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Direct Tax Test Series: MCQs & Descriptive

The document discusses the validity of certain actions taken by an Assessing Officer during surveys of different companies. It provides details about the timing and procedures of surveys conducted, impounding of documents, and issuance of notices. It asks multiple choice questions to evaluate understanding of the relevant tax law provisions.

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0% found this document useful (0 votes)

524 views75 pages

Direct Tax Test Series: MCQs & Descriptive

Uploaded by

Ayush Garg

We take content rights seriously. If you suspect this is your content, claim it here.

Available Formats

Download as PDF, TXT or read online on Scribd

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APB

FINAL COURSE – FAST (Part) Paper – 2: Direct Tax

Detailed Test Series – Paper 2
Total No. of Questions in Part I – 8 Maximum Marks – 30
Total No. of Questions in Part II – 6 Maximum Marks – 70
Total No. of Pages - 25
GENERAL INSTRUCTIONS TO CANDIDATES
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Multiple Choice Questions (MCQs).
3. Part II comprises questions which require descriptive type answers.
4. Ensure that you receive the question paper relating to both the parts. If you have
not received both, bring it to the notice of the Institute.
5. Answers to MCQs in Part I are to be mentioned in the first page of your answer
copy. Students need to only mention their choice of correct option like (a) or (b) or
so. No explanations or reasonings are required for MCQs.
6. Answers to descriptive questions in Part 2 should be given from the next page of
your answer sheet
7. Student should mention their Name, Batch, Course (CA Inter / Final), Subject
Name, Date of Test and Test Code as given on top of this sheet on the first
page before answering the MCQs.
8. Once the test is complete, student need to scan the answer sheet and make single
pdf file for all the pages and email it to [email protected] and
[email protected] with Subject Line – Answers Sheet for Test (Code) and
Your Name.
9. Duration of the examination is 1.5 hours. You will be required to upload the
answer sheets on the same date / time of test as defined in your live class else the
answer sheet will not be evaluated. In such case you should do a self-evaluation
using the suggested answer which will be posted in the same folder after one day
of the date of test.
10. The FAST examiner team will check the copy and give the marks alongwith
feedbacks for your improvements. We take utmost care in checking however being
subjective in nature the checking may differ from examiner to examiner.
11. Candidate are advised not to cheat and have self-discipline as these tests are
preparing you better for your real exams and hence realistic assessment will help
you take corrective actions at the right time.
12. FAST reserves the right to display any answers or answer sheets or share with
other students for your benefits without any prior written or express consent.
13. You suggestions on the test paper or evaluation or else can be shared at
[email protected]
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PART 1

MULTIPLE CHOICE QUESTION

1. The Assessing Officer, with prior approval of Chief Commissioner of
Income-tax, surveyed the business premises of A Ltd., which was within
his jurisdiction, at 9 p.m. on 1.6.2022 for the purpose of obtaining
information which may be relevant to the proceedings under the Income-
tax Act, 1961. The survey operations continued till 11 p.m. On 15.6.2022,
the Assessing Officer entered the business premises of B Ltd. which was
also within his jurisdiction at 8.30 p.m. for the purpose of collecting
information which may be useful for the purposes of the Income-tax Act,
1961 and left the premises at 9.30 p.m. The business premises of A Ltd. is
kept open for business every day between 10 a.m. and 10 p.m. and the
business premises of B Ltd. is kept open for business every day between
9.30 a.m. to 9.30 p.m.
In both the above cases, the Assessing Officer impounded and retained in
his cus tody for a period of 12 days (inclusive of holidays), books of
account and other documents inspected by him, after recording reasons
for doing so. The Assessing Officer, however, did not take specific
permission from the Chief Commissioner for this action.
In July, 2022, the business premises of C Ltd. was searched after
following the due procedure laid down under section 132, consequent to
which the Assessing Officer has in his possession certain documents
showing information pertaining to shares of value 28 lakhs purchased
in the P.Y.2016-17 and shares of value of 21 lakhs purchased in the
P.Y.2017-18.

On the basis of the facts given above, choose the most appropriate answer to
below, based on the provisions of the Income-tax Act, 1961 –

(1) Is the action of the Assessing Officer in entering the business premises of
A Ltd. at 9 p.m. and continuing survey operations till 11 p.m. valid? Also,

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is the action of the Assessing officer in entering the business premises of B
Ltd. at 8.30 p.m. valid?

(a) Yes, the action of the Assessing Officer, in both cases, is valid.

(b) No, the action is not valid in both cases, as the Assessing Officer
cannot enter the premises of A Ltd. and B Ltd. after sunset.

(c) No, the action is not valid in the case of A Ltd., as the survey
operations continued beyond business hours. However, the action
of the Assessing officer in the case of B Ltd. is valid.

(d) The action of the Assessing Officer is valid in the case of A Ltd.
but not in the case of B Ltd. 2

(2) Is the action of the Assessing Officer in impounding and retaining books
of account and other documents of A Ltd. and B Ltd., after recording
reasons for doing so, valid, where he had not taken specific permission
from the Chief Commissioner for this action?

(a) No, the action of the Assessing Officer is not valid in the case of
both A Ltd. and B Ltd.

(b) Yes, the action of the Assessing Officer is valid in the case of both
A Ltd. and B Ltd.

(d) The action of the Assessing Officer is valid in the case of B Ltd. but
not in case of A Ltd. 2
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(3) Can the Assessing Officer issue notice u/s 148 to A Ltd. in August, 2022,
in respect of A.Y.2019-20, A.Y.2020-21 and A.Y.2021-22, consequent to
survey conducted in the business premises of A Ltd?

(a) No, since the survey conducted is itself not valid

(b) Yes, he can do so; compliances stipulated u/s 148A are not
necessary.

(d) Yes, he can do so with the prior approval of the specified authority
u/s 151 ; other compliances stipulated u/s 148A are not necessary. 2

(4) Would the action of the Assessing Officer in entering the premises of A
Ltd. at 9 p.m. and impounding and retaining books of account been valid
if he had surveyed A Ltd. only for the purpose of verifying whether tax
has been deducted/collected at source in accordance with the provisions of
the Income-tax Act, 1961?

(a) Yes, the action of the Assessing Officer in entering the premises
and impounding and retaining books of account would be valid.

(b) No, the action of the Assessing Officer in entering the premises at 9
p.m. and impounding and retaining books of account is not valid.

(c) The action of the Assessing Officer in entering the premises at 9

p.m. is valid but not the action of impounding and retaining books
of account.
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(d) The action of the Assessing Officer in entering the premises at 9
p.m. is valid but not the action of continuing the survey beyond 10
p.m. 2

(5) Can the Assessing Officer issue notice u/s 148 for bringing to tax income
escaping assessment in the case of C Ltd., without following the
compliances stipulated u/s 148A?

(a) Yes, he can do so with the prior approval of the specified authority
u/s 151.

(b) No, he can do so only after following the compliances stipulated

u/s 148A.

(c) No, he cannot issue notice u/s 148, since the three-year time limit
from the end of the relevant assessment years has expired.

(d) No, he cannot issue notice, since “shares” do not fall within the
meaning of asset for invoking the extended time limit beyond three
years. 2

(6) Can the Assessing Officer issue notice under section 148 for bringing to
tax income escaping assessment in case of C Ltd., without following the
compliances stipulated u/s 148A, if the shares purchased in the P.Y.2016-
17 were of 30 lakhs instead of 28 lakhs, all other facts remaining the
same?

(a) Yes, he can do so, with the prior approval of the specified authority
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u/s 151

(b) No, he can do so only after following the compliances stipulated

u/s 148A.

(c) No, he cannot issue notice u/s 148, since the three-year time limit
from the end of the relevant assessment years has expired.

(d) No, he cannot issue notice, since “shares” do not fall within the
meaning of asset for invoking the extended time limit beyond three
years. 2

2. Helpage is a charitable trust registered under section 12AB, with its main object
falling under the residuary clause “any other object of general public utility” .
During the P.Y.2022-23, it received 80 lakh as voluntary contributions. The
trust also borrowed 40 lakh on 1.7.2022 from Indian bank to purchase land for
construction of an office building from where it can carry out its functions. The
trust repaid principal of 10 lakh to Indian bank on 31.3.2023. The trust incurred
revenue expenditure of 17 lakh and capital expenditure of 60 lakh towards
purchase of land for construction of office building during the P.Y.2022-23. Out
of the revenue expenditure of 17 lakh, 15 lakh was paid during the P.Y.2022-
23 itself. Out of the remaining 2 lakh, 1 lakh was paid in April, 2023 and 1
lakh was paid in January, 2024. During the P.Y.2022-23, the trust also paid 3
lakh towards revenue expenditure incurred during the P.Y.2021-22 and 1 lakh
towards revenue expenditure incurred during the P.Y.2020 -21.

The trust also received 30 lakhs by way of corpus donations during the
P.Y.2022-23, out of which it deposited 25 lakhs in post office savings bank
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account (the balance in post office savings bank account after such deposit is 32
lakhs). The trust also withdrew 5 lakhs from post office savings bank account
and applied towards purchase of land for construction of office building.

The trust has donated to Eduaid, another trust registered under section 12AB with
main object of providing education to poor, 12 lakhs out of its current year
income. The trust has applied 2 lakh out of its current year income for medical
treatment of brother of the trustee, who met with an accident while working in his
factory.

On the basis of the facts given above, choose the most appropriate answer to
below, based on the provisions of the Income-tax Act, 1961 -

(1) What would be the application of the trust for the P.Y.2022 -23 (excluding
unconditional accumulation of 15%), assuming that it has fulfilled the
relevant conditions stipulated under section 12A?

(a) 43 lakhs

(b) 55 lakhs

(d) 60 lakhs 2

(2) If the trust does not get its accounts audited before the specified date
referred to in section 44AB, what would be the consequence?

(a) No deduction would be allowed if the trust fails get its accounts
audited before the specified date referred to in section 44AB.

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(b) Capital expenditure incurred on account of purchase of land for
construction of office building would not be allowed.

(c) Amount donated to Eduaid would not be allowed.

