📚 PASS Investment Adviser (Level 2) Difficulty: Beginner ℹ️ Info   ~5 min read
📌 Chapter 7.5 — Scope of Income

Imagine you are reviewing the tax efficiency of a high-net-worth client’s portfolio. You note that the client, a Resident but Not Ordinarily Resident (RNOR) in India, holds significant stakes in a Singaporean private equity firm. The firm’s returns are robust, but the tax implications for the client depend entirely on whether the firm’s ‘control and management’ are located within India.

If the strategic decisions are being directed from a boardroom in Mumbai, the income might be taxable in India; if the decisions are made exclusively in Singapore, the income remains outside the domestic tax net.

In tax jurisprudence, ‘control and management’ refers to the ‘head and brain’ of an enterprise. It is not necessarily where the physical labor occurs or where the sales invoices are generated. Instead, it focuses on where the overarching strategic policy, critical financial decisions, and governance oversight reside. For an investment adviser, this distinction is critical because it dictates whether a foreign asset’s income must be reported on an Indian tax return. Misidentifying the seat of management can lead to significant tax leakage or, conversely, regulatory non-compliance.

Consider a case where a client sets up a consulting business in Dubai. If the client, while physically in India, makes all key operational decisions, reviews balance sheets, and approves major expenditures via weekly video calls, the ‘control and management’ is effectively situated in India. In this scenario, the foreign income is deemed to be under Indian influence. Even if the actual work happens in Dubai, the nexus is established through the exercise of power from Indian soil.

For valuation and advisory work, this means you must look past the location of the assets and examine the decision-making chain of command. When performing due diligence for a client’s tax planning, ask not just where the entity is incorporated, but where the board meetings are actually conducted and where the final authority to override decisions lies. Failing to map this authority can lead to a fundamental misjudgment of a client’s post-tax yield, ultimately undermining the reliability of your financial recommendations.

Nuance

⚠️ Nuance
Candidates often erroneously believe that if a foreign company has a board of directors situated abroad, it automatically satisfies the test for non-Indian control. In practice, tax authorities look at the ‘substance over form’—if the Indian resident is the de facto puppet master who mandates all major decisions, the nominal board is disregarded. An astute analyst must investigate where the real power of veto and direction resides, rather than relying solely on the formal corporate structure or the registered office location.

Check Your Understanding

Practice Question 1

An RNOR individual resides in India and holds a 60% stake in a startup incorporated in London. The company’s directors are all UK-based, but all major strategic decisions, including budget approval and expansion plans, are finalized by the individual from their office in Delhi. Where is the ‘control and management’ of this company considered to be for Indian income tax purposes?

Practice Question 2

For an RNOR, which of the following scenarios involving foreign income would trigger tax liability in India?

This is a companion read for Section 7.5 — Scope of Income from PASS Investment Adviser (Level 2) by Akhilesh Gururani, available on Amazon Kindle.

Copyright © 2026 Akhilesh Gururani. All rights reserved.