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PAPER – 4:
DIRECT TAX LAWS &
INTERNATIONAL TAXATION

The provisions of direct tax laws, as amended by the Finance Act, 2023 and
the significant notifications and circulars issued upto 30.04.2024, are
relevant for November 2024 examination. The relevant assessment year is
A.Y.2024-25. The October, 2023 edition of the Study Material contains the
provisions of direct tax laws as amended by the Finance Act, 2023 and
notifications and circulars issued upto 31.7.2023. The said study material
has to be read along with the Statutory Update for November, 2024
Examination webhosted at https://resource.cdn.icai.org/80554bos64747.pdf
and Judicial Update for November, 2024 Examination webhosted at
https://resource.cdn.icai.org/80581bos64778.pdf.

QUESTIONS

Case Scenario I
Trio Inc., a company incorporated in Country T, is engaged in manufacturing
of computer hardware parts. It also owns an online social networking site,
Attire. Nice Ltd., an Indian Company, imports computer hardware parts from
Trio Inc. During the previous year 2023-24, Nice Ltd. did not import any
computer hardware parts from Trio Inc. but paid ` 5,50,000 on 24 th July, 2023
to Trio Inc. for advertising its business on the platform of Attire. However,
Nice Ltd. neither deducted tax at source nor equalisation levy on such
payment.
On 1-4-2023, Nice Ltd. advanced a loan of ` 2.5 crores to Xylo Inc., an
Australian company. As on the date of loan, the book value of total assets in
the books of Xylo Inc. was ` 4.52 crores. Out of the ten directors of Xylo Inc.,

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five are appointed by Nice Ltd. Xylo Inc. repaid the entire loan along with
interest thereon on 31 st March, 2024.
On 9.11.2023, Trio Inc. sold 3,500 equity shares held by it in an Indian
Company, XYZ Ltd. for ` 102 per share. These shares were bought by Trio Inc.
on 15th April, 2011 for ` 36.40 per share. Both the purchase and sale of shares
were effected through a recognized stock exchange in India and STT is paid
on purchase and sale. Fair Market Value of these shares on 31-01-2018 was
` 90 per share.
CII for F.Y.2011-12 – 182; F.Y.2023-24 – 348.
Nice Ltd. received the draft order from the Assessing Officer as per section
144C of the Income-tax Act, 1961 due to variations determined by the
Transfer Pricing Officer in the arm’s length price for the A.Y. 2023-24.
However, Nice Ltd. does not prefer to file the objection against the draft order
before the Dispute Resolution Panel; Instead, it wants to file an appeal before
the CIT (Appeals) under section 246A against the final order received from the
Assessing Officer.
From the information given above, choose the most appropriate answer of
MCQs 1 to 4:
1. In respect of payment made by Nice Ltd. for advertising services
provided by Trio Inc., which of the following statements are correct?
(a) Equalisation levy is not attracted and no penalty leviable for non-
deduction
(b) Tax is deductible at source u/s 195 by Nice Ltd. and hence, interest
is payable for non-deduction of TDS
(c) Equalization levy of ` 33,000 is deductible by Nice Ltd. and penalty
of `1,000 per day is attracted for non-deduction
(d) Equalization levy of ` 33,000 is deductible by Nice Ltd. and penalty
of ` 33,000 is attracted for non-deduction
2. Are Nice Ltd. and Trio Inc. associated enterprises? If so, why?
(a) Yes, since loan advanced by Nice Ltd. to Xylo Inc. is not less than
51% of the book value of total assets of Xylo Inc.

2 NOVEMBER 2024 EXAMINATION

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TAXATION

(b) Yes, since not less than 50% of the directors of Xylo Inc. are
appointed by Nice Ltd.
(c) Yes, due to either (a) or (b) above.
(d) No, Nice Ltd. and Xylo Inc. are not associated enterprises, since the
loan has been repaid before the end of the previous year i.e.,
before 31.3.2024.
3. Compute the amount of long-term capital gains arising to Trio Inc. on
transfer of listed shares of XYZ Ltd. What would be the tax treatment of
such capital gains under the Income-tax Act, 1961?
(a) ` 42,000. The same would be taxable@10% u/s 112A
(b) ` 42,000. However, the said amount would not be subject to any
tax.
(c) No capital gain would arise, since cost of acquisition would be
` 102.
(d) ` 1,13,400; The same would be taxable@20% u/s 112, since benefit
of concessional rate @10% u/s 112A will not be available to a
foreign company
4. Which of the following statements are correct, in relation to the
remedies available to Nice Ltd. under the Income-tax Act, 1961, if it is
not satisfied with the draft order passed by the Assessing Officer?
(a) It can file an objection before the Dispute Resolution Panel against
the draft assessment order
(b) It can file an appeal before CIT (Appeals) after getting the final
assessment order
(c) Either (a) or (b)
(d) Both (a) and (b)

Case Scenario II
Mr. Bhuvan places bulk order on ABC Marketplace Ltd., an e-commerce
operator for buying 100 toasters, a product listed by DEF Seller, a partnership
firm. ABC Marketplace acts as Buyer-side ECO for Mr. Bhuvan as well as Seller-

3 NOVEMBER 2024 EXAMINATION

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side ECO for DEF seller and charges a convenience fee of `10/toaster to DEF
Seller. DEF Seller processes the order and charges the buyer `1170/toaster,
including packaging, shipping and convenience fees. DEF Seller pays XYZ
Logistics ` 5/toaster for shipping, MNO retailer ` 15/toaster for packaging and
convenience fees of ` 10/toaster. DEF Seller raised invoice of ` 1170 per
toaster.
Mr. Sarthak placed an order for 500 decor wall clocks on Open Network for
Digital Commerce (ONDC). These clocks are listed and owned by ABC
marketplace Ltd. Mr. Sarthak made a payment of ` 665/ wall clock on ONDC
platform via Paytm. ONDC credited ` 655/ wall clock after deducting its
convenience fees to ABC Marketplace Ltd. The invoice of ` 665/ wall clock
include shipping charges of ` 10/ wall clock, packaging cost of ` 15/ wall clock
and convenience fees of ` 10/ wall clock.
From the information given above, choose the most appropriate answer of
MCQ 5 to 9:
5. Is there any tax required to be deducted in respect of order placed by
Mr. Bhuvan. If yes, by whom and what amount of tax needs to be
deducted?
(a) Yes, tax of ` 1140 is required to be deducted by ABC Marketplace
Ltd.
(b) Yes, tax of ` 1170 is required to be deducted by ABC Marketplace
Ltd.
(c) Yes, tax of ` 1170 is required to be deducted by DEF Seller
(d) No tax is required to be deducted as order value does not exceed
` 5,00,000.
6. Is there any tax required to be deducted in respect of order placed by
Mr. Sarthak. If yes, by whom and what amount of tax needs to be
deducted?
(a) Yes, tax of ` 3,325 is required to be deducted by ONDC
(b) Yes, tax of ` 3,275 is required to be deducted by ABC Marketplace
Ltd.
(c) Yes, tax of ` 3,325 is required to be deducted by Mr. Sarthak

4 NOVEMBER 2024 EXAMINATION

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TAXATION

(d) No tax is required to be deducted as the order value does not

exceed ` 5,00,000.
7. Would your answer to MCQ 5 be different in respect of the order placed
by Mr. Bhuvan if it is assumed that DEF seller is an Individual and this is
the only sales order received on ABC Marketplace Ltd.?
(a) No, tax of ` 1140 is still required to be deducted by ABC
Marketplace Ltd.
(b) No, tax of ` 1170 is still required to be deducted by ABC
Marketplace Ltd.
(c) No, tax of ` 1170 is still required to be deducted by DEF Seller
(d) Yes, tax is not required to be deducted in this case.
8. Assume that Mr. Bhuvan replaced 5 toasters and returned 5 toasters out
of 100 toasters, what would be the adjustment of tax deduction in respect
of these 10 toasters?
(a) No adjustment is required for tax deducted in respect of replaced
toasters and the amount of tax deducted on returned toasters
would be refunded to DEF seller by ABC Marketplace Ltd.
(b) No adjustment is required for tax deducted in respect of replaced
and returned toasters.
(c) No adjustment is required for tax deducted in respect of replaced
toasters and the amount of tax deducted on returned toasters
would be adjusted against the next sale, if any.
(d) The amount of tax deducted on replaced and returned toasters
would be refunded to DEF seller.
9. Assume that ABC Marketplace Ltd. provides a discount of ` 10 each to
both Mr. Bhuvan and Mr. Sarthak on sale of toasters and wall clocks. Is
there any tax required to be deducted at source? If yes, on what amount
tax is deductible?
(a) Yes; on ` 1,17,000 for sale of toasters and on ` 3,32,500 for wall
clocks

