CHAPTER XII-BC — SPECIAL PROVISIONS RELATING TO FOREIGN COMPANY SAID TO BE RESIDENT IN INDIA
CHAPTER XII-BC — SPECIAL PROVISIONS RELATING TO FOREIGN COMPANY SAID TO BE RESIDENT IN INDIA
SECTION 115JH — FOREIGN COMPANY SAID TO BE RESIDENT IN INDIA
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · Live Provision — the sole section of Chapter XII-BC
Status: LIVE. Chapter XII-BC, consisting of the single section 115JH, was inserted by the Finance Act, 2016, with effect from 1 April 2017 (assessment year 2017-18 onwards). It supplies the transitional and computational regime for a foreign company that becomes resident in India for the first time because its place of effective management (POEM) is found, under section 6(3), to be in India in a previous year. A proviso extending the regime to succeeding years was inserted by the Finance Act, 2017, with effect from 1 April 2018. The section remains on the statute book, unchanged in substance.
Operative trigger: The regime is engaged only where two conditions co-exist — (a) a foreign company “is said to be resident in India” in a previous year by reason of its POEM under section 6(3); and (b) it “has not been resident in India in any of the previous years preceding” that year, i.e. it is the first year of Indian residence. The exceptions, modifications and adaptations promised by the section take effect only through, and to the extent specified in, the Central Government notification — CBDT Notification No. 29/2018 [S.O. 3039(E)] dated 22 June 2018. The substance of the relief therefore lives in that notification, not in the bare section.
Companion materials: “Place of effective management” is defined in the Explanation to section 6(3) as “a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made”. Its determination is governed by CBDT Circular No. 6/2017 dated 24 January 2017 (the Guiding Principles for determination of POEM). CBDT Circular No. 8/2017 dated 23 February 2017 clarifies that the POEM test does not apply to a company having turnover or gross receipts of ₹50 crore or less in a financial year — a de minimis carve-out that, in practice, keeps section 115JH off the table for the great majority of foreign companies.
Finance Act, 2026 impact: None. The Finance Act, 2026 does not amend section 115JH or Chapter XII-BC. The only amendment in the 115J family made by the Finance Act, 2026 is to section 115JB (MAT) in Chapter XII-B (extension of the MAT carve-out to certain non-residents opting for presumptive taxation, with effect from AY 2026-27); that does not touch this chapter.
Candour note on case law: As at June 2026 there is no reported decision of the Supreme Court, of any High Court, or of the Income-tax Appellate Tribunal that directly construes section 115JH. POEM-based residence of a foreign company became operative only from assessment year 2017-18; the de minimis ₹50-crore carve-out narrows the field further; the first assessments are recent; and no judgment interpreting the section itself has yet surfaced. In keeping with the discipline of this treatise, no case has been invented or stretched. Part C therefore presents (1) the governing primary materials — section 6(3), the enabling notification and the two POEM circulars — which are the real ‘law’ a practitioner applies; and (2) a carefully labelled body of cognate Supreme Court, High Court and English authority on the two questions the section turns on: when is a foreign company ‘resident’ (the ‘central management and control’ / POEM jurisprudence), and how do the borrowed mechanisms (computation machinery, carry-forward of losses, strict construction of conditional relief, and section 154 recapture) operate. Each cognate authority is expressly flagged as authority on the underlying principle, not a decision on section 115JH itself.
A. SECTION COMMENTARY
A.1 Purpose and place in the scheme of the Act
Until assessment year 2016-17 a foreign company could be ‘resident’ in India only if the control and management of its affairs was situated wholly in India during the year — a test so easily defeated (a single board meeting abroad sufficed) that it was, in practice, a dead letter. The Finance Act, 2015 replaced that test with the ‘place of effective management’ (POEM) standard in section 6(3), aligning Indian law with the internationally accepted tie-breaker in Article 4 of the OECD and UN Model Conventions. The avowed object, stated in the Memorandum to the Finance Bill and in Circular No. 6/2017, is to catch shell companies and companies artificially structured to retain income outside India while their real control and management abide in India. POEM, however, created a new and disruptive consequence: a company incorporated abroad, which had always filed as a non-resident taxed only on its Indian-source income, could suddenly find itself a resident taxed on its worldwide income — with no Indian tax history, no Indian books, no opening written-down values and no carried-forward losses recognised under the Act. Section 115JH was enacted by the Finance Act, 2016 to bridge precisely this discontinuity. It is not a charging provision and not an exemption; it is an enabling, transitional provision that authorises the Central Government to switch on, by notification, a tailored set of ‘exceptions, modifications and adaptations’ to the Act’s computation, depreciation, loss carry-forward, collection-and-recovery and anti-avoidance provisions, so that a first-time POEM resident can be taxed coherently. Conceptually it is the residence counterpart of the conversion-neutrality provision in section 115JG (Chapter XII-BB): both translate a structural change of status into the income-tax computation without an arbitrary cliff-edge, and both deliver the detail through delegated legislation.
A.2 The POEM trigger — section 6(3) and the guiding circulars
Section 115JH does nothing until a foreign company is first ‘said to be resident in India’. That determination is made under section 6(3), which (as substituted with effect from AY 2017-18) provides that a company is resident in India in any previous year if it is an Indian company, or if its place of effective management in that year is in India. The Explanation defines POEM as the place where the key management and commercial decisions necessary for the conduct of the business as a whole are, in substance, made. The administrative gloss is supplied by Circular No. 6/2017 (Guiding Principles), which distinguishes companies with ‘active business outside India’ (ABOI) — for whom POEM is presumed to be outside India if the majority of board meetings are held outside India — from other companies, for whom a two-stage enquiry identifies the persons who actually make the key decisions and then locates where those decisions are in substance made. The Guiding Principles repeatedly warn against form (the place of board meetings, the situs of the registered office, the residence of shareholders) and insist on substance (where the real top-level management functions). Circular No. 8/2017 supplies the threshold filter: the POEM regime does not apply to a company whose turnover or gross receipts in the financial year are ₹50 crore or less. The practical upshot is that section 115JH bites only on substantial foreign companies whose effective management has genuinely shifted to India — a deliberately narrow class.
A.3 The operative scheme of section 115JH (editorial summary)
This is an editorial summary to make the materials intelligible; it is NOT a verbatim reproduction — for the exact words see Part B. Sub-section (1) is the enabling core: where a foreign company is said to be resident in India in a previous year and was not resident in any preceding previous year, then — notwithstanding anything in the Act and subject to conditions notified by the Central Government — the Act’s provisions on (i) computation of total income, (ii) treatment of unabsorbed depreciation, (iii) set-off and carry-forward of losses, (iv) collection and recovery of tax, and (v) the special provisions relating to avoidance of tax, apply for that previous year ‘with such exceptions, modifications and adaptations as may be specified in that notification’. The proviso (Finance Act, 2017) carries the same treatment forward to any succeeding previous year in which the company is again resident, where the residence determination for the first year is made in assessment proceedings that conclude on or after the end of that succeeding year — a provision that prevents the relief from being lost merely because the POEM finding is made with hindsight. Sub-section (2) is the recapture machinery: where a benefit has been claimed and granted under sub-section (1) and the company subsequently fails to comply with a notified condition, (i) the benefit is deemed to have been wrongly allowed; (ii) the Assessing Officer may, notwithstanding anything in the Act, re-compute total income for that previous year as if the exceptions, modifications and adaptations had never applied; and (iii) section 154 applies, with its four-year limitation reckoned from the end of the previous year in which the failure occurs. Sub-section (3) requires every notification under the section to be laid before each House of Parliament.
A.4 The notified exceptions, modifications and adaptations — Notification No. 29/2018
The relief promised by sub-section (1) was switched on by CBDT Notification No. 29/2018 [S.O. 3039(E)] dated 22 June 2018 [F. No. 370142/19/2017-TPL], applicable from assessment year 2017-18, after a draft had been put out for public comment in 2017. Its load-bearing adaptations are: (a) Opening written-down value — where the foreign company is assessed to tax abroad and depreciation is taken into account there, the opening WDV on the first day of the previous year is the WDV in its foreign tax record; where depreciation is not taken into account abroad, the opening WDV is computed as if the asset had been installed and used and depreciation actually allowed under the foreign tax law. (b) Brought-forward loss and unabsorbed depreciation — these are determined, year-wise, from the foreign tax record as on the first day of the previous year, and are thereafter revised in India to the extent they are revised or modified abroad by any action of the foreign tax or legal authority. (c) Accounting-year alignment — where the foreign company’s accounting year does not end on 31 March, detailed rules align the foreign period to the Indian previous year (a residual period of less than six months is folded into the preceding accounting year; a period of six months or more is treated as a separate accounting year), and loss/unabsorbed depreciation is allocated to Indian previous years on a proportionate basis. (d) TDS continuity — compliance with Chapter XVII-B (deduction of tax at source) as it applied to the company before it became resident is treated as sufficient compliance. (e) Foreign tax credit across years — where the same income is offered to tax in India over more than one year, credit for foreign tax paid is allowed across those years in the proportion in which the income is assessed in India. (f) The no-double-benefit guard — the exceptions, modifications and adaptations do not apply to income of the foreign company that would have been chargeable to tax in India even if it had not become resident on account of POEM (i.e. its pre-existing Indian-source income continues to be taxed as before). (g) Two succeeding years — where the company is resident for two succeeding previous years, the adaptations apply to the later year with the WDV, brought-forward loss and unabsorbed depreciation carried from the last day of the preceding previous year. (h) The dual-status conflict rule — where a provision applicable to the company as a resident (by POEM) conflicts with a provision applicable to it as a foreign company, the latter generally prevails; in particular the rate of tax remains the rate applicable to a foreign company, though beneficial provisions available to it as a foreign company continue to apply. This last rule is of first importance: POEM widens the scope of the charge to worldwide income, but it does not convert a foreign company into a domestic company or lower its tax rate.
