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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Corporate Tax Planning

Harbor Trading Inc. is incorporated in Singapore. During the tax year its directors, sitting in Mumbai, took the key management and commercial decisions needed to run its business as a whole. Which statement is correct?

Harbor Trading is resident in India for that year. A foreign company is resident here if its place of effective management, meaning where key management and commercial decisions for the whole business are substantively made, is in India. Foreign incorporation alone does not make it non-resident.

  1. AIt is non-resident because it is not incorporated in India
  2. BIt is non-resident unless it also has a branch in India
  3. CIt is resident in India because its place of effective management is in India for that yearCorrect
  4. DIt is resident but not ordinarily resident in India

Explanation

A foreign company becomes resident in India if its place of effective management, being where key management and commercial decisions for the business as a whole are in substance made, is in India during the year. Incorporation abroad is therefore not decisive. Having a branch is not the test, and the not-ordinarily-resident category does not apply to companies.

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