5 NOVEMBER 2024 EXAMINATION

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(b) Yes; on ` 1,16,000 for sale of toasters and on ` 3,22,500 for wall
clocks
(c) Yes; on ` 1,17,000 for sale of toasters and on ` 3,27,500 for wall
clocks
(d) No tax is required to be deducted as the order value does not
exceed ` 5,00,000 in both cases.
10. Dynamic Ltd., an Indian company, took on lease a commercial premises
for its operations. After some years, the company decided to vacate the
premises and relocate to a new location. However, disputes arose with
the lessor regarding the terms of vacating the premises. To resolve the
dispute and avoid prolonged litigation, Dynamic Ltd. agreed not to claim
the security deposit of ` 3.4 crores it had initially paid to the lessor at
the start of the lease. Whether the amount of security deposit foregone
by Dynamic Ltd. allowable as deduction while computing business
income?
(a) Yes, allowable as deduction as such expenditure is of revenue
nature and incurred on account of dispute
(b) No, deduction would not be allowed as such expenditure is of
capital nature
(c) Yes, allowable as deduction over the five years period
(d) Yes, allowable as deduction since the amount of foregone security
deposit becomes the income of lessor.
11. Satya Trust, a public charitable trust registered u/s 12AB of the Income-
tax Act, 1961 runs a hospital for the treatment of various diseases. Mr.
Shaurya, son of Mr. Neeraj, who is the founder of this trust, was
admitted in the hospital for heart surgery. He was charged a total fee of
` 3.6 lakhs as against the amount of ` 7.4 lakhs charged by the hospital
for similar treatment to the general public. The Board of trustees are of
the opinion that on account of providing this benefit to Mr. Neeraj, the
registration of the trust can be cancelled, and exemption under section
11 would be denied to the trust in respect of entire income for the P.Y.
2023-24. Is the opinion of the Board of trustees’, correct?

6 NOVEMBER 2024 EXAMINATION

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TAXATION

(a) No; registration cannot be cancelled, however, the exemption

under section 11 would be denied to the trust in respect of entire
income of the trust for the P.Y. 2023-24.
(b) Yes, registration can be cancelled, and trust would not be eligible
for exemption under section 11
(c) No; registration cannot be cancelled, and entire income is eligible
for exemption under section 11.
(d) No; registration cannot be cancelled, and the value of benefit
provided to Mr. Neeraj would be deemed as income of the trust.
12. Mr. Aviral opened a bank account in Country “R” on 1.7.2020. He has
made deposits of foreign currency equivalent to ` 5 lakhs on 1.7.2020,
` 7 lakhs on 1.10.2020, ` 12 lakhs on 1.9.2022 and ` 25 lakhs on
1.3.2024, in that bank, out of Indian income which has not been assessed
to tax in India. The deposit of ` 12 lakhs on 1.9.2022 is made out of the
withdrawal of earlier deposits made on 1.7.2020 and 1.10.2020 with the
said bank. Further, out of ` 25 lakhs deposited by him on 1.3.2024,
Mr. Arvind withdrew ` 2 lakhs on 31.3.2024. The value of an undisclosed
asset in form of bank account under the Black Money (Undisclosed
Foreign Income and Assets) and Imposition of Tax Act, 2015 will be
taken as:
(a) ` 49 lakhs
(b) ` 47 lakhs
(c) ` 37 lakhs
(d) ` 35 lakhs
13. G Ltd., a resident Indian Company, on 01-04-2023 has borrowed ` 80
crores from M/s. M Inc, a Company incorporated in Country F, at an
interest rate of 8% p.a. The said loan is repayable over a period of 12
years. Further, loan is guaranteed by M/s A Inc incorporated in Country
F. M/s. C Inc, a non-resident, holds shares carrying 40% of voting power
both in M/s G Ltd. and M/s A Inc. M/s C Inc has also deposited
` 80 crores with M/s M Inc.

7 NOVEMBER 2024 EXAMINATION

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Interest payable by G Ltd. to M Inc. would be subject to limitation of

interest deduction because –
(i) M/s. C Inc. holds shares carrying 40% voting power in G Ltd.
(ii) M/s. C Inc. holds shares carrying 40% voting power both in G Ltd.
and M/s. A Inc.
(iii) M/s. A Inc. guarantees the loan taken by G Ltd. from M/s. M Inc.
(iv) M/s. C Inc. has deposited ` 80 crores with M/s. M Inc.
The most appropriate answer is -
(a) (i) and (iv) above
(b) (ii) and (iii) above
(c) (i) and (iii) above
(d) Either (a) or (b)
14. M/s Cure Ltd., an Indian company, is engaged in the manufacturing of
pharmaceutical products since 2020. Net profit as per statement of
Profit and Loss for the year ended 31 st March, 2024 was ` 95,45,000 after
debiting or crediting the following items:
(a) Paid ` 6,00,000 as expenses for public issue of shares. The public
issue could not materialize on account of non-clearance by SEBI.
(b) Goods purchased of ` 5 lakhs from M/s Sunny Traders (a micro
enterprise as per MSMED Act, 2006) was delivered on 25.02.2024.
Payment terms were agreed for 25 days from the date of delivery
as per the contract in writing with Sunny Traders. The payment was
actually made on 29.03.2024. However, no Interest or late payment
charges were agreed upon between the parties in case of delay in
payment.
(c) Expense of ` 7,25,000 incurred for providing freebies to medical
practitioners.
(d) Depreciation of ` 12,50,000 charged on the basis of useful life of
assets.
(e) One-time license fee of ` 10 lakhs paid to a foreign Company for
obtaining a franchise on 17 th September, 2023.

8 NOVEMBER 2024 EXAMINATION

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(f) The profit from setting up a warehouse in rural area for storage of
sugar (before claiming deduction under section 35AD) is ` 17
lakhs. The warehouse commenced its operations on
24th November, 2023.
(g) Power subsidy of ` 5,30,500 was received on 12-09-2023 with a
stipulation that the same is to be adjusted in the electricity bills for
the financial year 2022-23. The subsidy received was not included
in the income for the year 2022-23.
(h) The company earned ` 4,80,000 of profit from the sale of 3,000
shares of M/s ABC Ltd., a listed company. The shares were sold on
08-09-2023 for ` 260 per share. The highest price of ABC Ltd.
quoted on stock exchange as on 31.01.2018 was ` 180 per share.
These shares were purchased for ` 100 per share on 16-08-2015.
STT paid both at the time of purchase and sale.
(i) PNB waived a loan of ` 8,00,000 in a one-time settlement which
includes ` 6,00,000 principal amount and ` 2,00,000 of arrear of
interest amount. The loan was taken on 12.9.2020 to meet working
capital requirement.
The Company furnished the following additional information relating to
it:
(i) Company has employed 50 new additional workers during the F.Y.
2023-24 on regular basis w.e.f. 01.07.2023 at the wages of 23,000
per month per employee. The regular employees participate in
recognized provident fund. Wages to Additional workers were paid
through an account payee cheque.
(ii) The company has invested ` 40 lakhs in the construction of a
warehouse (including land of ` 25 lakhs) in a rural area for the
storage of sugar as an additional line of business.
(iii) Depreciation as per the Income-tax Rules, 1962 without
considering any adjustments given above is ` 9,20,000.
(iv) The company's turnover for the financial year 2021-22 was ` 395
crores.
(v) Book Profit of the company for the A.Y. 2024-25 is ` 99.50 lakhs.

