11 November 2014
Hi Experts, I have some queries on Treatment prescribed under income Tax Act for WOS at Foreign Land.
i will Elaborate via Example ,pls Refer below :-
Co. XYZ Ltd. is resident company In India, now XYZ Company opens a wholly owned Subsidiary in Thailand Name XYZ (Thailand) Co. Ltd.
Now this Thailand co. has its all control and management situated in India ,so it will considered as Resident Company for Income Tax purposes...Right ?(SEC 6(3))
and if so than will all the provisions of Income Tax Act will be applicable to this Thailand company too ?? e.g. Section 44AA etc etc
or is there anything else i missed ?
it would be great if someone can share the book name wherein i can refer all the details i am looking for this case.
02 August 2025
Great question! Here’s a detailed explanation about the **tax treatment of a Wholly Owned Subsidiary (WOS) abroad** under Indian Income Tax law:
---
### 1. **Residential Status of Foreign Subsidiary under Section 6(3) of Income Tax Act**
* **Section 6(3)** says: A company is resident in India if its **control and management of its affairs is situated wholly in India** during the relevant previous year.
* In your example, **XYZ (Thailand) Co. Ltd.** is incorporated in Thailand but if its **control and management is wholly in India**, then it will be treated as a **resident Indian company** for income tax purposes.
* This concept is commonly called **"Place of Effective Management (POEM)"**.
---
### 2. **Consequences of being Resident in India**
* If the foreign subsidiary is resident in India due to control and management, then:
* Its **global income** (i.e. income earned worldwide) will be taxable in India. * The company needs to comply with **all Indian tax laws applicable to resident companies** such as:
* Filing income tax returns * Maintaining books of accounts as per **Section 44AA** * Audits under **Section 44AB** (if turnover/profit crosses limits) * Transfer pricing provisions, etc.
* In short, **it becomes like an Indian resident company** for income tax purposes, and thus all provisions apply.
---
### 3. **If the Foreign Subsidiary is Non-Resident**
* If the control and management is **outside India**, then it will be a **non-resident** company. * Only income earned in India or deemed to accrue in India will be taxable under Indian law. * DTAA (Double Tax Avoidance Agreement) between India and Thailand will come into picture.
---
### 4. **Books & References**
* You can refer to the following books for an in-depth understanding:
* **"Direct Taxes Law & Practice" by Dr. Vinod K. Singhania & Dr. Monica Singhania** — covers residential status, POEM, and tax provisions. * **"Income Tax Act with Rules & Circulars" by Taxmann** — comprehensive and updated. * **"International Taxation" by T.N. Manoharan** — for foreign subsidiary and POEM issues. * **CBDT Circulars** on POEM (Circular No. 7/2017 and others).
---
### Summary:
| Aspect | Treatment | | ---------------------------------- | ----------------------------------------------- | | Control & Management in India | Foreign Subsidiary is Resident Indian Company | | Income Tax Applicability | Taxed on global income, comply with Indian laws | | Control & Management outside India | Non-resident, tax only on Indian income | | Compliance | File IT returns, audit, transfer pricing etc. |
---
If you want, I can help draft a note or summary for your client or prepare FAQs related to this. Would that help?
CAclubindia
