Peter Inc., is a company incorporated under the laws of USA. The value of its global assets are 50 crores. The value of assets in India are 25…

In the given case, Peter Inc. is a company incorporated under the laws of USA and hence, it is a foreign company under the Income-tax Act, 1961. However, the said company shall be considered to be resident in India if its place of effective management is in India. In this case, the company does not satisfy the active business outside India test since 50% of its assets are located in India. Since it has failed the active business test outside India on account of 50% of its assets being located in India, the persons who take key management and commercial decisions for conduct of the company's business as a whole and the place where the decisions are made are the key factors in determining whether the POEM of the company is in India. The facts of the case clearly state that the key management decisions and commercial decisions for conduct of the company's business as a whole are made by the directors located in India and at the meetings held in India. Therefore, the POEM of Peter Inc. is in India in the P.Y.2023-24, irrespective of the fact that majority of the board meetings are held outside India. Section 194J applies when professional fees are being paid to a resident, whereas section 195 applies when payments are made to a non-corporate non-resident or a foreign company. Section 194J is income specific and section 195 is payee specific. CBDT vide Notification No. 29/2018 dated 22 nd June 2018 has clarified that the foreign company shall continue to be treated as a foreign company even if it is said to be resident in India on account of its POEM being in India, and all the provisions of the Act shall apply accordingly. Where more than one provision of Chapter XVII-B of the Act applies to the foreign company as resident as well as a foreign company, the provision applicable to the foreign company alone shall apply. Further, in case of conflict between the provision applicable to the foreign company as resident and the provision applicable to it as foreign company, the latter shall generally prevail. Hence, Payal Ltd shall deduct tax under section 195 while making payment of fees for professional services to Peter Inc., a foreign company resident in India.