How a Company considered as Person as per Income Tax Act, 1961

For the purpose of Income Tax the term Company has wider meaning in the provision of Income Tax Act, 1961 than the Companies Act, 1956. As per the Income Tax Act, 1961 the expression Company means

1. Any Indian Company as defined in Section 2(26); or
2. Any Body Corporate incorporated by or under the laws of a country outside India. i.e., any Foreign Company; or
3. An Institution, Association, or Body which is assessable or was assessed as a Company for
   • Any assessment year under the Income Tax Act, 1922 or
   • Any assessment year commencing on or before 01/04/1970 under the Income Tax Act, 1961
4. An Institution, Association, or Body whether incorporated or not and whether Indian or Non-Indian, which is declared by a General Order or Special Order of the Central Board of Direct Taxes to be a Company for such assessment years as may be specified in the CBDT’s order.

Classes of Company

As per the definition of Company of Income Tax Act, 1961 companies are classifed into two

1. Domestic Company and
2. Foreigh Company

Domestic Company

As per the Section 2(22A) of Income Tax Act, 1961 a Domestic Company means an Indian Company or any other Company which, in respect of income tax liable and made prescribed arrangements for declaration and payment of Dividends (including dividends of preference shares) within India, payable out of such Income.

Indian Company

In order to regard a Company as an Indian Company any one of the two conditions should be satisfied.

• It must be formed and registered under any law relating to the companies which was or is in force in any part of India, and
• The registered office or the principal office of the company should be in India.

The expression Indian Company also includes.

1. A Corporation established by or under a Central, State, or Provincial Act (like Financial Corporation or a State Road Transport Corporation).
2. An Institution, Association, or Body which is declared by the CBDT under Section 2(17) (iv) provided its registered or principal office is in India.
3. In the case of Jammu and Kashmir State, a Company formed and registered under any law for the time being in force in that State.
4. In the case of the Union Territories of Dadra and Nagar 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.

Company in which public are substantially interested [Section 2(18)]

A company is considered as a Company in which the public are substantially interested if that company

1. Owned by the Government (either Central or State), or the Reserve Bank of India (RBI) in which shares not less than 40% are held by either the Government or RBI (includes its corporations).
2. Registered under Section 25 of the Companies Act, 1956.
3. Having no Share Capital which is declared by the CBDT for the specified assessment years to be a company in which the public are substantially interested.
4. Is not a Private Company as defined in the Companies Act, 1956 and which fulfills any of the following conditions
   • As on the last day of the relevant previous year, its shares should have been listed in a recognized Stock Exchange in India; or
   • At least 50% (40% in case of Industrial Company) voting power of the Equity Shares should be unconditionally allotted to or acquired by
   1. Government or
   2. A Statutory Corporation or
   3. A Company in which public are substantially interested or
   4. Any wholly owned subsidiary of company mentioned in the above point.

5. Carries its principal business of accepting deposits from its members and which is declared by the Central Government under Section 620A of the Companies Act, 1956 to be Nidhi or a Mutual Benefit Society.
6. Equity Shares carrying at least 50% of the voting power have been allotted unconditionally to or acquired by unconditionally and were beneficially held throughout the relevant previous year by one or more co-operative societies.

Company in which a Person having substantial interest [Section 2(32)]

A company is ceased to be a company in which a person having substantial interest if that person should satisfy the following points.

1. Is the beneficial owner of Shares (not being shares entitled to a fixed rate of dividend).
2. Whether having the right to participate in profits or not.
3. Carrying at least 20% of the total voting power.

The main criterion is that “Beneficial” ownership and not “Legal” ownership. Therefore, the registered holder of even the majority of equity shares, would not fall within this definition if he has no beneficial interest in the shares. On the other hand, a person who is beneficiary entitled to at least 20% of the equity share capital of a company would fall within this definition even if he is not the registered holder of any shares.

Foreign Company

As per the Section 2(23A) of Income Tax Act, 1956 a company is ceased to be a Foreign Company when it is not a Domestic Company.