'Company non-resident if control is not in India'
A company would be considered non-resident if the control and management is not in India. The location of board of directors should determine the place of control and management of the company.
By M Padmakshan, TNN |
MUMBAI: A company would be considered non-resident if the control and management is not in India. This would apply even in cases where 99% of the shares are held by Indians, the Delhi branch of the Income Tax Appellate Tribunal (ITAT) has held.
This decision was given by Delhi ITAT on an appeal filed by Singapore-based Radha Rani Holdings. In this case, Radha Rani has an Indian director who holds 99% of the shares. Another director, who is a resident of Singapore, holds about 1%.
The income-tax department held that the company’s main activity is in India and all investments in group companies are in India. The source of investment was also in India.
There is no employee working in Singapore. The Singapore address was mainly for the purpose of routing money through that country. Hence, there is enough reason to consider the company a resident in India.The company in turn produced a tax residency certificate from Singapore. It also produced documents to prove that major activities are held outside India. It also pointed out among other things that it had raised loans outside India and also made investments from abroad.
The ITAT took a totally opposite view. It pointed out that all the board meetings were held in Singapore.
The board of directors controlled and managed the affairs of the company and hence the location of board of directors should determine the place of control and management of the company.
Residential status of the directors has no bearing on determining the place of control of the company.
Operation of the bank account by an Indian director did not indicate that the company is managed and controlled in India. Residential status of the directors, location of bank accounts and investment of entire funds in India are not the criterion to consider a company resident of India. The ITAT stated that the place from where business is being conducted is a major factor in determining the residence status.
An investment company may invest its entire funds in India but if the business decisions are taken outside India, that means the company is controlled and managed outside India. A company is considered resident of the country in which it is incorporated if it is controlled and managed from there.
This decision was given by Delhi ITAT on an appeal filed by Singapore-based Radha Rani Holdings. In this case, Radha Rani has an Indian director who holds 99% of the shares. Another director, who is a resident of Singapore, holds about 1%.
The income-tax department held that the company’s main activity is in India and all investments in group companies are in India. The source of investment was also in India.
There is no employee working in Singapore. The Singapore address was mainly for the purpose of routing money through that country. Hence, there is enough reason to consider the company a resident in India.The company in turn produced a tax residency certificate from Singapore. It also produced documents to prove that major activities are held outside India. It also pointed out among other things that it had raised loans outside India and also made investments from abroad.
The ITAT took a totally opposite view. It pointed out that all the board meetings were held in Singapore.
The board of directors controlled and managed the affairs of the company and hence the location of board of directors should determine the place of control and management of the company.
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Residential status of the directors has no bearing on determining the place of control of the company.
Operation of the bank account by an Indian director did not indicate that the company is managed and controlled in India. Residential status of the directors, location of bank accounts and investment of entire funds in India are not the criterion to consider a company resident of India. The ITAT stated that the place from where business is being conducted is a major factor in determining the residence status.
An investment company may invest its entire funds in India but if the business decisions are taken outside India, that means the company is controlled and managed outside India. A company is considered resident of the country in which it is incorporated if it is controlled and managed from there.
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