Types of companies & Residential Status

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COMPANY : 

Company means ,

1. any Indian company ; or

2. any body corporate incorporated by or under the laws of a country outside India; or

3. any institution , association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income tax act for any assessment year commencing on or before 1st April ,1970 ; or

4. any institution , association or body , whether incorporated or not and whether Indian or non -Indian , which is declared by general or special order of the Board to be company.


TYPES OF COMPANIES: 

  1. Indian company
  2. foreign company
  3. domestic company
  4. widely held company
  5. closely held company

1. Indian company section 2 (26) : 
Indian company means a company formed and registered under
  • the Indian companies Act ; or
  • any law relating to companies which was or is in force in any part of Indian ; or
  • a corporate established by or under a central , state or provincial act ; or
  • an institution or association or body , which is declared by the board to be a company .
In all cases it is necessary that their registered office must be situated in India.

2. Domestic company section 2 (22 A): It means an Indian company / any other company which , in respect of its income liable to income tax under the income tax act, has made prescribed arrangements for the declaration and payment within India of the dividends payable out of such income.
In other words : 
  • all Indian companies are domestic companies
  • a foreign company which has made the prescribed arrangements for the declaration and payment of dividends within India is also a domestic company
Under Rule 27 of the income tax rules , the prescribed arrangements are as follows :
  • the share register of the company for all shareholders shall be maintained regularly at its principal place of business within India , in respect of any assessment year from a date not later than first day of April  of the relevant assessment year.
  • the general meeting for passing the account of the accounting year relevant to the assessment year and for declaration of any dividends in respect thereof shall be  held only at a place within India.
  • the dividends declared , if any, shall be payable only within India to all shareholders.
3. Foreign company section 2(23A): 
  • A company which is not a domestic company. 
  • Any company / body corporate incorporated outside India. 
  • A foreign company may be treated as domestic company if it makes prescribed arrangements for declaration and payment of dividends within India. 
  • The share register of the company should be maintained at the place of business within India. 
  • General meeting for passing accounts & for declaring dividends should be held at a place within India. 
  • The dividend declared shall be payable only within India to all shareholders. 
4. Widely held company :  The company in which the public are substantially interested, it is also known as wholly held company. 
  • it is a company owned by the government or the RBI or in which not less than 40% shares held by the government or the RBI or a corporation owned by the RBI or
  • It is a company which is registered under section 8 of the companies act, 2013; or 
  • It is a company, having no share capital and it is declared by order of the central board of direct taxes to be a company in which the public are substantially interested; or
  • It is a company which is not a private company under the companies act 2013, and its equity shares were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India.
5. Closely held company : A closely held company is a company where the majority of shares are owned by a small number shareholders & generally unavailable to outsiders. It differ from private owned companies where the stock is not publically traded. 

  
       
             RESIDENCE OF COMPANIES 
1. Resident : A  company is said to be Resident in India in any previous year, if, 
  • It is an Indian company;  or
  • Its place of effective management (POEM) in that year is in India. 
POEM: It means a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made. 
2. Not ordinarily Resident : A company is never 'not ordinarily Resident '.
3. Non resident : If a company does not satisfy any of the aforesaid conditions of the residence, it is said to be a 'non resident ' company. 

INCIDENCE OF TAX :
 Section 5 of the income tax act 1961 says that liability to pay tax depends on the nature of income. Income is classied into two categories. 
1. Indian Income 
2.foreign Income 

Indian Income : Any of the following three is treated as Indian Income. 
  • If income is recived / deemed to be received in India during the previous year and at the same time it accrues or arise or deemed to accrue / arise in India during the previous year. 
  • If the income is received / deemed to be received in India during the previous year but it accrues or arise outside India during the previous year. 
  • If income received outside India during the previous year but it accrues or arise or deemed to accrue or arise in India during the previous year. 

Foreign Income : 

       If the following two conditions are satisfied income is treated as foreign income. 
  • Income is not received or not deemed to be received in India 
  • Income doesn't accrue or arise or doesnot deemed to be accrue or arise in India. 
Types of Income    Resident    non resident 
Indian Income        Taxable          Taxable 
Foreign Income      Taxable      Not Taxable 


Receipt of Income :  Income received in India is taxable in all cases. 
1. Receipt & Remittance :
 Once an amount is received as income any remittance / transmission of the amount to another place is not treated as receipt at the other place. If income is received outside India cannot be taxed as income because of remittance of such income to India. 
2. Cash / kind : income may be received in cash or kind. It is fully taxable. 
3. Actual receipts vs. Deemed receipts : The following incomes are deemed to be received in the previous year. 
a)  Annual accretion to the amount of any employee participating in a RPF is not actually received by the employee but it is deemed to be received during the previous year by him under the law. 
b) taxable portion of transferred balance of unrecognised PF is deemed to be received during the previous year. 
c) dividend is deemed to be received in the year in which it is declared but the interim dividend is deemed to be the income of that previous year in which it is unconditionally made available to the shareholder;
d) amount contributed by the central government or any other employer ,in a pension to the account of its employee. 

4. Accrual of Income: Accrual of income is income which has been earned but not yet received. The following points are to be considered. 
  • Income from business connections through / from in India; or
  • Through or from any property in india; or
  • Through the transfer of capital asset situated in India; or
  • Through or from any asset or source of income in india.
  • Dividend paid by indian company outside India 
  • Income by way of interest 
  • Income by way of royalty 
  • Income by way of fees for technical services.



Comments

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