(d) Both capital expenditure incurred on account of purchase of land

and the amount donated to Eduaid would not be allowed. 2

(3) What is the amount of income which would be chargeable to tax under
section 115BBI for A.Y.2023-24?

(a) 2,00,000

(b) 5,00,000

(d) 12,00,000 2

(4) What is the quantum of penalty which can be levied under section
271AAE? Assume that the specified violation has occurred only once
during the P.Y.2022-23.

(a) 2,00,000

(b) 4,00,000

(d) 7,00,000 2

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(5) Assuming for the purpose of this MCQ, that the trust has receipts of 22
lakh from trade, commerce and business in P.Y.2022-23 while advancing
the object of general public utility, what is the tax consequence?

(a) The registration of the trust would be cancelled since it has violated
the stipulated condition for grant of exemption.

(b) The registration of the trust would not be cancelled though the trust
would be denied exemption for violating the stipulated condition.

(c) The trust would be denied exemption and the entire income of the
trust would be chargeable to tax at the maximum marginal rate.

(d) Neither the registration of the trust would be cancelled nor would it
be denied exemption as it has not violated the stipulated condition. 2

3. Mr. Mahesh is found to be the owner of two gold chains of 50 gms each (value of
which is 1,45,000 each) during the financial year ending 31.3.2023 which are
not recorded in his books of account and he could not offer satisfactory
explanation for the amount spent on acquiring these gold chains. As per section
115BBE, Mr. Mahesh would be liable to pay tax of –

(a) 1,80,960

(b) 2,26,200

(d) 1,23,958 1

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4. Mr. Ganesh and Mr. Rajesh, resident Indians born on 1.7.1962 and 1.4.1943,
respectively, have not furnished their returns of income for the P.Y.2022-23.
However, the total income assessed in respect of such year under section 144 is
8 lakhs and 5 lakhs, respectively. Is penalty leviable under section 270A, and if
so, what is the quantum of penalty?

(a) No penalty is leviable under section 270A in the hands of either Mr.
Ganesh or Mr. Rajesh

(b) Yes; 36,400 and 5,200, respectively

(c) Yes; 37,700 and 6,500, respectively

(d) Penalty of 36,400 leviable in the hands of Mr. Ganesh; No penalty

leviable in the hands of Mr. Rajesh 1

5. XYZ Ltd. has failed to report an international transaction entered into by it with
PQR Inc., which is a specified foreign company in relation to XYZ Ltd. What
would be the penalty leviable in this case?

(a) 2% of the value of the international transaction

(b) 50% of tax payable on under-reported income

(c) 200% of tax payable on under-reported income

(d) Both (a) and (c) 1

6. Gamma Ltd. has distributed on 30.6.2023, dividend of 130 lakhs to its

shareholders. During the F.Y.2022-23, Gamma Ltd. has received dividend of
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108 lakhs (Net of TDS) from domestic companies and 30 lakhs (gross) from a
foreign company in which it has 5% shareholding. What is the deduction, if any,
available to Gamma Ltd. in respect of such dividend?

(a) 138 lakhs

(b) 120 lakhs

(c) 130 lakhs

(d) 150 lakhs 1

7. Lima Ltd., a domestic company, purchases its own listed shares on 13th August,
2022. The consideration for buyback amounted to 23 lakh, which was paid on
the same day. The amount received by the company two years back for issue of
such shares determined in the manner specified in Rule 40BB was 17 lakh. The
additional income-tax payable by Lima Ltd. is –

(a) 1,02,960

(b) 1,04,832

(d) 1,37,280 2

8. Two tonnage tax companies X Ltd. and Y Ltd. are amalgamated to form a new
tonnage company Z Ltd., a qualifying company and the option for tonnage tax
scheme of X Ltd. has an unexpired period of 8 years and Y Ltd. has an unexpired
period of 6 years. For what period the special provisions of Chapter XII-G
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relating taxation of income shipping companies would apply to the new company
Z Ltd.?

(a) 8 years

(b) 6 years

(d) 10 years 2

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PART 2
Q.1 Sankar Ltd, engaged in the manufacture of footwear and leather products,
for the past 8 years, reported a net profit of *272 lakhs as per the statement
of profit and loss for the year ended 31st March, 2024. The company was
subject to tax audit u/s 44AB of the Income-tax Act, 1961. The net profit is
arrived at after debiting or crediting the following amounts:
(i) Depreciation charged on the basis of useful life of assets as per
Companies Act is ₹32 lakhs.
(ii) A sundry creditor whose amount of 32 lakhs was outstanding since
long time, has been settled for 26 lakhs on 31st March, 2024 based on
compromise settlement. The amount waived has been credited to the
statement of profit and loss.
(iii) Employers' contribution to EPF of 3 lakhs for the month of March,
2024 was deposited on 29th July, 2024.
(iv) Interest payments debited 30 lakhs (Includes interest on term loan of
*25 lakhs availed on 1-4-2023 at interest rate of 12% p.a towards
purchase of machinery during the year).
(v) Payment of 30 lakhs to A & Co., a subcontractor, for processing raw
leather without deduction of tax is debited to statement of profit &
loss. This amc.nt includes 20 lakhs for purchase of chemicals and 10
lakhs towards labour charges which is separately shown in bills
submitted.
Additional Information:
(1) The company has not made provision for an amount of 12 lakhs being
a fair estimate of the amount as payable to workers towards periodical
wage revision once in 3 years in respect of existing employees. The

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provision is estimated on a reasonable certainty of the revision once in
3 years.
(2) The written down values of assets before allowing depreciation as per
Income-tax Rules are as under:
Factory Buildings: 180 lakhs;
Plant & Machinery 170 lakhs (inclusive of 30 lakhs of
machinery acquired on 1.11.23 and put to use)
Computers: 15 lakhs
It may be noted that the above values have been duly recognised while
providing depreciation in the books of accounts.
(3) During the year 2023-24, the company has employed 24 additional
employees (qualified as "workman" under the Industrial Disputes Act,
1947). All these employees contribute to a recognized provident fund.
12 out of 24 employees joined on 1.6.2023 on a salary of 23,000 per
month, 4 joined on 1.7.2023 on a salary of ₹26,000 per month, and 8
joined on 1.11.2023 on a salary of 20,000 per month. The salaries of
2 employees who joined on 1.6.2023 are being settled by bearer
cheques every month.
(4) Employees contribution to EPF of 3 lakhs recovered from their
salaries for the month of March 2024 and shown in the Balance Sheet
under the head Sundry Creditors was remitted on 31st May, 2024.
Compute the total income and tax payable of Sankar Ltd. for the
Assessment Year 2024-25. The turnover of the company for the year
ended 31.3.2022 was 252 crores. Ignore the provisions of MAT.
Ignore the provisions of section 115BAC. 14

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Q.2
1. PQR Ltd has two units - one engaged in manufacture of computer hardware
and the other involved in developing software. As a restructuring drive, the
company has decided to sell its software unit as a going concern by way of
slump sale for 385 Lakhs to a new company called S Ltd, in which it holds
74% of equity shares.
The Balance Sheet of PQR Ltd as on 31st March, 2024 being the date on
which software unit has been transferred, is given here under:--
Balance Sheet as on 31.03.2024
Liabilities In Lakhs Assets In Lakhs
Paid up Share Capital 300 Fixed Assets:
General Reserve 150 Hardware Unit 170
Share Premium 50 Software Unit 200
Revaluation Reserve 120 Debtors:
Current Liabilities: Hardware Unit 140
Hardware Unit 40 Software Unit 110
Software Unit 90 Inventories:
Hardware Unit 95
Software Unit 35
Total 750 Total 750
Following additional information is furnished by the management:
1. The software unit is in existence since May 2015
2. Fixed assets of software unit include Land which was purchased at 40
Lakhs in the year 2009 and revalued at 760 Lakhs as on March 31,
2024. The stamp duty value on 31.3.2024 is 55 lakhs.
3. Fixed Assets of Software unit mirrored at 140 Lakhs (200 Lakhs

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minus Land Value *60 Lakhs) is written down value of depreciable
assets as per books of account. However, the written down value of
these assets under section 43(6) of the Income Tax Act is 790 Lakhs
A. Ascertain the tax liability on Capital Gain which would arise
from Slump Sale to PQR Ltd., assuming it does not opt for
section 115BAA.
B. What would be your advice as a tax consultant to make tax -
savy, without changing the amount of sale consideration? 8

Q.2
2. Mr. X received the following gifts/amounts during F.Y. 2023-24
(i) Gift of bullion worth 260,000/- on his birthday from his friend
(ii) Received a car from his cousin on payment of 21,00,000/-, FMV of
which was 24,00,000/-
(iii) Received cash gift of 18,000/- each from three of his friends A, B and
C on 24.09.2023
(iv) Acquired an office building on 22.11.2023 from his friend Q for a
consideration of 10 Lakhs, stamp value of which is 20 Lakhs.
(v) In respect of Land of Mr. X acquired by Railways in the year 2015, he
received the following amount on 25.12.2023 as interest on enhanced
compensation on the order of the court-
Relating to Previous Years
2020-21 1,45,000/-
2021-22 1,75,000/-
2022-23 1.10,000/-
You are required to compute the Income of Mr. X chargeable under

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the head "Income from other Sources" for A.Y. 2024-25, assuming
that he has no other income. 6

Q.3 M/s PRK LLP, a limited liability partnership, set up a unit in Special
Economic Zone (SEZ) on 1st April, 2019 to develop and export computer
software. The unit complied with all the conditions of section 10AA. The net
profit of the unit as per Statement of Profit & Loss for the year ended 31st
March, 2024 was 65 lakhs after debiting/crediting the following items:
(i) Profit on sale of import entitlement 9 lakhs.
(ii) Remuneration to its working partners * 58 lakhs.
(iii) Interest at the rate of 16% per annum on partners' capital 20 lakhs.
(iv) Donation to a political party 3 lakhs.
(v) Depreciation 17 lakhs.
Additional Information:
(i) Payment of remuneration to working partners and interest on capital
are authorized by the partnership deed.
(ii) Brought forward business loss from assessment year 2018-19 was 4
lakhs.
(iii) Unabsorbed depreciation brought forward from assessment year 2017-
18 was 35 lakhs.
(iv) Total export turnover was 45 crores and the sale proceeds in
convertible foreign exchange received in India by 30th September,
2024 was 38 crores. Total export turnover of 45 crores include
telecommunication charges of 5 crores attributable to delivery of
software. Sale proceeds realization of 38 crores also include such
telecommunication charges of 2 crores.

