Kanga & Palkhivala-Law & Practice of Income Tax, 11th ed / Kanga & Palkhivala: The Law and Practice

of Income Tax, 11th ed / S. 6. Residence in India

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THE INCOME-TAX ACT, 1961

CHAPTER II Basis of Charge
S. 6. Residence in India
For the purposes of this Act—

(1) An individual is said to be resident in India in any previous year, if he—

(a) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more; or
26. [(b) ****]
(c) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred
and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.
27. [Explanation28. [1].—In the case of an individual,—

(a) being a citizen of India, who leaves India in any previous year29. [as a member of the crew of an Indian ship as defined in
clause (18) of section 330. of the Merchant Shipping Act, 1958 (44 of 1958), or] for the purposes of employment outside
India, the provisions of sub-clause (c) shall apply in relation to that year as if for the words "sixty days", occurring therein,
the words "one hundred and eighty-two days" had been substituted;
(b) being a citizen of India, or a person of Indian origin within the meaning of Explanation to clause (e) of section 115C, who,
being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation
to that year as if for the words "sixty days", occurring therein, the words 31. ["one hundred and eighty-two days"] had
been32. [substituted and in case of the citizen or person of Indian origin having total income, other than the income from
foreign sources, exceeding fifteen lakh rupees during the previous year, for the words ''sixty days'' occurring therein, the
words ''one hundred and twenty days'' had been substituted].]
33. [Explanation
2.—For the purposes of this clause, in the case of an individual, being a citizen of India and a member of the
crew of a foreign bound ship leaving India, the period or periods of stay in India shall, in respect of such voyage, be
determined in the manner and subject to such conditions as may be prescribed.]

34. [(1A) Notwithstanding anything contained in clause (1), an individual, being a citizen of India, having total income, other than
the income from foreign sources, exceeding fifteen lakh rupees during the previous year shall be deemed to be resident in
India in that previous year, if he is not liable to tax in any other country or territory by reason of his domicile or residence
or any other criteria of similar nature.]

(2) A Hindu undivided family, firm or other association of persons is said to be resident in India in any previous year in every case
except where during that year the control and management of its affairs is situated wholly outside India.

35. [(3) A company is said to be a resident in India in any previous year, if—
(i) it is an Indian company; or
(ii) its place of effective management, in that year, is in India.
Explanation.—For the purposes of this clause "place of effective management" means a place where key management and
commercial decisions that are necessary for the conduct of business of an entity as a whole are, in substance made.]

(4) Every other person is said to be resident in India in any previous year in every case, except where during that year the control
and management of his affairs is situated wholly outside India.

(5) If a person is resident in India in a previous year relevant to an assessment year in respect of any source of income, he shall
be deemed to be resident in India in the previous year relevant to the assessment year in respect of each of his other sources
of income.

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36. [(6) A person is said to be "not ordinarily resident" in India in any previous year if such person is—
(a) an individual who has been a non-resident in India in nine out of the ten previous years preceding that year, or has
during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven
hundred and twenty-nine days or less; or
(b) a Hindu undivided family whose manager has been a non-resident in India in nine out of the ten previous years
preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods
amounting in all to, seven hundred and twenty-nine37. [days or less; or
(c) a citizen of India, or a person of Indian origin, having total income, other than the income from foreign sources,
exceeding fifteen lakh rupees during the previous year, as referred to in clause (b) of Explanation 1 to clause (1), who
has been in India for a period or periods amounting in all to one hundred and twenty days or more but less than one
hundred and eighty-two days; or
(d) a citizen of India who is deemed to be resident in India under clause (1A).
Explanation.—For the purposes of this section, the expression "income from foreign sources" means income which accrues
or arises outside India (except income derived from a business controlled in or a profession set up in India).]]

1. Section 6 [Sections 4A and 4B of 1922 Act]: Tests of Residence.—

The tests of residence for an individual are to some extent different from those in s 4A of the 1922 Act. The changes are noted in
the appropriate places. There is no change in the tests of residence for other assessees and in the tests of ordinary residence (s 4B
of the 1922 Act).
This section lays down the technical tests of territorial connection amounting to residence for all taxable entities. Two alternative
tests are provided for individuals, two for companies, and one for Hindu undivided families, firms, associations of persons and
other assessable units. The tests are artificial—stay for a day more or less may make all the difference—but they make for
precision and certainty, and they were held valid and intra vires under the 1922 Act.38.
Since the incidence of taxation varies with the factor of residence, the first inquiry in every case must be as to the residential
status of the assessee.
All taxable entities are divided into three categories: (i) resident (often called 'resident and ordinarily resident'); (ii) resident but not
ordinarily resident; (iii) non-resident. Residence is defined in cll (1)–(4). All those who do not fall within these clauses are non-
residents [s 2(30)]. Ordinary residence is defined in cl (6). The incidence of tax on these three classes is defined in s 5. [See under
that section, 'Chargeability varies with factor of residence'.]
(a) Statutory Provisions dealing with non-residents.—
Sections 2, 5(2), 9(1), 10(4), 10(4B), 10(6)(viii), 10(6A), 10(6B), 10(6C), 10(15) (ii-d), 10(15A), 44B, 44BB, 44BBA, 44BBB, 44C, 44D,
44DA, 48 (first proviso and explanation), 58(3), 91(3), 92–93, 112, 115A, 115AB, 115AC, 115AD, 115BBA, 115C–115-I, 140(c)
(first proviso), 149(3), 160(1)(i), 163, 172, 173, 182(3) (now omitted), 194E, 195, 196A, 196D–s 197(1)(b), 204, 245N–245V,
246A(1)(d) and r 6 of Sch I deal specifically with non-residents or transactions with non-residents.

(b) English decisions.—

Since the English statutes are worded differently, English decisions must be applied with great caution in construing this
section.39.

(c) Residence during accounting year.—

Section 5 provides for the assessment of income on a basis which differs accordingly, as the assessee is or is not 'resident' or
'ordinarily resident' in India during the previous year of which the income falls to be assessed. It is, accordingly, with reference to
'the previous year', i.e. the accounting year, that the various tests of 'residence' or 'ordinary residence' have to be applied—
residence during the assessment year being immaterial.40. A decision as to non-residential status in a particular year does not
preclude the revenue authorities from a fresh determination in succeeding years; but there can be no unilateral prejudging of the
issue without giving the assessee an opportunity to be heard.41.
This section emphasises the physical presence of the person in India.42. The question of residence must be determined with

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reference to each year and the finding of residence during one year would not warrant the assumption that the assessee was
resident in the next.43. An individual who has been regularly assessed as ordinarily resident has to be treated as non-resident in
any particular year if he stays out of India throughout the whole of that particular year. [See under cl (1).]