A.5 The proviso — carry-through to succeeding years
A POEM finding is, by its nature, made after the year has closed — often in assessment proceedings years later. Without the proviso (inserted by the Finance Act, 2017, w.e.f. 1 April 2018), the transitional adaptations could be claimed only for the single ‘first’ year, leaving the intervening years — in which the company was in fact resident but had not yet been so held — without any coherent computational regime. The proviso closes that gap: where the determination that the foreign company is resident is made in assessment proceedings relevant to a previous year, the regime of sub-section (1) also applies to any later previous year in which the company is resident, provided that later year ends on or before the date on which the assessment proceeding is completed. It is a pragmatic, taxpayer-protective provision that recognises the retrospective character of a POEM finding and prevents the relief from being defeated by the timing of the department’s own enquiry.
A.6 Recapture on breach — sub-section (2) and the section 154 mechanism
The relief is conditional throughout, not merely at the threshold. Sub-section (2) addresses the case where a benefit has been claimed and granted under sub-section (1) and a notified condition is subsequently broken. Three consequences follow: the benefit is deemed to have been wrongly allowed; the Assessing Officer may, ‘notwithstanding anything contained in this Act’, re-compute the total income for that previous year as if the exceptions, modifications and adaptations had never applied; and section 154 is pressed into service as the procedural vehicle, with the four-year period in section 154(7) running not from the original order but from the end of the previous year in which the breach occurs. This bespoke limitation is what makes recapture workable long after the original assessment. It also embeds a latent tension, examined in Part C: section 154 is, by settled authority, confined to a ‘mistake apparent from the record’, whereas whether a notified condition has in fact been breached may be a contested, fact-and-law question — so the section 154 route, though expressly invoked, may in a disputed case sit uneasily with the Volkart Brothers limitation, and the substantive re-computation power in sub-section (2)(ii) (or a regular reassessment) may have to bear the weight.
A.7 Core doctrinal themes and interpretive issues
Theme (1) — Residence is a question of substance, not form. Section 115JH presupposes a POEM finding under section 6(3); the whole century of ‘central management and control’ jurisprudence (De Beers, Unit Construction, Subbayya Chettiar, Narottam & Pereira) is the interpretive backdrop to when a foreign company is ‘said to be resident’, even though POEM is a ‘substance of key decisions’ test and not identical to the older ‘wholly controlled and managed’ test.
Theme (2) — The section is enabling, not self-executing. Nothing flows from the bare words of sub-section (1) until Notification No. 29/2018 is engaged; the operative law is the notification, and the conditions in it are the touchstone for both entitlement and recapture.
Theme (3) — POEM widens the base but not the rate. By the dual-status conflict rule in the notification, a POEM resident is taxed on its worldwide income but continues to be taxed at the foreign-company rate and retains the beneficial provisions available to a foreign company; it is not re-characterised as a domestic company.
Theme (4) — The transition imports foreign tax attributes by deeming. Opening WDV, brought-forward losses and unabsorbed depreciation enter the Indian computation only because the notification deems them to, drawn from the foreign tax record — absent that deeming, a first-time resident would start with a blank slate, and the principle in Saraswati Industrial Syndicate (no carry-forward without statutory authority) would deny continuity.
Theme (5) — The non obstante clause is bounded. ‘Notwithstanding anything contained in this Act’ in sub-sections (1) and (2) displaces the Act’s ordinary computation and procedure only to the extent of the specified adaptations and the targeted recapture power; it is not a general charter to disregard the Act.
Theme (6) — Treaty interaction and dual residence. A company that is a POEM resident of India may also be a resident of its state of incorporation; the residence tie-breaker in the applicable Double Taxation Avoidance Agreement (typically the place-of-effective-management article) then governs, and may allocate residence away from India — a dimension that section 115JH itself does not address but which sits behind every POEM case.
Theme (7) — Recapture sits on the section 154 fault-line. Sub-section (2)’s use of section 154 for recapture is efficient where the breach is patent, but a genuinely disputed breach may fall outside the ‘mistake apparent from the record’ limit (Volkart Brothers; Mepco Industries), leaving the substantive re-computation power as the real engine of recapture.
B. STATUTORY POSITION (verbatim heading and operative text)
Reproduced verbatim from the Income-tax Act, 1961 (Bare Act, as amended up to the Finance Act, 2025; not amended by the Finance Act, 2026):
Foreign company said to be resident in India.
115JH. (1) Where a foreign company is said to be resident in India in any previous year and such foreign company has not been resident in India in any of the previous years preceding the said previous year, then, notwithstanding anything contained in this Act and subject to the conditions as may be notified by the Central Government in this behalf, the provisions of this Act relating to the computation of total income, treatment of unabsorbed depreciation, set off or carry forward and set off of losses, collection and recovery and special provisions relating to avoidance of tax shall apply with such exceptions, modifications and adaptations as may be specified in that notification for the said previous year:
Provided that where the determination regarding foreign company to be resident in India has been made in the assessment proceedings relevant to any previous year, then, the provisions of this sub-section shall also apply in respect of any other previous year, succeeding such previous year, if the foreign company is resident in India in that previous year and the previous year ends on or before the date on which such assessment proceeding is completed.
(2) Where, in a previous year, any benefit, exemption or relief has been claimed and granted to the foreign company in accordance with the provisions of sub-section (1), and, subsequently, there is failure to comply with any of the conditions specified in the notification issued under sub-section (1), then,—
(i) such benefit, exemption or relief shall be deemed to have been wrongly allowed;
(ii) the Assessing Officer may, notwithstanding anything contained in this Act, re-compute the total income of the assessee for the said previous year and make the necessary amendment as if the exceptions, modifications and adaptations referred to in sub-section (1) did not apply; and
(iii) the provisions of section 154 shall, so far as may be, apply thereto and the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which the failure to comply with the conditions referred to in sub-section (1) takes place.
(3) Every notification issued under this section shall be laid before each House of Parliament.
[Chapter XII-BC and section 115JH inserted by the Finance Act, 2016, w.e.f. 1-4-2017; the proviso to sub-section (1) inserted by the Finance Act, 2017, w.e.f. 1-4-2018.]
C. AUTHORITIES — GOVERNING PRIMARY MATERIALS AND COGNATE CASE LAW
Important: No decision of the Supreme Court, any High Court or the ITAT has, to date, directly interpreted section 115JH. The materials below are organised so that Cluster C-1 sets out the binding subordinate legislation and administrative guidance that actually govern an application of the section, and Clusters C-2 to C-8 set out cognate higher-court (and leading English) authority on each legal principle the section embodies. The cognate authorities are NOT decisions on section 115JH; each is included because the principle it lays down is the principle a tribunal would apply when section 115JH — or the POEM finding on which it depends — is litigated.
Cluster C-1 : The governing primary materials (binding law in an actual case)
Section 6(3), Income-tax Act, 1961 (as substituted by the Finance Act, 2015, w.e.f. AY 2017-18) and its Explanation.
Nature: The residence test for companies and the source of the POEM trigger that section 115JH presupposes.
Content: A company is resident in India in any previous year if it is an Indian company or if its place of effective management in that year is in India. The Explanation defines POEM as “a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made”.
Relevance: Section 115JH operates only once section 6(3) has fixed Indian residence on a foreign company for the first time; the section is meaningless without the section 6(3) finding.
Source: Income-tax Act, 1961, section 6(3); text verified against the canonical Bare Act.
Nature: Delegated legislation issued under section 115JH(1); the instrument that switches on the exceptions, modifications and adaptations. Applicable from AY 2017-18.
Content: Prescribes the transitional computation regime for a first-time POEM resident — opening written-down value from the foreign tax record (or computed as if foreign depreciation had been allowed); year-wise brought-forward loss and unabsorbed depreciation from the foreign tax record, revised to track foreign revisions; alignment of a non-March accounting year with the Indian previous year and proportionate allocation of losses; Chapter XVII-B (TDS) compliance before residence treated as sufficient; foreign tax credit spread across years in which the income is assessed in India; a no-double-benefit guard excluding income already chargeable in India irrespective of POEM; rules for two succeeding resident years; and the dual-status conflict rule under which the foreign-company provisions (including the rate of tax) generally prevail over the resident provisions.
Relevance: This notification is, in practice, the operative law of section 115JH. Any dispute on the section will turn first on whether its conditions are satisfied; its conditions are also the touchstone for recapture under sub-section (2).
Source: Gazette of India, Extraordinary, Part II—Section 3(ii); CBDT/Department of Revenue; content verified against the published notification and the CBDT press release.
CBDT Circular No. 6 of 2017, dated 24 January 2017 — Guiding Principles for determination of Place of Effective Management (POEM) of a company.
Nature: Administrative guidance binding on the Department under section 119; the framework for the section 6(3) POEM determination.
Content: Distinguishes companies with ‘active business outside India’ (ABOI), for whom POEM is presumed outside India if a majority of board meetings are held outside India, from other companies, for whom a two-stage substance test identifies the persons who make the key management and commercial decisions and where those decisions are in substance made; it cautions against form (place of board meetings, registered office, shareholder residence).
Relevance: Supplies the analytical method by which the threshold residence question — the gateway to section 115JH — is decided; a practitioner contesting or conceding POEM works from this circular.
Source: CBDT Circular No. 6/2017 [F. No. 142/11/2015-TPL]; text verified against the published circular.
CBDT Circular No. 8 of 2017, dated 23 February 2017 — POEM de minimis clarification.
Nature: Administrative clarification under section 119.
Content: The POEM provisions shall not apply to a company having turnover or gross receipts of ₹50 crore or less in a financial year.
Relevance: Defines the practical universe of section 115JH: the section can bite only on substantial foreign companies, because smaller companies are taken outside the POEM test altogether.
Source: CBDT Circular No. 8/2017 [F. No. 142/11/2015-TPL]; text verified against the published circular.
Cluster C-2 : When is a company ‘resident’ — central management and control / POEM (foundational)
De Beers Consolidated Mines Ltd v. Howe (Surveyor of Taxes), [1906] AC 455 (House of Lords).
Principle: A company resides, for tax purposes, where its real business is carried on, and the real business is carried on where the central management and control actually abides — not necessarily where it is incorporated or where its operations are physically conducted. (Lord Loreburn LC.)
Application to s.115JH: This is the conceptual ancestor of POEM. The section 6(3) ‘place of effective management’ test is the modern, substance-focused descendant of the De Beers ‘central management and control’ rule; the De Beers enquiry — where do the highest-level decisions actually take place — is the question every POEM determination ultimately asks.
Status: House of Lords; the foundational authority on corporate residence, repeatedly approved by the Supreme Court of India. Cited here on principle only — not a decision on section 115JH.
Unit Construction Co Ltd v. Bullock (Inspector of Taxes), [1960] AC 351 : (1959) 38 ITR (ED) 79 : 38 TC 712 (House of Lords).
Principle: Residence depends on where central management and control are in fact exercised, not where the company’s constitution says they should be. Where the African subsidiaries’ real control was assumed by the London parent board, the subsidiaries were resident in the United Kingdom notwithstanding articles requiring their boards to meet abroad; the actual, not the notional or ‘constitutionally proper’, locus of control governs.
Application to s.115JH: Directly anticipates the anti-formalism of the POEM circular: board meetings staged abroad will not save a foreign company whose key decisions are in substance taken in India. It is the classic authority for piercing paper arrangements designed to fix residence outside the place of real control.
Status: House of Lords; leading authority on substance over form in corporate residence. Principle authority only.
V.VR.N.M. Subbayya Chettiar v. CIT, (1951) 19 ITR 168 (SC).
Principle: ‘Control and management’ means the central control and management — the head and brain — and not the carrying on of day-to-day business; it is situated where the controlling and directive power is actually exercised. Under the then test, even a part of the control and management being outside India was enough to displace residence; the burden of showing that control was wholly outside India lay on the assessee.
Application to s.115JH: The leading Indian statement of the ‘head and brain’ test — the indigenous root of POEM. While section 6(3) now uses the narrower POEM standard (rather than ‘wholly’ controlled and managed), Subbayya Chettiar remains the touchstone for distinguishing real top-level control from mere local business activity, which is the heart of any POEM enquiry.
Status: Supreme Court; foundational on the situs of control and management. Principle authority only.
Narottam and Pereira Ltd v. CIT, (1953) 23 ITR 454 (Bombay High Court).
Principle: Control and management is located where the controlling and directing power — the ‘head and brain’ — functions, i.e. where the directors’ superior, directive control is exercised, distinct from the place where managers or agents carry on the operations. Local business activity, however substantial, does not by itself locate control there.
Application to s.115JH: Reinforces the substance enquiry under POEM: extensive Indian operations of a foreign company do not make it resident unless the superior, directive control — the key management and commercial decisions — is in substance exercised in India.
Status: Bombay High Court; a leading early elaboration of the ‘head and brain’ test, frequently cited with approval. Principle authority only.
Erin Estate, Galaha v. CIT, (1958) 34 ITR 1 (SC).
Principle: The residence of a person other than an individual turns on the situs of control and management of its affairs during the year; where some part of that control is exercised outside India, the entity is not resident under a ‘wholly controlled and managed in India’ test — the enquiry is into the actual seat of controlling power.
Application to s.115JH: Confirms, at Supreme Court level, that residence is determined by the factual locus of controlling power, the question POEM re-frames in ‘effective management’ terms; useful for showing the continuity of the underlying substance enquiry.
Status: Supreme Court; authority on the control-and-management residence test. Principle authority only.
CIT v. Nandlal Gandalal, (1960) 40 ITR 1 (SC).
Principle: ‘Control and management’ signifies the controlling and directive power, the ‘head and brain’, and ‘situated’ implies a degree of permanence; the seat of that power, not the place of routine business activity, fixes residence.
Application to s.115JH: Adds the element of permanence to the control enquiry — relevant to POEM, where occasional or one-off decision-making in India is weighed against the settled seat of the company’s effective management.
Status: Supreme Court; refines the control-and-management test. Principle authority only.
Cluster C-3 : Substance over form and the ‘look-at’ approach (POEM context)
Vodafone International Holdings BV v. Union of India, (2012) 341 ITR 1 (SC).
Principle: Genuine, strategically planned corporate structures are to be respected; tax consequences turn on a ‘look-at’ of the transaction as a whole, examining its true legal nature and commercial substance rather than dissecting it artificially. Substance matters, but legal form honestly adopted is not to be disregarded merely because it is tax-efficient.
Application to s.115JH: Frames the calibration a POEM determination requires: the enquiry looks to the real seat of effective management (substance), but a genuine foreign holding or operating structure is not to be treated as Indian-resident simply because its shareholders or some advisers are in India. Both the pro-revenue (substance) and pro-assessee (respect for genuine structure) sides of the POEM debate draw on Vodafone.
Status: Supreme Court; the leading modern authority on substance, form and the look-at approach. Principle authority only — decided on offshore indirect transfer, not on section 115JH or POEM residence.
Principle: A company incorporated abroad whose affairs are in reality controlled and managed from India — a conduit or shell with no real overseas management — may be treated as resident in India on the facts; the situs of actual control, not the certificate of incorporation, governs.
Application to s.115JH: An illustration, at Tribunal level and under the pre-POEM test, of the very mischief POEM and section 115JH target: foreign-incorporated companies managed from India. Cited as a factual illustration of ‘control from India’, not as authority on section 115JH or on the POEM standard itself.
Status: ITAT Delhi; illustrative only, decided under the former control-and-management test. Principle/illustration authority only.
Cluster C-4 : The non obstante clause — ‘notwithstanding anything contained in this Act’
South India Corporation (P) Ltd v. Secretary, Board of Revenue, Trivandrum, AIR 1964 SC 207.
Principle: A non obstante clause is a legislative device to give the enacting part overriding effect over the provisions or law mentioned in it; its reach is governed by, and limited to, what it is intended to override.
Application to s.115JH: The opening words ‘notwithstanding anything contained in this Act’ in sub-sections (1) and (2) override the ordinary computation, depreciation, loss and procedural provisions only to the extent of the notified adaptations and the targeted recapture power; they are not a general dispensation from the Act.
Status: Supreme Court; settled authority on the construction of non obstante clauses. Principle authority only.
Chandavarkar Sita Ratna Rao v. Ashalata S. Guram, (1986) 4 SCC 447.
Principle: A non obstante clause must be read in the context of, and harmoniously with, the enacting words it qualifies; it removes obstacles only so far as is necessary to give effect to the main provision.
Application to s.115JH: Supports a confined reading of the non obstante clauses: in sub-section (2), the Assessing Officer’s power to re-compute ‘notwithstanding anything contained in this Act’ is aimed at removing procedural and limitation bars to recapture, not at enlarging the substantive charge.
Status: Supreme Court; leading exposition of the function of non obstante clauses. Principle authority only.
Cluster C-5 : Computation machinery — cost, written-down value and the integrated code
CIT v. B.C. Srinivasa Setty, (1981) 128 ITR 294 (SC).
Principle: Charging and computation provisions constitute an integrated code; the charge fails where the computation machinery cannot be applied — an asset with no ascertainable cost falls outside the charge.
Application to s.115JH: Explains why Notification No. 29/2018 must, and does, supply an opening written-down value and a method for brought-forward losses for the first-time resident: without that machinery, the income of a company with no Indian tax history could not be computed coherently. The notification preserves the integrity of the computation code on transition.
Status: Supreme Court; foundational on the integrated charge/computation code. Principle authority only.
Cluster C-6 : Carry-forward of losses and depreciation — only where the statute provides
Principle: Carry-forward and set-off of losses and unabsorbed depreciation are creatures of statute; they are available only where, and to the extent that, the Act expressly provides, and do not survive a change of status as of right.
Application to s.115JH: Confirms that a first-time POEM resident’s foreign losses and depreciation enter the Indian computation only because Notification No. 29/2018 deems them to; the continuity of these attributes cannot be assumed and is precisely what the section-plus-notification machinery had to create.
Status: Supreme Court; foundational on the statutory basis of loss carry-forward. Principle authority only.
Cluster C-7 : Strict construction of conditional relief; benefit lost on breach
Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Co., (2018) 9 SCC 1 (SC, Constitution Bench).
Principle: An exemption or relief provision is construed strictly; the burden of proving entitlement is on the assessee, and ambiguity in an exemption is resolved in favour of the revenue.
Application to s.115JH: The conditions in Notification No. 29/2018 are conditions of entitlement to a tailored relief; the assessee bears the burden of demonstrating compliance, and a doubt as to fulfilment of a condition is resolved against the relief, with recapture under sub-section (2) following on breach.
Status: Supreme Court Constitution Bench; the current governing authority on strict construction of exemptions. Principle authority only.
Novopan India Ltd v. CCE & Customs, 1994 Supp (3) SCC 606 (SC).
Principle: A person claiming the benefit of an exemption must establish that the case falls clearly within its terms; an exemption is construed strictly at the threshold of eligibility.
Application to s.115JH: Reinforces that each notified condition for the transitional regime must be clearly satisfied; substantial or partial compliance does not suffice, and the relief is forfeited where eligibility is not clearly made out.
Status: Supreme Court; classic statement on strict construction of exemptions. Principle authority only.
Cluster C-8 : Recapture through section 154 — the ‘mistake apparent from the record’ limit
T.S. Balaram, ITO v. Volkart Brothers, (1971) 82 ITR 50 (SC).
Principle: The power under section 154 is confined to the rectification of a mistake ‘apparent from the record’ — an obvious and patent mistake, not one that requires a long-drawn process of reasoning on points on which two views are possible; a debatable question of law is not such a mistake.
Application to s.115JH: Sub-section (2)(iii) routes recapture through section 154 with a special four-year limitation. Where the alleged breach of a notified condition is itself contested on facts or law, the Volkart Brothers limit means section 154 may not be the apt vehicle, and the substantive re-computation power in sub-section (2)(ii) ‘notwithstanding anything contained in this Act’ (or a regular reassessment) may be required. This is the principal latent dispute embedded in the section.
Status: Supreme Court; the governing authority on the scope of section 154. Principle authority only.
Mepco Industries Ltd v. CIT, (2009) 319 ITR 208 (SC).
Principle: A mere change of opinion, or a debatable issue, cannot be corrected under section 154; rectification is limited to glaring and obvious errors of fact or law.
Application to s.115JH: Confirms the Volkart Brothers limit in a direct-tax setting and reinforces that recapture under sub-section (2) for a genuinely disputed breach cannot be forced through the section 154 channel as a substitute for substantive adjudication.
(1) Settle residence first, then reach for section 115JH. The section is engaged only after a section 6(3) POEM finding. Build the POEM analysis on Circular No. 6/2017 (ABOI test; substance of key decisions) and confirm the company is above the ₹50-crore turnover threshold in Circular No. 8/2017 — below it, POEM (and hence section 115JH) does not apply at all.
(2) Treat Notification No. 29/2018, not the bare section, as the operative checklist. Work through each adaptation — opening WDV, year-wise brought-forward loss and unabsorbed depreciation from the foreign tax record, accounting-year alignment, TDS continuity, foreign-tax-credit spreading, the no-double-benefit guard, the two-succeeding-years rule and the dual-status conflict rule — and document the source data from the foreign tax record.
(3) Remember POEM widens the base, not the rate. By the dual-status conflict rule, a POEM resident is taxed on worldwide income but at the foreign-company rate, retaining the beneficial provisions available to a foreign company. Do not compute tax at domestic-company rates.
(4) Use the proviso to protect intervening years. Where residence is determined with hindsight in assessment proceedings, the proviso (FA 2017) carries the regime to succeeding resident years ending on or before completion of those proceedings — claim it expressly so the transitional computation is not confined to a single year.
(5) Mind the DTAA tie-breaker. A POEM resident of India may also be resident in its state of incorporation; invoke the residence article of the applicable treaty, which may allocate residence away from India and displace the domestic POEM consequence. Section 115JH does not override treaty relief.
(6) Anticipate the section 154 friction on recapture. If the department asserts a breach of a notified condition years later under section 154, test whether the breach is genuinely ‘apparent from the record’ (Volkart Brothers; Mepco Industries); a contested breach may fall outside section 154, and the appropriate route may be the sub-section (2)(ii) re-computation power or reassessment.
(7) Keep the foreign tax record. Because opening WDV, losses and unabsorbed depreciation are imported from the foreign tax record and tracked against later foreign revisions, retain the foreign assessments and depreciation schedules; the Indian computation depends on them.
(8) Confirm continuing live relevance. Section 115JH remains operative and unamended by the Finance Act, 2026; the POEM-residence scheme has been carried forward in the new direct-tax code (the Income-tax Act, 2025), so the principles in this chapter retain forward relevance even as section numbering changes.
E. SOURCES
Income-tax Act, 1961, Chapter XII-BC, section 115JH (Bare Act, as amended up to the Finance Act, 2025) — text verified against the canonical bare-Act source (including the Finance Act, 2017 proviso). Section 6(3) and its Explanation (POEM), as substituted by the Finance Act, 2015, w.e.f. AY 2017-18. CBDT Notification No. 29/2018 [S.O. 3039(E)], 22 June 2018 [F. No. 370142/19/2017-TPL] — content verified against the published notification and CBDT press release. CBDT Circular No. 6/2017, 24 January 2017 (POEM Guiding Principles) and Circular No. 8/2017, 23 February 2017 (₹50-crore turnover carve-out) [F. No. 142/11/2015-TPL]. Finance Act, 2016 (insertion of Chapter XII-BC and section 115JH); Finance Act, 2017 (insertion of the proviso); Finance Act, 2026 (no amendment to this chapter — verified against the Finance Act, 2026 text and the BharatTax FA-2026 tracker). Cognate authorities (cited on principle only): De Beers Consolidated Mines Ltd v. Howe [1906] AC 455 (HL); Unit Construction Co Ltd v. Bullock [1960] AC 351 / (1959) 38 ITR (ED) 79 / 38 TC 712 (HL); V.VR.N.M. Subbayya Chettiar (1951) 19 ITR 168 (SC); Narottam and Pereira Ltd (1953) 23 ITR 454 (Bom); Erin Estate, Galaha (1958) 34 ITR 1 (SC); CIT v. Nandlal Gandalal (1960) 40 ITR 1 (SC); Vodafone International Holdings BV (2012) 341 ITR 1 (SC); Radha Rani Holdings (P) Ltd (2007) 110 TTJ 920 (ITAT Del); South India Corporation AIR 1964 SC 207; Chandavarkar Sita Ratna Rao (1986) 4 SCC 447; B.C. Srinivasa Setty (1981) 128 ITR 294 (SC); Saraswati Industrial Syndicate (1990) 186 ITR 278 (SC); Dilip Kumar & Co. (2018) 9 SCC 1 (SC, CB); Novopan India 1994 Supp (3) SCC 606 (SC); Volkart Brothers (1971) 82 ITR 50 (SC); Mepco Industries (2009) 319 ITR 208 (SC).