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(v) Depreciation allowable as per Income-tax Rules is * 26 lakhs.
You are required to compute:
(i) Income-tax (including AMT u/s 115JC) payable by Mis PRK LLP for
the Assessment Year 2024-25.
(ii) Amount of tax credit allowed to be carried forward.
Necessary working notes should form part of your answer. 10

Q.4
1. M/s Mahan Charitable Trust in running an institution with hostel facility for
the orphan children. It is registered u/s 12AB.
(a) Voluntary contribution received during the year 150 lakhs. This
includes:
(i) Corpus donation 20 lakhs
(ii) Donation of 20 lakhs from Mr. Michael, a foreign donor,
which was received on 31-3-2024.
(b) Salary paid to teachers and administrative staff 40 lakhs.
(c) Other general expenses 10 lakhs include payment to grocery stores
of 30,000 by crossed cheque.

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(d) A land belonging to the Trust in a nearby village which was purchased
in the year 2022-23 for 5lakhs was sold for 10.50 lakhs and another
land adjacent to the Trust premises was purchased for 12 lakhs to be
used as playground for the children.
(e) Five laptops costing 50,000 each were purchased during the year for
teaching purposes.
(f) The Trust had accumulated 30 lakhs u/s 11(2) for 5 years in the
financial year 2019-20 for constructing a school building. Amount
spent for the said purpose till 31-3-2024 was 27 lakhs. The project is
completed with a saving in project cost.
(g) Two additional rooms measuring 1500 sq. ft each was constructed in
the existing hostel for the children. Cost of construction is ₹1200 per
sq. ft.
(h) It made a corpus donation of ₹20 lakhs to a charitable trust registered
u/s 12AB having similar objects.
Compute taxable income of Mahan Charitable Trust for the assessment year
2024-25. Support your answer with necessary working notes. 8

Q.4
2. Examine the applicability of provisions relating to deduction/collection of
tax at source in the [TCS RTP NOV-2023] following cases for the financial
year ended 31st March, 2024 as per provisions contained in the Income-tax
Act, 1961:
(I) Delta Ltd., an Indian company, which was incorporated on 1.4.2023
purchases coal from Phi Ltd., another Indian company, for? 75 lakhs
during the P.Y.2023-24, to manufacture steel. Delta Ltd. furnishes a

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declaration that such coal is used to manufacture steel and not for
trading. What are the TCS/TDS implications on such transaction, if
Delta Ltd.'s turnover was 12 crores in the P.Y.2023-24; and Phi Ltd.'s
annual turnover ranges between? 16 crores and 18 crores in the last
few years?
Would your answer change if Delta Ltd. was incorporated on 1.4.2022
and its turnover in the P.Y.2022-23 is 10 crores?
(II) Sigma Ltd., a car manufacturer, sold the following cars to the car
dealers, Epsilon Ltd. and Omega Ltd., in the P.Y.2023-24-
Dealer Particulars of cars sold Value
Epsilon Ltd. 10 cars of the value 12 lakhs each 120 lakhs
Omega Ltd. 8 cars of the value of 10 lakhs each 80 lakhs
The turnover in the P.Y.2022-23 of Sigma Ltd. is 12 crores, Epsilon
Ltd. is? 14 crores and Omega Ltd. is 9 crores. 6

Q.5
1. Ajay, a non-resident Indian, has the following sources of income in India
during the previous year 2023-24:
Particulars
(i) Income from house property located in India 1,80,000
(computed)
(ii) Dividend from Indian Companies (Purchased 10,000
in Indian )
(iii) Interest on debentures of Indian company 1,00,000
(Subscribed in convertible foreign exchange)
Less: Interest on loan taken for purchase of 20,000 80,000

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debentures
(iv) Long-term capital gains on sale of debentures
subscribed in US $:
Cost in 04-05 4,00,000
Sale in 23-24 6,00,000
2,00,000
Less: Commission to brokers 6,000 1,94,000
Cost Inflation Index: F.Y. 2004-05-113; F.Y.2023-24-348
Compute the tax payable by Ajay for Assessment Year 2024-25, if he opts
for the provisions of
Chapter XII-A of the Income-tax Act, 1961. Ignore the provisions of section
115BAC. 4

Q.5
2. On 1-4-2023, Vihaan Ltd., an Indian company, advanced a loan of 6 crores
to Yuvan Inc., a company resident in Singapore. As on the date of loan, the
book value of total assets in the books accordingly the value of assets had
increased by 2 crores. Yuvan Ltd. paid the entire loan along of Yuvan Inc.
was 4 crores. In the Financial Year 2022-23, Yuvan Inc. had revalued its
assets and with interest thereon on 31st August, 2023. During the Financial
Year 2023-24, Vihaan Ltd. Also entered into an agreement with Yuvan Inc.
to provide 20 thousand medical equipment's at a cost of 7,400 per unit. The
Assessing Officer treats them as associate enterprise and wants to re
compute the income of Vihaan Ltd. At arms' length price. You are required
to answer the following questions in this respect:
(1) Would Vihaan Ltd. And Yuvan Ltd. Be treated as associate

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enterprises for the purpose of transfer pricing adopted by the
Assessing Officer? If yes, why?'.
(2) Calculate the arm's length price of Vihaan Ltd. Which sells the same
equipment's at the rate of * 9,000 per unit to Y Ltd. and at the rate of *
9,500 per unit to X LLP (both of them are unrelated parties in respect
of Vihaan Ltd.). Vihaan Ltd. Is not a wholesale dealer.
(3) What are the options available to Vihaan Ltd. in respect of such
increase in transfer price by income tax authorities, if Vihaan Ltd.
Accepts such transfer price? 4

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Q.5
4. State whether the following assessees have to file return of income and if so,
the due date for the assessment year 2024-25:
(i) A registered trade union having income from let out property of
1,00,000.
(ii) A public trust hospital having an aggregate annual receipt of 505 lacs
and availing exemption of 3,10,000 u/s 10(23C) (via) with total
income of ₹ 2,40,000 3

Q.6
1. MNO & Co., a non-resident entity based in London, owns and operates an
electronic facility throu which it effects online sale of goods manufactured
by it. The following are its receipts from the P.Y.2023-24-
Particulars Amount in
(a) Receipts from sale of goods to persons resident in India 145 lakhs
(b) Receipts from sale of goods to persons not resident in 99 lakhs
other parts of South-East Asia
Out of the said sum, 60 lakhs relates to receipts from
persons using internet protocol address located in
India.
Discuss the equalisation levy implications of such receipt in the hands of
MNO & Co., if –
(i) MNO & Co. has no permanent establishment in India
(ii) MNO & Co. has a permanent establishment in India, and the sale of
goods is effectively connected to the permanent establishment in India

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Would your answer change if out of the receipts in (b) above, only 45 lakhs
relates to receipts from persons using internet protocol address located in
India? 5

Q.6
2. Mr. Chetan, an Indian citizen aged 51 years, left India on 1st April 2020 to
settle in Country Y. But owing to some personal unavoidable circumstances,
he returned back to India permanently on 1st June 2023.
He has a residential property in Country Y from which he earned an income
of $ 25,000 for the year ended 31st March 2024. He is eligible for basic
exemption limit of $ 8,000 and on balance income. he paid income tax
@20% in Country Y. The tax was paid on 10th May 2024 from his bank
account in India.
His income from business in India is 5,00,000 for the year ended on 31st
March 2024. He also received dividend amounting to 1,25,000 from an
Indian company and interest of * 11,500 on saving bank account with SBI,
during the year.
The exchange rates of 1 $ on various dates is given below:
1.04.2023-74; 31.03.2024, 75; 10.05.2024 - 75.5;
Compute the net tax liability of Mr. Chetan in India for the assessment year
2024-25 on the assumption that there is no DTAA between India and
Country Y.
Assume that the assessee does not opt for the provisions of Section
115BAC. 5

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Q.6
3. Explain briefly the significant differences between the UN and OECD
Model Tax Convention. 2

Q.6
4. What are the ways in which hybrid mismatch arrangements are used to
achieve unintended double non-taxation or long-term tax deferral? 2

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APB

FINAL COURSE – FAST (Part) Paper – 2: Direct Tax

Detailed Test Series – Paper 2
Total No. of Questions in Part I – 8 Maximum Marks – 30
Total No. of Questions in Part II – 6 Maximum Marks – 70
Total No. of Pages - 50
GENERAL INSTRUCTIONS TO CANDIDATES
1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Multiple Choice Questions (MCQs).
3. Part II comprises questions which require descriptive type answers.
4. Ensure that you receive the question paper relating to both the parts. If you have
not received both, bring it to the notice of the Institute.
5. Answers to MCQs in Part I are to be mentioned in the first page of your answer
copy. Students need to only mention their choice of correct option like (a) or (b) or
so. No explanations or reasonings are required for MCQs.
6. Answers to descriptive questions in Part 2 should be given from the next page of
your answer sheet
7. Student should mention their Name, Batch, Course (CA Inter / Final), Subject
Name, Date of Test and Test Code as given on top of this sheet on the first
page before answering the MCQs.
8. Once the test is complete, student need to scan the answer sheet and make single
pdf file for all the pages and email it to [email protected] and
[email protected] with Subject Line – Answers Sheet for Test (Code) and
Your Name.
9. Duration of the examination is 1.5 hours. You will be required to upload the
answer sheets on the same date / time of test as defined in your live class else the
answer sheet will not be evaluated. In such case you should do a self-evaluation
using the suggested answer which will be posted in the same folder after one day
of the date of test.
10. The FAST examiner team will check the copy and give the marks alongwith
feedbacks for your improvements. We take utmost care in checking however being
subjective in nature the checking may differ from examiner to examiner.
11. Candidate are advised not to cheat and have self-discipline as these tests are
preparing you better for your real exams and hence realistic assessment will help
you take corrective actions at the right time.
12. FAST reserves the right to display any answers or answer sheets or share with
other students for your benefits without any prior written or express consent.
13. You suggestions on the test paper or evaluation or else can be shared at
[email protected]
(2)
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PART 1

MULTIPLE CHOICE QUESTION

On the basis of the facts given above, choose the most appropriate answer to
below, based on the provisions of the Income-tax Act, 1961 –

(1) Is the action of the Assessing Officer in entering the business premises of
A Ltd. at 9 p.m. and continuing survey operations till 11 p.m. valid? Also,

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is the action of the Assessing officer in entering the business premises of B
Ltd. at 8.30 p.m. valid?