2. Clause (1): Tests of Residence for Individuals.—

The tests of residence44. provided in this clause for individuals are alternative and not cumulative. Each of the two45. tests requires
the personal presence of the assessee in India for the stated period in the course of the accounting year. If the assessee is
continuously out of India during the whole of a year, he must be treated as non-resident in that year, although he may be, in the
non-technical sense, ordinarily resident in India.
If the assessee's stay in India is of the requisite duration, he would be deemed to be a resident although he may put up at hotels,
and not always at the same hotel, and never for long.46. As Rowlatt J observed in Levene v IR,47. a complete wanderer, an
absolute tramp, or a rich person of the same type wandering from hotel to hotel and never staying two nights in the same place,
may still be a resident here although he cannot be called a resident in any particular spot.48. Stay on a yacht moored in the
territorial waters of India would be stay in India for the purposes of this section.49. The term 'India' means the geographical
territories and the territorial waters of India, and does not include Indian ships operating beyond the Indian territorial waters.
Therefore, in computing the number of days for which a person is in India, his stay on an Indian ship abroad is not to be taken
into account.50. The Finance Act, 1990 gave statutory recognition to this view with an amendment to the explanation to s 6(1)
which ensured that an Indian seaman working on board an Indian ship would be treated as resident in India for any year only if
the stay in India is for 182 days or more in that year.
A man might well be compelled to reside here completely against his will. The exigencies of business often forbid the choice of
residence, and though a man may make his home else-where and stay in this country only because business compels him,
nonetheless, if the conditions of the section are satisfied he must be held to be a resident here.51. However, if a person was
compelled to stay in India because his passport was impounded, the period for which the passport was impounded has to be
excluded.52. In law a man may be resident in two different countries in the same year, although he can have only one domicile.53.
Only because there is an open border between India and Nepal and a passport is not required for travel to and fro, it cannot be
presumed that a person who claims to be an Indian national residing in Nepal is a non-resident Indian;54. the burden of proof to
prove that a person is a non-resident has to be discharged by him on the basis of material on record.55.

3. Clause (1)(a): Stay for Aggregate Period of One Hundred and Eighty-two Days.—
If an individual stays here for at least 182 days in the aggregate in the course of the relevant accounting year, he is to be
regarded as resident irrespective of any other consideration,56. except in cases covered by the explanation.

4. Deleted Clause (1)(b): 'Maintains…a Dwelling Place'.—

Sub-clause (b), prior to its deletion from the assessment year 1983–84, provided an alternative test of residence. Even a person
having both a residence and a business establishment abroad would be taxed as a resident in India if two conditions are fulfilled:

(i) he maintains or causes to be maintained for him a dwelling place in India for a period of, or periods amounting in all to, at
least 182 days in the accounting year, and
(ii) he has been in India for at least 30 days in that year (90 days in the case of a citizen of India employed abroad who is in India
on leave or vacation).
In the 1922 Act, the second condition was more rigorous. It was enough if the assessee was here 'for any time' in the accounting
year.57. What the sub-clause requires is that the assessee must maintain or cause to be maintained a dwelling place, and the
dwelling place must be maintained not for any member of the assessee's family or his friend, but for the assessee himself. 58. The
fact that there is a friend's or parent's or other relative's house at which the assessee can and does stay whenever he is in India,
but without a legal right to use or occupy the house, would not be sufficient compliance with this condition.59. In Zackariah v
CIT,60. Viswanatha Sastri J said:
Th e exp ressio n 'main tain s a dw ellin g p lace' co n n o tes th e idea th at th e assessee o w n s o r h as taken o n ren t 61. o r o n a mo rtgage w ith
p o ssessio n a dw ellin g h o u se w h ich h e can legally an d as o f righ t o ccu p y, if h e is so min ded… Th e exp ressio n 'h as main tain ed fo r h im'
w o u ld certain ly co ver a case w h ere th e assessee h as a righ t to o ccu p y o r live in a dw ellin g p lace… th o u gh th e exp en ses o f main tain in g th e
dw ellin g p lace are n o t met b y h im in w h o le o r in p art.

Thus, if the assessee is a member of a Hindu undivided family and that family maintains a dwelling place for him and other
members of the family, the condition would be satisfied; 62. but not if the family house is not maintained for the assessee or at his
behest.63. Conversely, even if the assessee is the owner of a house, but has allowed another to use it as his residence and no part
of the house is set apart or maintained for the assessee as his own home, the requirement of this sub-clause would not be

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fulfilled.64. In CIT v Ratnaswamy,65. the Supreme Court emphasised that the concept of a home in India, maintained or caused to
be maintained by the assessee, is of the essence of this test of residence.

5. Clause (1)(c): Stay in Four Preceding Years.—

Sub-clause (c) imposes two conditions:

(i) an aggregate stay of at least 365 days in India in the course of the four years preceding the accounting year; and
(ii) presence in India in the accounting year for a period or periods amounting in the aggregate to at least 60 days.
In the case of an Indian citizen who goes abroad for employment, and in the case of an Indian citizen or a person of Indian origin
who, being outside India, comes on a visit to India, a longer period than 60 days is provided by the explanation. Under the 1922
Act, the second condition was different: the assessee had to be in India 'for any time' during the accounting year 'otherwise than
on an occasional or casual visit'.66. The test in the present sub-clause is more precise and definite. The expression 'four years
preceding' should be taken as referring to the period of four years, of 12 calendar months each, immediately preceding the
commencement of the relevant accounting year, and not to the period of four calendar years ending on December 31
immediately preceding the commencement of such year. 67. An assessee who returned to India after resigning from her
employment abroad, and stayed for more than 60 days during the previous year and 365 days in the preceding four previous
years in India, was not entitled to the benefit of Explanation (b).68.
The assessee came on a "visit to India" for more than sixty days during the previous year and was here for 365 days in the past
four years. But he will not be "resident" because under Explanation (b) to s 6(1), the assessee has to stay for 182 days during the
previous year, if he was on a "visit" to India.69.
By the Finance Act, 2020, cl (b) to Explanation 1 has been further expanded. Now, Indian citizens or persons of Indian origin will
also be resident in India on their visit to India, if such persons stay for more than 120 days in the previous year. The first
condition of stay of 365 days in preceding four years will continue to apply. However, such person will be resident in India only if
his total income, other than foreign sourced income, exceeds Rs. 15 lakhs. This amendment can give rise to treaty conflict as the
individual can be a resident of another State and claim treaty benefit. The newly inserted cl (1A) deems a person as a resident
even if he has not stayed in India for a single day. This clause has been explained below.
The purpose of the Explanation is to relax the residence requirements for persons who are employed outside India but are in India
on leave/vacation for more than 60 days in a year. It is essential that the individual must be actually employed in a foreign
country – thus, if after cessation of employment and before beginning another employment a person comes to India, he may not
be entitled to get the benefit of the explanation.70. It is submitted that this decision is not correct as there is nothing in s 6(1) or
the Explanation that makes it necessary for the individual to be employed abroad when claiming the benefit of the Explanation.
The various provisions of this clause are couched in simple non-technical language and it is seldom that a question of its
construction arises for determination by the court.
As the stay of the employee in India was for less than 182 days (he was in India only for 88 days), he became a non-resident in
the light of Explanation (a) to s 6(1). It was not correct to say that since he was already in employment and was leaving India on
deputation, he could not be said to leave India for employment. The requirement of Explanation (a) to s 6(1) is not leaving India
for employment but leaving India for the purposes of employment outside India. For the purpose of the Explanation the
individual need not be an unemployed person who leaves India for employment outside India. The fact that a person was already
an employee at the time of leaving India was neither material nor relevant.71. However, the term employment is not to be
understood in its technical meaning, employment includes self-employment, like a business or profession being taken up by the
individual abroad.72.

6. Clause (1A): Individuals Deemed to be Resident in India.—

Clause (1A) has been introduced by the Finance Act, 2020 in order to check the tax evasion methods adopted by state-less
persons. Now an individual, being an Indian citizen, will be deemed to be resident in India, if his total income, other than foreign
sourced income, exceeds Rs. 15 lakhs and he is not liable to tax in any other country or territory because of his domicile,
residential status, etc. Thus, all the three conditions are required to be satisfied to be a deemed resident. Clause (1A) starts with
words 'Notwithstanding anything contained in clause (1)', therefore, cl (1A) will override cl (1) and Explanation thereto. Such
deemed resident in India under cl (1A) will be a 'not ordinarily resident' under cl (6)(d) inserted by the Finance Act, 2020. This will
further widen the tax base in view of proviso to s 5(1). Under cl (1A), such an individual need not even be in India even for a day.
This provision will have to be read in the context of tax treaties. It should be noted that cl (1A) does not apply to persons of
Indian origin.

