Place of Effective Management (POEM) As per Section 6 of the Income Tax Act ( As Amended) : The Rules to be followed:
As Per Section 6 of the Income Tax Act’1961 (As Amended), It specifies that the Company will be said to be resident in India, if it satisfies the following condition:
- It is an Indian Company or,
- The Place of Effective management is in India, at any time during the year.
And the place of effective management means the place where the key commercial and management decisions are taken as a whole and this is taken in substance i.e substantially the decisions are taken from that place for smooth conduct of business.
If we analyse the provision, then we will come to know that the two major criteria have been laid down for deciding the place of effective management and the criteria are as follows:
- Key Commercial and Managerial decisions are taken from that place and
- It is taken in substance
Meaning of Key managerial and commercial decision: The meaning of key managerial and commercial decision means the decision to conduct the business whether it is commercial decisions or managerial decision. If we follow the logic, then we will find that if the decisions with respect to purchase, sale, production, sales etc. are taken substantially by the local management where the company is incorporated, then it may be said that the all the decisions are taken substantially by the local management for smooth conduct of the business and hence accordingly it can be stated that the place of effective management is in the country of incorporation. Further, If the board meeting will be conducted at the place where the Company is originally incorporated, then it will provide additional evidence to the Company with respect to justifying its place of effective management.
However, the Government in the Budget have stated that they will come up with additional Guidelines and the Guidelines will be followed for arriving at the place of effective management to avoid the dispute between the assesse and the Revenue department.
By: CA. Sanjay Kumar Chaudhary- Email: [email protected]
