COMPANY [ Sec.

2(17) ]
A "Company" means-
(i) any Indian company, or
(ii) any body corporate incorporated by or under the laws of a country
outside India, i.e. Foreign Company as defined u/s 2(23A)] or
(iii) any institution, association or body which is or was assessable or was
assessed as a company for any assessment year under the Indian Income-
tax Act, 1922 or
(iv) any institution, association or body, whether incorporated or not and
whether Indian or non-Indian, which is declared by general or special order
of the Board to be a company:
1.2. INDIAN COMPANY [ Sec. 2(26)]
"Indian company" means a company formed and registered under the
Companies Act, 1956, and includes-
(i) a company formed and registered under any law relating to companies
formerly in force in any part of India (other than the State of Jammu and
Kashmir [and the Union territories specified in sub-clause (iii) of this
clause]);
(ia) a corporation established by or under a Central, State or Provincial Act;
(ib) any institution, association or body which is declared by the Board to be
a company under section 2(17);
(ii) in the case of the State of Jammu and Kashmir, a company formed and
registered under any law for the time being in force in that State;
(iii) in the case of any of the Union territories of Dadra andNagar Haveli,
Goa, Daman and Diu, and Pondicherry, a company formed and registered
under any law for the time being in force in that Union territory:
Provided that the registered or principal office of the company, corporation,
institution, association or body, in all cases is in India.
Section 6(3). Residential Status of an Indian Company
Indian companies are always treated as Resident in India whether Control
and Management is in India or outside India.




1.3. FOREIGN COMPANY [ Sec. 2(23A) ]
It means a company which is not a domestic company, i.e. a company
registered outside India in any other foreign country.
The Foreign Company may be treated as Domestic Company if such
company makes prescribed arrangement in India as per Rule 27.
Rule 27. Prescribed arrangement for declaration and payment of dividends
within India.
The arrangements referred to in sections 194 and 236 to be made by a
company for the declaration and payment of dividends (including dividends
on preference shares) within India shall be as follows :
The share-register of the company for all shareholders shall be regularly
maintained at its principal place of business within India, in respect of any
assessment year from a date not later than the 1st day of April of such year.
The general meeting for passing the accounts of the previous years relevant
to the assessment year and for declaring any dividends in respect thereof
shall be held only at a place within India.
The Dividend declared, if any, shall be payable only within India to all
shareholder
Sec.6 (3), Residential Status of foreign Company
Foreign Company is treated as Resident in India if its Control and
Management is located wholly in India.
Foreign Company is treated as Non-Resident in India if its Control and
Management located wholly / partially Outside India.
Sections applicable to Foreign Company are 44BBB, 44D, 115A, 195 etc.
1.4. DOMESTIC COMPANY
A Domestic Company means an Indian Company or any other company with
respect to its income, liable to tax under the Income-Tax Act, has made the
prescribed arrangements for the declaration and payment within India, of
the dividends (including dividends on preference shares) payable out of such
income.
Thus, all Indian Company are treated as Domestic Company but all Domestic
Company are not Indian Company.

If a Foreign Company makes prescribed arrangements for payment of
dividends in India it shall be treated as Domestic Company.
1.5. A COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY
INTERESTED [Sec.2(18)]
It includes:
(i) Government Company: A company owned by the Government or the
Reserve Bank of India
(ii) A Company having Govt. participation: A Company in which not less than
40% of the shares are held (whether singly or taken together) by the
Government or the Reserve Bank of India or a corporation owned by RBI.
(I.e. at least 40% of holding should be held by Govt. or RBI)
(iii) Section 25 Companies: Companies registered under section 25 of the
Indian Companies Act, 1956. These are companies which are promoted with
special object to promote commerce, art, science, charity or religion or any
other useful object (these companies lose the status of a company in which
the public are substantially interested at any time they declare dividend).
(iv) A Company declared by the CBDT : It is a company without share
capital and which having regard to its object, nature and composition of its
membership or other relevant consideration is declared by the Board to be a
company in which public are substantially interested for the relevant AY.
(v)Mutual Benefit finance Company : Where principal business of the
company is acceptance of deposits from its members and which has been
declared by the Central Government to be a Nidhi or Mutual Benefit Society.
(vi) A Company having Co-operative Society participation :It is a company in
which at least 50% or more equity shares have been held by one or more
co-operative societies throughout the PY.
(vii) A Company is deemed to be a Public Company if it is not a Private
Company as defined by the Companies Act, 1956 and is fulfilling either of
the following two conditions :
A listed Public Company : Its equity share were listed on a recognized stock
exchange, as on the last day of the relevant PY ; or
Any other Public Company : Its equity shares carrying at least 50% of the
voting power ( in the case of an industrial company the limit is 40%) were
beneficially held throughout the relevant PY by Government, a statutory
corporation, a company in which the public are substantially interested or a
wholly owned subsidiary of such a company
Widely Held Company: The Company in which the public are substantially
interested is also known as wholly held Company.
Closely Held Company: It is a Company in which the public are NOT
substantially interested. This type of company is referred in Sec.2 (22)(e)
and Sec. 79.
1.6. RESIDENTIAL STATUS OF A COMPANY
Indian Company : The Company registered in India is an Indian Company.
Indian Company is always treated as Resident in India whether Control &
Management is in India or Outside India.
Foreign Company : If Control & Management of the affairs of the business
of Foreign Company is situated wholly in India then its residential status is
Resident in India. If its Control & Management of the affairs of the business
is situated wholly / partially outside India then its Residential Status is Non-
Resident in India.