7. Clause (2): Tests of Residence for Hindu Undivided Family, Firm or other Association of Persons.—

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A Hindu undivided family, firm or other association of persons is resident in India if the control and management of its affairs is
situated wholly or in part in India.73. It is only when the control and management is situated wholly outside this country that
these units of assessment are regarded as non-resident. Since partial control is sufficient for the purpose of residence, a firm may
have in law two places of residences.74. The residence of partners75. or of individual members of a Hindu undivided family76. is
immaterial for the purpose of determining the residence of the firm or the family, except in so far as such residence affects the
control and management of the affairs of the firm or the family. 77. The residence of partners in India normally raises the
presumption that the firm is resident in India, but the presumption may be rebutted by showing that the control and
management of the affairs of the firm is situated wholly outside India.78. A liberal meaning should be given to the words 'situated
wholly' and it must be ascertained in every case where in fact the control and management of the business is situated, apart from
the temporary journeys of the active partners or the residence of the dormant ones.79.

8. 'Control and Management'.—

The control and management of a business is situated at the place where, as was said in San Paulo (Brazilian) Rly Co. Ltd. v
Carter,80. 'the head and brain of the trading adventure' is situated; and the place of control may be different from the place where
the corporeal subjects of trading are to be found. Control of a business does not necessarily mean the carrying on of the
business, and therefore, the place where trading activities or physical operations are carried on is not necessarily the place of
control and management.81. The control and management does not abide where a clever manager looks after the business.82.
The leading case on the construction of this clause is Subbayya Chettiar v CIT,83. which was concerned with the residence of a
Hindu undivided family. The following propositions are established by the judgment of the Supreme Court in this case:

(i) Normally a Hindu undivided family is presumed to be resident in India unless the assessee proves that the control and
management of its affairs is situated wholly outside India.84. This clause is based very largely on the rule applied in England to
cases of corporations. Generally speaking, the joint family, like the corporation in English law, resides where the central
management and control actually abides. 'Control and management' signifies the controlling and directive power, the head
and brain; and 'situated' implies the functioning of such power at a particular place with some degree of permanence.
(ii) The word 'affairs' in this clause means affairs which are relevant for the purpose of this Act and which have some relation to
the income sought to be assessed. Mere activity by the family or its karta in a place does not create residence. The place of
control, and therefore, of residence, may be different from the place where the family does a great deal of business.
(iii) The seat of the management and control of the affairs of the family may be divided, and if so, the family may have more than
one residence.
(iv) If the seat of management and control is abroad, it would need much more than bare 'activities' in India to support a finding
that the seat of management and control had shifted or that a second centre for such management and control had been
started in India.85. Occasional or sporadic visits of a non-resident karta to the place where the family business is carried on in
India, or casual directions given in respect of the business while on such visits, would be insufficient to make the family
resident in India.86.
The absence of the karta from India throughout the year does not by itself lead to the conclusion that the family is non-resident
in that year, since the business of the family, though it is normally controlled by the karta, may at a particular point of time be
controlled by some one else.87.
If a coparcener is only a partner on behalf of the joint family in a firm which carries on business and is controlled in India, that by
itself would not justify the inference that the control and management of the affairs of the family is situated in India. In such a
case, the partner is the coparcener and not the Hindu undivided family, and the affairs of the firm cannot be equated with the
affairs of the family.1.
The foregoing principles apply equally to cases of firms and other associations of persons.2.
De facto control.—
It was laid down by the Supreme Court in Erin v CIT,3. and CIT v Nandlal Gandalal,4. approving the decision of the Bombay High
Court in Naik v CIT,5. that control and management means de facto control and management, and not merely the right or power
to control and manage.6. The House of Lords held to the same effect in Egyptian Hotels Ltd. v Mitchell,7. and Bullock v Unit
Construction Co. Ltd.,8. In Naik's case, a partner who under the terms of the partnership deed had full power of control over the
firm's business, resided in India, while the firm's business was carried on in South Africa. In the absence of any evidence that he in
fact controlled and managed the firm's business from here, his residence was held to be insufficient to establish the residence of
the firm in India. Similarly, where the business of a Hindu undivided family is carried on abroad, the mere presence of the karta for
some time in India would not necessarily imply control in India of the foreign business during that period.9. But acts of actual
management and control of the family's or firm's business by the karta or partner residing in India would make the family or firm
resident here.10.
The mere receipt in India, by the karta or a partner, of copies of the business books would not by itself amount to exercise of

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control.11. Nor is the business necessarily controlled and managed at the place where the accounts are submitted and the division
of profits is decided on.12. But for the purposes of this section control may exist here even though it does not go beyond passive
oversight and tacit control regularly exercised and even though actual intervention never becomes necessary, everything abroad
going smoothly without it.13.

9. Clause (3): Tests of residence for companies.—

Two alternative tests were provided for determining the residence of companies until 2016. Prior to 2016, a company is resident
here (i) if it is an Indian company, or (ii) if the control and management of its affairs is situated wholly in India in the accounting
year. Thus, every Indian company, as that expression is defined in s 2(26), is deemed to be resident in India even if its control and
management is situated wholly or partly abroad; while a non-Indian company is deemed to be resident only if its control and
management is situated wholly in India. From assessment year 2017-18 the second test is that a foreign company is resident in
India if its place of effective management, in the previous year, is in India. There is no change in test to determine the residential
status of an Indian company. The amendment only changes the test to determine the status of a foreign company.
A company registered abroad is a foreign company, but a foreigner can reside here and so can a foreign company.14.
In the classic words of Lord Lorebum in De Beers Consolidated Mines Ltd. v Howe,15. a company cannot eat or sleep but it can
keep house and do business, and for purposes of income-tax, a company resides where it really keeps house and does business,
i.e. where the central management and control actually abides.16. In law a company may have more than one residence.17. If the
company is also resident elsewhere, that would not necessarily displace its residence in India under this Act.18.

