TMI Blog2007 (5) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) of the Act and the company would be treated as a non-resident. This concept was opposite to the concept of determining a residential status of HUF, firm or AOP in terms of s. 6(2) of the IT Act wherein the entities shall be resident in India even if partial control and management of their 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 (3) TMI 31 - BOMBAY HIGH COURT] . It is found from record that all the board meetings of the assessee company have been held at Singapore and never in India. Since the board of directors, subject to the overall supervision of shareholders, actually controls and manages the affairs of a company effectively as against the day-to-day operation of the company, the situs of the board of directors of the company should deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In the result, the appeal of the assessee is allowed. Addition of unexplained cash credit u/s 68 - Held that:- Since we have held that the assessee company was not a 'resident' in India during the year, the addition sustained by learned CIT(A) will not be maintainable. Hence, we direct to delete the same. Disallowed w/f of debts as bad - Held that - Since we have held that the residential status is to be adopted as non-resident, only so much income accruing in India is taxable. Since the income from investment is not held taxable in India, there is no question of allowing loss on writing off of such investment. Accordingly, this ground cannot be allowed. - Member(s) : N. K. KARHAIL., DEEPAK R. SHAH. ORDER-N.K. KARHAIL, J.M. : This appeal of the assessee is directed against the order dt. 31st March, 2006 passed by learned CIT(A), New Delhi, for asst. yr. 2002- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that these minutes show that all the required actions like documentation etc. were to be done by Mrs. Geeta Soni. From the extract of the board meeting allegedly held on 18th April, 2001. the AO found that these extracts show that the meeting of the board of directors took place on 18th April, 2001 at 10.30 AM. at Singapore. In this regard, he called for a copy of the passport of Mrs. Geeta Soni and her travel details during the relevant previous year. These travel details are reproduced by the AO at p. 8 of the assessment order. From these details, the AO noticed that on 18th April, 2001, Mrs. Geeta Soni was in India and in fact she left India on the same day for Bangkok and came back to India on 2nd May, 2001. Thus, there was no possibility of her being present in Singapore and attend a meeting there on 18th April, 2001 at 10.30 AM. He mentioned that the Indian High Commission in Singapore had duly authenticated the minutes of the meeting. Therefore, the AO observed that the assessee had tried to submit a forged document with the intention of misleading the Department and thereby trying to evade the due tax. Therefore, AO asked the assessee to show-cause as to why it shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case in each previous year. In the case under consideration it may be noted that assessee company is registered in Singapore. Therefore, the status of the assessee needs to be examined as per DTAA between India and Singapore as well as under IT Act. 5. After having referred to the art. 4 of DTAA between India and Singapore, he has observed that as per the article the company shall be deemed to be a resident of State in which its place of effective management is situated. He has further referred to s. 6(3) of the Act and has observed that, therefore, as per DTAA, if the place of effective management of company is situated in India, the company shall be treated as a resident in India even though it is incorporated in Singapore, whereas as per domestic law, a company, which is not an Indian company, can be treated as resident in India, only if during that year the control and management of its ,affair situated wholly in India. Sec. 6(3) provides two alternative tests for determining the residence of a company. First, if it is an Indian company, it is deemed always to be resident in India. The word Indian company have been defined in s. 2(26). Second alternative, even if the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apore such as rent, salary etc. were shown by the assessee to be incurred during the year. Thus, it is clearly established that the company was not having any operating office in Singapore during this previous year. Moreover, carrying on the day-to-day business by employees or agents is not an important factor to determine the residential status of a company. It is place of 'central control and management' which is important. There were only two shareholders of the company during the relevant previous year. The share capital of the company was US $ 100,000. Mrs. Juliana Kassim was holding only one share of US $ 1 and Mrs. Geeta Soni was holding 99,999 shares of US $ 99,999. There are only two directors, Mrs. Geeta Soni and Mrs. Juliana Kassim. Mrs. Juliana Kassim was not paid any remuneration as a director. Thus, Mrs. Juliana Kassim was roped in merely to fulfil the requirement of the law of Singapore. It is also relevant to note that the authority to operate all the bank accounts of the company also vests in Mrs. Geeta Soni 'singly'. Hence, the central control and management on the affairs of the company lies with Mrs. Geeta Soni. 8. He has further mentioned that Mrs. Geeta Soni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t date. Thus, looking to the facts and circumstances of the case it can be safely concluded that this important decision was taken by Mrs. Geeta Soni in India and a meeting was shown to be held in Singapore just to fulfil the legal requirements. Apart from this meeting on 18th April, 2001, when Mrs. Geeta Soni was in India, only three other