DEFINITION

• ‘Active Business outside India’ is defined as:
  • if the passive income is not more than 50% of its total income; and
  • less than 50% of its total assets are situated in India; and
  • less than 50% of total number of employees are situated in India or are resident in India; and
  • the payroll expenses incurred on such employees is less than 50% of its total payroll expenditure.

• Active Business outside India’

(A) the income shall be, –

(a) as computed for tax purpose in accordance with the laws of the country of incorporation; or

(b) as  per  books  of  account,  where  the  laws  of  the  country  of incorporation does not require such a computation.

• Active Business outside India’

(B)  the value of assets, –

(a) In  case  of  an  individually  depreciable  asset,  shall  be  the average of its  value  for  tax  purposes  in  the  country  of incorporation of the company at the beginning and at end of the previous year; and

(b) In  case  of  pool  of  a  fixed  assets  being  treated  as  a  block  for    depreciation,  shall be the average of its value for tax purposes in the country of incorporation  of the company  at the beginning and at end of the year;

(c)  In  case  of  any  other  asset,  shall  be  its  value  as  per  books  of account;

(C)  the  number  of  employees  shall  be  the  average  of  the  number  of employees  as  at  the  beginning  and  at  the  end  of  the  year  and  shall include  persons,  who  though  not  employed  directly   by  the  company, perform tasks similar to those performed by the employees;

(D)  the term “pay roll” shall include the cost of salaries, wages, bonus and  all other employee compensation including related pension and social costs borne by the employer.

•  “Passive income” of a company shall be 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;

However,  any  income  by way of interest shall not be considered to be passive income in case of a company which is engaged in the business of banking or is a public financial institution, and its activities are regulated as such under the applicable laws of the country of incorporation.

• “Senior Management”  in respect of a company  means the person or persons who are generally responsible for developing and formulating key strategies and policies  for  the  company  and  for  ensuring  or  overseeing  the  execution  and implementation  of  those  strategies  on  a  regular  and  on -going  basis.  While designation may vary, these persons may include:

(i) Managing Director or Chief Executive Officer;

(ii) Financial Director or Chief Financial Officer;

(iii) Chief Operating Officer; and

(iv) The  heads  of  various  divisions  or  departments  (for example,  Chief Information or Technology Officer, Director for Sales or Marketing).