A zero tax company is a business that shows a book profit and pays
dividends to investors but does not pay taxes. This became a serious
problem in India until it was corrected in the 1990s.
NORMALLY, a company is liable to pay tax on the income computed in accordance with the
provisions of the income tax Act, but the profit and loss account of the company is prepared
as per provisions of the Companies Act. There were large number of companies who had
book profits as per their profit and loss account but were not paying any tax because
income computed as per provisions of the income tax act was either nil or negative or
insignificant. In such case, although the companies were showing book profits and declaring
dividends to the shareholders, they were not paying any income tax. These companies are
popularly known as Zero Tax companies.
In order to bring such companies under the income tax act net, section 115JA was
introduced w.e.f assessment year 1997-98. According to this section, if the taxable income
of a company computed under this Act, in respect of previous year 1996-97 and onwards is
less than 30 % of its book profits, the total income of such company is chargeable to tax for
the relevant previous year shall be deemed to an amount equal to 30 % of such book
profits.
The Finance Act, 2000, inserted section 115JB of the Income-tax Act, 1961, with effect from
1-4-2001, i.e., from the assessment year 2001-02 providing for levy of Minimum Alternate
Tax on companies. Section 115JB conceptually differs from erstwhile section 115JA, which
provided for MAT on companies, so far as it does not deem any part or the whole of book
profit as total income. However, the new provision of section 115JB provides that if tax
payable on total income is less than 7.5% of book profit, the tax payable under this
provision shall be 7.5% of book profit.
Computation of Book Profit :-
Book profit means the net profit as shown in the profit and loss account for the relevant
previous year as increased by
1. the amount of income-tax paid or payable,
2. the amounts carried to any reserves, [other than a reserve specified under section
33AC;] or
3. the amount set aside to provisions made for meeting liabilities, other than
ascertained liabilities; or
4. the amount by way of provision for losses of subsidiary companies; or
5. the amount of dividends paid or proposed ; or
6. the amount of expenditure relatable to any income to which section 10,other than
secton 10(23G) or section 10A or section 10B or secton 11 or section 12 apply ; or
7. the amount of depreciation, (Inserted by Finance Act,2006 ,w.e.f. 01-04-2007)
if any amount referred to in clauses ( 1 ) to ( 7 ) is debited to the profit and loss account,
and as reduced by ]
the amount withdrawn from any reserve or provision
the amount of income to which any of the provisions of section 10, other than secton
10(23G) or section 10A or section 10B or secton 11 or section 12 apply, if any such amount
is credited to the profit and loss account; or
the amount of depreciation debited to the profit and loss account (excluding the
depreciation on account of revaluation of assets) (Inserted by Finance Act,2006 ,w.e.f. 01-
04-2007) ; or
the amount withdrawn from revaluation reserve and credited to the profit and loss account,
to the extent it does not exceed the amount of depreciation on account of revaluation of
assets referred to in clause ( iia ) ( Inserted by Finance Act,2006 ,w.e.f. 01-04-2007 ) ; or
the amount of loss brought forward or unabsorbed depreciation, whichever is less as per
books of account.
Explanation .For the purposes of this clause,
(a) the loss shall not include depreciation;
(b) The provisions of this clause shall not apply if the amount of loss brought forward or
unabsorbed depreciation is nil; or]
the amount of profits eligible for deduction under Section 80HHC, 8OHHE, 80HHF
7. The amount of profits of sick industrial company
MAT Credit :-
As per section 115JAA, MAT credit can be carried forward for set-off against regular tax
payable during the subsequent years subject to certain conditions, as under:-
1. If MAT is paid u/s 115JA its credit can be carried forward and utilized Five
assessment year immediately succeeding the assessment year in which tax credit
becomes allowable under sub-section (1) of section 115JAA.
2. If MAT is paid u/s 115JB its credit can be carried forward and utilized Seven
assessment year immediately succeeding the assessment year in which tax credit
becomes allowable under sub-section (1A) of section 115JAA. (Inserted by Finance
Act,2006 ,w.e.f. 01-04-2007)
The credit allowed will not bear any interest.
A numerical illustration:-
A.Y. Normal
tax
liability
Tax
liability
u/s.
115JB
Tax
payable
by the
assessee
[Higher
of (2)
and (3)]
Additional
tax
liability
(4) - (2)
Credit
u/s.
115JAA
utilised
Credit
available
for carry
forward
(1) (2) (3) (4) (5) (6) (7)
2006-07 100 300 300 200 - 200
2007-08 120 90 120 NIL 30 # 170
2008-09 150 110 150 NIL 40 130
2009-10 180 200 200 20 - 150
2010-11 200 150 200 NIL 50 100
2011-12 225 175 225 NIL 50 50*