9 NOVEMBER 2024 EXAMINATION

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REVISION TEST PAPER FINAL EXAMINATION

Compute the total income of the company and optimum income-tax

liability for the assessment year 2024-25. Your answer must give reasons
for treatment of each item given above and also for the tax liability.
15. XYZ & Co., a partnership firm consisting of three working partners A, B
and C and one non-working partner D, engaged in the business of
manufacturing and selling electric kettles.
Following information is furnished for receipts and payments of the
previous year 2023-24:
(i) Total turnover 2,80,00,000
(ii) Consideration for transfer of plot at New Delhi 57,00,000
[profits on sale is credited to P & L A/c]
(iii) Cash receipts [out of turnover in (i) above] 10,50,000
(iv) Receipts by way of cheque other than A/c payee 2,00,000
cheque [out of turnover in (i) above]
(v) Amount of sales consideration for plot received in 16,80,000
cash [out of (ii) above]
(vi) Total Payments 1,95,00,000
(vii) Cash payments [out of (vi) above] [each payment 4,50,000
does not exceed ` 10,000 except salary of
` 12,000 p.m. made to a clerk which is debited to
P & L A/c]

Net profit as per the Profit and Loss A/c is ` 8,65,000 after debiting or
crediting the following:
- Interest @ 15% is provided to partner B on his capital of ` 10 lakh
as authorized by the partnership deed.
- ` 60,000 p.m. paid as remuneration to each partner as authorised
by partnership deed.
Additional information
- The firm had brought forward business loss of ` 75,000 of
Assessment Year 2020-21. Till A.Y. 2023-24, the firm gets its books
of accounts audited every year.

10 NOVEMBER 2024 EXAMINATION

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- The firm acquired plot on 30.4.2019 for ` 12,00,000. Cost Inflation

Index for F.Y. 2019-20 :289; F.Y. 2023-24: 348.
(i) This year firm do not want to get its books of accounts audited.
Advise the firm on this and compute the total income of the firm
for the A.Y. 2024-25.
(ii) Compute the total income of the firm for the A.Y. 2024-25
assuming that instead of ` 2,00,000, firm received ` 4,00,000 by
cheque other than A/c payee cheque.
16. Beta, a Real Estate Investment Trust (REIT), registered under relevant
SEBI Regulations, holds 65% shares in H Ltd. Beta REIT provides the
following information about its income for the F.Y. 2023-24.
(i) Interest income from H Ltd. - ` 12 crores
(ii) Dividend income from H Ltd. - ` 2 crores
(iii) Short-term capital gains on sale of developmental properties -
` 1.2 crore
(iv) Interest received from investments in unlisted debentures of
companies - ` 12 lakhs
(v) Rental income from directly owned real estate assets - ` 2 crores
Mr. Arpan, a resident Indian, holds 70% of the units of the REIT. He
acquired units in the REIT at an issue price of ` 1.5 crores. He does not
have any other income during the year. During the P.Y. 2023-24, REIT
distributed ` 20 crores to its unit holders.
Compute the total income in the hands of Beta Ltd. and Mr. Arpan.
Note: H Ltd. has opted to pay tax under section 115BAA. Ignore TDS
implications.
17. ABC Telecom Ltd. has entered into agreements with various distributors
to sell its prepaid products. According to the agreement, the distributors
purchase prepaid products at a discounted price from ABC Telecom Ltd.
and are free to sell these products at any price below the printed price.
The distributors make a profit based on the margin between their
purchase price and the sale price to retailers or consumers. The
distributors pay for the products in advance, irrespective of when they

11 NOVEMBER 2024 EXAMINATION

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sell them. ABC Telecom Ltd. does not credit or pay any income to the
distributors and is not involved in the transactions between the
distributors and third-party buyers.
Examine whether ABC Telecom Ltd. is obligated to deduct tax at source
on the income/profit component earned by the distributors.
18. The Assessing Officer surveyed a popular Sports Complex by the name
"SDX" which is within his jurisdiction at 9:30 pm in the night for
collecting information which may be useful for the purpose of Income-
tax Act, 1961. The concerned Sports Complex is kept open for business
every day between 5 a.m. and 10 p.m. The owner of the Sports Complex
claims that the A.O. could not enter his business premises after sunset
and late in the night. The Assessing Officer wanted to take away with
him the books of account and cash kept at the premises of the Sports
Complex. Examine the validity of the claim made by the owner of Sports
Complex and the proposed action of the Assessing Officer.
19. State with reasons the penalty leviable on each of the three
independent instances:
(1) M/s ABC Trust, an eligible investment fund referred u/s 9A has
filed a statement of its activities for the year ended 31-3-2024 on
31-7-2024.
(2) Meena Caterers has received ` 1 lakh in cash and ` 9 lakh by
account payee cheque from Mr. Arvind for rendering catering
services on the occasion of his daughter's wedding.
(3) The premises of Tip Ltd. was searched and undisclosed income of
` 18 crores was determined. The Company did not admit the
undisclosed income in a statement under section 132(4) but
declared the same in a return furnished and paid the tax with
interest thereon.
20. Mr. Ram Prakash, a resident Indian aged 58 years, has business interest
in India and in some other foreign nations also. He has derived income
from two other nations X and Y, with which India does not have DTAA.
The particulars of income earned in the two nations X, Y and in India
during the P.Y. 2023-24 are as under:

12 NOVEMBER 2024 EXAMINATION

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Particulars of Income (`)

X Y India
Gross rental receipts from -
2,50,000 2,50,000
commercial property
Share income from Partnership
firm (loss) [The partnership deed -
(1,20,000) (1,30,000)
was not evidenced by an
instrument in writing]
Business income 2,80,000 3,40,000 1,80,000
STCG from sale of vacant site on -
10,80,000 Nil
11.11.2023
Long-term capital gains on sale of 37,00,000
residential house in Delhi on - -
1.3.2024
Agricultural Income 3,40,000 1,80,000 5,20,000

The following investments were made in India during the year ended
31.3.2024:

Particulars of Income (`)

Purchase of residential house at Delhi on 18.3.2024 in 25,00,000
joint name with spouse
Contribution to PPF 1,50,000

Income-tax rate structure:

Country X

(`) Tax rate

Upto ` 3 lakhs Nil
` 3 to ` 6 lakhs 15%
Above ` 6 lakhs 22%

Country Y
Flat 27% without any basic exemption limit.

13 NOVEMBER 2024 EXAMINATION

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Tax treatment/ concessions in other nations

(i) No statutory allowance/deduction in respect of house property
income in Country X as well as Country Y.
(ii) Loss from firm can be set off against other business income in
Country Y only (and not in Country X).
(iii) Agricultural income is exempt in Country X only (and not in
Country Y).
Compute the net tax liability of Mr. Ram Prakash for the assessment year
2024-25 assuming that he is paying tax under section 115BAC.
21. Peter Inc., is a company incorporated under the laws of USA. The value
of its global assets are ` 50 crores. The value of assets in India are ` 25
crores. Its turnover during the P.Y. 2023-24 is US $ equivalent to ` 90
crores. Out of 10 board meetings held during the F.Y.2023-24, only 4
meetings are held in India. The key management and commercial
decisions for conduct of the company’s business as a whole are,
however, made by the directors located in India at the meetings held in
India. Your client, Payal Ltd, an Indian company, wishes to remit an
amount towards professional fees to Peter Inc. on which tax is required
to be deducted in India.
Determine the residential status of Peter Inc. for A.Y.2024-25 under the
Income-tax Act, 1961. Advise Payal Ltd as to whether tax on fees for
professional services paid to Peter Inc. has to be deducted under section
194J or section 195.
22. B Ltd. is an Indian Company located in Special Economic Zone (SEZ) in
which TQR Inc., a Country C company is holding 30% shares and voting
power. Following transactions were entered between these two
companies during the year 2023-24:
(a) B Ltd. sold 90,000 pieces of LED sticks at $ 10 per LED stick to TQR
Inc. Identical LED sticks were sold by B Ltd. to an unrelated party,
namely, G Inc. in Country C at $ 12 per LED stick.
(b) B Ltd. borrowed loan of $ 3,50,000 from a Country C lender on the
strength of guarantee given by TQR Inc. and for the purpose of
giving guarantee, B Ltd. paid $ 15,000 as guarantee fee to TQR Inc.

