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TMI Blog2007 (5) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... tax assessee in India. The AO examined the issue of residential status of the assessee company under s. 6(3) of the IT Act as well as under art. 4 of the DTAA between India and Singapore. The AO noticed that there was no employee of the assessee company in Singapore, the address from where the company is being operated is 43, Community Centre, New Friends Colony, New Delhi, which is headquarter of the Motherson Group to which the assessee company belongs. He observed that all the investments of the assessee company were made in the group companies and the source of the investments of the assessee company was from India. In the audited accounts it was submitted by the assessee that all the investments were made out of the amounts received from non-trade creditors amounting to US $ 70,78,870. In the audit report, it was mentioned that the non-trade creditor is the amount due to an associate and the amounts were unsecured, interest-free and on fixed term of repayment. The AO also mentioned that the loans and investments by the assessee company were in the group companies who were controlled from India. Therefore, as per the AO it was obvious that the company was being controlled and m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of s. 6(3)(ii) even if a part of the control was outside India the company couldn't be treated as a resident in India. 3. However, the AO did not accept the contentions of the assessee. He observed that there was no employee of the company in Singapore and the office premises in Singapore was used merely for the purpose of having an address in Singapore. Mrs. Geeta Soni holding 99 per cent of the shares was the resident of India and the other director, Mrs. Juliana Kassim, was holding only 1 per cent of the share and she was not the full-time director of the company. She had been used merely to satisfy the legal requirement for incorporation in Singapore. The entire investments of the company in the group companies were controlled from India and the money for these investments had been provided by the associate companies free of interest and without any fixed term of repayment. He, therefore, concluded that the assessee company was incorporated outside India merely for the purpose of routing money and making investment in Motherson Group of company in India. The assessee company was merely a paper company to route the money through abroad. Mrs. Geeta Soni was sister of the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrol and management referred to in s. 6(3)(ii) is 'central control and management' and not the carrying on the day-to-day business by employees or agents. In order to determine the residence of a company, the real test to be applied is where does the controlling and directing power function? Where is the 'head and brain' of the company with regard to its affairs? In order to hold that a company is resident in India during a previous year it must be established that the company de facto controlled and managed its affairs in India. 6. The learned CIT(A) after having referred to the various case law, has further observed that from various decisions of the Courts it is clear that expression 'control and management' referred to in s. 6(3)(ii) is 'central control and management' and not the carrying on the day-to-day business by employees or agents. In order to determine whether the company is resident in India during the relevant previous year, it is to be ascertained from the facts of the case that the controlling and directing power functioned in India, the head and brain of the company with regard to its affairs was situated in India. 'Affairs' means affairs which are relevant for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control and management of the affairs of the company. Thus, it could be said that the 'controlling and directing power', the 'head and brain' of the company was situated in India during this year. 9. The only income shown by the company during the year was interest income of US $ 45,020 consisting of bank interest of US $ 416 and interest of US $ 44,604 from M/s Showpla Delhi Ltd., a concern of Motherson Group. He has further observed that 'affairs' of the company, required to be considered for determination of place of residence of a company, means affairs which are relevant for the purpose of the IT Act and which have some relation to the income sought to be assessed. Thus, the most important decision that is relevant to be considered is the decision to grant loan to M/s Showpla Delhi Ltd. during the year, which was in relation to income sought to be assessed. Even if the minutes of the board meetings are considered, this decision to grant loan of a sum of Rs. 1 crore was taken on 18th April, 2001. The assessee had filed extract from minutes of meeting of the board of directors claimed to be held on 18th April, 2001 at 10.30 AM. in Singapore. It was shown that Mrs. Juliana Kass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the following facts may be taken note of in support of his contention of the assessee that control and management of the affairs of the company was wholly at Singapore namely: (1) Registered office of the company is located at 101, Upper Cross Street, 1225, People's Park Centre, Singapore 058358. (2) Director, Mrs. Juliana Kassim, is a permanent resident and citizen of Singapore-not having visited India. (3) All board meetings have been held in Singapore only. (4) Mrs. Geeta Soni was a resident of Singapore for three years i.e. from asst. yr. 1996-97 to asst. yr. 1998-99 