CA FINAL NEW COURSE

DIRECT TAX LAWS AND INTERNATIONAL TAXATION

FULL SYLLABUS TEST-1

Question No. is Compulsory

Attempt any Four Questions out of remaining Five Questions

Total Marks 100

Case Stduy-1

Mr. Billabong stays in India from April to September and in UK from October to March every
year. He owns a house in London, which he has let out at £ 1000 per month. He paid taxes of £
100 levied by local authorities of London every year [1 £ = Rs 120].

Mr. Billabong also has a flat in Winchester, UK, where he stays when he visits UK every year. It
is unoccupied for the rest of the year. He paid municipal tax of £ 5000 in respect of the said
house property for the F.Y. 2021-22.

He owns the following house properties at Mumbai:

Flats at Mumbai Status Municipal tax paid in the F.Y. 2021-22

Bandra Unoccupied 10,000
Worli Unoccupied 20,000

The other details relating to the properties owned by him are given under:

Place Standard rent (Rs) Municipal value (Rs) Fair rent

Bandra, Mumbai 60,000 p.m. 50,000 p.m. Rs 70,000 p.m.
Worli, Mumbai 1,30,000 p.m. 1,40,000 p.m. Rs 1,20,000 p.m.
Winchester, UK £ 1000 p.m.

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 London, UK £ 2000 p.m.

In April, 2021, Mr. Billabong’s father, Mr. Hongkong, who is 61 years old and resident in India,
has sold a flat owned by him for last 5 years to his neighbor, who is 70 years old, for 3 crore
which resulted in capital gains of Rs 2 crore. He decided to immediately invest the sale
proceeds received from the flat in NCD of Mahindra and Mahindra to the tune of Rs 1.35 crore
to earn a high rate of return, Rs 20 lakhs in bonds issued by NHAI, Rs 15 lakhs in GSec and
remaining Rs 30 lakhs in bonds issued by RECL. All the investment were made by him in June,
2021. In March, 2022, he purchased two adjacent apartments in Pune for Rs 50 lakhs each and
made suitable modifications to use them as a single house. He also purchased a flat in Baroda
for Rs 40 lakhs in April, 2022.

Further he has received other income from various sources as detailed hereunder:

Nature of Income Amount (Rs)

Interest on Fixed Deposit (in March, 2022) 40,000
Commission (in April, 2021) 20,000
Rent (throughout the year) 2,00,000

From the information given above, choose the most appropriate answer to the following
questions, assuming Mr. Billabong does not opt for section 115BAC-

1. What is the amount of municipal taxes allowable as deduction from gross annual value
while computing the income from house property of Mr. Billabong for A.Y. 2022-23?

a) Rs 22,000
b) Rs 42,000
c) Rs 6,22,000
d) Rs 6,42,000

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2. What is the income chargeable under the head “Income from House Property” of Mr.
Billabong for A.Y. 2022-23?

a) Rs 25,04,600
b) Rs 25,95,600
c) Rs 30,92,600
d) Rs 41,70,600

3. Suppose if the house property at Winchester is sold on 1.4.2021, then what would be the
income from house property for A.Y. 2022-23?

a) Rs 25,04,600
b) Rs 4,97,000
c) Rs 20,07,600
d) Rs 30,85,600

4. What is the amount of capital gains chargeable to tax for A.Y. 2022-23 in the hands of
Billabong’s father?

a) Rs 60,00,000
b) Rs 50,00,000
c) Rs 10,00,000
d) Nil

5. What is the amount of tax which would have been deducted in respect of income received
by Mr. Billabong’ father?

a) Rs 1,000
b) Rs 2,01,000

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 c) Rs 3,00,000
d) Rs 3,01,000

(5 x 2 = 10 marks)

Case Study-2

Mr. M (age 45 years), an Indian citizen is employed with a multinational company, Worldwide
Ltd. Mr. M holds a senior level position as pharmaceutical researcher in the Indian group
company of Worldwide Ltd. based at Mumbai, since 2009, considering the importance if his
role in the Worldwide Group and his exceptional performance in India, for the first time in the
year 2021, he was entrusted with task to travel to other group companies of worldwide Ltd.
outside India to share his knowledge, findings in research, etc., while continuing to be based at
the Mumbai office.