10. 'Control and Management' of company's affairs – old law.—

While the locale of control and management is the sole test of residence for a Hindu undivided family, firm and other association
of persons, it is an alternative test for companies. Again, a Hindu undivided family, firm or other association of persons is resident
here even if the control and management is partially situated here, while a non-Indian company is resident here only if the control
and management is wholly situated here.19. A non-Indian company which is partially or wholly controlled abroad is to be
regarded as non-resident.
The words 'control and management' are discussed above in the note to cl (2), and the principles set out there would apply to
this clause also. In English cases companies have been held to be resident if the control and management was situated
substantially in the United Kingdom,20. whereas this clause requires the control and management to be 'situated wholly in India'.
The expression 'control and management' in this clause is used in relation to 'affairs' and not 'business'. The expression 'affairs'
may be said to be much wider than the expression 'business'; further, the expression 'affairs' means affairs which are relevant for
the purposes of this Act and which have some relation to the income sought to be assessed.21.
As a rule, the direction, management and control, 'the head and seat and directing power' of a company's affairs is situated at the
place where the directors' meetings are held and consequently, a company would be resident in this country if the meetings of
directors who manage and control the business are held here.22. The control and management would still be wholly situated in
this country, although one or more of the directors may reside in the country where the company's physical undertaking and
subjects of the trade are situated, provided their powers are delegated to them by, and their actions are subject to the control of,
the board of directors in this country.23. On the other hand, if the actions of the directors residing abroad are not in fact subject
to the control of the directors in this country, the control and management would not be situated wholly in India.24. It is not what
the directors have power to do, but what they actually do, that is of importance in determining the question of the place where
the control is exercised,25. for as Lord Sumner said in Egyptian Hotels Ltd. v Mitchell,26. 'Where the directors forbore to exercise
their powers, the bare possession of those powers was not equivalent to taking part in or controlling the trading.' In this clause,
as in the preceding one, control means de facto control and not merely de jure control.27. [See under cl (2).]
The control and management of a company's affairs is not situated at the place where the shareholders' meetings are held, even if
one shareholder, by reason of his holding an absolute majority of shares, has a decisive voice in matters relating to the company's
affairs.28. 'The control of individual corporators is something wholly different from the management of the business itself. Nor is
this principal less true when the holding of the individual corporator is so large that he is able to override the wishes of the other
corporators in matters relating to the control of the business of the company. The extent, but not then nature, of his power is
changed by the magnitude of his holding'.29. The control and management, the head and brain, does not reside where there is
some ultimate power of control such as the power to alter the articles of association by a special resolution or the power to
interfere with fundamental finance,30. nor where a clever manager looks after the business,31. nor where dividends are declared
and paid.32.
A company may be resident here even though its entire trading operations are carried on abroad.33. If the management and
control is situated here, the company is resident here, and it does not in the least matter where the actual selling and buying of
the goods takes place.34.

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11. Place of Effective Management.—

Clause (3) was substituted by the Finance Act, 2015, with effect from April 1, 2016. Later, by Finance Act, 2016, it was omitted
and again substituted with effect from April 1, 2017. An Explanation defining the expression 'place of effective management'
(POEM) was also added. The new cl (3) will apply from AY 2017-18 onwards. Prior to this amendment, the requirement was that
the 'control and management' should be situated in India and that too for the whole of the year. This resulted in many
companies, which were incorporated outside India not being resident even if part of the management and control was outside
India. To overcome this, the concept of POEM was substituted in place of 'control and management'. POEM is an internationally
recognized concept to determine the residential status of a company and forms part of most of DTAAs entered into by India with
other countries. Thus, the substitution of this test aligns the provisions of the Act and the DTAAs entered into by India. However,
as discussed below, the CBDT Circular explaining this concept goes way beyond s 6(3) and the DTAAs.
(i) Meaning.—
POEM has been defined in the Explanation to cl (3) and means a place where key management and commercial decisions
necessary for the conduct of business of an entity as a whole are, in substance, made. This Explanation is similar to the one used
by the OECD.35. The OECD commentary also states that an entity may have more than one place of management, but it can have
only one place of effective management at any one time.
The definition can be better understood by splitting into various check-boxes that one has to determine:

(i) Existence of a 'place';

(ii) Key management and commercial decisions are to be made from that 'place';
(iii) 'decisions' that are necessary for conduct of the business of an 'entity as a whole'; and
(iv) Such 'decisions' are in substance made at that 'place'.
A determination of all these factors is essential to fasten the POEM test on a foreign company to determine its residence.
The AAR, while interpreting Article 4 of the India-Mauritius DTAA, has observed that POEM refers to the place from where,
factually and effectively, the day-to-day affairs of the company are carried on and not the place in which the ultimate controller of
the company may reside.36.

(ii) Threshold.—
Section 6(3)(ii) does not apply to a company having turnover or gross receipts of Rs. 50 crores or less in a financial year.37. Thus,
smaller non-resident companies will not be treated as "resident" even if their POEM is in India.

(iii) Computation of Income.—

If the residence of a foreign company is in India on account of POEM, its income is to be computed in accordance with provisions
of s 115JH.38.

(iv) Year on Year Exercise.—

POEM must be determined for each year separately and based on the facts for that year. It is submitted that one cannot look at
the facts of the earlier or later years to determine POEM. The test has to be conducted each year and the existence of POEM
must be determined in the context of the entire previous year.

(v) Guidelines.—
The CBDT has issued guidelines to be followed for determination of POEM.39. It is submitted that these guidelines are contrary to
the provisions of the Act and are beyond the scope of s 6(3), since it does not enable the CBDT to issue such guidelines. It was
only the Finance Minister's speech and the Memorandum which stated that a set of guiding principles for determination of POEM
would be introduced for the benefit of taxpayers as well as the tax administration. However, there is no enabling power under the
Act given to the CBDT to frame such guidelines. Therefore, it is submitted that the Circular is ultra vires the provisions of the Act
and illegal, and the guidelines are liable to be quashed. These guidelines, in effect, have redrafted cl (3) and have made substantial
inroads into provisions of the Act which is impermissible. Even s 119 only gives the CBDT the power to issue 'orders, instructions
or directions' for the 'proper administration' of the Act; this power is not wide enough for the CBDT to issue guidelines regarding
the interpretation of a provision, which is a preserve of a adjudicatory authorities.

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It is submitted that as POEM is an internationally recognized concept, there was no need to issue such guidelines which do not
resemble international tax practice.
Paragraph 6 of the guidelines sets out the general rule that the POEM would primarily be determined based on whether the
company is engaged in "active business outside India". The rules for determining this are found in para 5. This test is completely
contrary to Explanation to cl (3). It is also seen that para 7 is a secondary test, which is to be applied when active business is
outside India under para 5. It is submitted that the guidelines mentioned in para 5, 6, and 7 are contrary to international practice.
Whether a company actively carries out business within or outside India is irrelevant to determine POEM, since the provision
seeks to identify the place "management" and not "business". For this reason alone, paras 5 and 6 are ultra vires the statute. In an
old English case, a company owned diamond mines in South Africa, had a head office in South Africa, and had a Board of Directors
that a majority of English members, who met in both England and South Africa. Since policy decisions were made by a majority of
the Board, who were English, the House of Lords held that the company was resident in England.40. Hence, the question of where
business is carried on is irrelevant to determine residence.
Para 8, which is drafted in the nature of an exception to paras 5, 6 and 7 is applicable to companies other than those engaged in
active business outside India as referred to in para 7. Para 8 has actually followed principles provided in the OECD model
commentary and other commentaries. However, para 8 is the exception and not the rule.

(vi) Tests under the Guidelines.—

The Guidelines in the Circular are set out in the negative and one has to prove the absence of conditions laid down.
Paragraph 5 and 6: The general rule is that a company will not have a POEM in India if it is engaged in active business outside
India. Paragraph 5 prescribes four conditions which are:

(i) passive income is not more than 50 per cent. of total income;
(ii) less than 50 per cent. of the total assets are situated in India;
(iii) less than 50 per cent. of total number of employees are in India or are resident in India; and
(iv) payroll expenditure incurred on such employees is less than 50 per cent. of total payroll expenditure.
Paragraph 7: Para 7 is a secondary test to para 5, under which the POEM of a company engaged in active business outside India
shall be presumed to be outside India if a 'majority' of the meetings of the Board of Directors of the company are held outside
India. However, this is not the rule, various exceptions are provided to this rule in para 7.1 and 7.2.41. Para 7.1 deals with shadow
directors in India who actually control the foreign Board and para 7.2 deals with the methodology to calculate the percentage of
business within and outside India.
Paragraph 8: Under para 8, POEM is to be determined by a two-stage process: first, identify and ascertain the personnel who
take key management and commercial decisions; and secondly, determine the place where these decisions are in fact being made.
This apart, para 8.2 provides for further factors to determine POEM. In para 10, it is stated that if POEM during the previous year
is both within India and outside India, then it will be presumed that the POEM is in India, if it has been mainly / predominantly in
India. It is submitted that the Circular fails to acknowledge that the entire purpose of introducing POEM is to overcome the
challenge of dual residence, and that the entire concept of POEM is driven on the fulcrum that POEM can be only at one place.
This has been completely lost sight of in these guidelines. It is submitted that the POEM guidelines are beyond the scope of cl (3)
and the Explanation thereunder and these have been issued without any legislative mandate. These guidelines are vulnerable to
challenge and it is most likely that they will be struck down.

