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Residential Status Of A Company [Section 6(3)]

Determination of total income of a company depends upon its residential status during the relevant previous year. The residential status of the company is determined either

  1. on the basis of its incorporation (Registration ) or

  2. on the basis of the control and management of its affairs.

On the basis of Residential Status, companies can be classified in to’ two categories

  1. Resident Companies

  2. Non Resident Companies.

(A) Resident Companies [Section 6(3)]

A company is said to be resident in India in any previous year

  1. It is an Indian Company ; or

  2. during the relevant previous year the control and management of its affairs is situated wholly in India.

Observations

  1. An Indian company is always a resident company for income tax purposes even if the control and management of its affairs is saturated outside India

  2. A non-Indian company or a foreign company will be treated as resident of India for any previous year only if the entire control and management of affairs of such company, during the relevant previous year is situated in India.

For example :

  1. A company is incorporated in India but has head office in Dacca,

  2. A company is incorporated in Bangladesh but has head office in Kolkata 

In first case it is incorporated in India and situation of its head office is immaterial, as such it is resident company. In second case though it is incorporated outside India but its control and management is wholly situated in India hence it is resident company.

Residential Status Of A Company [Section 6(3)]

(B) Non Resident Company [Section 2(30)]

A Company will be a non-resident in any previous year if:

  1. it is not an Indian company and

  2. its place of effective management, in that year, is not in India.

It means a foreign company whose control and management is situated wholly or partially outside India will be a non-resident company. For example an American company holds 8 meetings in India out of total of 12 meetings held during the previous year such company will be non-resident for income tax purposes for such previous year.

 
 

Topics on ... Assessment & Taxation of Companies

Company Taxation-Meaning and Definition
Types of Companies under Income Tax Act.
Residential Status Of A Company [Section 6(3)]
Incidence Of Tax—Scope Of Total Income (Section 5)
Types of Incomes (Section 7)
Carry Forward and Set Off of Business Losses ( Section 72)
Special Provisions Regarding Losses Relating To Companies Only (Section 72A, 72AA, 72AB)
Deductions Out Of Gross Total Income in case of Companies ( Section 80G to 80LA)
Provision of MAT ( Minimum Alternate Tax) for payment of Tax by certain Companies [Section 115JB]
Calculation of 'Book Profits' for the Purpose of MAT (Section 115JB)
Tax Credit in respect of Tax paid on Deemed Income under MAT Provisions (Section 115JAA)
Amounts Expressively Allowed as Deduction [Section 30 to 37]
Section 40A of Income Tax Act. ( Expenses or Payments not Deductible)
Expenditure on Scientific Research (Section 35)
Minimum Alternate Tax (MAT) [Section 115JB]
(Section 35D and Rule 6AB) : Amortization of Certain Preliminary Expenses
 
 
 
 
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