The details of his travel outside India during the financial year 2021-22 are as under:

Country Period of Stay

UK 20 August to 10 November
Australia 21 November to 23 December
France 10 January to 26 March

Salary

Mr. M is entitled to salary of Rs 43,80,000 for the financial year 2021-22. The entire salary is
paid by the Indian company in his Indian bank account. Proportionate salary was, however,
borne by overseas companies based on the number of days he was physically present and
working for them in the respective countries. The overseas companies have reimbursed the
proportionate amount of salary to Indian company.

Other than salary, he has not disclosed details of income under any other head to his employer.

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House Properties

Mr. M owns a house property in Mumbai since 2009, which he occupies for his own residence.
He continues to repay the loan availed in the year 2009 for purchase of this property. The
interest payable for the financial year 2021-22 on such loan is Rs 4,25,000. The brought forward
losses attributable to his house property for A.Y. 2020-21 and A.Y. 2021-22 is Rs 5,00,000.

Impressed by better infrastructure, quality education, safety in UK, Mr. M bought a residential
property in the UK in December 2021. He earned rental income of GBP 3,300 (@ GBP 1,100 per
month for January to March, 2022) from letting out of UK property.

The telegraphic transfer buying rates are as follows:

Date (financial year 2020-21) Rate (GBP to INR)

31 December 93.49
31 January 93,26
28 February 92.32
31 March 93.07

Investment in shares

Mr. M had purchased 500 shares of Indian company XYZ Ltd on 17 th March 2017 at the cost of
Rs 150 per share (STT paid). As per scheme of amalgamation dated 10th January, 2018 between
XYZ Ltd with another Indian company PQR Ltd, Mr. M received 250 shares of PQR Ltd in lieu of
his shareholding in XYZ Ltd. On 4th April 2021, Mr. sold shares of PQR Ltd at Rs 325 per share
(STT paid).

Date (Fair market value as Company Fair market value per share (quoted
on) price on stock exchange)
10th January 2018 XYZ Ltd Rs 160
10th January 2018 PQR Ltd Rs 320
31st January 2018 PQR Ltd Rs 360

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From the information given above, choose the most appropriate answer to the following
questions-

1. What is the residential status of Mr. M for A.Y. 2022-23 as per section 6(1)?

a) Non-resident
b) Resident and ordinarily resident
c) Resident but not ordinarily resident
d) Deemed resident

2. What would be the income chargeable under the head “Salaries” to be considered for the
purpose of deduction of tax under section 192, assuming that he does not opt for section
115BAC?

a) Rs 43,80,000
b) Rs 43,30,000
c) Rs 20,76,000
d) Rs 20,52,3000

3. What is the cost of acquisition for computation of capital gains on sale of shares of PQR
Ltd?

a) Rs 81,250
b) Rs 90,000
c) Rs 37,500
d) Rs 85,000

4. Mr. M wants to know his tax liability under section 115BAC. For this purpose, what would
be the amount of income chargeable under the head “Income from house property”?

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 a) Rs 2,14,992
b) Rs 14,992
c) Nil
d) Rs 3,07,131

5. Which of following statement is incorrect if Mr. M opts for section 115BAC?

a) He cannot claim interest on borrowing in respect of self-occupied home property.

b) He can claim 30% deduction in respect of income from House property.
c) Current year loss under the head House Property cannot be set off against any head of
inc.
d) He cannot claim deduction of municipal taxes for computing income from House
Property.

(5 x 2 = 10 marks)

MCQs

1. Assessing Officer has referred the international transactions of IT Pvt. Ltd. to the TPO to
determine the arm’s length price of international transactions for Assessment Year 2021-22 in
an assessment proceeding under section 143(3). What is the time limit for the TPO to pass the
order under section 92CA(3)?

a) 30.01.2024
b) 31.03.2024
c) 31.12.2023
d) 01.11.2023

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2. If Himalaya Ltd. has two units, 1 is engaged in the power generation business, and Unit 2 is
engaged in the manufacture of wires. Both the units were set up in Himachal Pradesh in the
year 2015. In the year 2021-22, fourteen lakh metres of wire are transferred from Unit 2 to
Unit 1 at Rs 150 per metre when the market price per metre was Rs 200. Which of the
following statements is correct?

a) Transfer pricing provisions would be attracted in this case

b) Transfer pricing provisions would not be attracted in this case, since Unit 1 and Unit 2
belong to the same company and are not associated enterprises.
c) Transfer pricing provisions would not be attracted in this case as it is not an
international transaction as both the Units are in India. For the purpose of computation
of deduction under Chapter VIA, the profits of power generation business shall,
however, be computed as if the transfer has been made at the market value of Rs 200
per MT.
d) Transfer pricing provisions would not be attracted in this case due to reasons mentioned
in both (b) and (c) above.

