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Taxation of Companies - Companies Liable to Pay Tax - Tax Scheme for Shipping Companies - Taxation of Foreign Companies

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Taxation of Companies

Companies Liable to Pay Tax
All companies whether Indian or foreign are liable to tax, irrespective of the quantum of income. However, for the purpose ­ taxation, companies are broadly classified as under:
(a) Domestic company in which public are substantially interested i.e., Public Company
(b) Domestic company in which the public are not substantial. interested, i.e., Private Company.
(c) Foreign Company which has not made prescribed arrangement : for declaration and payment of dividends within India.

Domestic Company
Domestic company means an Indian company, or any other company which, in respect of its income liable to tax, has made the prescribed arrangement for the declaration and payment, within India of the dividends payable out of such income. [Sec.2(21A)]

Venture Capital Company
A 'venture capital company' is one which is engaged in providing finance to venture capital undertakings mainly by way of acquiring equity shares of such undertakings, or by advancing loans to such undertakings, and is approved by the Government in this behalf.

" Guidelines for approval of a venture capital company/fund have beer laid down in Rules 2D/2DA. Application for the purpose shall be in Form 56A/56AA along with Forms 56B/56BA and 56C/56CA, Such companies are taxed at special concessional rates, with regard to their income from long-term capital gains. [Sec. 112. Expl]

Income of a venture capital company, by way of dividends or long­ term capital gains on equity shares of a venture capital undertaking held for more than 3 years shall be exempt u/s 10(23F)/(23FA)/(23FB Refer Chapter 'Incomes Exempt from Tax',

:Computation of Taxable Income
The taxable income of companies is computed in the same manner as for other non-corporate assessees. The income is computed separately under each head and then aggregated to compute the gross total income. A company however can have no income under the head 'Salary' for obvious reasons.

Minimum Alternative Tax on certain companies
Where the income-tax payable on the total income of a company, as computed under the Act in respect of any previous year, is less an 10% [7.5% for A. Y. 2006-07] of its book profits, then the total income of the company shall be deemed to be equal to the book profits and the tax payable by such company shall be deemed to be equal to 10% [7.5% for A. Y. 2006-07] of the book profit.

'Book profit' means the net profit as shown in the profit and loss account prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, as reduced or increased by specified adjustments. Deduction shall be allowable for amounts exempt u/s 10 except clause 2[38], 10A, 10B, 11 or 12, profits of a sick industrial company, etc.

The company shall furnish a report in form 29B, from a chartered accountant certifying that the book profits have been computed in accordance with this section, along with the return of income. [Sec. 115JB]

Note: (1) Up to AY. 2000-01, companies were required to pay minimum alter­ native tax at the prescribed rate on 30% of book profits U/S 115JA
(2) MAT shall not be payable on any income accrued or arisen on or after 1.4.2005, from any business carried on, or services rendered by a SEZ Unit or SEZ developer.]

Tax Credit for MAT
Where a company has paid Minimum Alternative Tax u/s 115JB for assessment year 2006-07 or any subsequent assessment year, it shall be allowed a tax credit to be set off against tax payable at normal rates in any of the [seven] subsequent assessment years, in accordance with section 115JAA.

Note: Tax credit for MAT u/s 115JA can be set off in five subsequent assessment years only.

Payment of Advance Tax
The provisions regarding payment of advance tax during the year 2006-07 ( ie. A.Y. 2007-08), have been discussed in Chapter 'Payment of Advance Tax'.
Note: A company liable to pay Minimum Alternative Tax (MAT) u/s 115JB, shall also be liable to pay advance tax.'

Filing of Return
The companies should file their return in Form No.1. The due date for filing of return is 31st October of the Assessment Year. The formalities relating to filing of return are the same as in case of other assesses. For details refer to Chapter 'Filing of Return'.

Additional Income Tax on Dividends distributed
Dividends paid or distributed on or after 1.4.2003 by a domestic company 2[other than a SEZ Unit or SEZ Developer] shall be charge­ able to additional income-tax at the rate of 12.5% plus surcharge a: 10%. This tax will be payable by the company in addition to the normal income-tax payable by the company. The tax shall be depos­ ited within 14 days from the date of declaration, distribution or payment of dividend, whichever is earliest, failing which interest @1 % p.m. shall be payable for every month (or part thereof) of the delay. [Sec. 115-o and 115-P]

The shareholders shall not be allowed any deduction for such dividend income or the tax thereon. Such dividend shall, however, be fully exempt u/s 10(34). [Sec. 115-o(4)]

Failure to pay the additional income-tax will entail penalty equal to the amount of tax involved. [Sec. 271 C (1) (b)]

Special Provisions Relating to Taxation of Foreign Companies:
Special provisions have been laid down for taxation of certain incomes arising to foreign companies, viz.-
(i) Tax on royalty and technical service fees except those covered u/s 44DA) [Sec. 115A]

(ii) Tax on income from units purchased in foreign currency or capital gains arising from their transfer, to an overseas financial organization (or Offshore Fund) [Sec. 115;-= (iii) Tax on income from bonds or global Depository Receipt purchased in foreign currency or capital gains arising from their transfer. [Sec. 115AC]

Presumptive Tax Scheme for Shipping Companies
The Finance (No.2) Act, 2004 has introduced a tonnage base tax scheme for shipping companies w.e.f. AY. 2005-06. Under the scheme, income from the operation of a ship is determined based on the tonnage of the ship, and taxed at the normal corporate rate applicable for the year. Tax is payable even if there is a loss. A company owning at least one ship with a minimum tonnage of 15 tons may opt for this scheme. Once option is exercised, there is a lock-in period of ten years. If a company opts out it is debarred from re-entry for ten years. The scheme requires certain conditions like creation of reserves, training, etc. to be fulfilled. [Sec. 115V to Sec. 115VZC]

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