(6)"reportable account" means a financial account which has been identified, pursuant to the due diligence procedures provided in rule 114H, as held by,-(a)a reportable person; or(b)an entity, not based in United States of America, with one or more controlling persons that is a specified U.S. person; or(c)a passive non-financial entity with one or more controlling persons that is a person described in sub-clause (b) of clause (8) of this rule.Explanation. - For the purpose of this clause,-(A)"active non-financial entity" means any non-financial entity which fulfils any of the following criteria, namely:-(i)less than fifty per cent of the entity's gross income for the preceding financial year is passive income and less than fifty per cent of the assets held by the entity during the preceding financial year are assets that produce or are held for the production of passive income; or(ii)the stock of the entity is regularly traded on an established securities market or the non-financial entity is a related entity of an entity, the stock of which is regularly traded on an established securities market.Explanation. - For the purpose of this sub-clause, an established securities market means an exchange that is recognised and supervised by a Governmental authority in which the securities market is located and that has a meaningful annual value of shares traded on the exchange;(iii)the entity is a Governmental entity, an International Organization, a Central Bank, or an entity wholly owned by one or more of these entities; or(iv)substantially all of the activities of the entity consist of holding (in whole or in part) the outstanding stock of, or providing financing and services to, one or more subsidiaries that engage in trades or businesses other than the business of a financial institution:Provided that an entity shall not qualify for this status if it functions as an investment fund, such as a private equity fund, venture capital fund, leveraged buyout fund, or any investment vehicle whose purpose is to acquire or fund companies and then hold interests in those companies as capital assets for investment purposes; or(v)the entity is not yet operating a business and has no prior operating history, but is investing capital into assets with the intent to operate a business other than that of a financial institution, provided that the entity shall not qualify for this exception after the date that is twenty four months after the date of the initial organisation of the entity; or(vi)the entity was not a financial institution in the past five years, and is in the process of liquidating its assets or is reorganising with intent to continue or recommence operations in a business other than that of a financial institution; or(vii)the entity primarily engages in financing and hedging transactions with, or for, related entities which are not financial institutions, and does not provide financing or hedging services to any entity which is not a related entity, provided that the group of any such related entities is primarily engaged in a business other than that of a financial institution; or(viii)the entity fulfils all of the following requirements, namely:-(a)it is established and operated in India exclusively for religious, charitable, scientific, artistic, cultural, athletic, or educational purposes; or it is established and operated in India and it is a professional organisation, business league, chamber of commerce, labour organisation, agricultural or horticultural organisation, civic league or an organisation operated exclusively for the promotion of social welfare;(b)it is exempt from income-tax in India;(c)it has no shareholders or members who have a proprietary or beneficial interest in its income or assets;(d)the applicable laws of the entity's country or territory of residence or the entity's formation documents do not permit any income or assets of the entity to be distributed to, or applied for the benefit of, a private person or non-charitable entity other than pursuant to the conduct of the entity's charitable activities, or as payment of reasonable compensation for services rendered, or as payment representing the fair market value of property which the entity has purchased; and(e)the applicable laws of the entity's country or territory of residence or the entity's formation documents require that, upon the entity's liquidation or dissolution, all of its assets must be distributed to a Governmental entity or other non-profit organization, or escheat to the Government of the entity's country or territory of residence or any political sub-division thereof.Explanation. - For the purpose of this sub-clause, the following shall be treated as fulfilling the criteria provided in the said sub-clause, namely:-(I)an Investor Protection Fund referred to in clause (23EA);(II)a Credit Guarantee Fund Trust for Small Industries referred to in clause (23EB); and(III)an Investor Protection Fund referred to in clause (23EC) of section 10 of the Act;(B)"controlling person" means the natural person who exercises control over an entity and includes a beneficial owner as determined under sub-rule (3) of rule 9 of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005.Explanation 1. - In determining the beneficial owner, the procedure specified in the following circular as amended from time to time shall be applied, namely:-(i)DBOD.AML.BC. No.71/14.01.001/2012-13, issued on the 18th January, 2013 by the Reserve Bank of India; or(ii)CIR/MIRSD/2/2013, issued on the 24th January, 2013 by the Securities and Exchange Board of India; or(iii)IRDA/SDD/GDL/CIR/019/02/2013, issued on the 4th February, 2013 by the Insurance Regulatory and Development Authority.Explanation 2. - In the case of a trust, the controlling person means the settlor, the trustees, the protector (if any), the beneficiaries or class of beneficiaries, and any other natural person exercising ultimate effective control over the trust, and in the case of a legal arrangement other than a trust, the said expression means the person in equivalent or similar position;(C)"non-financial entity" means any entity that is not a financial institution;(D)"passive non-financial entity" means,-(i)any non-financial entity which is not an active non-financial entity; or(ii)an investment entity described in sub-clause (B) of clause (c) of the Explanation to clause (3), which is not located in any of the jurisdictions specified by the Central Board of Direct Taxes in this behalf; or(iii)not a withholding foreign partnership or a withholding foreign trust;(E)an entity is a "related entity" of another entity if either entity controls the other entity, or the two entities are under common control.Explanation. - For the purpose of this clause control includes direct or indirect ownership of more than fifty per cent of the votes and value in an entity;(F)"passive income" includes income by way of,-(i)dividends;(ii)interest;(iii)income equivalent to interest;(iv)rents and royalties (other than rents and royalties derived in the active conduct of a business conducted, at least in part, by employees of the non-financial entity);(v)annuities;(vi)the excess of gains over losses from the sale or exchange of financial assets which gives rise to the passive income;(vii)the excess of gains over losses from transactions (including futures, forwards, options, and similar transactions) in any financial assets;(viii)the excess of foreign currency gains over foreign currency losses;(ix)net income from swaps; or(x)amounts received under cash value insurance contracts:Provided that passive income will not include, in the case of a non-financial entity that regularly acts as a dealer in financial assets, any income from any transaction entered into in the ordinary course of such dealer's business as such a dealer.
