THE TWENTIETH SCHEDULE
[See sections 58(2)(u)113(2)(k) and 291(9)(c)]
COMPUTATION OF INCOME ATTRIBUTABLE TO A CONTROLLED FOREIGN COMPANY
1. The total income of a resident assessee for a financial year shall include an income which is attributable to a Controlled Foreign Company as computed in accordance with paragraph 3.
2. The attributable income referred to in paragraph 1 shall be included in the total income of the assessee for the financial year, the year in which the accounting period of the company ends.
3. The amount of attributable income shall be computed in accordance with the formula—
A x B/100 x C/D
Where A = specified income of the Controlled Foreign Company as computed under paragraph 4;
B = percentage of—
(i) value of capital,
(ii) voting share or interest,
whichever is higher, held by the assessee, directly or indirectly, in the Controlled Foreign Company;
C = number of days out of D, the voting shares or capital or interest has been held by the assessee in the Controlled Foreign Company;
D = number of days the company remained as a Controlled Foreign Company during the accounting period;
4. The specified income of the Controlled Foreign Company shall be computed in accordance with the formula—
(A + B - C - D) x E/F
Where A = net profit as per profit and loss account of the Controlled Foreign Company for the accounting period prepared in accordance with the International Financial Reporting Standards issued by the International Accounting Standards Board, Generally Accepted Accounting Principles, International Accounting Standards or accounting standards notified under the Companies Act, 1956, as the case may be;
B = amounts set aside to provisions made for meeting liabilities or diminution in value of assets, other than ascertained liabilities;
C = amount or amounts of interim dividend paid out of profits of the accounting period, if such dividend is not debited to profit and loss account;
D = the loss to the extent it has not been previously taken into account under this paragraph in respect of an earlier accounting period, where there is a net loss of the Controlled Foreign Company for such accounting period;
E = number of days during which the company is a Controlled Foreign Company during its accounting period;
F = number of days in the accounting period. 285
5. In this Schedule—
(a) "Controlled Foreign Company" means a foreign company which satisfies the following conditions, namely:—
(i) for the purposes of tax, it is a resident of a territory with lower rate of taxation;
(ii) the shares of such company are not traded on any stock exchange recognised by law of the territory of which it is a resident for the purposes of tax;
(iii) one or more persons, resident in India, individually or collectively exercise control over the company;
(iv) it is not engaged in any active trade or business;
(v) the specified income of the company determined in accordance with the provisions of paragraph 4 exceeds twenty-five lakh rupees;
(b) one or more persons resident in India shall be said to exercise control over the company if —
(i) such persons, individually or collectively possess or are entitled to acquire directly or indirectly shares carrying not less than fifty per cent. of the voting power or not less than fifty per cent. capital of the company;
(ii) such persons, individually or collectively are entitled to secure that not less than fifty per cent. of income or asset of the company shall be applied directly or indirectly for their benefit;
(iii) such persons, individually or collectively, exercise dominant influence on the company due to special contractual relationship;
(iv) such persons, individually or collectively, have, directly or indirectly, sufficient votes to exert a decisive influence in a shareholder meeting of the company.
(c) a company shall be regarded as a resident of a territory for the purposes of tax—
(i) if in an accounting period it is liable to tax in the territory by reason of its place of incorporation or the place of management;
(ii) if in any accounting period there are two or more territories falling in sub-clause (i) above, then, the company shall in that accounting period be regarded for purpose of this Schedule as a "resident" of any one of them—
(A) if, throughout the accounting period, the company's place of effective management is situated in one of those territories only, in that territory; and
(B) if, throughout the accounting period, the company's place of effective management is situated in two or more of those territories, then, in one of them in which, at the end of the accounting period, the greater amount of the company's assets is situated; and
(C) if neither item (A) nor item (B) above applies, then, in one of the territories falling within sub-clause (i) above in which, at the end of the accounting period, the greater amount of the company's assets is situated; and
(iii) if in any accounting period a territory is not falling within sub-clause (i) above, then, for the purposes of this Schedule it shall be conclusively presumed that the company is in that accounting period resident in a territory with a lower rate of taxation;
(d) "territory with a lower rate of taxation" means a country or a territory outside India in which the amount of tax paid under the law of that country or territory in respect of profits of a company that accrue in any accounting period, is less than one-half of the corresponding tax payable on those profits computed under this Code, as if the said company was a domestic company;
(e) a company shall be deemed to be engaged in active trade or business if and only if —
(i) it actively participates in industrial, commercial or financial undertakings through employees or other personnel in the economic life of the territory of which it is resident for tax purposes; and
(ii) less than fifty per cent. of income of the company during the accounting period is of the following nature, namely:—
(A) dividend;
(B) interest;
(C) income from house property;
(D) capital gains;
(E) annuity payment;
(F) royalty;
(G) sale or licensing of intangible rights on industrial, literary or artistic property;
(H) income from sale of goods or supply of services including financial services to—
(I) persons that directly or indirectly control the company;
(II) persons that are controlled by the company;
(III) other persons which are controlled by persons referred to in sub-item (I);
(IV) any associated enterprise;
(I) income from management, holding or investment in securities, shareholdings, receivables or other financial assets;
(J) any other income falling under the head income from residuary sources;
(f) "associated enterprise" shall have the meaning as assigned to it in clause (5) of section 124.
6. (1) Unless otherwise provided, each period of twelve months ending with the 31st day of March shall be the accounting period of a company.
(2) Where a company regularly adopts a period of twelve months ending on a day other than the 31st day of March for the purpose of—
(i) complying with the tax law of the territory of which it is a resident for tax purposes; or
(ii) reporting to its shareholders,
then the period of twelve months ending with such other day shall be the accounting period of the company.
(3) The first accounting period of the company begins from the date of its incorporation and end with the 31st day of March or such other day, as the case may be, following the date of such incorporation, and the later accounting period shall be the successive periods of twelve months.
(4) If the company ceases to exist before the end of accounting period, as mentioned in sub-paragraphs (1), (2) and (3), the accounting period shall end immediately before the company ceases to exist.
7. A resident assessee shall furnish the details of its investment and interest in any entity outside India in such form and manner as may be prescribed.