14 NOVEMBER 2024 EXAMINATION

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However, for the same amount of loan taken by an unrelated party

in India, TQR Inc. had charged guarantee fees of $ 12,000.
(c) B Ltd. paid $ 18,000 to TQR Inc. for getting the details of various
potential customers to improve its business outside India in global
market. TQR Inc. provided the same services and details to an
unrelated party in India for $ 16,000.
Examine the relationship of B Ltd. and TQR Inc. of Country C and the
nature of various transactions entered into between them during the
year 2023-24.
(i) What are the adjustments, if any, required to be made to the total
income of B Ltd. under transfer pricing provisions. One Country C
dollar may be taken as ` 85.
(ii) If the said adjustments are made by the Assessing Officer, can B
Ltd. claim deduction under section 10AA in respect of the
enhanced income?

SUGGESTED ANSWERS

MCQ No. Most Appropriate MCQ No. Most Appropriate

Answer Answer
1. (d) 8. (c)
2. (a) 9. (c)
3. (b) 10. (b)
4. (c) 11. (d)
5. (b) 12. (c)
6. (a) 13. (d)
7. (d)

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14. Computation of Total Income of M/s Cure Ltd. for the Assessment
Year 2024-25 under normal provisions of the Act

Particulars ` `
I Profits and gains from business or
profession
Net profit as per statement of profit 95,45,000
& loss
Add: Item debited but to be
considered separately or disallowed
(a) Expenditure for public issue of 6,00,000
shares
[Share issue expenses is a capital
expenditure, even though it could not
go in for public issue on account of
non-clearance by SEBI. Such
expenditure was incurred only for the
purpose of expansion of the capital
base of the company. Since the same
has been debited to statement of
profit and loss, it has to be added
back]
(b) Payment to micro enterprise -
for purchases
[As per section 43B(h), no deduction
shall be allowed for any sum payable
by an assessee to a micro or small
enterprise unless such sum is actually
paid, where a due date of payment is
agreed upon in writing, within such
due date, subject to a maximum of 45
days from the day of acceptance/
deemed acceptance. Deduction is
allowed in that previous year in which
such sum is actually paid.

16 NOVEMBER 2024 EXAMINATION

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In this case the actual date of

payment is 29.03.2024 i.e. before
31.03.2024. Hence, purchase of ` 5
lakhs shall be allowed as deduction
because the payment was made
before 31.03.2024]
(c) Expenses on freebies to 7,25,000
medical practitioners
[Expenses incurred for providing
freebies to medical practitioners are
an expense which is prohibited by the
law. Any expenditure incurred for any
purpose which is prohibited by law is
not deemed to have been incurred
for the purpose of business or
profession and hence, has to be
disallowed from business income]
(d) Depreciation on the basis of 12,50,000
useful life of assets
(e) One-time license fee 10,00,000 35,75,000
[Franchise is in the nature of an
intangible asset eligible for
depreciation @25%. Since one-time
license fees of ` 10 lakhs paid to a
foreign company for obtaining
franchise has been debited to
statement of profit and loss, the
same has to be added back]
1,31,20,000
Less: Items credited but to be
considered separately/ permissible
expenditures and allowances
(f) Profit from setting of warehouse 17,00,000
in rural area for storage of sugar

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[Since it is a specified business, its

profits would be computed separately]
(g) Power subsidy received from -
the Central Government
[As per ICDS VII, Government grant
(subsidy) which is receivable as
compensation for expenses or losses
incurred in a previous financial year
shall be recognized as income of the
period in which it is received. It
would be taxable in P.Y. 2023-24 as
the subsidy is received in P.Y.
2023-24. Since such subsidy has been
credited to statement of profit and
loss, no further adjustment is
required]
(h) Profit from sale of shares of 4,80,000
M/s ABC Ltd.
[Capital gain on sale of shares of ABC
Ltd. is liable to tax under the head
“Capital Gains”. Since the profit on
sale of shares has been credited to
the statement of profit & loss, the
same has to be deducted while
computing business income]
(i) Waiver of principal on bank loan -
[Waiver of principal amount of loan
taken for working capital requirement
is a benefit in respect of a trading
liability by way of remission or
cessation thereof and is, hence,
taxable u/s 41(I). Since the principal
amount has already been credited to
statement of profit and loss, no
adjustment is required]

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(i) Waiver of interest on bank 2,00,000

loan
[As per section 43B, since the interest
is allowable only on actual payment,
deduction in respect of interest due
loan would not have been allowed as
deduction in any previous year.
Therefore, waiver of such interest
cannot be brought to tax by invoking
section 41(1). Since such interest has
been credited to statement of profit
and loss, the same has to be
deducted while computing business
income].
AI(iii) Depreciation as per Income-
tax Rules, 1962
- On Franchise Fee 2,50,000
[` 10 lakhs x 25%]
- On other assets 9,20,000 11,70,000 35,50,000
Profits & Gains from manufacture 95,70,000
of pharmaceutical products
Profits & gains from setting of
warehouse in rural area for
storage of sugar
Net profit before deduction u/s 17,00,000
35AD
Less: Deduction u/s 35AD [100% 15,00,000 2,00,000
deduction u/s 35AD in respect of
cost of warehouse (` 40 lakhs – ` 25
lakhs, being cost of land, not
allowable)]
97,70,000

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II Income from Capital Gains

Long-term capital gains on sale of
shares M/s ABC Ltd. [Since shares
were held for more than 12 months]
Full Value of consideration (3000 7,80,000
shares X ` 260)
Less: Cost of acquisitions [higher of 5,40,000 2,40,000
(i) and (ii)]
(i) Actual cost of acquisition
(3000 X ` 100) ` 3,00,000
(ii) Being lower of fair market
value as at 31.01.2018 (i.e.
` 5,40,000 being 3000 x
` 180) and sale consideration
(i.e. ` 7,80,000)
Gross Total Income 1,00,10,000
Less: Deduction under Chapter VI-A
Under Section 80JJAA (` 23,000 x 9 x 50) 31,05,000
x 30%
Total Income 69,05,000

Computation of tax liability for the A.Y. 2024-25 under normal

provisions of the Act

Particulars `
Tax on Long-term capital gains u/s 112A 14,000
= 10% of (` 2,40,000 – 1,00,000)
Tax on remaining income of ` 66,65,000 @25% [Since 16,66,250
turnover during F.Y. 2021-22 is less than ` 400 crores
16,80,250
Add: Health & education cess @4% 67,210
17,47,460

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Computation of tax liability of M/s Cure Ltd. for the A.Y. 2024 -25
under section 115JB

Particulars `
Minimum Alternate Tax @15% on book profit of 14,92,500
` 99,50,000
Add: Health and Education cess@4% 59,700
Tax liability under section 115JB 15,52,200

Computation of Total Income of M/s Cure Ltd. for the Assessment

Year 2024-25 under section 115BAA

Particulars `
Total Income under regular provisions of the Act 69,05,000
Add: Deduction u/s 35AD 15,00,000
84,05,000
Less: Depreciation @10% on warehouse building 1,50,000
Total Income under section 115BAA 82,55,000
Tax liability
Tax on Long-term capital gains u/s 112A 14,000
= 10% of (` 2,40,000 – 1,00,000)
Tax on remaining income of ` 80,15,000 @22% 17,63,300
17,77,300
Add: Surcharge @10% 1,77,730
19,55,030
Add: Health & education cess @4% 78,201
Tax liability 20,33,231
Tax liability (Rounded off) 20,33,230

Suggestion to M/s Cure Ltd.

