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Unit 11: Computation of Taxable Income of Companies

fails to pay the tax as required by or under the Act, he or it shall, without prejudice Notes
to any other consequences which he or it may incur, be deemed to be an ‘assessee in
default’ in respect of the tax.

2. Section 5(2) enunciates that the income of a non-resident from whatever source
derived is included in the total income if (i) it is received in India; (ii) deemed to be
received in India; (iii) accrues in India; (iv) deemed to accrue in India; (v) arises in
India; or (vi) deemed to arise in India.

3. Section 9(1) explains the circumstances in which income is deemed to accrue or arise
in India and includes all income accruing or arising in India, whether directly or
indirectly (a) through or from any business connection in India; or (b) through or
from any property in India; or (c) through or from any asset or source of income in
India; or (d) through the transfer of a capital asset situated in India.
4. Section 195 provides for deduction for tax at source upon a payment to a non-
resident or foreign company

5. The proposed DTC says that if 50 per cent of the value of the shares being transferred
is derived from assets situated in India, it is deemed to be taxable in India.
6. Countries like India have been following resident-based taxation mechanism,
wherein whoever is the resident of India is taxed. Source-based taxation provides
for a taxation regime which goes into the source of the asset which is liable for tax.
Questions

1. Study and analyse the case.
2. Write down the case facts.
3. What do you infer from it?
Source: http://www.mindtext.org/view/89/Vodafone_Tax_case_-_A_Case_Study_for_Investments_
in_India/
11.5 Summary

Company whether Indian or foreign is liable to taxation, under the Income Tax Act, 1961.
Corporation tax is a tax which is levied on the incomes of registered companies and
corporation. However, for the purpose of taxation, companies are broadly classified as
domestic company or a foreign company.

Indian companies are taxable in India on their worldwide income, irrespective of its
source and origin. Foreign companies are taxed only on income which arises from
operations carried out in India or, in certain cases, on income which is deemed to have
arisen in India.
A Company is said to be resident in India during any relevant previous year if it is an
Indian Company; or if the control and management of its affairs is situated wholly in
India. In case of Resident Companies, the total income liable to tax includes any income
which is received or is deemed to be received in India in the relevant previous year by or
on behalf of such company, any income which accrues or arises or is deemed to accrue or
arise in India during the relevant previous year and any income which accrues or arises
outside India during the relevant previous year.

The main source of income of a company is generally from “business”. A company would
also earn income from under the following heads: income from house property, income
from capital gains and income from other sources Taxable income is calculated according

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