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 CompanyIndian 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 year’s 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 shareholderSec.6 (3), Residential Status of foreign CompanyForeign 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 COMPANYA 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 ; orAny 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 companyWidely 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 it’s 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 - 2002007-08 120 90 120 NIL 30 # 1702008-09 150 110 150 NIL 40 1302009-10 180 200 200 20 - 1502010-11 200 150 200 NIL 50 1002011-12 225 175 225 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 one’s 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 didn’t 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 don’t 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 one’s 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 don’t 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.