3. Mr. X failed to comply with the provisions of section 203A for which penalty of Rs 100,000
was levied under section 272BB. Mr. X approached his consultant and asked him to file an
appeal before the commissioner of Income-tax (Appeals) against the penalty Order.
Determine the appeal fee that is required to be paid by Mr. A for filing the said appeal.

a) Rs 500
b) Rs 250
c) Rs 1,000
d) Rs 750

4. Calcutta Suburban C-operative Society is engaged in processing agricultural produce of its

members without the aid of power, and its marketing, furnish the following particulars:

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(i) Income from the processing of agricultural produce Rs 17,000

(ii) Income from marketing agricultural produce Rs 3,000

(iii) Dividends from another co-operative society Rs 55,000

(iv) Income from letting of godowns Rs 10,000; and

(v) Income from agency business Rs 85,000.

What is the total income for the Assessment Year 2021-22?

a) Rs 1,70,000
b) Rs 35,000
c) Rs 85,000
d) Rs 1,35,000

5. A Ltd., an Indian company, commenced business on 1.2.2022. It incurred preliminary

expenses of Rs 40 lakhs during the period from 1.4.2021 to 31.1.2022. The cost of the project
is Rs 5 crores. The following are the details as on 31.3.2022:

Issued share capital – Rs 4 crores;

Share premium – Rs 50 lakhs;

Debentures- Rs 1 crore;

Long-term borrowings- Rs 2 crores

The deduction under section 35D for previous Year 2021-22 shall be-

a) Rs 5 lakhs
b) Rs 6 lakhs
c) Rs 6.50 lakhs
d) Rs 7 lakhs (5 x 2 = 10 marks)

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Q-1 XYZ Ltd. is engaged in the manufacture of pumps since 01-04-2012. Its Statement of Profit
& Loss shows a net profit of Rs 700 lakhs after debit/credit of the following items:

1) Depreciation calculated on the basis of useful life of assets as per provisions of the
Companies Act, 2013 is Rs 48 lakhs.
2) Normal Depreciation calculated as per Income-tax Rules is Rs 80 lakhs.
3) Employer's contribution to EPF of Rs 2 lakhs together with the Employees' contribution of
Rs 2 lakhs for the month of March, 2022 was remitted on 8th May 2022.
4) The company appended a note to its Income Statement that industrial power tariff
concession of Rs 2.5 lakhs was received from the State Government and treated the same
as capital receipt.
5) The company had provided an amount of Rs 25 lakhs being sum estimated as payable to
workers based on agreement to be entered with the workers union towards periodical
wage revision once in 3 years. The provision is based on a fair estimation on wage and
probable revision.
6) The company had made a provision of 10% of its debtors towards bad and doubtful debts.
Total sundry debtors of the company as on 31-03-2022 was Rs 200 lakhs.
7) A debtor who owed the company an amount of Rs 40 crores was declared insolvent and
hence, was written off.
8) Sundry creditors include an amount of Rs 50 lakhs payable to A & Co, towards supply of
raw materials, which remained unpaid due to quality issues. An agreement has been made
on 31-03-2022, to settle the amount at a discount of 75% of the outstanding.
9) The opening and closing stock for the year were Rs 200 lakhs and Rs 250 lakhs,
respectively. They were overvalued by 10%.
10) Provision for gratuity based on actuarial valuation was Rs 5 crores. Actual gratuity paid
was Rs 3 crores.
11) Commission of Rs 1 lakhs paid to a recovery agent for realization of a debt. Tax has been
deducted and remitted as per Chapter XVIIB of the Act.

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12) The company has purchased 500 tons of industrial paper as packing material at a price
of Rs 30,000/ton from PQR, a firm in which majority of the directors are partners. PQR's
normal selling price in the market for the same material is Rs 28,000/ton.

