ENABLING PROVISIONS FOR A FOREIGN COMPANY HELD TO BE RESIDENT FOR THE FIRST TIME

POEM (Place of Effective Management) based residence test was introduced in Finance Act 2015. Consequently a Company shall be resident in India, if it has a place of effective management, at any time, in India.

However, it is proposed that the applicability of POEM based residence test is deferred for 1 year and the same shall be effective from 01.04.2017.

Further, a new chapter has been inserted namely chapter XII-BC which deals with provisions for foreign company who tends to be resident for the first time in India.

The new Chapter contains various provisions in relation 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 with some exemptions and modifications as may be specified on fulfilment on prescribed conditions. Further, this chapter shall also apply to previous year succeeding the previous year in which foreign companies are determined to be resident in India in the assessment proceedings, if such previous year ends on or before the date on which such assessment proceeding is completed.

If the foreign company fails to fulfill the conditions subsequently, the exemptions and exceptions mentioned in the earlier part shall be deemed to be wrongly allowed and the Assessing Officer shall re-compute the total company of such foreign company and make necessary adjustments as if such exemptions and modifications do not exist. Further, the Assessing Officer can also invoke provisions of Section 154 and the specified time limit of 4 years in Section 154 shall be considered from the end of previous year in which the failure to comply the conditions takes place.

Further, every notification under this Chapter shall be laid before each House of Parliament.

The Hon’ble Finance Minister, during his budget speech, had stated the provisions of POEM to be deferred by a year – Yes these were to be applicable from financial year 2015-16 which has now been moved to the financial year 2016-17. Hence these provisions are applicable from the ensuing financial year.

These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years