(vii) Procedure.—
Section 6(3) can be invoked by the AO after seeking prior approval of the Principal Commissioner or Commissioner. The AO may
only hold a foreign company as a resident in India after seeking approval from a collegium of three Principal Commissioners or
Commissioners. However, there is no safeguard provided to the assessee if it produces a tax residency certificate (TRC) from the
country of its residence because even on production of TRC, the AO can invoke cl (3) to determine the POEM. It is submitted that
if an entity produces a valid TRC, then the AO cannot question the residential status of the entity by ignoring such TRC issued by
tax authorities of that jurisdiction.

(viii) International Practice.—

Under most DTAAs, POEM is used as a tie breaker test to determine residence of a company.
The Federal Court of Appeal of Australia has held that to determine the POEM, place where the day-to-day business decisions
were made is relevant. It also observed that strategic decisions were also relevant but not as relevant as day-to-day decisions. It

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rejected determination of administrative activities and held it to be irrelevant for determining POEM.42.
In the United Kingdom, the observations of leading author Klaus Vogel for determining POEM have been accepted. According to
Vogel, POEM is a place which is the centre of top-level management i.e., where the key management and commercial decisions
are actually made.43. This test, which is the fundamental rule in international practice on DTAAs, is adopted as an exception in
para 8 of the guidelines. On the other hand, the Supreme Administrative Court of France has held that the place where the Board
of Directors is situated may be an indication as to whether it is a place of effective management, but it is not sufficient in itself for
determination of the place of effective management.44.
In an interesting decision rendered by Supreme Court of Netherlands, it was held that the residence of the parent company and
its subsidiary should be determined separately for each company, even if they are part of the same fiscal unit or group of
companies.45.
For detailed reading, the undernoted cases46. and articles47. can be referred to. These decisions and commentaries will be of great
help in understanding POEM principles. It is submitted that the guidelines framed by the CBDT should either be withdrawn or not
given effect to as they do not resemble international practice.

12. Residential status may change.—

A company may change the place of its control and management.48. Hence, a non-Indian company which is resident in India in
one year may, like any other assessee, not be resident in the next.49.

13. Clause (4): 'every other person'.—

Artificial juridical persons, e.g., statutory corporations and idols, are included in the definition of 'person' in s 2(31), and the test of
residence for them is the same as that laid down in cl (2) for Hindu undivided families firms and other associations of persons.

14. Clause (5): Same residential status for all sources of income.—
Under the 1922 Act it was held that since an assessee could have different previous or accounting years in respect of separate
sources of income (eg the financial year for business income and the calendar year for interest on securities), an assessee might, in
respect of assessment for a particular year, be assessed as resident in respect of some sources of income and as non-resident in
respect of others.50. This clause supersedes that view and ensures the same residential status for all sources of income. Under the
present Act, if an assessee is resident in a previous year relevant to any one source of income, he is to be treated as resident for
all sources of income for that assessment year. In other words, to be non-resident, the assessee must be non-resident in each of
the previous years in respect of all sources of income.51.
This provision is now academic since from the assessment year 1989–90 every assessee is bound to have only the financial year
as the previous year for all sources of income. [See under s 3.]

15. Burden of Proof.—

The Supreme Court laid down in Subbayya Chettiar v CIT,52. that cl (2) of this section raises a presumption that a joint family or a
firm is resident in India and the onus of providing that the case falls within the exception provided by the latter part of the clause
is on the assessee.53. However, cll (1) and (3) are framed differently and under those clauses the burden of proving that an
individual54. or a company is resident in India would be on the department.

16. Clause (6): Ordinary Residence.—

This clause was substituted by the Finance Act, 2003 with effect from April 1, 2004. The earlier clause was subjected to conflicting
judicial interpretations (as discussed in the following paragraphs). The new cl (6) now provides that a person would be 'not
ordinarily resident' in India in any previous year if such person is an individual who has been non-resident in India in nine out of
the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period
of, or periods amounting in all to, 729 days or less; or is a Hindu undivided family whose manager has been non-resident in India
in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in
India for a period of, or periods amounting in all to, 729 days or less.55.
Old Clause (6).—

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The position in law under cl (6) as it stood prior to its substitution is as discussed hereafter. This clause is so worded that a non-
resident would also seem to fall within the category of the 'not ordinarily resident'. But having regard to the scheme of the Act it
is clear that it is only after assessee has been found to be a resident that the further question arises whether he is ordinarily
resident. In the case of non-residents, the question of ordinary residence does not arise at all: the category of persons 'not
resident and not ordinarily resident' is unknown to this Act.56.
The proviso to s 5(1)(c) refers to persons who are 'not ordinarily resident'. Residence is a ground for chargeability under s 5.
'Ordinary residence' is not a ground for any further liability to tax or for any exemption, but being 'not ordinarily resident' is a
ground for partial exemption from tax (on foreign income) to which a resident is liable. [See under the proviso to s 5(1)(c).]
This clause provides in effect that only an individual and a Hindu undivided family, and no other assessee, can be 'resident but not
ordinarily resident'. All other assessees should necessarily be treated as ordinarily resident if they are resident.

17. Substituted Clause (6)(a): Individual.—

An individual would be 'not ordinarily resident', if he fulfils either of the alternative conditions set out in sub-cl (a). In other words,
an individual would be ordinarily resident only if both the conditions remain unfulfilled.57. This clause which is a model of
ambiguous and obscure drafting, has been reproduced from the 1922 Act without any change.
The word 'resident' in the first part of this clause means resident within the meaning of s 6(1), while in the second part of this
clause the words 'has…been in India' refer to physical presence of the assessee in India.58.
In order to claim the status of being 'not ordinarily resident' under the first part of this clause, residence in India for less than nine
years out of the preceding ten years is sufficient.59. This result, broadly speaking, is that (i) a new-comer to India would remain
'not ordinarily resident' for the first nine years of his stay here, and (ii) an ordinary resident of India who goes abroad and remains
non-resident for two years would, upon his return, be treated as 'not ordinary resident' for the next nine years.
Under the second part of this clause, the requisite condition is that the aggregate period of the assessee's physical presence in
India during the seven years preceding the relevant accounting year should not have exceeded 729 days; and it cannot be
construed as meaning that absence from India for an aggregate period of over 729 days during the proceeding seven years
qualified the assessee to be taxed as 'not ordinarily resident'.60.
The effect of the two parts of the clause read together is that an individual is said to be ordinarily resident only when both the
following conditions are fulfilled:

(i) he has been resident in India in nine out of the ten years preceding the year; and
(ii) he has during the seven years preceding that year been in India for a period of, or for periods amounting an all to, at least
730 days.
An individual is said to be not ordinarily resident if either of these conditions is not fulfilled.61.
The expressions 'ten previous years' and 'seven previous years' in this clause should be taken as referring to the earlier accounting
years, or (if the assessee was not assessed for so many earlier years) to the period of ten or seven years, of twelve months each,
immediately proceeding the commencement of the relevant accounting year; but in no case to the period of ten or seven
calendar years ending on December 31 immediately proceeding the commencement of such year.62.