and during the year she was not ordinarily resident in India. (5) Tax residency certificate issued by Singapore taxation authority. (6) The statutory auditors of company were appointed in Singapore and also belong to Singapore. (7) The company has raised funds from abroad and made investment also from abroad. (8) Decisions to maintain the loans and investments by constant monitoring and maintaining relations with the clients are all taken at Singapore. (9) Study of the financial result of the entities in which the investments have been made for taking vital decisions was at Singapore. (10) The company i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affairs is situated in India. While in the case of HUF, firm or AOP, it is incumbent on the assessee to establish that control is wholly outside India, for them to be treated as a non-resident, in the case of a company, the Department has to establish that the control and management of its affairs is situated wholly in India, for the company to be treated as resident in India. The above view finds support from the decision in the case of Narottam & Pereira Ltd. vs. CIT (1953) 23 ITR 454 (Bom). 15. The meaning of the expression 'control and management' as used in s. 6(3)(ii) of the Act was the subject-matter of judicial interpretation in the past. The legal position is now well-settled that the expression control and management means central control and management and not carrying on a day-to-day business. It may be mentioned that for the proposition that even a partial control of the company outside India is sufficient to hold the company as a non-resident finds support from the decision in the case of V.VR.N.M. Subbayya Chettiar vs. CIT (1951) 19 ITR 168 (SC). In the case of CIT vs. Nandla1 Ganda Lal (1960) 40 ITR 1 (SC), the Hon'ble Supreme Court has given guidelines as to how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally reside but where the board actually meets for the purpose of determination of the key issues relating to the company. Thus, whether Mrs. Geeta Soni is a normal resident in India or not, is of very little consequence for determinating the issue under consideration. There is no dispute about the fact that the other member of the board, who happened to have acted as chairman of all the meetings of the board of directors of the company during the relevant year viz., Mrs. Juliana Kassim, is not only a resident of Singapore but also never visited India. So far as the meetings of the board are concerned, all the directors enjoy equal powers irrespective of the actual shareholding position by the respective directors. Rather, chairman of the board enjoys some special powers in board meeting. Therefore, it will be incorrect to say that simply because Mrs. Geeta Soni holds 99 per cent shares of the company, she was having special power over the other. An argument that because of huge shareholding of Mrs. Geeta Soni, she, in actual practice, controls and manages the entire affairs of the company, would be against the principle of corporate formation and management. The contention that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be by way of circular suggestion. The position is not clarified as earlier the assessee has not been put to question before drawing an adverse inference. In any case even if there were some doubts about the genuineness of this meeting, where some important decisions about investment of the company are stated to have been taken, then there should have been some evidence to show that in place of Singapore, the meeting of the board of directors has been held in India. The fact that the other director of the company, Mrs. Juliana Kassim, continues to reside in Singapore has not been controverted by Revenue. The Revenue has drawn an inference without any basis particularly when the minutes of the board of directors of the company held on 18th April, 2001 at Singapore have been authenticated by the Indian High Commission in Singapore. Thus, we are of the view that genuineness of the minutes of meeting of the board held on 18th April, 2001 at 10.30 A.M. at Singapore cannot be doubted. In this connection, it may be mentioned that even if one of the board meetings be considered to have been held in India (where it is not at all evidenced), that does not negate the position that usually the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee that the tax residence certificate issued by the Singapore taxation authorities is the material evidence to establish the residence of the assessee company. 21. In view of the above observation, we hold that there are various documents on record to establish that not only the day-to-day affairs but even the control and management of the company during the year has been conducted at Singapore only. Hence, the provisions of s. 6(3)(ii) of the Act relating to the 'control and management' of the company being situated wholly in India, are not satisfied in this case. Therefore, we hold that the assessee company was a 'non-resident' in India during the year under consideration. 22. The fifth ground of appeal states that the learned CIT(A) has erred in law in applying the provisions of s. 68 of the Act to the appellant and adding a sum of US $ 20,000 as unexplained cash credit to the income of the assessee. It is seen that learned CIT(A) has confirmed the addition of US $ 20,000 made in this regard by the AO by inter alia observing that since the assessee is a resident in India, the provisions of s. 68 of the Act are squarely applicable in this case. Since we have held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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