F No 370142/19/2017-TPL
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
New Delhi, Dated 15th June, 2017
Subject: Draft Notification of exception, modification and adaptation in respect of foreign company said to be resident in India under Section 115JH of the Income-tax Act, 1961– comments and suggestions-reg.
Finance Act, 2016, inter alia, introduced special provisions in respect of
foreign company said to be resident in India on account of Place of Effective
Management (PoEM) by way of insertion of a new Chapter XII-BC consisting of
Section 115JH in the Income-tax Act, 1961 (the Act) with effect from 1st April, 2017.
2. Section 115JH of the Act, inter alia, provides that the Central Government
may notify exception, modification and adaptation subject to which, provisions of
the Act relating to computation of total income, treatment of unabsorbed
depreciation, set off or carry forward and set off of losses, collection and recovery
and special provisions relating to avoidance of tax shall apply in a case where a
foreign company is said to be resident in India due to its PoEM being in India for the
first time and the said company has never been resident in India before.
2.1 It has been further provided that these transitional provisions would also cover
any subsequent previous year upto the date of determination of PoEM in an
assessment proceedings.
3. Accordingly, a draft notification in this regard has been prepared and is as
under:
“The Central Government hereby notifies the exceptions, modifications and
adaptations for application of provisions of the Act on the computation of total
income, treatment of unabsorbed depreciation, set off or carry forward and set off
of losses, collection and recovery and special provisions relating to avoidance of tax
in respect of the foreign company, said to be resident in India in any previous year
on account of its Place of Effective Management (PoEM) being in India, and said
foreign company is not previously assessed in India as such; as under:
(i) If the foreign company is assessed to tax in the foreign jurisdiction, the
written down value (WDV) of the depreciable asset as per the tax record in
the foreign country on the 1st day of the previous year shall be adopted as
the opening WDV for the relevant previous year.
(ii) If the said foreign company is not assessed to tax in the jurisdiction where it is
based, then WDV of the depreciable asset as appearing in the books
maintained in accordance with the laws of that foreign jurisdiction shall be
adopted.
(iii) If the foreign company is assessed to tax in the foreign jurisdiction, its brought
forward loss or unabsorbed depreciation as per the tax record shall be determined year wise on the 1st day of the previous year in which it is said to
be resident in India. They shall be deemed as losses or unabsorbed
depreciation brought forward on the 1st day and shall be allowed to be set
off and carried forward in accordance with the provisions of the Act.
(iv) Where the foreign company is not assessed to tax in the foreign jurisdiction,
its brought forward loss or unabsorbed depreciation as per the books
prepared in accordance with the laws of that country shall be determined
year wise on the 1st day of the previous year in which it is said to be resident
in India. They shall be deemed as losses or unabsorbed depreciation
brought forward on the 1st day and shall be allowed to be set off and
carried forward in accordance with the provisions of the Act.
(v) In cases where the accounting year does not end on 31st March, the foreign
company shall be required to prepare profit & loss account and balance
sheet for the period starting from the date on which the accounting year
immediately following said accounting year begins, to 31st March of the year
immediately preceding the period beginning with 1st April and ending on
31st March during which the foreign company has turned resident. The
foreign company shall also be required to prepare profit & loss account and
balance sheet for succeeding periods of twelve months, beginning from 1st
April and ending on 31st March, till the year the said foreign company
remains resident in India on account of its PoEM.
(vi) For the purpose of carry forward of loss, in cases where the accounting year
does not end on 31st March and the period starting from the date on which
immediately following year begins to 31st March of the year, immediately
preceding the period beginning with 1st April and ending on 31st March
during which the foreign company has turned resident, is,-
(a) less than six months, it shall be included in that accounting year;
(b) equal to or more than six months, that period shall be treated as a
separate accounting year.
Thus, if the accounting year of the foreign company is calendar year,
the accounting year immediately preceding the accounting year in which
the foreign company is held to be resident in India on the basis of its PoEM,
shall be increased by three months, i.e., 1st January to 31st March and if the
accounting year of the foreign company is from 1st July to 30th June, the
accounting year immediately preceding the accounting year in which the
foreign company is held to be resident in India on the basis of its PoEM, shall
be of 9 months from 1st July to 31st March.
(vii) Where more than one provision of Chapter XVII-B of the Act apply to the
foreign company as resident as well as foreign company, the provisions
applicable to the foreign company shall apply.
(viii) The provisions contained under sub-section (2) of section 195 of the Act shall
apply in such manner so as to include payment to the foreign company.
(ix) Once the foreign company is held to be resident in India on account of its
PoEM in India, it shall be entitled to relief or deduction of taxes paid in
accordance with the provisions of section 90 or section 91 of the Act.
(x) The rate of exchange for conversion into rupees of value expressed in
foreign currency, wherever applicable, shall be in accordance with
provision of Rule 115 of the Income-tax Rules, 1962.
2. The above exceptions, modifications and adaptations shall be applicable
where a foreign company is said to be resident in India in any previous year on
account of its PoEM being in India and such foreign company has not been resident
in India in any of the previous years preceding the said previous year for the
purposes of taxation of said foreign company only and all transactions of the said
foreign company with other person or entity under the Act shall not be altered only
on the ground that the said foreign company has turned resident on account of its
PoEM being in India.
3. Subject to the above, the foreign company shall continue to be treated as a
foreign company even if it is said to be resident in India on account of its PoEM
being in India and all the provisions of the Act shall apply accordingly. Consequently
the provisions specifically applicable to,-
(i) a foreign company shall continue to apply to it; and
(ii) non-resident persons shall not apply to it and the provisions specifically
applicable to resident shall apply to it.
Thus, the rate of tax in case of foreign company shall remain the same, i.e.,
rate of income-tax applicable to the foreign company; even though residency
status of the foreign company changes from non-resident to resident on the basis of
PoEM.
4. This notification shall be deemed to have come into force from the 1st day of
April, 2017.”
5. The comments and suggestions of stakeholders and general public on the
above draft notification are invited. The comments and suggestions may be sent
electronically by 23rd June, 2017 at the email address, dirtpl1@nic.in.
(Sanyam Joshi)
DCIT (OSD) (TPL)-I
Tel: 011-23095468
Email: ustpl1@nic.in