(a) Yes, the action of the Assessing Officer, in both cases, is valid.

(b) No, the action is not valid in both cases, as the Assessing Officer
cannot enter the premises of A Ltd. and B Ltd. after sunset.

(c) No, the action is not valid in the case of A Ltd., as the survey
operations continued beyond business hours. However, the action
of the Assessing officer in the case of B Ltd. is valid.

(d) The action of the Assessing Officer is valid in the case of A Ltd.
but not in the case of B Ltd.

Ans. (a) 2

(a) No, the action of the Assessing Officer is not valid in the case of
both A Ltd. and B Ltd.

(b) Yes, the action of the Assessing Officer is valid in the case of both
A Ltd. and B Ltd.

(d) The action of the Assessing Officer is valid in the case of B Ltd. but
not in case of A Ltd.
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Ans. (c) 2

(3) Can the Assessing Officer issue notice u/s 148 to A Ltd. in August, 2022,
in respect of A.Y.2019-20, A.Y.2020-21 and A.Y.2021-22, consequent to
survey conducted in the business premises of A Ltd?

(a) No, since the survey conducted is itself not valid

(b) Yes, he can do so; compliances stipulated u/s 148A are not
necessary.

(d) Yes, he can do so with the prior approval of the specified authority
u/s 151 ; other compliances stipulated u/s 148A are not necessary.

Ans. (c) 2

(a) Yes, the action of the Assessing Officer in entering the premises
and impounding and retaining books of account would be valid.

(b) No, the action of the Assessing Officer in entering the premises at 9
p.m. and impounding and retaining books of account is not valid.

(c) The action of the Assessing Officer in entering the premises at 9

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p.m. is valid but not the action of impounding and retaining books
of account.

(d) The action of the Assessing Officer in entering the premises at 9

p.m. is valid but not the action of continuing the survey beyond 10
p.m.

Ans. (b) 2

(5) Can the Assessing Officer issue notice u/s 148 for bringing to tax income
escaping assessment in the case of C Ltd., without following the
compliances stipulated u/s 148A?

(a) Yes, he can do so with the prior approval of the specified authority
u/s 151.

(b) No, he can do so only after following the compliances stipulated

u/s 148A.

(c) No, he cannot issue notice u/s 148, since the three-year time limit
from the end of the relevant assessment years has expired.

(d) No, he cannot issue notice, since “shares” do not fall within the
meaning of asset for invoking the extended time limit beyond three
years.

Ans. (c) 2

(a) Yes, he can do so, with the prior approval of the specified authority
u/s 151

(b) No, he can do so only after following the compliances stipulated

u/s 148A.

(c) No, he cannot issue notice u/s 148, since the three-year time limit
from the end of the relevant assessment years has expired.

(d) No, he cannot issue notice, since “shares” do not fall within the
meaning of asset for invoking the extended time limit beyond three
years.

Ans. (a) 2

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The trust also received 30 lakhs by way of corpus donations during the
P.Y.2022-23, out of which it deposited 25 lakhs in post office savings bank
account (the balance in post office savings bank account after such deposit is 32
lakhs). The trust also withdrew 5 lakhs from post office savings bank account
and applied towards purchase of land for construction of office building.

On the basis of the facts given above, choose the most appropriate answer to
below, based on the provisions of the Income-tax Act, 1961 -

(1) What would be the application of the trust for the P.Y.2022 -23 (excluding
unconditional accumulation of 15%), assuming that it has fulfilled the
relevant conditions stipulated under section 12A?

(a) 43 lakhs

(b) 55 lakhs

(d) 60 lakhs

Ans. (b) 2

(2) If the trust does not get its accounts audited before the specified date
referred to in section 44AB, what would be the consequence?

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(a) No deduction would be allowed if the trust fails get its accounts
audited before the specified date referred to in section 44AB.

(b) Capital expenditure incurred on account of purchase of land for

construction of office building would not be allowed.

(c) Amount donated to Eduaid would not be allowed.

(d) Both capital expenditure incurred on account of purchase of land

and the amount donated to Eduaid would not be allowed.

Ans. (d) 2

(3) What is the amount of income which would be chargeable to tax under
section 115BBI for A.Y.2023-24?

(a) 2,00,000

(b) 5,00,000

(d) 12,00,000

Ans. (c) 2

(4) What is the quantum of penalty which can be levied under section
271AAE? Assume that the specified violation has occurred only once
during the P.Y.2022-23.

(a) 2,00,000

(b) 4,00,000

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(d) 7,00,000

Ans. (a) 2

(5) Assuming for the purpose of this MCQ, that the trust has receipts of 22
lakh from trade, commerce and business in P.Y.2022-23 while advancing
the object of general public utility, what is the tax consequence?

(a) The registration of the trust would be cancelled since it has violated
the stipulated condition for grant of exemption.

(b) The registration of the trust would not be cancelled though the trust
would be denied exemption for violating the stipulated condition.

(c) The trust would be denied exemption and the entire income of the
trust would be chargeable to tax at the maximum marginal rate.

(d) Neither the registration of the trust would be cancelled nor would it
be denied exemption as it has not violated the stipulated condition.

Ans. (d) 2

(a) 1,80,960

(b) 2,26,200

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(c) 90,480

(d) 1,23,958

Ans. (b) 1

4. Mr. Ganesh and Mr. Rajesh, resident Indians born on 1.7.1962 and 1.4.1943,
respectively, have not furnished their returns of income for the P.Y.2022-23.
However, the total income assessed in respect of such year under section 144 is
8 lakhs and 5 lakhs, respectively. Is penalty leviable under section 270A, and if
so, what is the quantum of penalty?

(a) No penalty is leviable under section 270A in the hands of either Mr.
Ganesh or Mr. Rajesh

(b) Yes; 36,400 and 5,200, respectively

(c) Yes; 37,700 and 6,500, respectively

(d) Penalty of 36,400 leviable in the hands of Mr. Ganesh; No penalty

leviable in the hands of Mr. Rajesh

Ans. (d) 1

(a) 2% of the value of the international transaction

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(b) 50% of tax payable on under-reported income

(c) 200% of tax payable on under-reported income

(d) Both (a) and (c)

Ans. (d) 1

6. Gamma Ltd. has distributed on 30.6.2023, dividend of 130 lakhs to its

shareholders. During the F.Y.2022-23, Gamma Ltd. has received dividend of
108 lakhs (Net of TDS) from domestic companies and 30 lakhs (gross) from a
foreign company in which it has 5% shareholding. What is the deduction, if any,
available to Gamma Ltd. in respect of such dividend?

(a) 138 lakhs

(b) 120 lakhs

(c) 130 lakhs

(d) 150 lakhs

Ans. (c) 1

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(a) 1,02,960

(b) 1,04,832

(d) 1,37,280

Ans. (c) 2

8. Two tonnage tax companies X Ltd. and Y Ltd. are amalgamated to form a new
tonnage company Z Ltd., a qualifying company and the option for tonnage tax
scheme of X Ltd. has an unexpired period of 8 years and Y Ltd. has an unexpired
period of 6 years. For what period the special provisions of Chapter XII-G
relating taxation of income shipping companies would apply to the new company
Z Ltd.?

(a) 8 years

(b) 6 years

(d) 10 years

Ans. (a) 2

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Particulars Amount ( )
Net profit as per the statement of profit 2,72,00,000
and loss
Add: Items debited but to be considered
separately or to be disallowed
(i) Depreciation charged as per Companies 32,00,000
Act, 2013
(iii) Employer's contribution to EPF Nill
[As per section 43B, employers'
contribution to EPF is allowable as
deduction, since the same has been
deposited on or before the 'due date' of
filing of return u/s 139(1) i.e.,
30.9.2024. Since the same has been
debited to statement of profit and loss,
no further adjustment is necessary]
(iv) Interest on term loan for purchase of 1,75,000
plant and machinery [25 lakhs x 12% x
7/12]
[As per the proviso to section 36(1)
(iii), interest paid in respect of capital
borrowed for acquisition of an asset for
the period from the date of borrowing
till the date on which such asset is first
put to use shall not be allowed as
deduction. Since the same has been

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debited to statement of profit and loss,
it has to be added back while
computing business income]
(v) Payment of labour charges to A & Co., 3,00,000
a subcontractor, without deduction of
tax [30% of 10 lakh]
[U/s 40(a) (ia), 30% of any sum paid to
any resident on which tax is deductible
is disallowed if tax is not deducted at
source. In this case, TDS provisions u/s
194C are attracted on labour charges
which are shown separately in the bills.
Since tax has not been deducted on
labour charges, 30% of the expenditure 36,75,000
shall be disallowed]
3,08,75,000

Add: Amount taxable but not credited to

profit and loss account Employee's
contribution to EPF
[Any sum received by the assessee from
his employees as contribution to any
provident fund is treated as income of the
assessee. Since employees contribution to
EPF has not been deposited on or before
the due date under the PF Act, the same is
3,00,000

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not allowable as deduction as per section
36(1)(va)]
3,11,75,000

