A company has been defined as a juristic person having an independent and separate legal entity from its shareholders. Income of the company is computed and assessed separately in the hands of the company. however the income of the company which is distributed to its shareholders as dividend is assessed in their individual hands. Such distribution of income is not treated as an expenditure in the hands of company, the income so distributed is an appropriation of the profits of the company.

Residence of a company :

A company is said to be a resident in India during the relevant previous year if:

1. it is an Indian company

2. if it is not an Indian company then, the control and the management of its affairs is situated wholly in India

A company is said to be non-resident in India if it is not an Indian company and some part of the control and management of its affairs is situated outside India.

Assessing taxable income

In ascertaining taxable income, all expenditure incurred for business purposes are deductible. This includes interest on borrowings paid in the financial year and depreciation on fixed assets. Certain expenses are specifically disallowed or their quantum of deduction is restricted. These include :

* Entertainment expenses

* Interest or other amounts paid to a non-resident without deducting without tax

* Corporate taxes paid

* Indirect general and administrative costs of a foreign head office.