The Central Board of Direct Taxes (CBDT) has issued a circular laying down the guidelines for the computation of exemption under section (23FE) of the Income Tax Act, 1961 to provide for exemption to wholly owned subsidiaries of Abu Dhabi Investment Authority (ADIA).
The Finance Act, 2020, inter-alia, inserted clause (23FE) in section 10 of the Income-tax Act, 1961 to provide for exemption to wholly owned subsidiaries of Abu Dhabi Investment Authority (ADIA), sovereign wealth funds (SWF) and pension funds (PF) on their income in the nature of dividend, interest and long-term capital gains arising from investment made in infrastructure in India, during the period beginning with 01.04.2020 and ending on 31.03.2024 subject to fulfilment of certain conditions.
First proviso to clause (23FE) of section 10 of the Act provides that if any difficulty arises regarding interpretation or implementation of the provisions of the said clause, the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
The circular provides guidelines for the transfer of investment within 3 years by the specified person or AIF/ domestic Company/NBFC.
It further provided that as per the third proviso to clause (23FE) of section 10 of the Act, any income which has not been included in the total income of the specified person due to the provisions of this clause, shall be chargeable to income-tax as the income of the specified person of the previous year during which such specified person fails to satisfy any of the conditions of the said clause.
The circular clarified that any capital gain accruing or arising on transfer of such investments (which have been transferred in violation of the three years’’ rule) will be treated as (a) Investment by the specified person in eligible infrastructure entity or InvIT or AIF or domestic company or NBFC. (b) Investment by the AIF, out of the investment made by the specified person, in domestic company or NBFC or eligible infrastructure entity or InvIT (c) Investment by the domestic company, out of the investment made by the specified person directly or through AIF, in eligible infrastructure entity, and (d) Lending by NBFC, out of the investment made by the specified person directly or through AIF, to eligible infrastructure entity.
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