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TMI Blog1998 (7) TMI 693X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia and meets outside India, i.e., in the Netherlands. Since the control and management of the applicant is situated wholly outside India, it does not qualify as a resident under section 6(3)(ii) of the Income-tax Act, 1961, and, therefore, is a non-resident company for Indian tax purposes. The company has executed several dredging contracts in India since 1985 and has a project office for executing the contracts in India. The applicant has been filing its returns of income annually and reported losses every year on the contracts executed in India. The losses are on account of depreciation claimed by the applicant on the dredgers and equipment utilised in India for executing the contracts. The applicant has unabsorbed losses which are available for carry forward and set-off against the profits which may be earned by the applicant in its dredging operations. The difficulty faced by the applicant is from the assessment year 1997- 98 when section 115JA of the Income-tax Act was introduced. As a result of this new section, every company is required to prepare its financial statements according to Part II and Part III of Schedule VI to the Companies Act, 1956, to ascertain its book pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade up after taking into account the depreciation and other allowance. These profit and loss accounts will have to be placed at the annual general meeting of the company since the applicant maintains its books of account in the Netherlands and the annual general meeting is held there. The applicant's business in India is confined to a limited field and for that purpose, it maintains a project office in India. Therefore, it is under an obligation to file a return confined to its Indian business only. It has further been stated on behalf of the company that the first proviso to section 115JA(2) requires that depreciation is to be provided in the same method which has been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid ''before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act''. Section 210 of the Companies Act does not apply to a company like the applicant nor would the applicant hold an annual general meeting as set out in section 166 of the Companies Act. The Explanation below section 115JA(2) sets out how the ''book profits'' are to be computed. The amount of div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956) : Provided that while preparing profit and loss account, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) : Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year. Explanation.-For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by- (a) the amount of income-tax paid or payable, and the provision therefor ; or (b) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial company for the assessment year commencing from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), and ending with the assessment year during which the entire net worth of such company becomes equal to or exceeds the accumulated losses ; Explanation.-For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) ; or. (viii) the amount of profits, eligible for deduction under section 80HHC, computed under clause (a), (b) or (c) of sub-section (3) or sub-section (3A), as the case may be, of that section and subject to the conditions specified in sub-sections (4) and (4A) of that section ; (ix) the amount of profits eligible for deduction under section 80HHE, computed under sub-section (3) of that section. (3) Nothing contained in sub-section (1) shall affect the determination of the amounts in relation to the relevant previous year to be carried forward to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further stated in the Budget Speech as follows (see [1996] 220 ITR (St.) 107 ) : ''I propose to introduce a 'Minimum Alternate Tax' (MAT) on companies. In a case where the total income of the company, as computed under the Income-tax Act after availing of all eligible deductions, is less than 30 per cent. of the book profit, the total income of such a company shall be deemed to be 30 per cent. of the book profit and shall be charged to tax accordingly. The effective rate works out to 12 per cent. of book profit calculated under the Companies Act. Companies engaged in the power and infrastructure sectors will, however, be exempted from the levy of MAT. As a step towards achieving the level playing field for Indian Companies vis-a-vis the foreign companies, I propose to reduce the tax on long-term capital gains in the case of domestic companies from 30 per cent. to 20 per cent.'' This was reiterated in the Memo explaining the Finance Bill, 1997, in the following manner (see [1997] 224 ITR (St.) 130 ) : "Minimum alternative tax on companies.-Minimium Alternative Tax (MAD) on companies was introduced by the Finance (No. 2) Act, 1996, with effect from April 1, 1997, with a view to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for computation of profits for operation of aircraft (section 44BBA), profits from shipping business (section 44B), computation of profits from turnkey power projects (section 44BBB), deduction of head office expenditure (section 44C). There are also special exemptions available to a foreign company under sections 10(6A) and 10(6B). Section 115A contains special provisions for tax on dividends, interest and royalty in the case of foreign companies. Sub-section (4) of section 115JA does not make any mention of foreign companies. It speaks only of "every assessee, being a company". There is no reason to presume that the Legislature did not intend the provisions of section 115JA to apply to an assessee which is a foreign company. The main argument of counsel is that the applicant in this case is not supposed to offer its entire book profit for taxation in India. He has only to show the profit of the Indian part of its business and offer it for tax ation in India. This argument is also without any substance. Section 594 of the Companies Act provides : "Section 594. Accounts of foreign company.