Additional Information:

1) There was an addition to Plant & Machinery amounting to Rs 50 lakhs on 10-06-2021

2) The company had credited a sub-contractor an amount of Rs 8 lakhs on 31-03-2021 towards
repairing a machinery component. The tax so deducted was remitted on 31-10-2021.
3) The company has collected Rs 10 lakhs as sales tax from its customers and paid the
same on the due dates. However, on an appeal made, the High Court directed the Sales Tax
Department to refund Rs 3 lakhs to the company. The company in turn refunded Rs 2 lakhs
to the customers from whom the amount was collected and the balance of Rs 1 lakh is still
lying under the head “Current Liabilities”.

Compute total income and tax payable. Ignore MAT provisions.

(14 marks)

Q-2

(a) SOL Inc, a notified foreign institutional investor (FII), derived the following income from
various sources for the financial year 2020-21:

1) Income in respect of securities: Rs 28,50,000

Expenses incurred in respect thereof: Rs 50,000

(The above income includes an interest of Rs 16,00,000 received from an Indian Company on
the investment in rupee denominated bonds and dividend income of Rs 3,50,000 from a
domestic company)

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2) Capital Gains:

(i) Long Term :

Sale proceeds on sale of securities on 15.01.2021 Rs 52,00,000
Purchase cost of securities on 25.05.2014: Rs 28,00,000
Cost Inflation Index: 2014-15 : 240; 2020-21: 272
(ii) Short Term:
Sale proceeds of equity shares of Company A (January 2021): Rs 13,50,000
(STT paid on Company A shares)
Cost of acquisition (August, 2020) : Rs 5,50,000
Sale proceeds of equity shares of Company B (December, 2020) Rs 9,25,000
Cost of acquisition (April, 2020) : (STT not paid on Company B Shares) Rs 4,85,000

Compute the taxable income of SOL Inc and tax liability for the assessment year 2021-22
as per applicable provisions of the Income-tax Act, 1961, assuming that no other income
is derived by SOL Inc (FII) during the financial year 2020-21.

(8 marks)

(b) Supporting the Girl Child, a charitable trust, is registered under section 12AA/12AB of the
Act. On 1.4.2021, it got merged with M/s. Ananya P Ltd., which is a company engaged in
manufacturing of stationery items. All the assets and liabilities of the erstwhile trust became
the assets and liabilities of M/s. Ananya P Ltd who is not entitled for registration under section
12AA/12AB of the Act. The trust appointed a registered valuer for the valuation of its assets and
liabilities. From the following particulars (including the valuation report), calculate the tax
liability in the hands of the trust arising as a result of such merger:

(i) Stamp duty value of land held Rs 15 lakhs. However; if this land is sold in the open
market, it would ordinarily fetch Rs 17 lakhs. The book value of the land is Rs 20 lakhs.

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 (ii) 75,000 equity shares in Idom Ltd. traded in Bombay Stock Exchange. The lowest price
per share on 1.4.2021 was Rs 75 and the highest price on that day was Rs 85. The book
value was Rs 67 lakhs.
(iii) 55,000 preference shares held in Niharika Ltd. The shares will fetch Rs 44 lakhs, if they
are sold in the open market on 1.4.2021. Book value was Rs 25 Lakhs.
(iv) Corpus fund as on 1.4.2021 Rs 15 Lakhs.
(v) Outside liabilities Rs 90 lakhs
(vi) Provision for taxation Rs 5 lakhs.
(vii) Liabilities in respect of payment of various utility bills 6 lakhs.

Note: Give reasons for treatment of each item.

(6 marks)

Q-3

(a) On 1.4.2021, Wuyu Ltd. was amalgamated with Rayu Ltd. Satisfying all the conditions
mentioned in section 2(1 B).

Wayu Ltd. had the following brought forward losses as assessed till the assessment year 2021-
22:

Particulars Rs in Lakhs
Speculation business loss 5
Unabsorbed Depreciation 13
Business Loss 150
Unabsorbed expenditure of capital nature on scientific research 3

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Rayu Ltd. has computed a profit of Rs 180 lakhs for the financial year 2021-22 before setting off
the eligible losses of Wuyu Ltd. but after providing depreciation @ 15% p.a. on rs 140 lakhs,
being the consideration at which plant and machinery were transferred by Wuyu Ltd. to Rayu
Ltd. The WDV as per Income-tax records of Wuyu Ltd. as on 1.4.2021 was Rs 98 lakhs.