# Even though credit of 200 is available, only 30 can be utilised so that the tax payable by
the assessee does not go below the amount computed u/s. 115JB.
* out of the credit of 50, 30 is belonging to A.Y. 2006-07 and 20 belongs to A.Y. 2009-10.
In view of provisions of sub-section (3) of section 115JAA the credit of 30 will not be
allowable after A.Y. 2011-12 and would accordingly lapse. However, credit of 20 pertaining
to A.Y. 2009-10 would be allowed to be carried forward till A.Y. 2014-15.













Tax Planning is the art of reducing the tax liability of a person by making
use of the various provisions of Law. The govt. in many cases provides
various deductions and exemptions which can be used by a person to reduce
his tax liability. Planning your incomes and expenses in such a manner so as
to avail the various tax deductions and exemptions is called tax planning. In
India, taxpayers commonly make use of Section 80C to reduce their tax
liability. As per Section 80C, if certain specified investments are made for a
specified period, they can avail tax deduction for the same upto a limit of Rs.
1,00,000. The most common tax saving instruments are investments in PPF
Accounts, Tax Saving Fixed Deposit, National Savings Certificate, Provident
Fund, Mutual Funds etc. Tax Planning is 100% Legal and all taxpayers are
advised to make use of the same to reduce their tax burden.

Tax Avoidance basically means making use of the loopholes in the Tax Law
to ones own advantage to reduce the tax burden. Although Tax Avoidance is
100% legal, it is not advisable as the taxpayer has defeated the intention of
the Law maker and used this to his own advantage. Although both Tax
Planning and Tax Avoidance are legal ways to reduce tax, there is only a thin
line of difference between Tax Planning and Tax Avoidance. In Tax Planning,
a taxpayer is doing what the govt wants him to do whereas in tax avoidance,
a taxpayer is doing something which the govt didnt expect the taxpayer to
do. The Govt is trying very hard to remove any loopholes and brings regular
amendments in the Budget so as to ensure that people dont avoid tax by
manipulating the law. With regular amendments being introduced in the Tax
Budget by the Govt, it is very difficult for a person to do tax avoidance.
Tax evasion involves breaking the law, not paying ones taxes where the
law clearly states that they must be paid. Tax evasion is the method by
which a person illegally reduces his tax burden by either deflating their
income or inflating their expenses. Both deflating the income and inflating
the expenses have the same impact that the profit gets reduced as a result
of which the tax burden also gets reduced. In India, people usually evade
their taxes by dealing in cash without disclosing the same in the books of
accounts. To ensure that taxpayers dont evade taxes, the govt has a vigil
eye on almost all transactions and income tax notices are being issued in
case discrepancy is expected in the tax that should have been paid and the
tax that has actually been paid by the taxpayer. Tax Evasion is illegal and
heavy penalty is levied in case caught.