18. Substituted Clause (6)(b): Hindu Undivided Family.—

A Hindu undivided family is deemed to be 'not ordinarily resident' if its manager is 'not ordinarily resident' in India. This follows
from sub-cl (b) which provides in effect that the Hindu undivided ordinary residence of the family necessarily follows from that of
its manager.63. For the purpose of calculating the length of the manager's residence or stay in India, the periods of residence or
stay in India of the successive managers of a Hindu undivided family during its continued existence should be added up.64.
It is illogical, to say the least, that the ordinary residence of a Hindu undivided family should follow from that of its manager, while
its residence depends on the locale of the control and management of its affairs.

19. Clauses (6)(c) and (d): Citizen of India.—

Indian citizens or persons of Indian origin will be 'not ordinarily resident', if they have total income exceeding Rs. 15 lakhs from
sources other than foreign sources, and, has been in India for a aggregate period of more than 120 days but less than 182 days.
A person deemed as a resident in India under cl (1A) will also be a 'not ordinarily resident' individual.

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20. Salary to Shipping Crew.—

On a combined reading of ss 2(30), 2(42) and the Explanation to s 6, the crew of an Indian shipping company who are outside the
territorial waters for more than 182 days will not be liable and no fault can be found with the Indian shipping company for not
having deducted tax at source.65.
Explanation 2 to s 6(1) now provides that, in the case of an individual, being a citizen of India and a member of the crew of a
foreign bound ship leaving India, the period of stay in India shall, in respect of such voyage, be determined in accordance with r
126. The said rule provides that the period beginning from the date of joining the ship and ending on the date of signing off from
the ship, as entered on "Continuous Discharge Certificate" in respect of eligible voyage, has to be excluded while computing
period of stay in India under s 6(1).
Income deemed to be received

21. Union Territories.—

Section 2(25A) enacts that for the purposes of s 6 'India' is deemed to include the union territories of Dadra and Nagar Haveli,
Goa, Daman and Diu, and Pondicherry, as respects any period. The effect of that provision is as follows. One of the tests of
residence [s 6(1)(c)], and the test of ordinary residence [s 6(6)(a)], for an individual, rest upon the residence or presence of the
assessee in India in the years prior to the relevant accounting year, and in deciding whether those tests are satisfied, the residence
or presence of the assessee in those union territories, even during the period when they were not part of the Republic of India,
would be treated as residence or presence in India during the period.

22. Reference to Court.—

The finding of the tribunal is open to review by the court, if there is no evidence from which the conclusion could be properly
drawn or the tribunal has misdirected itself in law. 66. The question whether a person is a resident in India or not is essentially a
question of fact.67. But whether the requirements of the tests of residence propounded in this section have been kept in view and
whether proper inferences from the proved facts have been drawn, are questions of law.68.

26. Clause (b) has been omitted by the Finance Act, 1982 (14 of 1982), s 3(i) (w.e.f. 1-4-1983), Circular No. 346, June 30, 1982, 138 ITR (St.) 10. Prior to its
omission, clause (b) stood as follows:—

'(b) maintains or causes to be maintained for him a dwelling place in India for a period or periods amounting in all to one hundred and eighty-two
days or more in that year and has been in India for thirty days or more in that year; or'.
27. Subs. by the Direct Tax Laws (Second Amendment) Act, 1989 (36 of 1989), s 3 (w.e.f. 1-4-1990), for the following Explanation:—
'Explanation.—In the case of an individual, being a citizen of India,—

(a) who leaves India in any previous year for the purposes of employment outside India, the provisions of sub-clause (c) shall apply in relation to that
year as if for the words "sixty days", occurring therein, the words "one hundred and eighty-two days" had been substituted;
(b) who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for
the words "sixty days", occurring therein, the words "ninety days" had been substituted.'.
The above Explanation was substituted by the Finance Act, 1982 (14 of 1982), s 3(ii) (w.e.f. 1-4-1983), Circular No. 346, June 30, 1982, 138 ITR (St.) 10, for
the following Explanation:—
'Explanation.—In the case of an individual, being a citizen of India, who is rendering service outside India and who is or has been in India on leave or
vacation in the previous year, the provisions of sub-clauses (b) and (c) shall apply in relation to that year as if for the words "thirty days" and "sixty
days", respectively occurring in the said sub-clauses, the words "ninety days" had been substituted.'.
The aforestated Explanation was originally inserted by the Finance Act, 1978 (19 of 1978), s 3 (w.e.f. 1-4-1979). See Circular No. 240, May 17, 1978, 117
ITR (St.) 17.
28. Explanation has been numbered as Explanation 1 thereof by the Finance Act, 2015 (20 of 2015), s 4(i) (w.e.f. 1-4-2015). See Circular No. 19 of 2015,
November 27, 2015, 379 ITR (St.) 19.
29. Ins. by the Finance Act, 1990 (12 of 1990), s 4 (w.e.f. 1-4-1990). See Circular No. 572, August 3, 1990, 186 ITR (St.) 81.
30. For text, see Appendix 122.
31. Earlier, subs., for "one hundred and fifty days", by the Finance Act, 1994 (32 of 1994), s 5 (w.e.f. 1-4-1995). See Circular No. 684, June 10, 1994, 208
ITR (St.) 8.
32. Subs., for "substituted", by the Finance Act, 2020 (12 of 2020), s 4(a) (w.e.f. 1-4-2021).
33. Ins. by the Finance Act, 2015 (20 of 2015), s 4(i) (w.e.f. 1-4-2015). See Circular No. 19 of 2015, November 27, 2015, 379 ITR (St.) 19.
34. Ins. by the Finance Act, 2020 (12 of 2020), s 4(b) (w.e.f. 1-4-2021).
35. Subs., by the Finance Act, 2016 (28 of 2016), s 4 (w.e.f. 1-4-2017), Circular No. 3 of 2017, January 20, 2017, 391 ITR (St.) 253, for the following:—

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'a[(3) A company is said to be resident in India in any previous year, if,—

(i) it is an Indian company; or

(ii) its place of effective management, in that year, is in India.
Explanation.—For the purposes of this clause "place of effective management" means a place where key management and commercial decisions that
are necessary for the conduct of the business of an entity as a whole are, in substance made.]'.
a. Subs. by the Finance Act, 2015 (20 of 2015), s 4(ii) (w.e.f. 1-4-2016), for the following:—
'(3) A company is said to be resident in India in any previous year, if—
——————————————

(i) it is an Indian company; or

(ii) during that year, the control and management of its affairs is situated wholly in India.'.
36. Subs. by the Finance Act, 2003 (32 of 2003), s 4 (w.e.f. 1-4-2004), Circular No. 7, September 5, 2003, 263 ITR (St.) 62, for the following:—
'(6) A person is said to be "not ordinarily resident" in India in any previous year if such person is—