Since the tax liability under the regular provisions of the Act is
` 17,47,460, which is higher than MAT liability vis-à-vis tax liability of
` 20,33,230 computed under section 115BAA, it is not beneficial for Cure

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Ltd. to opt for the special provisions under section 115BAA for A.Y.
2024-25.
15. (i) As per section 44AD, a resident individual, HUF or Partnership firm
(but not LLP) engaged in eligible business and who has not
claimed deduction under section 10AA or Chapter VIA under “C –
deductions in respect of certain incomes” is an eligible assessee.
Eligible business means whose total turnover/ gross receipts in the
P.Y. ≤ ` 200 lakhs or >` 200 lakhs but ≤ ` 300 lakhs, if its cash
receipts do not exceed 5% of total turnover/gross receipts. Such
eligible assessee can declare 8%/6%, as the case may be, of total
turnover/ sales/ gross receipts or a sum higher than the aforesaid
sum claimed to have been earned by the assessee, as its business
income.
In this case, XYZ & Co., a partnership firm, can declare profits as per
the presumptive provisions of section 44AD, since the percentage of
receipts in cash of ` 12.50 lakhs to the total turnover/gross receipts
of ` 280 lakhs is 4.46%. In such a case, it is not required to get its
books of account audited under section 44AB.
Computation of total income of XYZ & Co. for the A.Y. 2024-25

Particulars ` `
Profits and Gains of business or
profession
Presumptive income under section 17,05,000
44AD [` 16,05,000, being 6% of
` 2,67,50,000 (excluding cash receipts
and amount received by cheque other
than A/c payee cheque and ` 1,00,000,
being 8% of ` 12,50,000] [See Note 1]
Less: Brought forward business loss
under section 72 [See Note 2] 75,000
16,30,000

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Capital Gains
Sale consideration 57,00,000
Less: Indexed cost of acquisition 14,44,983
[` 12,00,000 x 348/289]
Long-term capital gains, since plot is 42,55,017
held for more than 24 months
Gross Total Income/ Total Income 58,85,017
Gross Total Income/ Total Income 58,85,020
(Rounded off)

Notes:
(1) Interest on capital and working partner salary are not
deductible while computing the presumptive income of a
partnership firm under section 44AD.
(2) Brought forward business loss of assessment year 2020-21
can be set-off against current year business income as per
section 72.
(ii) In case, XYZ & Co. received ` 4,00,000 instead of ` 2,00,000 by
cheque other than A/c payee cheque it cannot declare profits as
per the presumptive provisions of section 44AD, since the
percentage of cash receipts of ` 14.50 lakhs to the total
turnover/gross receipts of ` 280 lakhs is 5.17%.
As per section 44AB, every person carrying on business or
profession is required to get his accounts audited before the
“specified date”, if the total sales, turnover or gross receipts in
business exceeds ` 1 crore in any previous year.
However, tax audit is not required in case of such person carrying
on business whose total sales, turnover or gross receipts in
business ≤ ` 10 crore in the relevant previous year (P.Y.), if -
- aggregate cash receipts including amount received for sales,
turnover, gross receipts in the relevant previous year ≤ 5% of
such receipts; and

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- aggregate cash payments including amount incurred for

expenditure in the relevant P.Y. ≤ 5% of such payments or
In this case, the turnover of XYZ & Co. exceeds ` 1 crore but does
not exceed ` 10 crore. Accordingly, percentage of cash receipts to
aggregate receipts and percentage of cash payments to aggregate
payments need to be checked.
The percentage of cash receipts of ` 31.30 lakhs [` 16,80,000 +
` 10,50,000 + ` 4,00,000] to aggregate receipts of ` 337 lakhs is
9.287% and the percentage of cash payments of ` 4,50,000 to
aggregate payments of ` 1,95,00,000 is 2.308%.
Since the cash receipts made during the year exceed 5% of
aggregate receipts, the firm is required to get its accounts audited
under section 44AB.
Computation of total income of XYZ & Co. for the A.Y. 2024-25

Particulars ` `
Net profit as per profit & loss 8,65,000
account
Add: Interest paid to partner B 30,000
allowable to the extent of 12%.
Thus, excess interest of ` 30,000
[3% of ` 10 lakhs] would be
disallowed.
Salary paid to working partners 28,80,000
considered separately.
Salary to clerk would be 1,44,000
disallowed as per section 40A(3),
since payment exceeding ` 10,000
made in cash [` 12,000 x 12]
39,19,000
Less: Profit on sale of land [Taxable 45,00,000
under the head “Capital Gains”]
Book Profits/loss (5,81,000)

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Less: Salary to working partners -

(i) As per section 1,50,000
40(b) in case of
loss, limit is
(ii) Salary actually 21,60,000
paid only to
working partners
Deduction 1,50,000
allowed being (i)
or (ii), whichever
is less
Business Loss (It can be set-off 7,31,000
against long-term capital gains
Brought forward business loss relating
to A.Y. 2020-21 of ` 75,000 will be
carried forward to the subsequent year
Capital Gains
Sale consideration 57,00,000
Less: Indexed cost of acquisition 14,44,983
[` 12,00,000 x 348/289]
Long-term capital gains, since plot is 42,55,017
held for more than 24 months
Less: Current year business loss (7,31,000) 35,24,017
Gross Total Income/ Total Income 35,24,017
Gross Total Income/ Total Income 35,24,020
(Rounded off)

16. Computation of total income in the hands of Beta, REIT and

Mr. Arpan (unit-holder)

Particulars Beta (REIT) Mr. Arpan

(Unit-holder)
(i) Interest income of ` 12 crores Nil 8,40,00,000
from H Ltd. (SPV)
Interest income from SPV would be

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exempt in the hands of REIT by virtue

of section 10(23FC)(a).
The component of such interest
income distributed to unit holders
would be deemed as income of the
unit holders as per section 115UA(3).
Accordingly, ` 8.4 crores being 70%
of ` 12 crores is taxable in the hands
of the unitholder Mr. Arpan.
(ii) Dividend income of ` 2 crores Nil 1,40,00,000
from H Ltd. (SPV)
The dividend distributed by the SPV
to the REIT is exempt in the hands of
REIT by virtue of section 10(23FC)(b).
The component of such dividend
income distributed to unitholders is
taxable in the hands of unitholders by
virtue of the exception contained in
section 10(23FD), since H Ltd. (SPV)
has exercised the option u/s 115BAA.
Accordingly, ` 1.40 crore, being 70%
of ` 2 crores, would be taxable in the
hands of the unitholder Mr. Arpan.
(iii) Short-term capital gains of 1,20,00,000 Nil
` 1.2 crore on sale of
developmental properties
STCG on sale of development
properties is taxable at maximum
marginal rate in the hands of the REIT
as per section 115UA(2).
There would be no tax liability in the
hands of the unit holders on the
capital gain component of income
distributed to them by virtue of
exemption contained in section
10(23FD).

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(iv) Interest of ` 12 lakh received in 12,00,000 Nil

respect of investment in unlisted
debentures of companies
Such interest is taxable at maximum
marginal rate in the hands of the REIT
as per section 115UA(2).
There would be no tax liability in the
hands of the unit holders on the
interest component of income
distributed to them by virtue of
section 10(23FD).
(v) Rental income of ` 2 crores Nil 1,40,00,000
from directly owned real estate
assets
Income by way of renting or leasing
or letting out any real estate asset
owned directly by REIT is exempt in
the hands of the REIT as per section
10(23FCA).
However, the component of such
rental income distributed to
unitholders is deemed as income of
the unit holders as per section
115UA(3). Accordingly, ` 1.4 crores,
being 70% of ` 2 crores would be
taxable in the hands of Mr. Arpan.
(vi) Other income distributed to - 37,60,000
unitholders
As per section 115UA(3A), any sum
other than interest and dividend
received from SPV, rental income and
income which are chargeable to tax in
the hands of REIT, in the present case
it is STCG on sale of developmental
properties and interest on unlisted
debentures, would be chargeable to

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tax under section 56(2)(xii) in the

hands of unitholders as income from
other sources. In the present case,
` 37,60,000 [` 1.876, being 70% of
` 2.68 [` 20 crores – ` 17.32 (` 12
crores + ` 2 crores + ` 1.2 crores +
` 12 lakhs + ` 2 crores)] Less ` 1.5
crores, being the issue price of units
held by Mr. Arpan} would be taxable
as Income from other sources.
Total income 1,32,00,000 11,57,60,000
16. The same issue came up before the Supreme Court in the case of Bharti
Cellular Ltd. vs. ACIT [2024] 462 ITR 247, wherein the Apex Court noted
that the obligation to deduct tax at source in terms of section 194H
arises when the legal relationship of principal and agent is established.
Agency is a triangular relationship between the principal, agent and the
third party. The legal position of a distributor is generally regarded as
different from that of an agent. Based on perusal of agreement between
assessee and distributors / franchisee, the franchisee/distributor paid the
discounted price regardless of, and even before, the pre-paid products
being sold and transferred to the retailers or the actual consumer. The
franchisee/distributor was free to sell the prepaid products at any price
below the price printed on the pack. The franchisee/distributor
determined his profits/income.
Section 194H fixes the liability to deduct tax at source on the 'person
responsible to pay' and the liability to deduct tax at source arises when
the income is credited or paid by the person responsible for paying. The
expression "direct or indirect" used in Explanation (i) to section 194H is
meant to ensure that "the person responsible for paying" does not
dodge the obligation to deduct tax at source, even when the payment is
indirectly made by the principal-payer to the agent-payee. However,
deduction of tax at source in terms of section 194H is not to be
extended and widened in ambit to apply to true/genuine business
transactions, where the assessee is not the person responsible for paying
or crediting income. In the present case, the ABC Telecom Ltd., being an