Less: Items credited to statement of profit

and loss, but not includible in business
income/permissible expenditure and
allowances
(ii) Waiver of sundry creditor's outstanding Nill
amount
[Waiver of 6,00,000 from the sundry
creditors is a benefit in respect of a
trading-liability by way of remission or
cessation thereof and is, hence, taxable u/s
41(1). Since the amount is already
credited to statement of profit & loss, no
adjustment is necessary
Provision for wages payable to workers
[The provision based on fair estimate of
wages and reasonable certainty of revision
is allowable as deduction, since ICDS X
requires reasonable certainty' which is
present in this case. As the provision has
not been debited for recognition of a
provision, to statement to profit and loss,
the same has to be reduced while 12,00,000 12,00,000

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computing business income]
Less:Depreciation as per Income-tax Rules, 2,99,75,000
1962
Depreciation u/s 32
Depreciation on factory building [10% of
180 lakh] 18,00,000
Depreciation on plant and machinery
- [email protected]% on 31.75 lakhs [30 2,38,125
lakh, being machinery cost +1.75 lakh,
being interest from 1.4.2023 to
31.10.2023] since machinery is put to
use for less than 180 days].
21,00,000
- Depreciation@15% on 140 lakh [170
lakh- 30 lakh] 6,00,000
- Depreciation on computers [40% of 15
lakh]
47,38,125
3,17,500
Add: Additional depreciation @10% on 50,55,625
machinery is put to use for less than 180
days
Gross Total Income 2,49,19,375
Less: Deduction under Chapter VI-A
U/s 80JJAA [See Working Note below] 9,30,000
Total Income 2,39,89,375

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Total Income (Rounded off) 2,39,89,380
Computation of tax payable by Sankar Ltd. for the A.Y. 2024-25

Tax payable on 2,39,89,380@25%, since the turnover of 59,97,344

the company for the P.Y. 2021- 22 does not exceed
400 crores
Add: Surcharge@7% (since the total income of the 4,19,814
company exceeds 1 crore but does not exceed 10
crore)
64,17,159
Add: Health and education cess@4% 2,56,686
Tax liability 66,73,846
Tax liability (Rounded off) 66,73,850
Working Note:
Computation of deduction u/s 80JJAA
Sankar Ltd. is eligible for deduction u/s 80JJAA since the company
is subject to tax audit u/s 44AB for A.Y.2024-25 and has employed
"additional employees" during the P.Y.2023-24.
Number of additional employees
Total number of employees employed during the year 24
Less: Employees employed on 1.7.23, since their total monthly
emoluments exceed ₹25,000 4
Employees employed on 1.6.23 whose emoluments are paid by
bearer cheque 2
Number of additional employees 18
[10 employees employed on 1.6.2023 and 8 employed on 1.11.23]

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Additional employee cost
31,00,000
23 lakh, being 23,000 × 10×10 +8 lakh, being 20,000 x 5 x 8
Deduction u/s 80JJAA [30% of 31 lakh] 9,30,000
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Q.2
1. PQR Ltd has two units - one engaged in manufacture of computer hardware
and the other involved in developing software. As a restructuring drive, the
company has decided to sell its software unit as a going concern by way of
slump sale for 385 Lakhs to a new company called S Ltd, in which it holds
74% of equity shares.
The Balance Sheet of PQR Ltd as on 31st March, 2024 being the date on
which software unit has been transferred, is given here under:--
Balance Sheet as on 31.03.2024
Liabilities In Lakhs Assets In Lakhs
Paid up Share Capital 300 Fixed Assets:
General Reserve 150 Hardware Unit 170
Share Premium 50 Software Unit 200
Revaluation Reserve 120 Debtors:
Current Liabilities: Hardware Unit 140
Hardware Unit 40 Software Unit 110
Software Unit 90 Inventories:
Hardware Unit 95
Software Unit 35
Total 750 Total 750
Following additional information is furnished by the management:

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1. The software unit is in existence since May 2015
2. Fixed assets of software unit include Land which was purchased at 40
Lakhs in the year 2009 and revalued at 760 Lakhs as on March 31,
2024. The stamp duty value on 31.3.2024 is 55 lakhs.
3. Fixed Assets of Software unit mirrored at 140 Lakhs (200 Lakhs
minus Land Value *60 Lakhs) is written down value of depreciable
assets as per books of account. However, the written down value of
these assets under section 43(6) of the Income Tax Act is 790 Lakhs
A. Ascertain the tax liability on Capital Gain which would arise
from Slump Sale to PQR Ltd., assuming it does not opt for
section 115BAA.
B. What would be your advice as a tax consultant to make tax -
savy, without changing the amount of sale consideration?
Ans. Name of the Assessee: PQR Ltd
Financial Year: 2023-24
Computation of Capital Gains
Particulars In Lakhs
Full Value of Consideration (FMV on the date of 385
Transfer)
Less: Transfer Expenses Nil
Net Consideration - 385
Less: Cost of Acquisition [Net-worth: Note 1] (185)
Long Term Capital Gain - 200
Tax Liability on LTCG @20% u/s 112 (200 x 20%) 40
Add: Surcharge @7% on Tax 2.80
42.80

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Add: HEC @ 4% 1.712
Net Tax Payable 44.512
Notes
1. Calculation of Full value of Consideration
Particulars In Lakhs
Fair market value of the capital assets transferred by 55
way of slump sale Land, being an immovable
property [stamp duty value on 31.3.2024, being the
date of slump sale] [A]
Other Fixed assets (Furniture and Plant & machinery) 140
[Book value as appearing in the books of accounts] [
200 lakhs - 60 lakhs] [B]
Debtors [Book value as appearing in the books of 110
accounts] [C]
Inventories [Book value as appearing in the books of 35
accounts] [D]
340
Less: Liability of Software Unit [* 750-40] [L] 710
Excluding
(i) Paid up share capita l300
(ii) General Reserve 150
(ii) Share Premium 50 620 90
(iii) Revaluation reserve 120
Fair market value of the capital assets transferred by 250
way of slump sale [A+B+C+D-L][FMV1]
Fair market value of the consideration received or 385

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accruing as a result of transfer by way of slump sale
[value of the monetary consideration received]
[FMV2]
Full value of consideration [Higher of FMV1 or 385
FMV2]
2. Calculation of Net-worth of Software Unit
Particulars In Lakhs
Depreciable Assets (WDV as per Income Tax Act) 90
Land + 40
Debtors + 110
Inventory + 35
Total Assets 275
Less: Current Liability - (90|)
Net-worth 185
Possible Tax Planning Aspects:
1. Since the transfer is on slump Sale, the benefit of indexation is not
available. If the transfer of software unit is on item-wise basis, then
land could be eligible for indexation benefit.
2. PQR Ltd may acquire remaining 26% of the equity shares in S Ltd in
which case it will become a 100% subsidiary. Transfer of Capital
Asset by the parent company to a 100% subsidiary company would
not be regarded as transfer. However, this relationship must be
retained for a period of at least 8 years from the date of transfer.
3. PQR may think about demerger of software unit to get benefit of sec
47 of the Income tax Act. 8

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Q.2
2. Mr. X received the following gifts/amounts during F.Y. 2023-24
(i) Gift of bullion worth 260,000/- on his birthday from his friend
(ii) Received a car from his cousin on payment of 21,00,000/-, FMV of
which was 24,00,000/-
(iii) Received cash gift of 18,000/- each from three of his friends A, B and
C on 24.09.2023
(iv) Acquired an office building on 22.11.2023 from his friend Q for a
consideration of 10 Lakhs, stamp value of which is 20 Lakhs.
(v) In respect of Land of Mr. X acquired by Railways in the year 2015, he
received the following amount on 25.12.2023 as interest on enhanced
compensation on the order of the court-
Relating to Previous Years
2020-21 1,45,000/-
2021-22 1,75,000/-
2022-23 1.10,000/-
You are required to compute the Income of Mr. X chargeable under
the head "Income from other Sources" for A.Y. 2024-25, assuming
that he has no other income.
Ans. Name of the Assessee: Mr. X
Previous Year: 2023-24
Computation of Income from Other Sources
Particulars
(i) Since bullion is included in the definition of "Property", 60,000
therefore, when bullion is received without
consideration, the same is taxable under section 56(2)(x)

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as the aggregate FMV of bullion exceeds 50,000/-
(ii) Since car is not included in the definition of property, NIL
therefore the difference of ₹3 Lakhs between FMV and
purchase price of car is non- taxable under section
56(2)(x)
(iii) Cash gift received from friends is taxable u/s 56(2)(x), 54,000
since its aggregate value exceeds 50,000/- (18,000 x 3)
(iv) Immovable property (office building) purchased for 10,00,000
inadequate consideration is taxable u/s 56(2)(x).
Therefore, the difference of 10 Lakhs between stamp
duty value and purchase price of building is taxable u/s
56(2)(x)
(v) As per section 145B, interest received during the year on 2,15,000
enhanced compensation shall be deemed to be the
Income of the year in which such interest is received
irrespective of the method of accounting followed by the
Assessee. Hence, the interest received by Mr. X is
taxable in P.Y. 2023-24 ( 1,45,000+ 1,75,000 +
1,10,000 4,30,000)
Less: Deduction u/s 57 @ 50% of 4,30,000 (2,15,000)
Income from Other Sources 13,29,000
6
Q.3 M/s PRK LLP, a limited liability partnership, set up a unit in Special
Economic Zone (SEZ) on 1st April, 2019 to develop and export computer
software. The unit complied with all the conditions of section 10AA. The net
profit of the unit as per Statement of Profit & Loss for the year ended 31st

