Non-resident under Tax Liability Based on Residential Status :

Foreign collaborators are generally non-residents in India. In this context, “non-resident‟ means a person who is a non-resident as per section 2(30) of the Income-tax Act, 1961. You are already familiar with the concept of residential status as laid down in section 6 of the Income-tax Act, 1961. Foreign collaborators are generally companies incorporated outside India and hence, their place of effective management (POEM) is outside India. Therefore, they could be regarded as non-resident within the meaning of section 6(3) since, in the case of foreign companies, the POEM of such a company is outside India. If, however, the foreign collaborator is a partnership firm or an association of persons, it would be regarded as being resident in India in every case where even a negligible portion of the control and management of the affairs of the firm or association is situated in India; in other words, only if the whole of the control and management of the affairs of the foreign collaborator, firm or association is situated outside India, the status of non-resident could be claimed for purposes of income-tax in India. Foreign collaborations are generally not brought about between individuals, although there is no prohibition in the law for doing so.

If, however, a foreign collaborator is an individual, the residential status of the foreign collaborator will have to be determined under section 6(1) on the basis of the number of days of his stay in India during the relevant accounting year.