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assessee neither pays nor credit any income to the person with whom he
has contracted.
ABC Telecom Ltd. is not privy to the transactions between
distributors/franchisees and third parties. It is, therefore, impossible for
ABC Telecom Ltd. to deduct tax at source and comply with section 194H,
on the difference between the total/sum consideration received by the
distributors/franchisees from third parties and the amount paid by the
distributors/franchisees to them. In the present case, the contractual
obligations of the franchises or distributors did not reflect a fiduciary
character of the relationship, or the business being done on the
principal’s account.
Applying the rationale of the Apex Court ruling in the case on hand,
section 194H is not applicable in the hands of ABC Telecom Ltd. and it
would not be under a legal obligation to deduct tax at source on the
income/profit component in the payments received by the
distributors/franchisees from the third parties/customers.
17. The Assessing Officer can exercise his power of survey under section
133A only after obtaining the approval of the Principal Director General
or the Director General or the Principal Chief Commissioner or the Chief
Commissioner.
Assuming that he has obtained such approval in this case, he is
empowered under section 133A to enter any place of business of the
assessee within his jurisdiction only during the hours at which such place
is open for the conduct of business.
In the case given, the “SDX” a popular Sports Complex is open from 5.00
a.m. to 10.00 p.m. for the conduct of business. The Assessing Officer
entered the Sports Complex at 9:30 pm in the night which falls within
the working hours of the Sports Complex.
Therefore, the claim made by the owner to the effect that the Assessing
Officer could not enter the Sports Complex at night is not valid.
Further, as per section 133A(3)(ia), the Assessing Officer may, impound
and retain in his custody for such period as he thinks fit, any books of
account or other documents inspected by him after recording reasons
for doing so. However, the Assessing Officer cannot remove cash kept at

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the sports complex. Moreover, he shall not retain any books of account
or other documents in his custody for a period exceeding 15 days
(excluding holidays) without obtaining the approval of the Principal
Chief Commissioner or Chief Commissioner or Principal Director General
or Director General or the Principal Commissioner or Commissioner or
Principal Director or Director, as the case may be.
19. (1) An eligible investment fund, in respect of its activities in a financial
year, is required to furnish within 90 days from the end of the
financial year (i.e., by 29th of June), a statement of its activities to
the prescribed Income-tax authority under section 9A(5).
In the present case, M/s ABC Trust, an eligible investment fund has
furnished its statement of its activities on 31.7.2024, i.e., after 29 th
June 2024, being the due date of furnishing such statement,
accordingly penalty of ` 5,00,000 would be attracted under section
271FAB.
(2) No penalty would be leviable on Meena caterers under section
271DA, since it received only ` 1 lakh in cash, (which is less than
the permissible threshold of ` 2 lakhs) in respect of transactions
relating to rendering of catering services on the occasion of
Mr. Arvind’s daughter marriage from Mr. Arvind. The balance ` 9
lakh was paid by way of account payee cheque which is a
permissible mode of payment.
(3) As per section 271AAB(1A), penalty @60% of undisclosed income
would be attracted, since Tip Ltd. had not admitted the
undisclosed income in a statement under section 132(4) though
declared the same in a return furnished and paid the tax with
interest thereon.
20. Computation of total income of Mr. Ram Prakash for the
A.Y. 2024-25

Particulars `
Income from house property
Rent received [` 2.5 lakhs +` 2.5 lakhs] 5,00,000
Less: Deduction u/s 24(a) at 30% of NAV 1,50,000 3,50,000

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Profits and gains of business or

profession
Own business income [` 2,80,000 (Country 8,00,000
X) + ` 3,40,000 (Country Y) + ` 1,80,000
(India)]
Loss from partnership firm in Country X (2,50,000) 5,50,000
[` 1.2 lakh] and Country Y [` 1.3 lakhs]
[Share of profit from foreign firm is not
exempt, since the partnership is not
evidenced by an instrument. Hence, loss
can be set-off against business income]
Capital gains
Long-term capital gains on transfer of 37,00,000
residential house in Delhi
Less: Exemption u/s 54 – Purchase of
residential house in Delhi in joint 25,00,000
name with wife within two years
from the date of transfer
Net long-term capital gains 12,00,000
Short-term capital gains on transfer of 10,80,000 22,80,000
vacant site in Country X
Income from other sources
Agricultural income in Country X and 5,20,000
Country Y [` 3.4 lakhs + ` 1.8 lakhs]
Agricultural income from land situated in - 5,20,000
India [exempt u/s 10(1)]
Gross Total Income 37,00,000
Less: Deduction under Chapter VI-A: -
Section 80C – PPF [Not available as
per section 115BAC]
Total Income 37,00,000

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Computation of net tax liability of Mr. Ram Prakash for A.Y.2024-25

Particulars `

Tax on ` 42.2 lakhs, being non-agricultural income

[` 37 lakhs] + agricultural income [` 5.2 lakhs]
Tax on LTCG of ` 12 lakhs@20% 2,40,000
Tax on other income of ` 30.2 lakhs
Upto ` 3,00,000 Nil
` 3,00,001 – ` 6,00,000 [i.e., ` 3,00,000 @5%] 15,000
` 6,00,001 – ` 9,00,000 [i.e., ` 3,00,000 @10%] 30,000
` 9,00,001 – ` 12,00,000 [i.e., ` 3,00,000 @15%] 45,000
` 12,00,001 – ` 15,00,000 [i.e., ` 3,00,000 @ 60,000
20%]
` 15,00,001 – ` 30,20,000 [i.e., ` 15,20,000 @ 4,56,000 6,06,000
30%]
8,46,000
(-) Tax on ` 8.2 lakhs, being agricultural Income [` 5.2 37,000
lakhs] + Basic Exemption Limit [` 3 lakhs]
8,09,000
Add: Health and education cess @4% 32,360
8,41,360
Indian rate of tax = 8,41,360 x 100/37,00,000 = 22.74%
Less: Rebate u/s 91 on income of Country X + Country Y 3,63,314
Net Tax liability 4,78,046
Net Tax liability (Rounded off) 4,78,050

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Computation of average rate of tax in Country X

Particulars `
Gross rental receipts from commercial property [No 2,50,000
deduction is allowed from this in Country X]
Share income from partnership firm (loss) to be ignored -
Business income 2,80,000
STCG from sale of vacant site on 11-11-2023 10,80,000
Agricultural income [Exempt in Country X] -
Total income 16,10,000
Rates of tax in Country X
Upto 3 lakhs Nil -
3 to 6 lakhs 15% 45,000
Above 6 lakhs 22% 2,22,200
2,67,200
Average rate of tax in Country X = 2,67,200 x
100/16,10,000 = 16.596%
Computation of Rebate u/s 91

Particulars `
Country X
Gross rental receipts form commercial property (` 2.5 1,75,000
lakhs – ` 0.75 lakhs, being 30% of ` 2.5 lakhs)
Share of loss from partnership firm (1,20,000)
Business income 2,80,000
STCG from sale of vacant site on 11-11-2023 10,80,000
Agricultural income [Not included in doubly taxed -
income as it is exempt in Country X]
Doubly Taxed Income (in Country X) 14,15,000
Double Taxation Relief at Indian rate of tax (22.74%) or 16.596%
rate of tax in Country E (16.596%), whichever is lower
Double Taxation Relief = 16.596% of ` 14.15 lakhs
= ` 2,34,833

