the Official Gazette.
ANNEXURE
Audit report to be filed by the Sovereign Wealth Fund claiming exemption under clause (23FE) of section 10 of the Income -tax Act, 1961
Part I
*I/we report that the statutory audit of M/s. ………...........…………………. (Name and address of the assessee with Permanent Account Number or Aadhaar Number), the particulars of which are given in Part II was conducted by *me/ us/ M/s. …………………………………………..………. as per the requirement under the Notification No …../…… dated ……… published in the Official Gazette on ……....
2. In *my/ our opinion and to the best of *my/ our information and according to examination of books of account including other relevant documents and explanations given to *me/us, it is certified that the assessee *has/ has not complied with the conditions as laid down under clause (23FE) of section 10 of the Income-tax Act, 1961 and those provided in the said notification specifying the assessee being the Sovereign Wealth Fund as specified person for the purposes of claiming exemption under the said clause (23FE).
2.1 *The conditions not complied with by the assessee are as under:-
(a) …………………………….…………………………….………………………………
(b) …………………………….…………………………….………………………………
3. In *my/our opinion and to the best of *my/ our information and according to examination of books of account including other relevant documents and explanations given to *me/us, the particulars given in the Part II are true and correct subject to the following observations/qualifications, if any, namely:-
(a) …………………………….…………………………….………………………………
(b) …………………………….…………………………….………………………………
Part II
1. Name of the Assessee :
2. PAN/ AADHAAR :
3. Previous Year :
4. Total Income of the Assessee during the previous year:
5. Amount of income eligible for exemption under clause (23FE) of section 10 of the Income-tax Act, 1961 :
Place: ……………
Date: ……………
**(Signature and stamp/ Seal of the signatory)
Name of the signatory ………………
Full address ………………………
Membership No………………………
UDIN………………………………..
Notes:
3. *Delete whichever is not applicable.
4. This report has to be signed by an accountant falling within the meaning of expression “accountant” as provided in the Explanation below sub-section (2) of section 288 of the Income-tax Act, 1961.
[Notification No. 89/2020/ F. No. 370133/16/2020-TPL]
ANKIT JAIN, Under Secy. (Tax Policy and Legislation Division)
Download Copy of Notification No. 89/2020 dated 02.11..2020 on notifying Abu Dhabi’s SWF MIC Redwood 1 RSC Limited for Tax Exemption u/s 10(23FE) in pdf format
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