Radha Rani Holdings Ltd. v. Additional Director of Income Tax
Quick Summary
The Tribunal said: look at who makes the key decisions and from where. If real control sits in India, the company is resident in India—even if it is incorporated abroad. Here, directors, funding, and investment control all pointed to India.
Issues
- Are the challenged receipts taxable income under the Income Tax Act, 1961?
- Are those receipts capital in nature or revenue in nature?
- Where is the company resident—India or Singapore—based on real management and control?
Rules
- Section 6 (Income Tax Act): A company is resident if its control and management are wholly in India during the year.
- POEM (Place of Effective Management): Focus on the place where key commercial decisions are actually made.
- Article 4 (India–Singapore DTAA): Treaty tie-breaker looks at effective management for residency conflicts.
- Capital vs Revenue: Treatment depends on the nature of the receipt and the context of earning it.
Facts (Timeline)
Investment Holding
Arguments
Appellant (Company)
- Incorporated in Singapore; treated as non-resident in India.
- Receipts characterized as capital; not taxable as revenue income.
- Effective decisions not in India; treaty protection applies.
Respondent (Revenue)
- Board and key managers were Indian residents.
- Funds and investment choices controlled from India.
- Real center of management in India ⇒ resident, receipts taxable accordingly.
Judgment
POEM in India
ITAT Delhi held that control and management were exercised from India.
- Directors: All directors were Indian residents.
- Investments: Indian group entities guided and controlled the investments.
- Funding: Interest-free, open-ended funds flowed from India associates.
Therefore, the company was resident in India for tax purposes. Incorporation in Singapore did not change that result.
Ratio
Residency depends on real control and management. If effective decisions are made in India, the company is resident in India, regardless of the place of incorporation.
Why It Matters
- Teaches the POEM approach before it was put in the statute.
- Warns against paper structures: substance beats form.
- Guides treaty analysis when residency is disputed.
Key Takeaways
- POEM looks at where key decisions are actually made.
- Indian resident directors and India-based funding point to India control.
- Treaty Article 4 uses effective management as a tie-breaker.
- Capital vs revenue nature depends on context, but residency decides tax reach.
Mnemonic + 3-Step Hook
Mnemonic: “WHO – WHERE – WHY”
- WHO makes the real decisions? (Board & key managers)
- WHERE are those decisions made? (India or abroad)
- WHY do funds and investments point there? (Control & substance)
IRAC Outline
Issue
Is the company resident in India under Section 6/Article 4, and how should the receipts be classified?
Rule
POEM test + treaty tie-breaker; capital vs revenue depends on the nature and source of the receipt.
Application
Indian resident directors, India-based funding, and control of investments show real management in India.
Conclusion
Company is resident in India; taxation follows residency and characterization analysis.
Glossary
- POEM
- Place where key commercial and management decisions are made.
- Resident Company
- Company controlled and managed from India during the year (Section 6).
- DTAA
- Tax treaty between two countries to avoid double taxation.
- Capital Receipt
- Receipt tied to the capital structure, usually not recurring.
- Revenue Receipt
- Receipt from the normal course of business, usually taxable.
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