The above profit of Rayu Ltd. includes speculation business profit of Rs 15 lakhs.

Compute the total income of Rayu Ltd. for the A.Y. 2022-23 and indicate the losses / other
allowances to be carried forward by it. Assume the amalgamation is within the meaning of
section 72A of the Income-tax Act, 1961. Give reasons for treatment of each item.

(4 marks)

(b) Denim Ltd. was incorporated on 01-04-2019 to carry on the business of innovation,
development, deployment and commercialization of new processes driven by technology. It
holds a certificate of eligible business from the notified IBMC (Inter Ministerial Board of
Certification).

Its total turnover and the profits and gains from such business for the P.Y. 2019 -20 and
expected turnover and profits and gains in the following years are as follows:

Particulars P.Y. P.Y. P.Y. P.Y. P.Y. P.Y. P.Y.

2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26

Total 15 18 90 95 198 99 115

Turnover
in Crores
Profits (2.52) (1.5) 6.5 8.25 9.5 8 9.50
(Losses) in
Crores

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Is Denim Ltd. eligible for any benefit under the provisions of the Income-tax Act, 1961? If yes,
what is the benefit available?

(4 marks)

(c) Mr. Gopal, aged 50 years, is a resident individual having income from the following sources:

i) Income from a sole-proprietary business in Pune Rs 75 lakhs.

ii) Share of profit from a partnership firm in Mumbai Rs 25 lakhs.
iii) Agricultural income (gross) from tea gardens in country G, a foreign country with which
India has no DTAA, CGD 45000. Withholding Tax on the above income CGD 9,000
iv) Brought forward business loss of F.Y. 2019-20 in country G was CGD 5,000 which is not
permitted to be set off against other income as per the laws of that country.
v) Mr. Gopal has deposited Rs 1,50,000 in public provident fund and paid medical
insurance premium of Rs 28,000 by account payee cheque to in-sure the health of
himself and his wife.

Compute total income and tax liability of Mr. Gopal for the A.Y. 2022-23, assuming that 1 CGD =
Rs 70. Ignore the provisions of sections 115BAC

(6 marks)

Q-4

(a) Examine the applicability of provisions relating to deduction of tax at source and compute
the liability, if any, for deduction of tax at source in the following cases for the financial year
ended 31-03-2022.

i) Rs 80,000 towards interest on compensation credited to the account of the payee by

Motor Accidents claim Tribunal on 31.04.2021.

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 ii) Rs 3,00,000 paid on 10.05.2021 as consideration to Mr. B, a resident in India, on
account of compulsory acquisition of his residential building acquired for laying
railway tracks.
iii) Ravi Kumar aged 67 years derived Rs 6,90,000 as salary from his employer, XYZ Ltd.
for the year ended 31.03.2022. The following details are provided by him to the
employer:

Particulates Rs
Loss from self-occupied house property at Mumbai 2,00,000
Net loss from let-out property 2,00,000
Net loss from business activity 1,00,000
Interest income from bank 3,20,000
(5 marks)

(b) DIY Ltd., a company registered in India and subsidiary of CD Inc., a company registered in
Austria. DIY Ltd. engaged in the manufacturing of fabric. To arrive at the arm's length price
applicable to its transactions with CD Inc., DIY Ltd. enters into an advance pricing agreement
with the Board on 25th November 2020. Accordingly, there will be a substantial change in the
income of DIY Ltd. Also, DIY Ltd. wishes to apply for roll back provisions to PY 2016-17, 2017-18,
2018-19 and 2019-20. The AO wants to apply such transfer pricing provisions from the year in
which DIY Ltd. became the subsidiary of CD Inc. i.e., A.Y. 2014-15 onwards.

DIY Ltd. had filed its return of income for the A.Y. 2020-21 on 26th August 2020 and for A.Y.
2021-22, on 31 st August, 2021. The assessments for the A.Ys 2017-18 to 2020-21 are
completed but the assessment of A.Y. 2021-22 is pending on the date of entering into APA-

You are required to answer the following questions:

(i) Whether the AO is correct to apply the transfer pricing provisions from A.Y. 2014-15
onwards?

