Residential Status Of a Company : Corporate Taxation

Introduction:- The incidence of tax on any assessee depends upon his residential status under the Income-tax act. For all purposes of income-tax, taxpayers are classified into three broad categories 

on the basis of their residential status viz.

(1) Resident and ordinarily resident 

(2) Resident but not ordinarily resident 

(3) Non-resident

The residential status of an assessee must be ascertained with reference to each 

previous year. A person who is resident and ordinarily resident (ROR) in one year may become non-resident (NR) or resident but not ordinarily resident (RNOR) in another year or vice versa.

Residential status of a Company:- 

Section 6(3) of Income tax act, 1961 contains provisions regarding residential status in case of a company assessee. According to this section, a company can either be a resident or a non resident. the residential status is to be determined on the basis of its incorporation or registration. Section 6 (3) provides the following tests in this connection:-

1. Resident :- A company would be resident in India in any previous year if -

a.) It is an Indian company

b.) Its place of effective management (POEM) at any time in that year, is in India.

Place of effective management refers to a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole, are made. 

The determination of 'Place of effective management' of a company is very complicated and is dependent on a number of factors such as :-

• The place where board meetings are usually held.
• The place where the CEO and other senior executive carry out their activities.
• The place where headquarter of the company is located.
• The place where accounting records of the company are kept.

Note: The POEM guidelines issued by CBDT are not applicable to a foreign company having turnover or gross receipts of ₹50 crore or less in a financial year.

2. Non - resident :- A company shall be 'non-resident' if it is not resident in India during the relevant previous year. It means that, a company whose control and management is situated wholly outside India, will be non resident of india for that previous year.

:- Following diagram helps in determining residential status of a company;

References: 

1.) www.icai.org

2.) Corporate Tax law and planning, kalyani publishers.

3.) Internet.

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