Assessment of
companies
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Meaning of company for Income Tax
• A company is considered as a "person" for all
purposes of assessment proceedings. [Section
2 (iii).
• Section 2(17) of the Act defines a company for
the purpose of Income Tax.
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According to Section 2(17) of the Act,
a company means,
1. Any Indian company (as defined in Section 2(26) or
2. Any body corporate, incorporated by or under the
laws outside India or
3. Any institution, association or body assessable as a
company either under the Indian Income Tax Act,
1922 or for any assessment year commencing on or
before 1st April, 1970 or
4. 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 Central Board of Direct Taxes to be a
company.
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Entities considered as companies for Income Tax
purposes
• A company is a juristic person and becomes a body corporate
upon the issue of the certificate of incorporation.
• It is a legal person separate and distinct from the shareholders.
• For purposes of income tax even an unincorporated association
may be declared by the Board to be a company, consequently
what is not a legal entity in the eyes of law may be assessable
as a company.
• Even the companies which do not have share capital and those
which are limited by guarantee are companies for the purposes
of Income Tax Act even though the general framework of the
Act mainly contemplates companies with share capital.
• A chamber of commerce or any association without a profit
motive and registered under section 25 of the Companies Act,
1956 would be a company for the income tax purpose.
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Entities considered as companies for
Income Tax purposes
• A company incorporated for a purpose other
than that of carrying on a business
• A company in liquidation
• A statutory corporation
• The Govt. of any state carrying on a trade or
business
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Assessment of holding and subsidiary
companies
• Holding companies and their subsidiaries have
to be separately assessed in respect of their
profits as they are separate and distinct legal
entities.
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Piercing the corporate veil
• The Assessing Officer can tax the shareholders after
examining the genuineness of so called one man
companies on the basis of the true nature of the
transaction e.g., when dividends are disguised as
loans, when the company is doing the business of the
individual who controls it.
• The court has the power to disregard the corporate
entity if it is used for tax evasion or to circumvent a
tax obligation.
- Supreme Court in CIT Vs. Shri Meenakshi Mill Ltd. (1967)
63 ITR 609.
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A foreign company or association
• A foreign company or association which desires that the status
of a "company" be accorded to it, for purposes of assessment
under the Act, must apply to the CBDT for such status to be
vested in it.
• Generally, the CBDT agrees to grant such status to every
foreign body corporate or association possessing the usual
characteristics of a company limited by shares and having a
separate legal personality recognised by the laws of the
country in which the body corporate or association has its
registered office.
• However, the Board would examine the loss of revenue that
such a concession would involve.
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Classes of companies
1. Indian Company [Section 2(26)]
2. Domestic and foreign Company
3. Closely-held and widely-held company
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Indian Company [Section 2(26)]
• An Indian company means a company
formed and registered under the Companies
Act, 196 and includes: