Classes of Companies under Assessment of Companies :

•  Indian Company [Section 2(26)]: An Indian company means a company formed and registered under the Companies Act, 1956 and includes:

(a) a company formed and registered under any law relating to companies formerly in force in any part of India (other than the State of Jammu and Kashmir) and the Union territories specified in (c) below:

(b) in the case of the State of Jammu and Kashmir a company formed and registered under any law for the time being in force in that State;

(c) in the case of any of the Union Territories of Dadra and Nagar Haveli, under any law for the time being in force in that Union Territory; and

(d) any corporation established by or under a Central, State or Provincial Act and having its registered or principal office in India, and also any institution, association or body which is declared by the Board to be a company under section 2(17) where the principal office of the institution , association or body is in India.

It is, however, essential that in all cases the registered, or as the case may be, the principal office of the company, corporation, institution, association or body must be in India.

•  Domestic and Foreign: Companies can be classified into two groups, viz. (1) Domestic company (2) Foreign company. Domestic company is one which is

an Indian company or any other company, which, in respect of its income liable to tax under the Income-tax Act, 1961 has made the prescribed arrangements for the declaration and payment within India of the dividends including dividends on preferential shares payable out of such income [Section 2(22A)]. A company that is not a domestic company is a foreign company [Section 2(23A)].

•  Closely-held and widely-held: Domestic companies are again divided into broad groups, viz (1) companies in which public are substantially interested

and (2) companies in which public are not substantially interested. The former type of companies are also referred to as ‘widely held companies‘ while the latter are also referred to as ‘closely-held companies‘.

To determine whether a company is one in which the public are substantially interested, one has to apply the tests laid down in section 2(18). Briefly, the following companies fall under this category:

(1) companies owned by the Government or the Reserve Bank of India or in which not less than 40% of the shares are held by the Government or the Reserve Bank of India or a corporation owned by that bank,

(2) companies registered under section 25 of the Companies Act2, 1956 [i.e., a company having as its object the promotion of commerce, arts, science, religion, charity or any other useful object and which prohibits payment of dividends to its members],

(3) companies having no share capital but declared by the Board to be companies in which the public are substantially interested,

(4) mutual benefit finance company i.e., a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under section 620A of the Companies Act , 19563 to be a Nidhi or Mutual Benefit Society,

(5) public limited companies whose shares are quoted in the stock exchange and

(6) public limited companies whose equity shares carrying not less than 50% (40% in the case of industrial companies) of the voting power have been allotted unconditionally to or acquired unconditionally by and were throughout the relevant previous year beneficially held by the Government or statutory corporation or other widely-held companies or their subsidiaries, whose entire share capital has been held by the parent company throughout the previous year.

(7) Companies whose equity shares carrying not less than 51% of the voting power were throughout the relevant previous year held by one or more co-operative societies. Thus, it should be noted that all public limited companies must automatically be treated as companies in which public are substantially interested, whereas all private limited companies will be treated as companies in which public are not substantially interested.

•  Relevance of the above classification:

(1) All domestic companies are taxed at 30% while a non-domestic company will be taxed at 50% or 40%, depending upon the composition of its total income. A surcharge of 7% of the tax payable is to be charged in the case of domestic companies and 2% of tax payable in the case of foreign companies, if the total income exceeds Rs 1 crore but does not exceed Rs 10 crore. Surcharge@12% of the tax payable is to be charged in the case of domestic companies and 5% of tax payable in the case of foreign companies, if the total income exceeds Rs 10 crore.

(2) The question as to whether a company is one in which public are substantially interested or not is relevant for determining the application of section 2(22)(e) and section 79 also.

•  Special Provisions: There are certain special provisions which are applicable only to companies in which public are not substantially interested. These

relate to the provisions governing deemed dividend under section 2(22)(e), carry forward of losses under section 79, and liability of directors under section 179 in case of closely held companies.