Determine the residential status of Raj Pharma AG for A.Y.2024-25, as per the Indian Income tax law.

The residential status of a foreign company is determined on the basis of place of effective management (POEM) of the company. For determining the POEM of a foreign company, the important criteria is whether the company is engaged in active business outside India or not. A company shall be said to be engaged in “Active Business Outside India” (ABOI) for POEM, if the passive income is not more than 50% of its total income; andless than 50% of its total assets are situated in India; andless than 50% of total number of employees are situated in India or are resident in India; andthe payroll expenses incurred on such employees is less than 50% of its total payroll expenditure. Raj Pharma AG shall be regarded as a company engaged in active business outside India for P.Y. 2023-24 for POEM purpose only if it satisfies all the four conditions cumulatively:- Condition 1: The passive income of Raj Pharma AG should not be more than 50% of its total income Total income of Raj Pharma AG during the P.Y. 2023-24 is 175crores [(50crores +75 crores) + (30crores +20 crores)] Passive income is the aggregate of, (i) income from the transactions where both the purchase and sale of goods is from/to its associated enterprises; and (ii) income by way of royalty, dividend, capital gains, interest or rental income; Passive Income of Raj Pharma AG is 65crores, being sum total of: (i) 15 crores, income from transactions where both purchases and sales are from/to associated enterprises (5crores in India and 10crores in Germany) (ii) 50 crores, being interest and dividend from investment (30crores in India and 20crores in Germany) Percentage of passive income to total income = 65 crore/175 crore x 100 = 37.14% Since passive income of Raj Pharma AG is 37.14%, which is not more than 50% of its total income, the first condition is satisfied. Condition 2: Raj Pharma AG should have less than 50% of its total assets situated in India Value of total assets of Raj Pharma AG during the P.Y. 2023-24 is 470crores [190crores, in India +280 crores, in Germany]Value of total assets of Raj Pharma AG in India during the P.Y. 2023-24 is 190croresPercentage of assets situated in India to total assets = 190 crores/470 crores x 100 = 40.43%. Since the value of assets of Raj Pharma AG situated in India is less than 50% of its total assets, the second condition for ABOI test is satisfied. Condition 3: Less than 50% of the total number of employees of Raj Pharma AG should be situated in India or should be resident in India Number of employees situated in India or are resident in India is 60 Total Number of employees of Raj Pharma AG is 150 [60 + 90]Percentage of employees situated in India or are resident in India to total number of employees is 60/150 x 100 = 40% Since employees situated in India or are residents in India of Raj Pharma AG are less than 50% of its total employees, the third condition for ABOI test is satisfied. Condition 4: The payroll expenses incurred on employees situated in India or resident in India should be less than 50% of its total payroll expenditure Payroll expenses on employees employed in and resident of India = 10 crores.Total payroll expenses = 25 crores (10crores +15 crores)Percentage of payroll expenses of employees situated in India or are resident in India to the total payroll expenses = 10 x 100/25 = 40% Since the payroll expenses incurred on employees situated in India or resident in India is less than 50% of its total payroll expenditure, the fourth condition for ABOI test is also satisfied. Thus, since Raj Pharma AG has satisfied all the four conditions, the company would be said to be engaged in “active business outside India” during the P.Y. 2023-24. POEM of a company engaged in active business outside India shall be presumed to be outside India, if the majority of the board meetings are held outside India. Since Raj Pharma AG is engaged in active business outside India in the P.Y. 2023-24 and majority of its board meetings i.e., 5 out of 8, were held outside India, POEM of Raj Pharma AG would be outside India. Therefore, Raj Pharma AG would be non-resident in India for the P.Y. 2023-24.