CHAPTER XII-BC — SPECIAL PROVISIONS RELATING TO FOREIGN COMPANY SAID TO BE RESIDENT IN INDIA
SECTION 115JH — FOREIGN COMPANY SAID TO BE RESIDENT IN INDIA
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · Live Provision — the sole section of Chapter XII-BC
Status: LIVE. Chapter XII-BC, consisting of the single section 115JH, was inserted by the Finance Act, 2016, with effect from 1 April 2017 (assessment year 2017-18 onwards). It supplies the transitional and computational regime for a foreign company that becomes resident in India for the first time because its place of effective management (POEM) is found, under section 6(3), to be in India in a previous year. A proviso extending the regime to succeeding years was inserted by the Finance Act, 2017, with effect from 1 April 2018. The section remains on the statute book, unchanged in substance.
Operative trigger: The regime is engaged only where two conditions co-exist — (a) a foreign company “is said to be resident in India” in a previous year by reason of its POEM under section 6(3); and (b) it “has not been resident in India in any of the previous years preceding” that year, i.e. it is the first year of Indian residence. The exceptions, modifications and adaptations promised by the section take effect only through, and to the extent specified in, the Central Government notification — CBDT Notification No. 29/2018 [S.O. 3039(E)] dated 22 June 2018. The substance of the relief therefore lives in that notification, not in the bare section.
Companion materials: “Place of effective management” is defined in the Explanation to section 6(3) as “a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made”. Its determination is governed by CBDT Circular No. 6/2017 dated 24 January 2017 (the Guiding Principles for determination of POEM). CBDT Circular No. 8/2017 dated 23 February 2017 clarifies that the POEM test does not apply to a company having turnover or gross receipts of ₹50 crore or less in a financial year — a de minimis carve-out that, in practice, keeps section 115JH off the table for the great majority of foreign companies.
Finance Act, 2026 impact: None. The Finance Act, 2026 does not amend section 115JH or Chapter XII-BC. The only amendment in the 115J family made by the Finance Act, 2026 is to section 115JB (MAT) in Chapter XII-B (extension of the MAT carve-out to certain non-residents opting for presumptive taxation, with effect from AY 2026-27); that does not touch this chapter.
Candour note on case law: As at June 2026 there is no reported decision of the Supreme Court, of any High Court, or of the Income-tax Appellate Tribunal that directly construes section 115JH. POEM-based residence of a foreign company became operative only from assessment year 2017-18; the de minimis ₹50-crore carve-out narrows the field further; the first assessments are recent; and no judgment interpreting the section itself has yet surfaced. In keeping with the discipline of this treatise, no case has been invented or stretched. Part C therefore presents (1) the governing primary materials — section 6(3), the enabling notification and the two POEM circulars — which are the real ‘law’ a practitioner applies; and (2) a carefully labelled body of cognate Supreme Court, High Court and English authority on the two questions the section turns on: when is a foreign company ‘resident’ (the ‘central management and control’ / POEM jurisprudence), and how do the borrowed mechanisms (computation machinery, carry-forward of losses, strict construction of conditional relief, and section 154 recapture) operate. Each cognate authority is expressly flagged as authority on the underlying principle, not a decision on section 115JH itself.
A. SECTION COMMENTARY
A.1 Purpose and place in the scheme of the Act
Until assessment year 2016-17 a foreign company could be ‘resident’ in India only if the control and management of its affairs was situated wholly in India during the year — a test so easily defeated (a single board meeting abroad sufficed) that it was, in practice, a dead letter. The Finance Act, 2015 replaced that test with the ‘place of effective management’ (POEM) standard in section 6(3), aligning Indian law with the internationally accepted tie-breaker in Article 4 of the OECD and UN Model Conventions. The avowed object, stated in the Memorandum to the Finance Bill and in Circular No. 6/2017, is to catch shell companies and companies artificially structured to retain income outside India while their real control and management abide in India. POEM, however, created a new and disruptive consequence: a company incorporated abroad, which had always filed as a non-resident taxed only on its Indian-source income, could suddenly find itself a resident taxed on its worldwide income — with no Indian tax history, no Indian books, no opening written-down values and no carried-forward losses recognised under the Act. Section 115JH was enacted by the Finance Act, 2016 to bridge precisely this discontinuity. It is not a charging provision and not an exemption; it is an enabling, transitional provision that authorises the Central Government to switch on, by notification, a tailored set of ‘exceptions, modifications and adaptations’ to the Act’s computation, depreciation, loss carry-forward, collection-and-recovery and anti-avoidance provisions, so that a first-time POEM resident can be taxed coherently. Conceptually it is the residence counterpart of the conversion-neutrality provision in section 115JG (Chapter XII-BB): both translate a structural change of status into the income-tax computation without an arbitrary cliff-edge, and both deliver the detail through delegated legislation.
A.2 The POEM trigger — section 6(3) and the guiding circulars
Section 115JH does nothing until a foreign company is first ‘said to be resident in India’. That determination is made under section 6(3), which (as substituted with effect from AY 2017-18) provides that a company is resident in India in any previous year if it is an Indian company, or if its place of effective management in that year is in India. The Explanation defines POEM as the place where the key management and commercial decisions necessary for the conduct of the business as a whole are, in substance, made. The administrative gloss is supplied by Circular No. 6/2017 (Guiding Principles), which distinguishes companies with ‘active business outside India’ (ABOI) — for whom POEM is presumed to be outside India if the majority of board meetings are held outside India — from other companies, for whom a two-stage enquiry identifies the persons who actually make the key decisions and then locates where those decisions are in substance made. The Guiding Principles repeatedly warn against form (the place of board meetings, the situs of the registered office, the residence of shareholders) and insist on substance (where the real top-level management functions). Circular No. 8/2017 supplies the threshold filter: the POEM regime does not apply to a company whose turnover or gross receipts in the financial year are ₹50 crore or less. The practical upshot is that section 115JH bites only on substantial foreign companies whose effective management has genuinely shifted to India — a deliberately narrow class.
A.3 The operative scheme of section 115JH (editorial summary)
This is an editorial summary to make the materials intelligible; it is NOT a verbatim reproduction — for the exact words see Part B. Sub-section (1) is the enabling core: where a foreign company is said to be resident in India in a previous year and was not resident in any preceding previous year, then — notwithstanding anything in the Act and subject to conditions notified by the Central Government — the Act’s provisions on (i) computation of total income, (ii) treatment of unabsorbed depreciation, (iii) set-off and carry-forward of losses, (iv) collection and recovery of tax, and (v) the special provisions relating to avoidance of tax, apply for that previous year ‘with such exceptions, modifications and adaptations as may be specified in that notification’. The proviso (Finance Act, 2017) carries the same treatment forward to any succeeding previous year in which the company is again resident, where the residence determination for the first year is made in assessment proceedings that conclude on or after the end of that succeeding year — a provision that prevents the relief from being lost merely because the POEM finding is made with hindsight. Sub-section (2) is the recapture machinery: where a benefit has been claimed and granted under sub-section (1) and the company subsequently fails to comply with a notified condition, (i) the benefit is deemed to have been wrongly allowed; (ii) the Assessing Officer may, notwithstanding anything in the Act, re-compute total income for that previous year as if the exceptions, modifications and adaptations had never applied; and (iii) section 154 applies, with its four-year limitation reckoned from the end of the previous year in which the failure occurs. Sub-section (3) requires every notification under the section to be laid before each House of Parliament.
A.4 The notified exceptions, modifications and adaptations — Notification No. 29/2018
The relief promised by sub-section (1) was switched on by CBDT Notification No. 29/2018 [S.O. 3039(E)] dated 22 June 2018 [F. No. 370142/19/2017-TPL], applicable from assessment year 2017-18, after a draft had been put out for public comment in 2017. Its load-bearing adaptations are: (a) Opening written-down value — where the foreign company is assessed to tax abroad and depreciation is taken into account there, the opening WDV on the first day of the previous year is the WDV in its foreign tax record; where depreciation is not taken into account abroad, the opening WDV is computed as if the asset had been installed and used and depreciation actually allowed under the foreign tax law. (b) Brought-forward loss and unabsorbed depreciation — these are determined, year-wise, from the foreign tax record as on the first day of the previous year, and are thereafter revised in India to the extent they are revised or modified abroad by any action of the foreign tax or legal authority. (c) Accounting-year alignment — where the foreign company’s accounting year does not end on 31 March, detailed rules align the foreign period to the Indian previous year (a residual period of less than six months is folded into the preceding accounting year; a period of six months or more is treated as a separate accounting year), and loss/unabsorbed depreciation is allocated to Indian previous years on a proportionate basis. (d) TDS continuity — compliance with Chapter XVII-B (deduction of tax at source) as it applied to the company before it became resident is treated as sufficient compliance. (e) Foreign tax credit across years — where the same income is offered to tax in India over more than one year, credit for foreign tax paid is allowed across those years in the proportion in which the income is assessed in India. (f) The no-double-benefit guard — the exceptions, modifications and adaptations do not apply to income of the foreign company that would have been chargeable to tax in India even if it had not become resident on account of POEM (i.e. its pre-existing Indian-source income continues to be taxed as before). (g) Two succeeding years — where the company is resident for two succeeding previous years, the adaptations apply to the later year with the WDV, brought-forward loss and unabsorbed depreciation carried from the last day of the preceding previous year. (h) The dual-status conflict rule — where a provision applicable to the company as a resident (by POEM) conflicts with a provision applicable to it as a foreign company, the latter generally prevails; in particular the rate of tax remains the rate applicable to a foreign company, though beneficial provisions available to it as a foreign company continue to apply. This last rule is of first importance: POEM widens the scope of the charge to worldwide income, but it does not convert a foreign company into a domestic company or lower its tax rate.
