M/s. W is an Indian Co., having its branch at Nepal, whose accounts are merged with main accounts.
Question: whether the loss suffered in Nepal can be set off with the income of Head office.
Regarding Tax Audit: How the Tax Audit of nepal Br. will be conducted in the Indian Income tax Act? However, In nepal there is no provision of Tax Audit.
Question: Whether sec 44ab of Income tax Act, is applicable to the accounts of Nepal? If Yes, How ll the provision of Indian Act will apply.
Ur comapny is situated in India whole income of indian and nepali branch will be taxable as per Indian Income tax. If it is a branch of Indian comapny then foreign income will also be taxable in India but if it is a seperate company set up in nepal and for the purpose of consolidation accounts are merged then only income recieved or deemed to accrue or arise in India will be taxable.
Provision of 44AB applies to total accounts of Indian company(Including its branch). As per normal practice once the finacial statements of Indian company are prepared including branch accounts then on the basis of those financial statement and accounts form 3CD is prepared.
Major areas of concern would be TDS whether transfers to branch are done as a method of evading TDS etc.
The major factor by which you can see whether it is an independent branch or just a branch is by seeing where the capital assets of the branch are recorded, If they are reflecting in the final balance sheet of the Indian co then it is a good enough indicator and you can do 3CD based on Indian financial statements.
The areas of concerns are :
1) TDS related: Whether inter branch transfers are done to evade tds provisions
2) Whether transfers amount to transfer between Associated entp and prov of ALP are applicable or not.
its is just a vague explaination for you to get idea of what are the complexities. It needs a detailed analysis from every angle.
CAclubindia