meetings were shown to be held in Singapore in which no major decisions were taken except fulfilling the requirement of the land. As regards the investment of US $ 1,93,800 of 3rd May, 2001 shown by assessee is concerned, he has observed that this major decision was taken when Mrs. Geeta Soni was in India. He has further mentioned that decision of Hon'ble Supreme Court in the case of Union of India Anr. vs. Azadi Bachao Andolan Anr. (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC) relied upon by the assessee is also of no help to the assessee. It may be noted that the board vide Circular No. 1 of 2003 issued on 10th Feb., 2003 has clarified the Circular No. 789, dt. 13th April, 2000 [(2000) 160 CTR (St) 5] that where an AO finds and is satisfied that a company or an entity is resident of both India and Mauritius, he would be free to proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and operation of bank accounts elsewhere are being controlled from Singapore. (14) Correspondence relating to business operation of the company is being carried out from Singapore. (15) Regular steps are being taken at Singapore to maintain the corporate existence of the company at Singapore on regular basis. (16) The tax returns are regularly being filed at Singapore. (17) The company secretary has been appointed at Singapore and he regularly functions from there. 12. On the basis of the above facts, learned counsel for the assessee has contended that the control and management of the company is situated in Singapore and not in India. On the other hand, the learned Departmental Representative has argued on the line of reasoning given in the orders of authorities below. 13. We have heard the parties and perused the record as well as the case law relied upon by the parties. Sec. 6(3) states that a company is situated in India for the previous year if (i) it is an Indian company; or (ii) during that year the control and management of its affairs is situated wholly in India. From the above facts of law it can be said that the assessee company does not qualify as residen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Subbaya Chettiar's case (1), this Court observed that 'situated' implied functioning somewhat permanently, though the management and control may be exercised in more than one place. To prove that management and control is within the taxable territories, something more than a casual 'activity' is needed. The same tests also apply to a firm and an AOP. The words 'control and management' have been figuratively described as 'the head and brain'. In the case of an individual, the test is not necessary, because his residence for a certain period is enough, it being clear that within the taxable territories he would necessarily bring his head and brain with him. The head and brain of a company is the board of directors, and if the board of directors exercised complete local control, then the company is also deemed to be resident. In the case of a firm, an AOP and a HUF, the control and management can be exercised by one or more of the groups. So long as this control and management (even partly) is found, and it must be so when some coparceners reside in British India and manage the affair, the family must be treated as resident. 16. The assessee company has placed reliance on vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder s. 6(3)(ii), it cannot be said that the control and management of its affairs is situated wholly in India so as to treat the assessee as resident in India. Investment in India is the result of the activities on business decisions. It may be relevant to determine where the income accrues for purpose of s. 5 of the Act, but not relevant for purpose to deciding residential status under s. 6 of the Act. Similarly, the operation of bank account of the company by Mrs. Geeta Soni alone will not determine the position and status of control and management of the company. Such power has been conferred on her in the meeting of the board of directors of the company held at Singapore. Further, the contention that assessee company is having close connection with Motherson Group operating in India does make the assessee company as 'resident' in India. Similarly, the assessee company is having an Indian company as its subsidiary will also not alter the position. A foreign company can very well have a wholly-owned subsidiary company in India and vice versa an Indian company can also have a wholly-owned subsidiary company abroad. If the company is controlled and managed from the country of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , come to the conclusion that important decision in this regard was taken by Mrs. Geeta Soni alone in India on 3rd May, 2001. whereas he has himself stated that 3rd May, 2001 was the date of allotment. In any case this cannot be date of board meeting as the said decision must have been taken earlier than the actual 'date' of allotment. The learned CIT(A) has ample power to call for the minutes of the relevant board meeting from the assessee. Instead, he has made the aforesaid observation merely on surmise and conjecture without any clinching evidence on record. 20. It is seen that in the case of Azadi Bachao Andolan, the Hon'ble Supreme Court held that tax residency certificate issued by the Government of other Contracting State would be a conclusive proof of residential status of the company. The assessee company while relying upon this decision of Hon'ble Supreme Court has submitted that tax residency certificate has been issued by the Singapore taxation authorities in favour of the assessee. Thus, it itself establishes the residential status of the assessee i.e. Singapore. However, the learned CIT(A) has placed a reliance on the subsequent Circular No. 1 of 2003, dt. 10th Feb. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