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 (ii) In respect of A.Y. 2018-19, the transfer price arrived at by the Board is resulting in
reduction in income of the assessee. Discuss whether the roll back provisions can be
applied for that assessment year as well.
(iii) What will happen to completed as well as pending assessments?

(3 marks)

(c) Assessment Year 2021-22

Due Date of filing ROI 31.07.2021

Date of filing of ROI 12.12.2021
Tax as per ROI Rs 3,00,000
Tax Deducted at source Rs 30,000
Relief of tax allowed u/s 91 Rs 20,000
Advanced Tax paid on 15.03.2021 Rs 1,60,000
Amount paid under section 140A on 12.12.2021 Rs 45,000

Intimation under section 143(1) is prepared on 10.02.2022 and is received by the assessee on
14.02.2022. Assessee pays the demand under section 143(1) on 10.04.2022. Assessment under
section 143(3) is completed on 31.07.2022 and the tax determined is Rs 4,00,000. Compute the
demand under section 143(3).

(3 marks)

(d) Mr. X received the following the following gifts/ amounts during the previous year 2020-21.

i) Gift of bullion worth Rs 60,000 on his birthday from his friend.

ii) Received a car from his cousin on payment of Rs 1 lakh fair market value of which
was Rs 4 lacs.

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 iii) Received cash gift of Rs 18,000 each from three of his friends A, B & C on
24.09.2020.
iv) Acquired on office building on 22-11-2020 from his friend Q for a consideration of Rs
10 lacs, stamp duty value of which is Rs 20 lacs.
v) In respect of land of Mr. X acquired by Railways in the year 2012, he received the
following amount on 25-12-2020 as interest on enhanced compensation on the
order of the court.
Relating to previous year Rs
2017-18 1,45,000
2018-19 1,75,000
2019-20 1,10,000

You are required to compute the income of Mr. X chargeable under the head “Income from
other sources” for the Assessment year 2021-22 assuming that he has no other income.

(3 marks)

Q-5

(a) Do any two questions out of three In 5th Question

(i) Discuss the following:

1. What are the circumstances under which an Assessing Officer may make a best judgment
assessment?

2. What precautions should the Assessing Officer take before making such assessment?

3. X is a trader in grey cloth. He purchases grey cloth from the small weavers as per the order
received from the customers and sells the same after adding 5% commission on the purchase

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price. The quantity of the purchases and sales can be tallied bill-wise. The payments for the
purchases are made by account payee cheques only. The rate of gross profit disclosed is
reasonable as compared to that shown in earlier years and the profit shown by other traders in
the line. The parties to whom the sales are made can be produced before the Income-tax
authorities for verification. However, X expresses his inability to produce the weavers before
the Assessing Officer, who insists on their presence for proving the purchases. The Assessing
Officer proposes to reject the book results and make the best judgment assessment on the
ground the he is not satisfied about the correctness or the completeness of the account of the
assessee. Is the action of the Assessing Officer justified? Explain, giving reasons.

(4 marks)

(ii) Mr. Jayant and Mr. Basant, created, a trust, out of the insurance policy amount received
upon the death of their father. The trust deed named Jayant and Basant as the trustees and
Mrs. Kamla and Mrs. Vimla (their sisters) as the beneficiaries. However, it is the discretion of
the trustees that they may either accumulate the net income of the trust or pay the same to
any one or both the beneficiaries. During the previous year 2021-22, the total income of the
trust amounted to Rs 10,50,000. You are required to discuss the relevant provisions of the
Income-tax Act in this regard and calculate the tax payable by the trust, if any.

What would be your answer if the trust was created under the ‘Will’ of the deceased father and
such trust is the only trust so created under the ‘Will’?

(4 marks)

(iii) The assessee, M/s Career Network, a partnership firm comprising of four partners, who
have contributed capital in the books of the firm, but failed to explain satisfactorily the source
of receipt in their individual hands. The Assessing Officer has proposed to tax the amount

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credited in their accounts in the books of the firm as cash credit in the hands of the partnership
firm. Is the action of the Assessing Officer valid?