-(1) Every foreign company shall, in every calendar year,- (a) make out a balance-sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted October 4, 1957, and January 6, 1959) shall be filed with the Registrars within nine months of the close of the financial year. The Registrar at New Delhi may extend this period by three months, vide rule 18A (ibid) in Appendix 1. The accounts shall be audited by such person and in such manner as provided in sections 226 and 227 (as modified in terms of the notifications cited above). The aforesaid accounts have to be filed with the Principal Registrar (i.e., Registrar of Companies, New Delhi) and the concerned Registrar having jurisdiction over the principal place of business of the foreign company (section 597). It may be pointed out that the Indian accounts have to be drawn up in Indian rupees as per the requirements of Schedule VI. Income-tax assessments in India are made on the basis of such balance-sheets and profit and loss accounts" Under the provisions of the Companies Act, every foreign company has to maintain its books of account relating to Indian business in the manner provided in section 209 and in each calendar year it has to file its world account. It has also to file a list of places of business, establishments in India. The foreign company is also under ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -O to 115Q) contains special provisions relating to tax on distribution of profits of domestic companies. There are many other sections which are specifically applicable to Indian companies or domestic companies. For example, section 80M deals with the situation where income by way of dividends from a domestic company is received by another domestic company, section 80-O deals with Indian company whose income includes any income by way of royalty, commission, fees or any similar payments from foreign Government or enterprise. Section 80AA deals with the computation of deduction under section 80M in respect of the income by way of dividends from a domestic company. Section 80HHB allows deduction "in respect of profits and gains from projects outside India" to an Indian company or a person (other than a company) who is resident in India. Unlike all these sections, there is no indication in section 115JA that its application should be confined to domestic companies or Indian companies only. In the context of the various other provisions of the Income- tax Act, the only inference that can be drawn from the absence of any words of limitation is that, the provisions of section 115JA wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred, whether in the State in which the permanent establishment is situated or elsewhere, in accordance with the provisions of and subject to the limitations of the taxation laws of that State. Provided that where the law of the State in which the permanent establishment is situated imposes a restriction on the amount of the executive and general administrative expenses which may be allowed, and that restriction is relaxed or overridden by any Convention between that State and a third State which enters into force after the date of entry into force of this Convention, the competent authority of that State shall notify the competent authority of the other State of the terms of the corresponding paragraph in the Convention with that third State immediately after the entry into force of that Convention and, if the competent authority of the other State so requests, the provisions of this sub-paragraph shall be amended by protocol to reflect such terms. (b) However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below, namely : (i) A foreign company shall, in respect of its Indian business, submit to the appropriate Registrar in triplicate its balance-sheet and profit and loss account in such form containing such particulars and including or having annexed or attached thereto such documents as under the provisions of the Act it would, if it had been a company within the meaning of the Act, have been required to make out and lay before the company in general meeting. (ii) The working capital earmarked for its branch, if any, shall be shown in the balance-sheet. (iii) The profit and loss account in respect of its Indian business shall disclose the net profit or loss for the year transferred to its principal office in the country of incorporation. (vii) The Government shall have authority, when there is difficulty in reconciling the balance-sheet and profit and loss account of a foreign company submitted in accordance with clause (i) with the balance-sheet and profit and loss account filed by that company in the country of its incorporation, to seek clarification or demand the making of the balance- sheet and profit and loss account filed in that country, as far as practicable, in such f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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