(a) an individual who has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous
years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more; or
(b) a Hindu undivided family whose manager has not been resident in India in nine out of the ten previous years preceding that year, or has not
during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or
more.'.
37. Subs., for "days or less.", by the Finance Act, 2020 (12 of 2020), s 4(c) (w.e.f. 1-4-2021).
38. Wallace v CIT 16 ITR 240, 246 (PC).
39. Naik v CIT 13 ITR 124, 127; CIT v Subbayya 15 ITR 502, 508; affirmed in Subbayya v CIT 19 ITR 168 (SC).
40. Wallace v CIT 16 ITR 204, 244 (PC); CIT v Savumiamurthy 14 ITR 185, 189; Narasimha v CIT 18 ITR 181; Teomal v CIT 48 ITR 170; Girdharlal v CIT 53
ITR 23.
41. Vijay Mallya v ACIT 266 ITR 329, (2003) 1 Cal LT 530, (2004) 186 CTR (Cal) 697.
42. CIT v Avtar Singh 247 ITR 260.
43. Wallace v CIT 13 ITR 39, 44 (FC), affirmed in 16 ITR 240 (PC); Narasimha v CIT 18 ITR 181; Lysaght v IR 13 TC 511, 516 (HL); Levene v IR 13 TC 486,
501 (HL).
44. They apply to diplomatic personnel and their family members irrespective of international law: CIT v Sharda 81 ITR 197.
45. There were four in 1922 Act, and three in present Act till assessment year 1982–83.
46. Lysaght v IR 13 TC 511 (HL).
47. Levene v IR, 13 TC 486, 492. See also Lord Hanworth MR at p. 496, in appeal.
48. See also Reid v IR 10 TC 673, 679.
49. Brown v Burt 5 TC 667.
50. CIT v Avtar Singh 247 ITR 260. See also board's circular no 586, dated November 28, 1990 186 ITR (St.) 167. Also see DIT v Prahlad Vijendra Rao
[2018] 11 ITR-OL 241.
51. Lysaght v IR 13 TC 511, 535 (HL); Inchiquin v IR 31 TC 125, 134 (CA).
52. CIT v Suresh Nanda 375 ITR 172.
53. Levene v IR 13 TC 486, 505 (HL); Lloyd v Sulley 2 TC 37, 41; Cooper v Cadwalader 5 TC 101, 107; Thompson v Bensted 7 TC 137, 144.
54. Ram Kumar v UOI 252 ITR 205.
55. Choudhury v UOI 186 ITR 329, 337.
56. On the question whether fraction of a day should be counted as whole day, see Wilkie v IR 32 TC 495 and Re ARP No 7 of 1995 223 ITR 462.
57. Abdul Aziz v CIT 48 ITR 602, 614–15.
58. Zackariah v CIT 22 ITR 359; Abdul Aziz v CIT 48 ITR 602; Shiva Narayan v CIT 18 ITR 844. Cf. Pickles v Foulsham 9 TC 261, 275–76 (HL).
59. Zackariah v CIT 22 ITR 359; CIT v Ratnaswamy 122 ITR 217 (SC).
60. Zackariah v CIT 22 ITR 359, 362.
61. See CIT v Dhanomal 17 ITR 568.
62. Ramjibhai v ITO 53 ITR 547.
63. CIT v Ratnaswamy 122 ITR 217 (SC), followed in CIT v Gangadharan 238 ITR 945.
64. CIT v Fulabhai 31 ITR 771; CIT v Mohammed Noohu 43 ITR 88; Abdul Aziz v CIT 48 ITR 602. Cf. Motiram v CIT 47 ITR 705.
65. CIT v Ratnaswamy 122 ITR 217; Dhirajlal v CIT 138 ITR 570.
66. CIT v Dhote 66 ITR 457 (SC); Moosa v CIT 89 ITR (SC).
67. CIT v Savumiamurthy 14 ITR 185.
68. Smita Anand, In Re. 362 ITR 38 (AAR).
69. ADIT v Apparasu Ravi 332 ITR 497; PCIT v Binod Kumar Singh 264 Taxman 335.
70. Ratti V. K. v CIT 299 ITR 295, (2007) 212 CTR (P&H) 552.
71. British Gas India P. Ltd. In re, 285 ITR 218 (AAR).
72. CIT v O. Abdul Razzak 337 ITR 267, (2011) 241 CTR (Ker) 485 .
73. Khambhaty v CIT 61 ITR 30.
74. Re Sarupchand 13 ITR 245; CIT v Erin 20 ITR 412, 421, affirmed in Erin v CIT 34 ITR 1 (SC).
75. Naik v CIT 13 ITR 124, 130; Talipatigala v CIT 18 ITR 320, 325.
76. CIT v SPKARM Family 9 ITR 685; Narasimha v CIT 18 ITR 181, 192; Annamalai v ITO 34 ITR 88.
77. Shrigopal v CIT 119 ITR 980, 983.
78. Erin v CIT 34 ITR 1 (SC).
79. Naik v CIT 14 ITR 334, 339, per Stone CJ.
80. San Paulo (Brazilian) Rly Co. Ltd. v Carter 3 TC 407, 410 (HL); CIT v Nandlal 40 ITR 1, 7 (SC).
81. Erin v CIT 34 ITR 1 (SC); Narottam v CIT 23 ITR 454.
82. Noble v Mitchell 11 TC 372, 411. Contrast Mohammed Rowther v CIT 49 ITR 39.
83. Subbayya Chettiar v CIT 19 ITR 168.
84. See under 'Burden of proof'.
85. In case before the Supreme Court, mere facts that family maintained dwelling house in India, that karta stayed in India for 101 days in accounting
year, that during his stay in India he attended to litigation with regard to family property and to proceedings connected with assessment of family and
also commenced two partnership businesses, were held insufficient to justify finding that management and control was partially situate in India during
relevant year.
86. Narasimha v CIT 18 ITR 181, 194.

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87. Annamalai v ITO 34 ITR 88.