(4 marks)

(b) Mrs. Santosh field her return of income for the A.Y. 2021-22 declaring total income of Rs
3.15 lakhs. The return was processed under section 143(1) and later, the case was selected for
scrutiny and statutory notice under section 143(2) was issued. The Assessing Officer, after being
satisfied with the replies given for the enquires, completed the assessment by accepting the
declared income. Subsequently, the Commissioner invoked revisionary jurisdiction under
section 263, holding that the Assessing Officer had not made enquiry properly.

Is invoking of revisionary jurisdiction under section 263 justified?

(6 marks)

Q-6

(a) X Limited has transferred its Unit N to Y Limited by way of slump sale on November 30,
2021. The summarized Balance Sheet of X, Limited as on that date is given below:

Liabilities Rs (in lakhs) Assets Rs (in lakhs)

Paid up capital 1,700 Fixed assets
Reserve & surplus 620 Unit L 150
Liabilities Unit M 150
Unit L 40 Unit N 550
Unit M 110 Other Assets
Unit N 90 Unit L 520

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 Unit M 800
Unit N (FMV Rs 420 lakhs) 390
Total 2,560 Total 2,560

Using the further information given below, compute the capital gains arising from slump sale of
Unit N and tax on such capital gains.

(i) Lump sum consideration on transfer of Unit N is Rs 880 lakhs.

(ii) Fixed assets of Unit N include land which was purchased at Rs 60 lakhs in the year 2004 and
revalued at Rs 90 lakhs as on March 31, 2020. The stamp duty value of land as on transfer date
was Rs 80 lakhs and FMV of other fixed assets was Rs 480 lakhs.

(iii) Other fixed assets are reflected at Rs 460 lakhs (i.e. Rs 550 lakhs less value of land) which
represents written down value of those assets as per books. The written down value of these
assets under section 43(6) of the Income tax Act, 1961 is Rs 410 lakhs and their FMV is Rs 480
lakhs. The company does not own any Jewellery/ archaeological collection/ artistic work/
shares & securities.

(iv) Unit N was set up by X. Limited in July, 2004.

(A) Ascertain the tax liability, which would arise from slump sale to PQR Limited.

(B) What would be your advice as a tax-consultant to make the restructuring plan of the
company more tax-savvy, without changing the amount of sale consideration?

(4 marks)

(b) PQR LLP, a Limited liability partnership set up a unit in Special Economic Zone (SEZ) in the
financial year 2017-18 for production of washing machines. The unit fulfils all the conditions of
section 10AA of the Income-tax Act, 1961. During the financial year 2020-21, it has also set up a
warehousing facility in a district of Tamil Nadu for storage of agriculture produce. It fulfils all

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the conditions of section 35AD. Capital expenditure in respect of warehouse amounted to Rs
1,07,50,000 (Including cost of land Rs 10 lakhs). The Warehouse becomes operational with
effect 1st April, 2021 and the expenditure of Rs 1,07,50,000 was capitalized in the books on that
date.

Relevant details for the financial year 2021–2022 are as follows:

Particulars Rs
Profit of unit located on SEZ 40,00,000
Export Sales of above unit 80,00,000
Domestic Sales of above unit 20,00,000
Profit from Operation of Warehousing Facility (before considering deduction 1,05,00,000
under Section 35AD)

Compute Income Tax (including AMT u/s 115JC) payable by PQR LLP for Assessment Year 2022–
2023.

(4 marks)

(c) It may be ensured that in practice, the consequences of a transaction being treated as an
'impermissible avoidance arrangement' are determined in a uniform fair and rational basis.
Compensating adjustments under section 98 of the Act should be done in a consistent and fair
manner. It should be clarified that if a particular consequence is applied in the hands of one of
the participants, there would be corresponding adjustment in the hands of another participant.

(4 marks)

(d) C, an individual, resident in India, paid medical insurance premium amounting to Rs 20,000
by cash during the year ending 31.3.2022 out of his total income chargeable to tax in respect of

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the policy taken on the health of his dependent father in accordance with the scheme framed
by the General Insurance Corporation of India and approved by the Central Government.
Besides, he paid Rs 90,000 during the year ending 31.3.2022 for the medical treatment of his
dependent mother, aged 69 years, in respect of a disease specified in Rulel1DD(1) of the
Income-tax Rules, 1962. He received Rs 20,000 from the insurance company for the said
medical treatment of his mother. C Seeks your advice on the deductions, if any, available in
respect of these two payments.

(3 marks)

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