A.5 The proviso — carry-through to succeeding years
A POEM finding is, by its nature, made after the year has closed — often in assessment proceedings years later. Without the proviso (inserted by the Finance Act, 2017, w.e.f. 1 April 2018), the transitional adaptations could be claimed only for the single ‘first’ year, leaving the intervening years — in which the company was in fact resident but had not yet been so held — without any coherent computational regime. The proviso closes that gap: where the determination that the foreign company is resident is made in assessment proceedings relevant to a previous year, the regime of sub-section (1) also applies to any later previous year in which the company is resident, provided that later year ends on or before the date on which the assessment proceeding is completed. It is a pragmatic, taxpayer-protective provision that recognises the retrospective character of a POEM finding and prevents the relief from being defeated by the timing of the department’s own enquiry.
A.6 Recapture on breach — sub-section (2) and the section 154 mechanism
The relief is conditional throughout, not merely at the threshold. Sub-section (2) addresses the case where a benefit has been claimed and granted under sub-section (1) and a notified condition is subsequently broken. Three consequences follow: the benefit is deemed to have been wrongly allowed; the Assessing Officer may, ‘notwithstanding anything contained in this Act’, re-compute the total income for that previous year as if the exceptions, modifications and adaptations had never applied; and section 154 is pressed into service as the procedural vehicle, with the four-year period in section 154(7) running not from the original order but from the end of the previous year in which the breach occurs. This bespoke limitation is what makes recapture workable long after the original assessment. It also embeds a latent tension, examined in Part C: section 154 is, by settled authority, confined to a ‘mistake apparent from the record’, whereas whether a notified condition has in fact been breached may be a contested, fact-and-law question — so the section 154 route, though expressly invoked, may in a disputed case sit uneasily with the Volkart Brothers limitation, and the substantive re-computation power in sub-section (2)(ii) (or a regular reassessment) may have to bear the weight.
A.7 Core doctrinal themes and interpretive issues
Theme (1) — Residence is a question of substance, not form. Section 115JH presupposes a POEM finding under section 6(3); the whole century of ‘central management and control’ jurisprudence (De Beers, Unit Construction, Subbayya Chettiar, Narottam & Pereira) is the interpretive backdrop to when a foreign company is ‘said to be resident’, even though POEM is a ‘substance of key decisions’ test and not identical to the older ‘wholly controlled and managed’ test.
Theme (2) — The section is enabling, not self-executing. Nothing flows from the bare words of sub-section (1) until Notification No. 29/2018 is engaged; the operative law is the notification, and the conditions in it are the touchstone for both entitlement and recapture.
Theme (3) — POEM widens the base but not the rate. By the dual-status conflict rule in the notification, a POEM resident is taxed on its worldwide income but continues to be taxed at the foreign-company rate and retains the beneficial provisions available to a foreign company; it is not re-characterised as a domestic company.
Theme (4) — The transition imports foreign tax attributes by deeming. Opening WDV, brought-forward losses and unabsorbed depreciation enter the Indian computation only because the notification deems them to, drawn from the foreign tax record — absent that deeming, a first-time resident would start with a blank slate, and the principle in Saraswati Industrial Syndicate (no carry-forward without statutory authority) would deny continuity.
Theme (5) — The non obstante clause is bounded. ‘Notwithstanding anything contained in this Act’ in sub-sections (1) and (2) displaces the Act’s ordinary computation and procedure only to the extent of the specified adaptations and the targeted recapture power; it is not a general charter to disregard the Act.
Theme (6) — Treaty interaction and dual residence. A company that is a POEM resident of India may also be a resident of its state of incorporation; the residence tie-breaker in the applicable Double Taxation Avoidance Agreement (typically the place-of-effective-management article) then governs, and may allocate residence away from India — a dimension that section 115JH itself does not address but which sits behind every POEM case.
Theme (7) — Recapture sits on the section 154 fault-line. Sub-section (2)’s use of section 154 for recapture is efficient where the breach is patent, but a genuinely disputed breach may fall outside the ‘mistake apparent from the record’ limit (Volkart Brothers; Mepco Industries), leaving the substantive re-computation power as the real engine of recapture.
B. STATUTORY POSITION (verbatim heading and operative text)
Reproduced verbatim from the Income-tax Act, 1961 (Bare Act, as amended up to the Finance Act, 2025; not amended by the Finance Act, 2026):
Foreign company said to be resident in India.
115JH. (1) Where a foreign company is said to be resident in India in any previous year and such foreign company has not been resident in India in any of the previous years preceding the said previous year, then, notwithstanding anything contained in this Act and subject to the conditions as may be notified by the Central Government in this behalf, the provisions of this Act relating to the computation of total income, treatment of unabsorbed depreciation, set off or carry forward and set off of losses, collection and recovery and special provisions relating to avoidance of tax shall apply with such exceptions, modifications and adaptations as may be specified in that notification for the said previous year:
Provided that where the determination regarding foreign company to be resident in India has been made in the assessment proceedings relevant to any previous year, then, the provisions of this sub-section shall also apply in respect of any other previous year, succeeding such previous year, if the foreign company is resident in India in that previous year and the previous year ends on or before the date on which such assessment proceeding is completed.
(2) Where, in a previous year, any benefit, exemption or relief has been claimed and granted to the foreign company in accordance with the provisions of sub-section (1), and, subsequently, there is failure to comply with any of the conditions specified in the notification issued under sub-section (1), then,—
(i) such benefit, exemption or relief shall be deemed to have been wrongly allowed;
(ii) the Assessing Officer may, notwithstanding anything contained in this Act, re-compute the total income of the assessee for the said previous year and make the necessary amendment as if the exceptions, modifications and adaptations referred to in sub-section (1) did not apply; and
(iii) the provisions of section 154 shall, so far as may be, apply thereto and the period of four years specified in sub-section (7) of that section being reckoned from the end of the previous year in which the failure to comply with the conditions referred to in sub-section (1) takes place.
(3) Every notification issued under this section shall be laid before each House of Parliament.
[Chapter XII-BC and section 115JH inserted by the Finance Act, 2016, w.e.f. 1-4-2017; the proviso to sub-section (1) inserted by the Finance Act, 2017, w.e.f. 1-4-2018.]
C. AUTHORITIES — GOVERNING PRIMARY MATERIALS AND COGNATE CASE LAW
Important: No decision of the Supreme Court, any High Court or the ITAT has, to date, directly interpreted section 115JH. The materials below are organised so that Cluster C-1 sets out the binding subordinate legislation and administrative guidance that actually govern an application of the section, and Clusters C-2 to C-8 set out cognate higher-court (and leading English) authority on each legal principle the section embodies. The cognate authorities are NOT decisions on section 115JH; each is included because the principle it lays down is the principle a tribunal would apply when section 115JH — or the POEM finding on which it depends — is litigated.
Cluster C-1 : The governing primary materials (binding law in an actual case)
Section 6(3), Income-tax Act, 1961 (as substituted by the Finance Act, 2015, w.e.f. AY 2017-18) and its Explanation.
Nature: The residence test for companies and the source of the POEM trigger that section 115JH presupposes.
Content: A company is resident in India in any previous year if it is an Indian company or if its place of effective management in that year is in India. The Explanation defines POEM as “a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made”.
Relevance: Section 115JH operates only once section 6(3) has fixed Indian residence on a foreign company for the first time; the section is meaningless without the section 6(3) finding.
Source: Income-tax Act, 1961, section 6(3); text verified against the canonical Bare Act.
CBDT Notification No. 29/2018 [S.O. 3039(E)], dated 22 June 2018 [F. No. 370142/19/2017-TPL].
Nature: Delegated legislation issued under section 115JH(1); the instrument that switches on the exceptions, modifications and adaptations. Applicable from AY 2017-18.
Content: Prescribes the transitional computation regime for a first-time POEM resident — opening written-down value from the foreign tax record (or computed as if foreign depreciation had been allowed); year-wise brought-forward loss and unabsorbed depreciation from the foreign tax record, revised to track foreign revisions; alignment of a non-March accounting year with the Indian previous year and proportionate allocation of losses; Chapter XVII-B (TDS) compliance before residence treated as sufficient; foreign tax credit spread across years in which the income is assessed in India; a no-double-benefit guard excluding income already chargeable in India irrespective of POEM; rules for two succeeding resident years; and the dual-status conflict rule under which the foreign-company provisions (including the rate of tax) generally prevail over the resident provisions.