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March, 2024 was 65 lakhs after debiting/crediting the following items:
(i) Profit on sale of import entitlement 9 lakhs.
(ii) Remuneration to its working partners * 58 lakhs.
(iii) Interest at the rate of 16% per annum on partners' capital 20 lakhs.
(iv) Donation to a political party 3 lakhs.
(v) Depreciation 17 lakhs.
Additional Information:
(i) Payment of remuneration to working partners and interest on capital
are authorized by the partnership deed.
(ii) Brought forward business loss from assessment year 2018-19 was 4
lakhs.
(iii) Unabsorbed depreciation brought forward from assessment year 2017-
18 was 35 lakhs.
(iv) Total export turnover was 45 crores and the sale proceeds in
convertible foreign exchange received in India by 30th September,
2024 was 38 crores. Total export turnover of 45 crores include
telecommunication charges of 5 crores attributable to delivery of
software. Sale proceeds realization of 38 crores also include such
telecommunication charges of 2 crores.
(v) Depreciation allowable as per Income-tax Rules is * 26 lakhs.
You are required to compute:
(i) Income-tax (including AMT u/s 115JC) payable by Mis PRK LLP for
the Assessment Year 2024-25.
(ii) Amount of tax credit allowed to be carried forward.
Necessary working notes should form part of your answer.
Ans. Computation of total income and tax liability of M/s PRK LLP for

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A.Y.2024-25
(under the regular provisions of the Income-tax Act, 1961)
Particulars Amount (in Amount (in
) )
Net profit as per Statement of Profit & Loss 65,00,000
Add: Items debited but to be considered
separately or to be disallowed
- Remuneration to its working partners 58,00,000
- Interest@16% p.a. on partners' capital 5,00,000
(Interest on capital account would be fully
allowed to the extent of 12%, since the
same is authorized by the partnership deed.
Thus, interest in excess of 12% i.e., 20
lakhs/16% x 4% would be disallowed)
- Donation to a political party [not allowed 3,00,000
as deduction as per section 37(1) while
computing business income, since it is not
incurred wholly and exclusively for the
business]
- Depreciation 17,00,000 83,00,000
1,48,00,000
Less: Permissible expenditure and
allowances
-Depreciation allowable as per Income-tax 26,00,000
Rules, 1962
-Unabsorbed depreciation u/s 32(2) 35,00,000 61,00,000

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[allowable as deduction while computing
book profit as per Explanation 3 to section
40(b)]
Profit on sale of import entitlement [taxable
as profits and gains from business as per
section 28, since the same has already
credited in Statement of profit and loss, no
further adjustment is required] Nil
Book Profit 87,00,000
On first 3 lakh of book profit [ 3,00,000 ×
90%] 2,70,000
On balance 84 lakh of book profit [84,00,000
× 60%] 50,40,000
53,10,000
Remuneration actually paid of 58,00,000 is
allowable to the extent of 53,10,000
Business Income 33,90,000
Less: Brought forward business loss for A.Y. 4,00,000
2018-19
Gross Total Income 29,90,000
Less: Deduction u/s 10AA
Profit from SEZ unit x Export Turnover/ 22,41,000
Total Turnover x 100% [ 24,90,000 x 36
crores/40 crores x 100% (since it is the fifth
year of operation)]
Profit derived from SEZ unit 33,90,000

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Less: Profits from sale of import entitlement
[business income which are in the nature of
ancillary profits, do not constitute profit
'derived from business for the purpose of 9,00,000
exemption u/s 10AA] 24,90,000
Export Turnover [ 38 crores 2 crores, being 36 crores
telecommunication charges included therein.
Telecommunication charge' not includible in
export turnover]
Total Turnover [45 crores 5 crores, being 40 crores
telecommunication charges included therein.
Since telecommunication charges has been
excluded from export turnover, the same has
to be excluded from total turnover also]
Less: Deduction u/s 80GGC
[Donation to political party [allowable as
deduction u/s 80GGC, assuming the
donation made otherwise than by way of
cash] 3,00,000
Total Income 4,49,000
Tax liability
Tax@30% 1,34,700
Add: Health and education cess@4% 5,388
Tax Liability 1,40,088
Tax Liability (rounded off) 1,40,090
Computation of adjusted total income of M/s PRK LLP and Alternate

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Minimum Tax
Particulars Amount (in)
Total Income (as computed above) 4,49,000
Add: Deduction u/s 10AA 22,41,000
Adjusted Total Income 26,90,000
Alternate Minimum [email protected]% 4,97,650
Add: Health and Education cess@4% 19,906
Tax liability u/s 115JC 5,17,556
Since the regular income-tax payable is less than the
alternate minimum tax payable, the adjusted total income
shall be deemed to be the total income and tax is leviable
@18.5% thereof plus cess@4%. Therefore, the tax liability
is 5,17,560 (rounded off).
AMT Credit to be carried forward u/s 115JEE
Tax liability u/s 115JC (rounded off) 5,17,560
Less: Tax liability under the regular provisions of the 1.40.090
Income-tax Act, 1961
Amount of Credit 3.77.470
Note - In the above solution, while computing deduction u/s 10AA, the
brought froward business loss of 4,00,000 from A.Y. 2018-18 is not
deducted from profits derived from SEZ, considering the view that such
profits have to be computed as per Chapter IV-D and hence, effect of carry
forward and set-off of losses is not given.
However, alternate view is also possible based on Circular No. 7/DV/2013
[FILE NO.279/MISC./M- 116/2012-ITJ], dated 16-7-2013 that provisions
contained in Chapter VI relating to set-off and carry forward and set-off of

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losses shall also apply while determining the income for the purpose of
computing deduction u/s 10AA. If this view is considered, the deduction u/s
10AA has to be computed after deducting brought forward business losses of
₹ 4,00,000 from the profits of SEZ. In such case, the deduction u/s 10AA
would be 18,81,000 [( 20,90,000 x 36 crores/* 40 crores) x 100%], total
income would be 8,09,000, tax liability as per normal provisions would be
2,52,410. Alternate minimum tax liability would remain same. However,
AMT credit to be carried forward would be ₹ 2,65,150] 10

Q.3
2. Nishant, a foreign national and a match referee came to India for T-20
matches and other match When he stayed in India, he also won a prize of
25,000 from horse racing in Delhi. He has no tournaments during the P.Y.
2023-24 for 45 days. He received 9.6 lakhs for T-20 matches in India. other
income in India during the year. Compute tax liability of Nishant for
Assessment Year 2024-25 if he opts for section 115BAC.
Ans. The Calcutta High Court in Indcom v. CIT (TDS)(2011) has held that
‘match referee' would not fall within the meaning of "sportsmen" to attract
the provisions of section 115BBA. Therefore, although the payments made
to non-resident 'match referee' are "income" which has accrued and arisen in
India, the same are not taxable under the provisions of section 115BBA.
Particulars
Tax@30% u/s 115BB on winnings of ₹25,000 from horse races 7,500
Tax on ₹9,60,000 at the rates in force
Upto 3,00,000 Nill
3,00,001-6,00,000 @5% 15,000

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6,00,001-9,00,000 @ 10% 30,000
9,00,001 -9,60,000 @ 15% 9,000 54,000
61,500
Add: Health and Education cess@4% 2,460
Tax payable 63,960
4
Q.4
1. M/s Mahan Charitable Trust in running an institution with hostel facility for
the orphan children. It is registered u/s 12AB.
(a) Voluntary contribution received during the year 150 lakhs. This
includes:
(i) Corpus donation 20 lakhs
(ii) Donation of 20 lakhs from Mr. Michael, a foreign donor,
which was received on 31-3-2024.
(b) Salary paid to teachers and administrative staff 40 lakhs.
(c) Other general expenses 10 lakhs include payment to grocery stores
of 30,000 by crossed cheque.
(d) A land belonging to the Trust in a nearby village which was purchased
in the year 2022-23 for 5lakhs was sold for 10.50 lakhs and another
land adjacent to the Trust premises was purchased for 12 lakhs to be
used as playground for the children.
(e) Five laptops costing 50,000 each were purchased during the year for
teaching purposes.
(f) The Trust had accumulated 30 lakhs u/s 11(2) for 5 years in the
financial year 2019-20 for constructing a school building. Amount
spent for the said purpose till 31-3-2024 was 27 lakhs. The project is

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completed with a saving in project cost.
(g) Two additional rooms measuring 1500 sq. ft each was constructed in
the existing hostel for the children. Cost of construction is ₹1200 per
sq. ft.
(h) It made a corpus donation of ₹20 lakhs to a charitable trust registered
u/s 12AB having similar objects.
Compute taxable income of Mahan Charitable Trust for the assessment year
2024-25. Support your answer with necessary working notes.
Ans. Computation of total income of M/s. Mahan Charitable Trust for the
A.Y.2024-25
Particulars
Voluntary contributions received during the year 1,50,00,000
Less: Corpus Donation (Note - 1) 20,00,000
Income from property held under trust [Capital Gains 1,30,00,000
from sale of land (10.50 lakhs - 5 lakhs)] 5,50,000
Less: 15% of income eligible for being set apart 1,35,50,000
without any condition 20,32,500
1,15,17,500
Less: Amount applied for charitable purposes
Salary paid to teachers and administrative staff 40,00,000
General expenses [10,00,000 30,000, payment by 9,70,000
crossed cheque disallowed due to section 40A(3)]
Capital gains re-invested in purchase of land for the 5,50,000
purpose of the trust deemed to be applied for
charitable purposes [10.50 lakhs - 5 lakhs]
Excess of purchase price of new land over sale 1,50,000
consideration of old land treated as application of

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income, since the new land is used for the purpose of
the trust [12 lakhs - 10.50 lakhs]
- Cost of laptops purchased for teaching purposes 2,50,000
[50,000 x 5]
- Cost of construction of hostel rooms [2 x 1200 x 36,00,000
1500 sq. ft]
- Corpus donations of 20 lakhs to a trust registered Nil
u/s 12AB not permissible as deduction 95,20,000
19,97,500
Amount accumulated for constructing a school
building (30 lakhs) less amount actually spent (27
lakhs) taxable u/s 115BBI in the P.Y.2024-25
(A.Y.2025-26), being the last year of accumulation Nill
Total income [See Note below] 19,97,500

Particulars
1. It is assumed that the Mahan Charitable trust has invested/deposited
such contribution in modes specified u/s 11(5).
2. If the trust exercises the option to apply the donations received from
Mr. Michael on 31.3.2023 atleast 2 months before the due date of
filing of return u/s 139(1) in the form 9A, the income would be
deemed to have been applied for charitable purposes in the A.Y.2024-
25. However, such amount should be applied before the end of the
3. previous year 2024-25. As per the Supreme Court ruling in CIT v
Programme for Community Organisation (2001), 15% of gross
receipts would be eligible for accumulation u/s 11(1)(a)
8