1. CIT v Nandlal 40 ITR 1 (SC).
2. Erin v CIT 34 ITR 1 (SC).
3. Erin v CIT 34 ITR 1, 5, followed in ITO v Raza 106 ITR 408.
4. CIT v Nandlal Gandalal 40 ITR 1, 7.
5. Naik v CIT 13 ITR 124, 127, 128–29, after remand 14 ITR 334.
6. Narasimha v CIT 18 ITR 181; Mohammed Rowther v CIT 49 ITR 39; CIT v PLMTT Firm 87 ITR 260; CIT v Chitra 156 ITR 730.
7. Egyptian Hotels Ltd. v Mitchell 6 TC 542, 550, 552. This case, however, turned on words of English statute, 'carrying on business in the United
Kingdom'. See under cl (3) of this section.
8. Bullock v Unit Construction Co. Ltd. 38 TC 712, 42 ITR 340.
9. CIT v Gangabishan 13 ITR 20; CIT v Palaniappa 13 ITR 269; Subbayya v CIT 19 ITR 168, 172 (SC); Narasimha v CIT 18 ITR 181.
10. Erin v CIT 34 ITR 1 (SC); CIT v ARPLSPL Firm 18 ITR 935; Talipatigala v CIT 18 ITR 320; CIT v Shanmugham 13 ITR 329; Mohammed v CIT 10 ITR 484.
11. CIT v Palaniappa 13 ITR 269, 271. Cf. CIT v ARPLSPL Firm 18 ITR 935.
12. Egyptian Hotels v Mitchell 6 TC 542, 545 (HL).
13. Ibid, p. 551. Erin v CIT 34 ITR 1 (SC); Ogilvie v Kitton 5 TC 338, 345.
14. De Beers v Howe 5 TC 198, 214 (HL); New Zealand Shipping v Thew 8 TC 208 (HL); American Thread v Joyce 6 TC 1 and 163 (HL); New Zealand
Shipping v Stephens 5 TC 553 (CA).
15. De Beers Consolidated Mines Ltd. v Howe 5 TC 198 (HL).
16. Todd v Egyptian Delta 14 TC 119 (HL); Bullock v Unit Const 38 TC 712 (HL), 42 ITR 340.
17. Swedish Rly v Thompson 9 TC 342, 372–73 (HL); Todd v Egyptian Delta 14 TC 119, 144 (HL); Bullock v Unit Const 38 TC 712, 735 (HL), 42 ITR 340,
349; Narottam v CIT 23 ITR 454.
18. Swedish Rly v Thompson 9 TC 342, 386–87 (HL); Todd v Egyptian Delta 14 TC 119, 144 (HL).
19. Narottam v CIT 23 ITR 454, 459.
20. New Zealand Shipping v Thew 8 TC 208 (HL); De Beers v Howe 5 TC 198 (HL).
21. Universal Cargo v CIT 205 ITR 215.
22. Narottam v CIT 23 ITR 454; San Paulo Rly v Carter 3 TC 407, 413 (HL); Noble v Mitchell 11 TC 372, 411; Naik v CIT 14 ITR 334, 339. Cf. CIT v Bank of
China 154 ITR 617 (company in liquidation).
23. Calcutta Jute v Nicholson 1 TC 83; Cesena v Nicholson 1 TC 88; Frank v Apthorpe 4 TC 6; De Beers v Howe 5 TC 198 (HL); New Zealand Shipping v
Thew 8 TC 208 (HL); New Zealand Shipping v Stephens 5 TC 553 (CA); Noble v Mitchell 11 TC 372 (CA). Cf. Apthorpe v Peter 4 TC 41 (CA).
24. C f . Egyptian Hotels v Mitchell 6 TC 542, 551–52 (HL), where, however, question was not of company's residence but whether company was
'carrying on business in the United Kingdom'.
25. Ibid, p. 550.
26. Ibid, p. 552.
27. Narottam v CIT 23 ITR 454.
28. Stanley v Gramophone and Typewriter 5 TC 358 (CA).
29. Ibid, p. 376, per Fletcher Moulton LJ.
30. Noble v Mitchell 11 TC 372, 411, per Rowlatt J.
31. Ibid, Narottam v CIT 23 ITR 454.
32. Egyptian Hotels v Mitchell 6 TC 542, 552 (HL).
33. Narottam v CIT 23 ITR 454; San Paulo Rly v Carter 3 TC 407 (HL); Cesena v Nicholson 1 TC 88; Calcutta Jute v Nicholson 1 TC 83.
34. Cf. Egyptian Hotels v Mitchell 6 TC 542, on appeal 6 TC 548 (HL).
35. Para 24 to commentary on Article 4 - residence, OECD Model Tax Convention on Income and on Capital, 2014.
36. X Ltd., In Re., 220 ITR 377 (AAR).
37. Circular No. 8 of 2017, February 23, 2017, 392 ITR (St.) 7.
38. Notification No. S.O. 3039(E), June 22, 2018, 405 ITR (St.) 35.
39. Circular No. 6 of 2017, January 24, 2017, 391 ITR (St.) 243.
40. De Beers Consolidated Mines v Howe[1906] AC 455 .
41. Circular No. 25 of 2017, October 23, 2017, 398 ITR (St.) 7.
42. Hua Wang Bank Berhad v Federal Commissioner of Taxation [2014] FCA 1391, para 420-440; Bywater Investments Ltd. v Commissioner of
Taxation[2016] FCA 45.
43. Wednsleydale Settlement Trustees v IRC [1996] STC 241 ; HMRC v Smallwood[2010] EWCA Civ 773 . Klaus Vogel on Double Taxation Conventions,
3rd Ed., 2005, Pg. 262-263.
44. Case Number 371435, March 7, 2016, Supreme Administrative Court, France.
45. Case Number 10/05383, February 3, 2012, Supreme Court of Netherlands.
46. Her Majesty The Queen v Crown Forest Industries Ltd. June 22, 1995, Supreme Court of Canada; St. Michael Trust Corp v Her Majesty The
Queen2010 FCA 309; St. Michael Trust Corp v Her Majesty The Queen [2012] SCC 14 ; Laerstate BV v The Commissioners of Her Majesty's Revenue [2009]
UKFTT 209 (TC); Case Number 43.128, January 16, 2009, Supreme Court of Netherlands; The Oceanic Trust Co. Ltd N.O v Commissioner of South African
Revenue services, Western Cape High Court of South Africa, Case Number 22556/09, June 13, 2011.
47. The Definition of Company Residence in Early UK Tax Treaties, John F. Avery Jones , 2008 BTR 556; The Disjunction Between Corporate Residence
and Corporate Taxation: Is Improvement Possible?, Geoffrey Loomer, (2015) Canadian Tax Journal 91; John F. Avery Jones , 2008 OECD Model: Place of
Effective Management—What One Can Learn from the History, (2009) 63:5/6 Bulletin for International Taxation 183-86; Philip Owen, Can Effective
Management Be Distinguished from Central Management and Control? 2003 BTR 296-305; Dicey and Morris on the Conflict of Laws, Lawrence Collins
(Ed.), London: Sweet and Maxwell 2003.
48. Todd v Egyptian Delta 14 TC 119 (HL); Egyptian Hotels v Mitchell 6 TC 542 (HL).
49. Wallace v CIT 13 ITR 39, 44–45 (FC), affirmed in 16 ITR 240 (PC).
50. CIT v Savumiamurthy 14 ITR 185; Girdharlal v CIT 53 ITR 23.
51. CWT v Shanmugam 153 ITR 330.
52. Subbayya Chettiar v CIT 19 ITR 168.
53. Erin v CIT 34 ITR 1 (SC); Knightsdale v CIT 28 ITR 650, 667.
54. CIT v Dhote 66 ITR 457 (SC); Mossa v CIT 89 ITR 65 (SC).
55. Pradip Mehta v CIT 300 ITR 231 (SC), (2008) 14 SCC 283 [LNIND 2008 SC 890] , (2008) 216 CTR (SC) 1. Also see CIT v Mihir Doshi 258 Taxman 93.
56. Bava v CIT 27 ITR 463.
57. Townsend v CIT 97 ITR 185.
58. Marimuthu v CIT 13 ITR 186.
59. Ibid, p. 188; Swaminathan v CIT 15 ITR 418, 424; Bava v CIT 27 ITR 463.
60. Munibhai v CIT 23 ITR 27; Swaminathan v CIT 15 ITR 418.
61. See Re ARA No P5 of 1995, 223 ITR 379, 384–85, which has quoted with approval such construction, and was followed in Re ARA No P12 of 1995 228
ITR 61. This view is superseded by the substitution of this clause w.e.f. April 1, 2004; Pradip Mehta v CIT 300 ITR 231 (SC), (2008) 14 SCC 283 [LNIND
2008 SC 890] , (2008) 216 CTR (SC) 1 – reversing 256 ITR 647 and approving C.N. Townsend v CIT 97 ITR 185; Manibhai Patel v CIT 23 ITR 27; Bava v CIT
27 ITR 463.
62. CIT v Savumiamurthy 14 ITR 185.
63. Marimuthu v CIT 13 ITR 186; Swaminathan v CIT 15 ITR 418.
64. Marimuthu v CIT 13 ITR 186.
65. CIT v ICL Shipping Ltd. 315 ITR 195 (Mad).

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66. Lysaght v IR 13 TC 511, 527 (HL), per Viscount Sumner; Naik v CIT 13 ITR 124, 131–32; Re Sarupchand 13 ITR 245, 256, 261; Narasimha v CIT 18 ITR
181, 190; American Thread v Joyce 6 TC 1, 163 (HL); Pickles v Foulsham 9 TC 261, 274 (HL); Reid v IR 10 TC 673, 681.
67. Ram Kumar v UOI 252 ITR 205.
68. Erin v CIT 34 ITR 1 (SC); CIT v Subbayya 15 ITR 502, 511, affirmed in Subbayya v CIT 19 ITR 168 (SC).

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