Relevance: This notification is, in practice, the operative law of section 115JH. Any dispute on the section will turn first on whether its conditions are satisfied; its conditions are also the touchstone for recapture under sub-section (2).
Source: Gazette of India, Extraordinary, Part II—Section 3(ii); CBDT/Department of Revenue; content verified against the published notification and the CBDT press release.
CBDT Circular No. 6 of 2017, dated 24 January 2017 — Guiding Principles for determination of Place of Effective Management (POEM) of a company.
Nature: Administrative guidance binding on the Department under section 119; the framework for the section 6(3) POEM determination.
Content: Distinguishes companies with ‘active business outside India’ (ABOI), for whom POEM is presumed outside India if a majority of board meetings are held outside India, from other companies, for whom a two-stage substance test identifies the persons who make the key management and commercial decisions and where those decisions are in substance made; it cautions against form (place of board meetings, registered office, shareholder residence).
Relevance: Supplies the analytical method by which the threshold residence question — the gateway to section 115JH — is decided; a practitioner contesting or conceding POEM works from this circular.
Source: CBDT Circular No. 6/2017 [F. No. 142/11/2015-TPL]; text verified against the published circular.
CBDT Circular No. 8 of 2017, dated 23 February 2017 — POEM de minimis clarification.
Nature: Administrative clarification under section 119.
Content: The POEM provisions shall not apply to a company having turnover or gross receipts of ₹50 crore or less in a financial year.
Relevance: Defines the practical universe of section 115JH: the section can bite only on substantial foreign companies, because smaller companies are taken outside the POEM test altogether.
Source: CBDT Circular No. 8/2017 [F. No. 142/11/2015-TPL]; text verified against the published circular.
Cluster C-2 : When is a company ‘resident’ — central management and control / POEM (foundational)
De Beers Consolidated Mines Ltd v. Howe (Surveyor of Taxes), [1906] AC 455 (House of Lords).
Principle: A company resides, for tax purposes, where its real business is carried on, and the real business is carried on where the central management and control actually abides — not necessarily where it is incorporated or where its operations are physically conducted. (Lord Loreburn LC.)
Application to s.115JH: This is the conceptual ancestor of POEM. The section 6(3) ‘place of effective management’ test is the modern, substance-focused descendant of the De Beers ‘central management and control’ rule; the De Beers enquiry — where do the highest-level decisions actually take place — is the question every POEM determination ultimately asks.
Status: House of Lords; the foundational authority on corporate residence, repeatedly approved by the Supreme Court of India. Cited here on principle only — not a decision on section 115JH.
Unit Construction Co Ltd v. Bullock (Inspector of Taxes), [1960] AC 351 : (1959) 38 ITR (ED) 79 : 38 TC 712 (House of Lords).
Principle: Residence depends on where central management and control are in fact exercised, not where the company’s constitution says they should be. Where the African subsidiaries’ real control was assumed by the London parent board, the subsidiaries were resident in the United Kingdom notwithstanding articles requiring their boards to meet abroad; the actual, not the notional or ‘constitutionally proper’, locus of control governs.
Application to s.115JH: Directly anticipates the anti-formalism of the POEM circular: board meetings staged abroad will not save a foreign company whose key decisions are in substance taken in India. It is the classic authority for piercing paper arrangements designed to fix residence outside the place of real control.
Status: House of Lords; leading authority on substance over form in corporate residence. Principle authority only.
V.VR.N.M. Subbayya Chettiar v. CIT, (1951) 19 ITR 168 (SC).
Principle: ‘Control and management’ means the central control and management — the head and brain — and not the carrying on of day-to-day business; it is situated where the controlling and directive power is actually exercised. Under the then test, even a part of the control and management being outside India was enough to displace residence; the burden of showing that control was wholly outside India lay on the assessee.
Application to s.115JH: The leading Indian statement of the ‘head and brain’ test — the indigenous root of POEM. While section 6(3) now uses the narrower POEM standard (rather than ‘wholly’ controlled and managed), Subbayya Chettiar remains the touchstone for distinguishing real top-level control from mere local business activity, which is the heart of any POEM enquiry.
Status: Supreme Court; foundational on the situs of control and management. Principle authority only.
Narottam and Pereira Ltd v. CIT, (1953) 23 ITR 454 (Bombay High Court).
Principle: Control and management is located where the controlling and directing power — the ‘head and brain’ — functions, i.e. where the directors’ superior, directive control is exercised, distinct from the place where managers or agents carry on the operations. Local business activity, however substantial, does not by itself locate control there.
Application to s.115JH: Reinforces the substance enquiry under POEM: extensive Indian operations of a foreign company do not make it resident unless the superior, directive control — the key management and commercial decisions — is in substance exercised in India.
Status: Bombay High Court; a leading early elaboration of the ‘head and brain’ test, frequently cited with approval. Principle authority only.
Erin Estate, Galaha v. CIT, (1958) 34 ITR 1 (SC).
Principle: The residence of a person other than an individual turns on the situs of control and management of its affairs during the year; where some part of that control is exercised outside India, the entity is not resident under a ‘wholly controlled and managed in India’ test — the enquiry is into the actual seat of controlling power.
Application to s.115JH: Confirms, at Supreme Court level, that residence is determined by the factual locus of controlling power, the question POEM re-frames in ‘effective management’ terms; useful for showing the continuity of the underlying substance enquiry.
Status: Supreme Court; authority on the control-and-management residence test. Principle authority only.
CIT v. Nandlal Gandalal, (1960) 40 ITR 1 (SC).
Principle: ‘Control and management’ signifies the controlling and directive power, the ‘head and brain’, and ‘situated’ implies a degree of permanence; the seat of that power, not the place of routine business activity, fixes residence.
Application to s.115JH: Adds the element of permanence to the control enquiry — relevant to POEM, where occasional or one-off decision-making in India is weighed against the settled seat of the company’s effective management.
Status: Supreme Court; refines the control-and-management test. Principle authority only.
Cluster C-3 : Substance over form and the ‘look-at’ approach (POEM context)
Vodafone International Holdings BV v. Union of India, (2012) 341 ITR 1 (SC).
Principle: Genuine, strategically planned corporate structures are to be respected; tax consequences turn on a ‘look-at’ of the transaction as a whole, examining its true legal nature and commercial substance rather than dissecting it artificially. Substance matters, but legal form honestly adopted is not to be disregarded merely because it is tax-efficient.
Application to s.115JH: Frames the calibration a POEM determination requires: the enquiry looks to the real seat of effective management (substance), but a genuine foreign holding or operating structure is not to be treated as Indian-resident simply because its shareholders or some advisers are in India. Both the pro-revenue (substance) and pro-assessee (respect for genuine structure) sides of the POEM debate draw on Vodafone.
Status: Supreme Court; the leading modern authority on substance, form and the look-at approach. Principle authority only — decided on offshore indirect transfer, not on section 115JH or POEM residence.
Radha Rani Holdings (P) Ltd v. ADIT, (2007) 110 TTJ 920 (ITAT, Delhi).
Principle: A company incorporated abroad whose affairs are in reality controlled and managed from India — a conduit or shell with no real overseas management — may be treated as resident in India on the facts; the situs of actual control, not the certificate of incorporation, governs.
Application to s.115JH: An illustration, at Tribunal level and under the pre-POEM test, of the very mischief POEM and section 115JH target: foreign-incorporated companies managed from India. Cited as a factual illustration of ‘control from India’, not as authority on section 115JH or on the POEM standard itself.
Status: ITAT Delhi; illustrative only, decided under the former control-and-management test. Principle/illustration authority only.
Cluster C-4 : The non obstante clause — ‘notwithstanding anything contained in this Act’
South India Corporation (P) Ltd v. Secretary, Board of Revenue, Trivandrum, AIR 1964 SC 207.
Principle: A non obstante clause is a legislative device to give the enacting part overriding effect over the provisions or law mentioned in it; its reach is governed by, and limited to, what it is intended to override.
Application to s.115JH: The opening words ‘notwithstanding anything contained in this Act’ in sub-sections (1) and (2) override the ordinary computation, depreciation, loss and procedural provisions only to the extent of the notified adaptations and the targeted recapture power; they are not a general dispensation from the Act.
Status: Supreme Court; settled authority on the construction of non obstante clauses. Principle authority only.
Chandavarkar Sita Ratna Rao v. Ashalata S. Guram, (1986) 4 SCC 447.
Principle: A non obstante clause must be read in the context of, and harmoniously with, the enacting words it qualifies; it removes obstacles only so far as is necessary to give effect to the main provision.