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Q.4
2. Examine the applicability of provisions relating to deduction/collection of
tax at source in the [TCS RTP NOV-2023] following cases for the financial
year ended 31st March, 2024 as per provisions contained in the Income-tax
Act, 1961:
(I) Delta Ltd., an Indian company, which was incorporated on 1.4.2023
purchases coal from Phi Ltd., another Indian company, for? 75 lakhs
during the P.Y.2023-24, to manufacture steel. Delta Ltd. furnishes a
declaration that such coal is used to manufacture steel and not for
trading. What are the TCS/TDS implications on such transaction, if
Delta Ltd.'s turnover was 12 crores in the P.Y.2023-24; and Phi Ltd.'s
annual turnover ranges between? 16 crores and 18 crores in the last
few years?
Would your answer change if Delta Ltd. was incorporated on 1.4.2022
and its turnover in the P.Y.2022-23 is 10 crores?
(II) Sigma Ltd., a car manufacturer, sold the following cars to the car
dealers, Epsilon Ltd. and Omega Ltd., in the P.Y.2023-24-
Dealer Particulars of cars sold Value
Epsilon Ltd. 10 cars of the value 12 lakhs each 120 lakhs
Omega Ltd. 8 cars of the value of 10 lakhs each 80 lakhs
The turnover in the P.Y.2022-23 of Sigma Ltd. is 12 crores, Epsilon
Ltd. is? 14 crores and Omega Ltd. is 9 crores.
Ans. (i) As per section 206C(1A), since Delta Ltd., a resident buyer, has
furnished a declaration that coal is used for manufacturing steel and
not for trading, Phi Ltd. is not required to collect tax at source u/s
206C(1). In case of goods covered u/s 206C(1) but exempted u/s

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206C(1A), tax would not be collectible u/s 206C(IH). However,
section 194Q will apply in such cases covered u/s 206C(IA) and the
buyer would be liable to deduct tax u/s 194Q, if the conditions
specified therein are fulfilled.
However, for the provisions of section 194Q to be attracted, a buyer is
required to have total sales or gross receipts or turnover from the
business carried on by it exceeding 10 crores during the financial year
immediately preceding the financial year in which the purchase of
goods is carried out. The CBDT has, vide Circular No. 13/2021, dated
30.6.2021, clarified that since this condition would not be satisfied in
the year of incorporation, the provisions of section 194Q shall not
apply in the year of incorporation. Since Delta Ltd. is incorporated in
the P.Y. 2022 -23, it would not qualify as a "buyer" for the purpose of
section 194Q for the said previous year, inspite its turnover exceeding
10 crores in the current previous year.
Thus, the transaction would neither attract TDS u/s 194Q nor TCS u/s
206C.
The answer would not change even if Delta Ltd. was incorporated on
1.4.2021 and its turnover in the P.Y.2021-22 is 10 crores, since the
said turnover does not exceed 10 crores.
(ii) The first step is to examine the applicability of section 206C(1F).
Section 206C(1F) requiring collection of tax at source@1% by the
seller of motor car of value exceeding 10 lakhs does not, however,
apply in case of sale by manufacturer to a dealer. Hence, the
provisions of section 206C(1F) are not attracted in case of sale of cars
by Sigma Ltd., a car manufacturer, to its dealers Epsilon Ltd. and

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Omega Ltd.
The second step is to examine whether the provisions of section 194 Q
would be attracted in the hands of the dealers, namely, Epsilon Ltd.
and Omega Ltd. Since the turnover of Epsilon Ltd. in the P.Y.2021-22
exceeds 10 crore and the value of cars purchased from Sigma Ltd. in
the P.Y.2022-23 exceeds 50 lakhs, Epsilon Ltd. has to deduct
[email protected]% of 70 lakhs (i.e., 120 lakhs - 50 lakhs), at the time of credit
to the account of Sigma Ltd. or at the time of payment, whichever is
earlier. However, Omega Ltd. is not required to deduct tax at source
u/s 194Q, since its turnover in the P.Y.2021-22 does not exceed 10
crores.
The third step is to examine whether the provisions of section
206C(1H) would be attracted in the hands of Sigma Ltd. Sigma Ltd.'s
turnover for P.Y.2021 -22 exceeds 10 crores and the value of cars sold
to Epsilon Ltd. and Omega Ltd. exceed 50 lakhs each. Hence, it falls
within the meaning of "seller" u/s 206C(1H). Accordingly, in respect
of sale of cars to Omega Ltd., Sigma Ltd. is required to collect
[email protected]% of 30 lakhs (i.e., 80 lakhs - 50 lakhs) at the time of receipt.
However, no tax is to be collected by Sigma Ltd. from Epsilon Ltd.,
since the transaction has already been subject to TDS u/s 194Q in the
hands of Epsilon Ltd. 6

Q.5
1. Ajay, a non-resident Indian, has the following sources of income in India
during the previous year 2023-24:
Particulars

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(i) Income from house property located in India 1,80,000
(computed)
(ii) Dividend from Indian Companies (Purchased 10,000
in Indian )
(iii) Interest on debentures of Indian company 1,00,000
(Subscribed in convertible foreign exchange)
Less: Interest on loan taken for purchase of 20,000 80,000
debentures
(iv) Long-term capital gains on sale of debentures
subscribed in US $:
Cost in 04-05 4,00,000
Sale in 23-24 6,00,000
2,00,000
Less: Commission to brokers 6,000 1,94,000
Cost Inflation Index: F.Y. 2004-05-113; F.Y.2023-24-348
Compute the tax payable by Ajay for Assessment Year 2024-25, if he opts
for the provisions of
Chapter XII-A of the Income-tax Act, 1961. Ignore the provisions of section
115BAC.
Ans. Computation of tax liability of Mr. Ajay for the A.Y. 2024-25 as per Chapter
XII-A
Particulars
Tax on long term capital gain (1,94,000 x 10%) 19,400
[See Notes 1 & 2]
Tax on interest on debentures being investment 20,000
income (1,00,000 x 20%) [See Notes 1 & 3]
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Tax on Dividend taxable for NR as per section 2,000
115A (10,000 x 20%)
Tax on balance income of 1,80,000 Nill 41,400
Add: HEC@4% 1,556
Total tax liability (rounded off) 43,060
Notes:
(1) Computation of total income of Mr. Ajay for the A.Y. 24-25 as per
provisions of Chapter XII-A
Particulars
Income from house property (computed) 1,80,000
Capital Gains on sale of debentures
Sale consideration 6,00,000
Less: Commission to brokers 6,000
Net sale consideration 5,94,000
Cost of acquisition (Refer Note 2) 4,00,000
Long term capital gain 1,94,000
Dividend income received from Indian companies 10,000
Interest on debentures of Indian company 1,00,000
(Refer Note 3)
Total Income 4,84,000
(2) As per section 115D, the indexation benefit would not be available for
calculating cost of acquisition for computing long term capital gains
under Chapter XII-A.
(3) No expenditure is allowed to be deducted from the interest on
debentures being the investment income as per the provisions of
section 115D. Therefore, interest on loan taken for purchase of

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debentures is not deductible.
(4) As per the provisions of section 115E, the tax rate applicable on
investment income is 20% and on the long term capital gain the tax
rate applicable shall be 10%. The balance income shall be chargeable
to tax as per the normal tax rates.
(5) It has been assumed that the debentures referred to in the question are
issued by an Indian company which is not a private company and are
hence, specified assets. Since the specified assets have been
subscribed in convertible foreign exchange, they are foreign exchange
assets.
Note:
If a non-resident purchases shares in, or debentures of, an Indian company
by utilising foreign currency, capital gain shall be calculated under first
proviso to section 48 in the same foreign currency which was initially
utilised in purchase of shares and debentures. Capital gains so computed in
foreign currency shall be reconverted into Indian currency. Since the
telegraphic transfer buying rates and telegraphic transfer selling rates of US
$ on the date of acquisition, date of sale are not given in the question, effect
has not been given to the first proviso to section 48 in the above solution. 4

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assets and with interest thereon on 31st August, 2023. During the Financial
Year 2023-24, Vihaan Ltd. Also entered into an agreement with Yuvan Inc.
to provide 20 thousand medical equipment's at a cost of 7,400 per unit. The
Assessing Officer treats them as associate enterprise and wants to re
compute the income of Vihaan Ltd. At arms' length price. You are required
to answer the following questions in this respect:
(1) Would Vihaan Ltd. And Yuvan Ltd. Be treated as associate
enterprises for the purpose of transfer pricing adopted by the
Assessing Officer? If yes, why?'.
(2) Calculate the arm's length price of Vihaan Ltd. Which sells the same
equipment's at the rate of * 9,000 per unit to Y Ltd. and at the rate of *
9,500 per unit to X LLP (both of them are unrelated parties in respect
of Vihaan Ltd.). Vihaan Ltd. Is not a wholesale dealer.
(3) What are the options available to Vihaan Ltd. in respect of such
increase in transfer price by income tax authorities, if Vihaan Ltd.
Accepts such transfer price?
Ans. (1) Two enterprises are deemed to be associated enterprises as per section
92A(2)(c), if a loan advanced by one enterprise to the other enterprise
constitutes not less than 51% of the book value of total assets of the
other enterprise. Since Vihaan Ltd., an Indian company, advanced
loan of an amount of 6 crores to Yuvan Inc., a Singapore company,
which is 150% of the book value of the total assets of Yuvan Inc. (i.e.,
150% of 4 crores), Vihaan Ltd. and Yuvan Inc. are deemed to be
associated enterprises.
(2) Vihaan Ltd. sells equipments at the rate of ₹9,000 per unit to Y Ltd.
and at 9,500 per unit to X LLP, Chapter 29: Transfer Pricing both of

