Lecture 2

Course Code : 1984
Corporate Taxation
Topics to be covered
• Scope of Income
• Residential Status – Individual vs. Entity
• Concept of Place of Effective Management (‘POEM’)

Scope of Income
• Section 5 provides the scope of total income in terms of the residential status of
the assessee because the incidence of tax on any person depends upon his
residential status.
• It refers to the total income earned or accrued to a taxpayer that is taxable in India
under the Income Tax Act, 1961
• The scope varies based on the taxpayer's residential status (resident, non-
resident, or resident but not ordinarily resident).
Residential Status – Individual vs. Entity
• The residential status of an individual or entity plays a key role
in determining the taxability of their income under the Income
Tax Act, 1961
• The scope of taxable income depends on whether the taxpayer
is a resident or non-resident in India during the relevant
financial year.
• It is laid down in section 6 of Income tax Act, 1961
• Tax payers may be of two types i.e. resident in India and non-
residents.
• While individuals /HUF may be resident (i. resident or ii. Not
ordinary resident) but ;
• The company may be either resident in India or non-resident
.
Example
• Mr. X, an Indian citizen, stayed in India for 200 days during
FY 2023-24. In the previous 4 years, he stayed in India for 300
days.
•Mrs. Y, a U.S. citizen, stayed in India for 50 days in FY 2023-24.

She is a non-resident.
RESIDENTIAL STATUS OF A COMPANY U/S
6(3)
• Residential status of a company is determined as follows:
Section Company Residential
Status
6(3)(i) Indian company Always resident in
India
6(3)(ii) A foreign company It will be resident in
(whose India if its place of
turnover/gross effective
receipt in the management,
previous year is during the relevant
more than Rs 50 previous year, is in
crore) India
6(3)(ii) A foreign company Always non-
(whose resident in India
turnover/gross
receipt in the
previous year is Rs
50 crore or less)
Example
X Ltd is an Indian company. It has 10 shareholders who are foreign citizens and non
resident in India. The business of the company is fully controlled from outside India.
Find out the residential status of X Ltd. for the assessment year 2023-24
- X Ltd. is an Indian Company. An Indian company is always resident in India. This rule is
equally applicable even if shareholders are foreign citizens as well as a non -resident or even
if business is controlled from outside India.
Y Ltd. is a company incorporated in Mauritius (turnover more than Rs 50 crore). It

has 10 shareholders who are Indian citizens and resident in India. The company has
active business outside India and is controlled wholly from outside India by a team
of professionals. What is the residential status of Y Ltd. for the assessment year
2023-24
- Y Ltd. is a foreign company. It is controlled wholly from outside India
(POEM is outside India). It is, therefore, non-resident in India for the assessment
year 2023-24. Residential Status of shareholders is irrelevant. Likewise, the
nationality of shareholders is not taken into consideration.
Z Ltd is incorporated in Japan. It has 15 shareholders (10 are Indian citizens and resident in
India). The company has no active business in Japan. Gross annual turnover of the company for
the previous year 2022-23 is Rs 48 crore mainly from operations conducted from Korea, Sri
Lanka and India. The company is managed by a team of professionals from India. Find out the
residential status of Z Ltd. for the assessment year 2023-24.
- Z Ltd. is a foreign company. Gross turnover of the company for the relevant previous year is
Rs 48 crore. A foreign company (whose turnover/gross receipts is not more than Rs 50 crore) is
treated as non-resident in India.
Place of Effective Management (POEM)
• POEM refers to the place where key management and
commercial decisions necessary for the conduct of business as a
whole are made.
• This concept ensures that foreign companies with significant
control exercised from India are taxed as residents
Example:
ABC Ltd., a foreign company, makes key business decisions in its
UK office, but all strategic decisions are made by its management
board in India. Hence, ABC Ltd. will be treated as a resident under
POEM.
Case Study: Determining POEM for a
Foreign Company
• Case Background:
-XYZ Inc., a foreign company, operates globally with branches in
India, the U.S., and Europe. Although it has operational autonomy
in each region, the key business strategies and corporate policies
are decided by a core team based in India.
• Analysis:
-Since the key management decisions for XYZ Inc. are made in
India, under the concept of POEM, the company will be treated as
a resident of India for tax purposes, despite its incorporation
abroad.
• Conclusion:
-This case highlights how the application of the POEM concept
ensures that companies managed from India are taxed in India,
preventing tax evasion by merely incorporating.
Thank you
XXXX
School of Business management
Shoolini University
Village Bajhol, Solan (H.P)
XXXXXX ( Mob No.)

nupurvats@shooliniuniversity.com

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Course Code : 1984

• Residential Status – Individual vs. Entity

• Concept of Place of Effective Management (‘POEM’)

•Mrs. Y, a U.S. citizen, stayed in India for 50 days in FY 2023-24.

Y Ltd. is a company incorporated in Mauritius (turnover more than Rs 50 crore). It

XXXXXX ( Mob No.)

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