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Country Y
Gross rental receipts from commercial property [` 2.5 1,75,000
lakhs (-) 30% of ` 2.5 lakhs]
Business income 3,40,000
Share of loss from partnership firm (1,30,000)
Agricultural income 1,80,000
Doubly Taxed Income (in Country Y) 5,65,000
Rate of tax in Country Y 27%
Double Taxation Relief at Indian rate of tax (22.74%) or 22.74%
rate of tax in Country Y (27%), whichever is lower
Double Taxation Relief = 22.74% of ` 5,65,000
= ` 1,28,481
Double Taxation Relief [Country X & Country Y] 3,63,314
= ` 2,34,833 + ` 1,28,481

21. In the given case, Peter Inc. is a company incorporated under the laws of
USA and hence, it is a foreign company under the Income-tax Act, 1961.
However, the said company shall be considered to be resident in India if
its place of effective management is in India. In this case, the company
does not satisfy the active business outside India test since 50% of its
assets are located in India. Since it has failed the active business test
outside India on account of 50% of its assets being located in India, the
persons who take key management and commercial decisions for
conduct of the company’s business as a whole and the place where the
decisions are made are the key factors in determining whether the
POEM of the company is in India. The facts of the case clearly state that
the key management decisions and commercial decisions for conduct of
the company’s business as a whole are made by the directors located in
India and at the meetings held in India. Therefore, the POEM of Peter
Inc. is in India in the P.Y.2023-24, irrespective of the fact that majority of
the board meetings are held outside India.
Section 194J applies when professional fees are being paid to a resident,
whereas section 195 applies when payments are made to a non-
corporate non-resident or a foreign company. Section 194J is income

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specific and section 195 is payee specific. CBDT vide Notification No.
29/2018 dated 22 nd June 2018 has clarified that the foreign company
shall continue to be treated as a foreign company even if it is said to be
resident in India on account of its POEM being in India, and all the
provisions of the Act shall apply accordingly. Where more than one
provision of Chapter XVII-B of the Act applies to the foreign company as
resident as well as a foreign company, the provision applicable to the
foreign company alone shall apply. Further, in case of conflict between
the provision applicable to the foreign company as resident and the
provision applicable to it as foreign company, the latter shall generally
prevail. Hence, Payal Ltd shall deduct tax under section 195 while
making payment of fees for professional services to Peter Inc., a foreign
company resident in India.
22. B Ltd, the Indian company and TQR Inc., the Country C company are
deemed to be associated enterprises as per section 92A(2)(a), since TQR
Inc. holds shares carrying 30% of voting power (which is not less than
26% of the voting power) in B Ltd.
As per Explanation to section 92B, the transactions entered into between
two associated or deemed associated enterprises for sale of product,
lending or guarantee and provision of services relating to market
research are included within the meaning of “international transaction”.
Accordingly, transfer pricing provisions would be attracted and the
income arising from such international transactions have to be
computed having regard to the arm’s length price.
(i) In this case, from the information given, the arm’s length price has
to be determined by taking the comparable uncontrolled price
(CUP) method to be the most appropriate method.

Particulars ` in lakhs
Amount by which total income of B Ltd. is
enhanced on account of adjustment in the value of
international transactions:
(i) Difference in price of LED stick @ $ 2 each 153.00
for 90,000 pieces sold to TQR Inc. [$ 2 ($ 12 -
$ 10) x 90,000 x ` 85)

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(ii) Difference for excess payment of guarantee 2.55

fee to TQR Inc. for loan borrowed from
foreign lender [$ 3,000 ($ 15,000 - $ 12,000) x
` 85]
(iii) Difference for excess payment for services to
TQR Inc. [$ 2,000 ($ 18,000 - $ 16,000) x ` 85] 1.70
157.25

(ii) B Ltd. cannot claim deduction under section 10AA in respect of

` 157.25 lakhs, being the amount of income by which the total
income is enhanced by virtue of the first proviso to section 92C(4),
since the adjustments are made by the Assessing Officer to
determine the arm’s length price.

36 NOVEMBER 2024 EXAMINATION

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 PAPER – 4:
DIRECT TAX LAWS AND
INTERNATIONAL TAXATION

The provisions of direct tax laws, as amended by the Finance Act, 2023 and
the significant notifications and circulars issued upto 31.10.2023, are
relevant for May, 2024 examination. The relevant assessment year is
A.Y.2024-25. The October, 2023 edition of the Study Material contains the
provisions of direct tax laws as amended by the Finance Act, 2023 and
notifications and circulars issued upto 31.7.2023. The said study material
has to be read along with the Statutory Update for May, 2024 Examination
webhosted at https://resource.cdn.icai.org/77984bos62600su.pdf and
Judicial Update for May, 2024 Examination webhosted at
https://resource.cdn.icai.org/77983bos62600ju.pdf.

QUESTIONS

Case Scenario I
The following details pertain to Mr. Sahil and his best friend Mr. Akhil:
Mr. Sahil

Particulars Amount
(`)
Amount remitted to his elder son Aarav, who is pursuing two-
year MBA Program from Columbia University, USA
- Out of own savings through HDFC Bank, an authorized
dealer under Liberalized Remittance Scheme (LRS) of the
RBI
• towards tuition fees on 5.7.2023 3,50,000
• to meet day to day expenses for study purposes
REVISION TEST PAPER FINAL EXAMINATION

- 10.5.2023 1,20,000
- 29.9.2023 90,000
- 01.1.2024 1,35,000
- Through Axis Bank, an authorized dealer under
Liberalized Remittance Scheme (LRS) out of
• loan (towards tuition fees) on
- 11.10.2023 3,50,000
- 10.01.2024 3,50,000
• Own savings (to meet day to day expenses) on 1,50,000
1.7.2023
To complete the formalities of admission, Mr. Sahil visited the 5,20,000
USA from 10.4.2023 to 13.4.2023 for which he purchased a
tour package from M/s Gate 2 Travel, a foreign tour operator
and remits money under LRS on 5.4.2023. International travel
tickets and hotel accommodation are included in the said
package.

Mr. Sahil has furnished undertakings containing the details of earlier

remittances to HDFC bank and Axis bank. He has also furnished his PAN to the
authorized dealers and to the seller of overseas tour program package.
Mr. Akhil
Mr. Akhil, an Indian citizen got a job offer from M/s Wellbeing Inc., a Dubai-
based company of AED 10,500 per month. He left for Dubai on 29.3.2023 and
joined M/s Wellbeing Inc. on 1 st April 2023. He returned to India on
15.12.2023 on leaves for 15 days. On 23.12.2023, he went on 7 days tour to
Bali with his wife and son. Thereafter, he directly went to Dubai with his wife
and son. On 16.12.2023, he purchased a tour package for Bali from Make Your
Trip, an Indian tour operator for which he paid ` 7,50,000 towards flight
tickets and hotel accommodation. During F.Y. 2023-24, he has business
income of ` 4,20,000 from a retail shop in India and interest on fixed deposit
and savings account with Canara Bank of ` 1,20,000 and ` 8,000, respectively.
He is not liable to pay any tax in Dubai. Assume 1 AED = ` 23.
From the information given above, choose the most appropriate answer to
Q. 1 to Q. 6:

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1. Is HDFC Bank required to collect tax at source on the amount remitted

by Mr. Sahil? If so, what is the amount of tax to be collected?
(a) Yes; TCS of ` 2,000 on 29.9.2023 and TCS of ` 27,000 on 1.1.2024
(b) Yes; TCS of ` 500 on 29.9.2023 and TCS of ` 27,000 on 1.1.2024
(c) Yes; TCS of ` 500 on 29.9.2023 and TCS of ` 6,750 on 1.1.2024
(d) No tax is required to be collected at source since receipts do not
exceed ` 7 lakh
2. Is Axis Bank required to collect tax at source on the amount remitted by
Mr. Sahil? If so, what is the amount of tax to be collected?
(a) Yes; TCS of ` 7,500 on 1.7.2023; TCS of ` 1,750 on 11.10.2023 and
TCS of ` 1,750 on 10.1.2024
(b) Yes; TCS of ` 17,500 on 11.10.2023 and TCS of ` 17,500 on
10.1.2024
(c) Yes; TCS of ` 1,750 on 11.10.2023 and TCS of ` 1,750 on 10.1.2024
(d) No tax is required to be collected at source, on the remittances for
education and for other purposes since each receipt does not
exceed ` 7 lakh
3. Is tax required to be collected at source on the amount remitted for tour
package to USA by Mr. Sahil? If so, what is the amount of tax to be
collected?
(a) Yes; TCS of ` 26,000
(b) Yes; TCS of ` 1,04,000
(c) No tax is required to be collected at source, since tour package is
purchased from a foreign tour operator
(d) No tax is required to be collected at source, since receipt does not
exceed ` 7 lakh
4. Does Make Your Trip require to collect tax at source on the amount
received for tour package to Bali from Mr. Akhil? If so, what is the
amount of tax to be collected?
(a) Yes; ` 2,500 is required to be collected at source