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them being unrelated parties. Since the transactions can be considered
as comparable uncontrolled transactions for the purpose of
determining the arm's length price, Comparable Uncontrolled Price
(CUP) method would be most appropriate method.
Since two prices are determined by the most appropriate method, and
data set comprises of only two entries, the arm's length price shall be
the arithmetical mean of both the values included in the dataset.
Accordingly, arm's length price would be ₹9,250 [( 9,000+ 9,500)/2].
Since the deviation between the arm's length price and actual sale
price of the equipment to Yuvan Inc. i.e., 7,400 per unit is 25%, which
exceeds 3% of the price of the international transaction, the arm's
length price would be ₹9,250 per unit and the total income would
increase by 3.7 crores [i.e. 1,850 (9,250-7,400) x 20,000 units]
(3) On account of the primary adjustment of 3.7 crores (1850 x 20,000
units) made by the Assessing Officer, in the total income of Vihaan
Ltd. for A.Y.2024-25, secondary adjustment has to be made u/s 92CE,
since -
(1) The company has accepted the primary adjustment made by the
Assessing Officer;
(2) The primary adjustment is in respect of A.Y.2024-25; and
(3) The primary adjustment exceeds 100 lakhs.
Accordingly, the excess money i.e.,3.7 crores available with the Yuvan Inc.
has to be repatriated to India within 90 days of the date of the order of the
Assessing Officer.
Alternatively, Vihaan Ltd. can opt to pay additional income-tax @20.9664%
(tax @18% plus surcharge @12% plus cess@4%) on 3.7 crores, which

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amounts to 77,57,568. 4

Q.5
3. M/s Global Architects Inc is a company incorporated in country F1. It is
engaged in the business of providing architectural design services all over
the world. It receives an offer from Lovely Resorts Pvt Ltd, an Indian
company, for design and development of resorts all over India.
India-F1 tax treaty provides that architectural services are technical services
and payment for the same to a company may be taxed in India. However, if
such professional services are provided by a firm or individual, then
payment for such services are taxable only if the firm has a fixed base in
India or stay of partners, employees in India exceed 180 days.
M/s Global Architects Inc forms a partnership firm with a third party
(director of the company) having only a nominal share in the F1. The firm
enters into an agreement to carry out the services in India. The company
seconded its trained manpower to the firm.
Thus, the partnership firm claimed the treaty benefit and no tax was paid in
India. Can such an arrangement be examined under GAAR?
Ans. It is obvious that there was no commercial necessity to create a separate firm
except to obtain the tax benefit. The firm was only on paper as the
manpower was drawn from the company. The firm did not have any
commercial substance. Moreover, it is a case of treaty abuse. Hence, GAAR
may be invoked to disregard the firm and tax payment for architectural
services as fee for technical services. However, the rate of tax on such
payment shall be as applicable under the treaty, if more beneficial. 3

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Q.5
4. State whether the following assessees have to file return of income and if so,
the due date for the assessment year 2024-25:
(i) A registered trade union having income from let out property of
1,00,000.
(ii) A public trust hospital having an aggregate annual receipt of 505 lacs
and availing exemption of 3,10,000 u/s 10(23C) (via) with total
income of ₹ 2,40,000
Ans. (i) A registered trade union is having income from house property, which
is exempt u/s 10(24). Section 139(4C) mandates filing of return only
when the total income exceeds the maximum amount which is not
chargeable to tax without giving effect to the provisions of section 10.
In this case, even without giving effect to section 10(24), the total
income of the registered trade union is below basic exemption limit
and therefore, there is no mandatory requirement to file the return of
income.
(ii) Since the total income without giving effect to the exemption u/s
10(23C)(via) is ₹ 5,50,000, which exceeds 3,00,000, the trust has to
file its return of income by 31st October 2024. 3

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(b) Receipts from sale of goods to persons not resident in 99 lakhs
other parts of South-East Asia
Out of the said sum, 60 lakhs relates to receipts from
persons using internet protocol address located in
India.
Discuss the equalisation levy implications of such receipt in the hands of
MNO & Co., if –
(i) MNO & Co. has no permanent establishment in India
(ii) MNO & Co. has a permanent establishment in India, and the sale of
goods is effectively connected to the permanent establishment in India
Would your answer change if out of the receipts in (b) above, only 45 lakhs
relates to receipts from persons using internet protocol address located in
India?
Ans. The Finance Act, 2020 has inserted new section 165A in the Finance Act,
2016 providing for equalisation levy@2% on the amount of consideration
received or receivable by an e-commerce operator from e- commerce supply
or services made or provided or facilitated by it, inter alia, to a person
resident in India and a person who buys such goods or services or both using
internet protocol address located in India. MNO & Co. is an e-commerce
operator since it is a non-resident owning and operating an electronic facility
for online sale of goods and provision of services.
(i) MNO & Co. has no permanent establishment in India
In this case, the gross receipts of the e-commerce operator from the e-
commerce supply and services facilitated is 2.05 crore
Particulars Amount in
(a) Receipts from sale of goods to persons resident in 145 lakhs

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APB Marks
India
(b) Receipts from sale of goods to persons not resident 60 lakhs
in India (using internet protocol address located in
India)
Total receipts 205 lakhs
Since total receipts which are chargeable to equalisation levy exceed
2 crore, equalisation levy@2% is attracted on the above sum of 205
lakhs, which would amount to 4.10 lakhs.
Note - If the receipts in (b) above were only 45 lakhs, then
equalisation levy would not be attracted since the gross receipts would
be only 190 lakhs, which is less than 2 crores.
(ii) MNO & Co. has a permanent establishment in India, and the sale of
goods is effectively connected to the permanent establishment in India
Equalisation levy would not be attracted where the non-resident E-
Commerce Operator (MNO & Co., in this case) has a permanent
establishment in India and the sale of goods is effectively connected to the
permanent establishment in India.
This is irrespective of the quantum of receipts in (b) above i.e., whether 60
lakhs or 45 lakhs. 5

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(47)

APB Marks
exemption limit of $ 8,000 and on balance income. he paid income tax
@20% in Country Y. The tax was paid on 10th May 2024 from his bank
account in India.
His income from business in India is 5,00,000 for the year ended on 31st
March 2024. He also received dividend amounting to 1,25,000 from an
Indian company and interest of * 11,500 on saving bank account with SBI,
during the year.
The exchange rates of 1 $ on various dates is given below:
1.04.2023-74; 31.03.2024, 75; 10.05.2024 - 75.5;
Compute the net tax liability of Mr. Chetan in India for the assessment year
2024-25 on the assumption that there is no DTAA between India and
Country Y.
Assume that the assessee does not opt for the provisions of Section
115BAC.
Ans. Mr. Chetan is a resident in India for A.Y.2024-25, since his stay in India in
the P.Y.2023-24 is for 304 days which exceeds the minimum required stay
of 182 days in that previous year. Also, his stay in India is for 1461 days
(i.e., 365 days each in P.Y.2015-16 to P.Y.2019-20 + 1 day for leap year)
during the last seven years (which exceeds the minimum specified
requirement of 730 days in the immediately preceding seven years) and he
has been resident in 7 years (P.Y.2013-14 to P.Y.2019-20) out of 10 years
immediately preceding P.Y.2023-24.
Hence, he is resident and ordinarily resident in India for A.Y.2024-25.
Accordingly, his global income would Chapter 31: Double Taxation Relief
(DTAA) be subject to tax. He would, however, be entitled for deduction
under section 91 in respect of doubly taxed income earned in Country Y.

www.fasttestseries.com APB P.T.O.

(48)
APB Marks
Computation of total income of Mr. Chetan for A.Y.2024-25
Particulars
Income from House Property [Residential property
in Country Y]
Annual Value ($ 25,000 x 75, exchange rate on
31.3.2024) 18,75,000
Less: Deduction under section 24-30% of NAV 5,62,500
Profits and Gains of Business or Profession 13,12,500
Income from business in India
Income from Other Sources 5,00,000
Dividend from Indian company [1,25,000 x 1,38,889
100/90] 1,50,389
Interest on savings bank account with SBI 11,500
Gross Total Income 19,62,889
Less: Deduction under Chapter VIA
Under section 80TTA - Interest on savings bank 10,000
account (actual interest of 11,500 or 10,000,
whichever is lower)
Total Income 19.52,889
Total Income (rounded off) 19,52,890
Computation of tax liability of Mr. Chetan for A.Y.2024-25
Particulars
Tax on total income [30% of 9,52,890+1,12,500] 3,98,367
Add: Health and Education cess@4% 15,935
4,14,302
Less: Deduction under section 91 (See Working Note below) 1,78,500

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(49)

APB Marks
Net Tax Liability 2,35,802
Net Tax liability (rounded off) 2,35,800
Working Note: Calculation of deduction under section 91
Particulars
Average rate of tax in India [i.e., 4,14,302/
19,52,890x100] 21.21%
Average rate of tax in country Y [20% of $ 17,000 13.60%
($ 25,000 - $8,000)=$3,400/$ 25,000 x 100 =
13.6%
Doubly taxed income
Income from house property 13,12,500
Deduction u/s 91 on 13,12,500 @13.60% (being 1,78,500
the lower of average Indian tax rate (21.21%) and
foreign tax rate (13.60%)]
5
Q.6
3. Explain briefly the significant differences between the UN and OECD
Model Tax Convention.
Ans. OECD Model is essentially a model treaty between two developed nations
whereas UN Model is a model convention between a developed country and
a developing country.
Further, OECD Model advocates the residence principle, i.e., it lays
emphasis on the right of state of residence to tax the income, whereas the
UN Model is a compromise between the source principle and residence
principle, giving more weight to the source principle as against the residence
principle. 2

www.fasttestseries.com APB P.T.O.

(50)
APB Marks

Q.6
4. What are the ways in which hybrid mismatch arrangements are used to
achieve unintended double non-taxation or long-term tax deferral?
Ans. Hybrid mismatch arrangements are sometimes used to achieve unintended
double non-taxation or long-term tax deferral in one or more of the
following ways -
(1) Creation of two deductions for a single borrowal;
(2) Generation of deductions without corresponding income inclusions;
(3) Misuse of foreign tax credit; and
(4) Participation exemption regimes. 2

www.fasttestseries.com APB

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