Elaborate the concept of Place of Effective Management (POEM) as it relates to determining the residential status of a company under the Indian Income Tax Act. How does the POEM test function, and what factors are considered in its application?
✅ Q.2 – Elaborate the concept of Place of Effective Management (POEM) as it relates to determining the residential status of a company under the Indian Income Tax Act. How does the POEM test function, and what factors are considered in its application? A. Meaning of Place of Effective Management (POEM) Place of Effective Management (POEM) means the place where key management and commercial decisions of a company are actually made . It shows where the real control and mind of the company lies . Statutory Basis Introduced in Section 6(3) of the Income-tax Act, 1961 Applicable from Assessment Year 2017–18 Earlier Rule (Before 2016 Amendment): A foreign company was resident in India only if control and management was “wholly” in India . This created loopholes → companies shifted day-to-day decisions outside India to avoid tax (base erosion). New Rule (After POEM Introduction): A company is resident in India if: “Its Place of Effective Management is in India at any time...