Application to s.115JH: Supports a confined reading of the non obstante clauses: in sub-section (2), the Assessing Officer’s power to re-compute ‘notwithstanding anything contained in this Act’ is aimed at removing procedural and limitation bars to recapture, not at enlarging the substantive charge.
Status: Supreme Court; leading exposition of the function of non obstante clauses. Principle authority only.
Cluster C-5 : Computation machinery — cost, written-down value and the integrated code
CIT v. B.C. Srinivasa Setty, (1981) 128 ITR 294 (SC).
Principle: Charging and computation provisions constitute an integrated code; the charge fails where the computation machinery cannot be applied — an asset with no ascertainable cost falls outside the charge.
Application to s.115JH: Explains why Notification No. 29/2018 must, and does, supply an opening written-down value and a method for brought-forward losses for the first-time resident: without that machinery, the income of a company with no Indian tax history could not be computed coherently. The notification preserves the integrity of the computation code on transition.
Status: Supreme Court; foundational on the integrated charge/computation code. Principle authority only.
Cluster C-6 : Carry-forward of losses and depreciation — only where the statute provides
Saraswati Industrial Syndicate Ltd v. CIT, (1990) 186 ITR 278 (SC).
Principle: Carry-forward and set-off of losses and unabsorbed depreciation are creatures of statute; they are available only where, and to the extent that, the Act expressly provides, and do not survive a change of status as of right.
Application to s.115JH: Confirms that a first-time POEM resident’s foreign losses and depreciation enter the Indian computation only because Notification No. 29/2018 deems them to; the continuity of these attributes cannot be assumed and is precisely what the section-plus-notification machinery had to create.
Status: Supreme Court; foundational on the statutory basis of loss carry-forward. Principle authority only.
Cluster C-7 : Strict construction of conditional relief; benefit lost on breach
Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Co., (2018) 9 SCC 1 (SC, Constitution Bench).
Principle: An exemption or relief provision is construed strictly; the burden of proving entitlement is on the assessee, and ambiguity in an exemption is resolved in favour of the revenue.
Application to s.115JH: The conditions in Notification No. 29/2018 are conditions of entitlement to a tailored relief; the assessee bears the burden of demonstrating compliance, and a doubt as to fulfilment of a condition is resolved against the relief, with recapture under sub-section (2) following on breach.
Status: Supreme Court Constitution Bench; the current governing authority on strict construction of exemptions. Principle authority only.
Novopan India Ltd v. CCE & Customs, 1994 Supp (3) SCC 606 (SC).
Principle: A person claiming the benefit of an exemption must establish that the case falls clearly within its terms; an exemption is construed strictly at the threshold of eligibility.
Application to s.115JH: Reinforces that each notified condition for the transitional regime must be clearly satisfied; substantial or partial compliance does not suffice, and the relief is forfeited where eligibility is not clearly made out.
Status: Supreme Court; classic statement on strict construction of exemptions. Principle authority only.
Cluster C-8 : Recapture through section 154 — the ‘mistake apparent from the record’ limit
T.S. Balaram, ITO v. Volkart Brothers, (1971) 82 ITR 50 (SC).
Principle: The power under section 154 is confined to the rectification of a mistake ‘apparent from the record’ — an obvious and patent mistake, not one that requires a long-drawn process of reasoning on points on which two views are possible; a debatable question of law is not such a mistake.
Application to s.115JH: Sub-section (2)(iii) routes recapture through section 154 with a special four-year limitation. Where the alleged breach of a notified condition is itself contested on facts or law, the Volkart Brothers limit means section 154 may not be the apt vehicle, and the substantive re-computation power in sub-section (2)(ii) ‘notwithstanding anything contained in this Act’ (or a regular reassessment) may be required. This is the principal latent dispute embedded in the section.
Status: Supreme Court; the governing authority on the scope of section 154. Principle authority only.
Mepco Industries Ltd v. CIT, (2009) 319 ITR 208 (SC).
Principle: A mere change of opinion, or a debatable issue, cannot be corrected under section 154; rectification is limited to glaring and obvious errors of fact or law.
Application to s.115JH: Confirms the Volkart Brothers limit in a direct-tax setting and reinforces that recapture under sub-section (2) for a genuinely disputed breach cannot be forced through the section 154 channel as a substitute for substantive adjudication.
Status: Supreme Court; principle authority on section 154. Principle authority only.
D. PRACTITIONER NOTES
(1) Settle residence first, then reach for section 115JH. The section is engaged only after a section 6(3) POEM finding. Build the POEM analysis on Circular No. 6/2017 (ABOI test; substance of key decisions) and confirm the company is above the ₹50-crore turnover threshold in Circular No. 8/2017 — below it, POEM (and hence section 115JH) does not apply at all.
(2) Treat Notification No. 29/2018, not the bare section, as the operative checklist. Work through each adaptation — opening WDV, year-wise brought-forward loss and unabsorbed depreciation from the foreign tax record, accounting-year alignment, TDS continuity, foreign-tax-credit spreading, the no-double-benefit guard, the two-succeeding-years rule and the dual-status conflict rule — and document the source data from the foreign tax record.
(3) Remember POEM widens the base, not the rate. By the dual-status conflict rule, a POEM resident is taxed on worldwide income but at the foreign-company rate, retaining the beneficial provisions available to a foreign company. Do not compute tax at domestic-company rates.
(4) Use the proviso to protect intervening years. Where residence is determined with hindsight in assessment proceedings, the proviso (FA 2017) carries the regime to succeeding resident years ending on or before completion of those proceedings — claim it expressly so the transitional computation is not confined to a single year.
(5) Mind the DTAA tie-breaker. A POEM resident of India may also be resident in its state of incorporation; invoke the residence article of the applicable treaty, which may allocate residence away from India and displace the domestic POEM consequence. Section 115JH does not override treaty relief.
(6) Anticipate the section 154 friction on recapture. If the department asserts a breach of a notified condition years later under section 154, test whether the breach is genuinely ‘apparent from the record’ (Volkart Brothers; Mepco Industries); a contested breach may fall outside section 154, and the appropriate route may be the sub-section (2)(ii) re-computation power or reassessment.
(7) Keep the foreign tax record. Because opening WDV, losses and unabsorbed depreciation are imported from the foreign tax record and tracked against later foreign revisions, retain the foreign assessments and depreciation schedules; the Indian computation depends on them.
(8) Confirm continuing live relevance. Section 115JH remains operative and unamended by the Finance Act, 2026; the POEM-residence scheme has been carried forward in the new direct-tax code (the Income-tax Act, 2025), so the principles in this chapter retain forward relevance even as section numbering changes.
E. SOURCES
Income-tax Act, 1961, Chapter XII-BC, section 115JH (Bare Act, as amended up to the Finance Act, 2025) — text verified against the canonical bare-Act source (including the Finance Act, 2017 proviso). Section 6(3) and its Explanation (POEM), as substituted by the Finance Act, 2015, w.e.f. AY 2017-18. CBDT Notification No. 29/2018 [S.O. 3039(E)], 22 June 2018 [F. No. 370142/19/2017-TPL] — content verified against the published notification and CBDT press release. CBDT Circular No. 6/2017, 24 January 2017 (POEM Guiding Principles) and Circular No. 8/2017, 23 February 2017 (₹50-crore turnover carve-out) [F. No. 142/11/2015-TPL]. Finance Act, 2016 (insertion of Chapter XII-BC and section 115JH); Finance Act, 2017 (insertion of the proviso); Finance Act, 2026 (no amendment to this chapter — verified against the Finance Act, 2026 text and the BharatTax FA-2026 tracker). Cognate authorities (cited on principle only): De Beers Consolidated Mines Ltd v. Howe [1906] AC 455 (HL); Unit Construction Co Ltd v. Bullock [1960] AC 351 / (1959) 38 ITR (ED) 79 / 38 TC 712 (HL); V.VR.N.M. Subbayya Chettiar (1951) 19 ITR 168 (SC); Narottam and Pereira Ltd (1953) 23 ITR 454 (Bom); Erin Estate, Galaha (1958) 34 ITR 1 (SC); CIT v. Nandlal Gandalal (1960) 40 ITR 1 (SC); Vodafone International Holdings BV (2012) 341 ITR 1 (SC); Radha Rani Holdings (P) Ltd (2007) 110 TTJ 920 (ITAT Del); South India Corporation AIR 1964 SC 207; Chandavarkar Sita Ratna Rao (1986) 4 SCC 447; B.C. Srinivasa Setty (1981) 128 ITR 294 (SC); Saraswati Industrial Syndicate (1990) 186 ITR 278 (SC); Dilip Kumar & Co. (2018) 9 SCC 1 (SC, CB); Novopan India 1994 Supp (3) SCC 606 (SC); Volkart Brothers (1971) 82 ITR 50 (SC); Mepco Industries (2009) 319 ITR 208 (SC).