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 REVISION TEST PAPER FINAL EXAMINATION

(b) Yes; ` 37,500 is required to be collected at source

(c) Yes; ` 45,000 is required to be collected at source
(d) No tax is required to be collected at source
5. What is the total income of Mr. Akhil for the A.Y. 2024-25? Assume he
has shifted out of the default tax regime u/s 115BAC.
(a) ` 33,88,000
(b) ` 5,48,000
(c) ` 33,96,000
(d) ` 5,40,000
6. What would be the amount of the tax liability (computed in the most
beneficial manner) of Mr. Akhil for the A.Y. 2024-25?
(a) ` 7,47,550
(b) ` 12,900
(c) Nil
(d) ` 12,480

Case Scenario II
Seva Niketan, a charitable trust registered under section 12AB runs an
educational institution, which is engaged solely in education and a hospital for
treatment of persons suffering from mental disorder solely for philanthropic
purposes. The trust furnished the following information:
(i) The total receipts of the trust for the P.Y. 2023-24 for educational
institution is ` 3.10 crores and for the hospital it is ` 3.40 crores.
(ii) Voluntary contributions [included in (i) above] received for the P.Y.
2023-24 from the public amounted to ` 105 lakhs. It includes corpus
donations of ` 55 lakhs (for purchase of building for the trust) and
anonymous donations of ` 20 lakhs.
(iii) During the P.Y. 2023-24, computers purchased for ` 80 lakhs out of
- Corpus fund mentioned in (ii) above ` 30 lakhs.

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- Loan – ` 25 lakhs
- Voluntary contributions - ` 25 lakhs
(iv) Corpus donations received during the current year are invested in -
- Post Office Savings Accounts ` 10 lakhs
- Canara Bank as Fixed deposits ` 5 lakhs
- Non-banking Financial Corporation (NBFC) ` 10 lakhs
(v) Deposited ` 15 lakhs towards post office savings account which were
utilised for purchase of building during the P.Y. 2020-21 and P.Y. 2021-22
out of corpus fund ` 10 lakhs and ` 5 lakhs, respectively.
(vi) Amount paid to another trust registered u/s 12AB by way of donation of
` 10 lakhs. Out of the said amount ` 2 lakhs are given as corpus donations.
(vii) ` 6 lakhs, being the amount set apart in the P.Y.2022-23 by the trust for
charitable purposes u/s 11(2) utilized in the P.Y. 2023-24 for making
donation to another charitable trust, whose object is also education.
From the information given above, choose the most appropriate answer to Q. 7
to Q. 11:
7. Seva Niketan wants to avail exemption under section 10(23C)(iiiad) and
10(23C)(iiiae) in respect of educational institution and hospital for the
P.Y. 2023-24. Can it do so?
(a) Yes, it can do so since annual receipts for each activity do not
exceed ` 5 crores.
(b) No, it cannot do so since the trust is registered under section
12AB.
(c) No, it cannot do so since aggregate receipts from education and
hospital exceed ` 5 crores.
(d) No, it cannot do so due to the reasons mentioned in (b) and (c)
above.
8. What amount of corpus donations received by the trust would not form
part of the total income of the P.Y. 2023-24?

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 REVISION TEST PAPER FINAL EXAMINATION

(a) ` 25 lakhs
(b) ` 40 lakhs
(c) ` 15 lakhs
(d) ` 55 lakhs
9. What would be the amount of “specified income” taxable@30% u/s
115BBI for the P.Y. 2023-24?
(a) ` 30 lakhs
(b) ` 46 lakhs
(c) ` 48 lakhs
(d) ` 16 lakhs
10. What amount would be considered as application of the trust for the
P.Y.2023-24 (excluding unconditional accumulation of 15%), assuming
that it has fulfilled the relevant conditions stipulated under section 12A?
(a) ` 36.8 lakhs
(b) ` 25 lakhs
(c) ` 38 lakhs
(d) ` 30 lakhs
11. Seva Niketan claims that anonymous donations received during F.Y.
2023-24 are not liable to be taxed under section 115BBC(1)(i). Is the
claim of trust valid? If not, determine the tax leviable under section
115BBC.
(a) No; ` 6,00,000
(b) No; ` 5,70,000
(c) Yes; the trust is not liable to pay tax under section 115BBC(1)(i)
(d) No; ` 4,42,500
12. ABC bank provides the following information relating to cash
withdrawals by its two customers during the P.Y.2023-24:

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Date of cash Mr. Arjun (Savings XYZ Co-operative Society

withdrawal Account) (`) (Current Account) (`)
12.04.2023 20,00,000 -
9.05.2023 - 68,00,000
15.06.2023 25,00,000 -
19.07.2023 - 85,00,000
18.10.2023 35,00,000 -
5.11.2023 - 88,00,000
22.12.2023 25,00,000 -
03.01.2024 - 57,00,000

Co-operative society regularly files its return of income However,

Mr. Arjun has not filed his return of income for the last three years.
Would cash withdrawals by Mr. Arjun and XYZ Co-operative society
during the P.Y. 2023-24 attract deduction of tax at source? If yes, how
much tax would be deductible by ABC bank.
(a) Yes; ` 1,85,000 and ` 3,96,000, respectively
(b) Yes; ` 1,85,000 and ` 5,56,000, respectively
(c) Yes; ` 10,000 and `3,96,000, respectively
(d) ` 1,85,000 in respect of cash withdrawals by Mr. Arjun and no tax is
required to be deducted from cash withdrawals by the
co-operative society.
13. Blossom Tea Garden, a tea estate in Dibrugarh, Assam received
` 23,00,000 as compensation from an insurance company for severe
damage to the green leaves due to a hailstorm in July 2023. Blossom tea
estate is of the view that the entire receipt under the insurance policy for
damage caused by the hailstorm to tea leaves will be agricultural
income, hence, would not be chargeable to tax. Examine the contention
of Blossom Tea Garden.
(a) Blossom Tea Garden’s contention is incorrect; entire compensation
is assessable as income from other sources.

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(b) Blossom Tea Garden’s contention is incorrect; entire compensation

is assessable as manufacturing income.
(c) Blossom Tea Garden’s contention is incorrect; it’s deemed to be
profit on sale of standing crop or the produce, therefore the same
is taxable as profits and gains from business or profession.
(d) Blossom Tea Garden’s contention is correct; no part of the
compensation consists of manufacturing income, and it cannot be
apportioned under rule 8 between manufacturing income and
agricultural income. Therefore, the income will be agricultural
income.
14. Shubh Fragrance Ltd. established in 2015, is engaged in the
manufacturing and selling of pharmaceutical products. The net profit of
the company as per profit and loss account for the year ended 31 st
March 2024 is ` 900 lakhs, after debiting or crediting the following
items:
(i) Payment of ` 50 lakhs in the month of November 2023 to a foreign
company for obtaining know-how for a product launched in the
month of December 2023.
(ii) Electricity charges of ` 7 lakhs for the month of March 2024 were
unpaid up to the due date of filing of return of income.
(iii) Loss of ` 4 lakhs due to hedging contract against future price
fluctuations in respect of import of raw material, used in the
course of manufacturing.
(iv) Depreciation charged to the Statement of Profit and Loss was ` 45
lakhs.
(v) Loss of ` 2 lakh from hedging contracts entered into for mitigating
the loss arising due to fluctuation in foreign currency payment
towards an imported machinery purchased from Japan for ` 65
lakhs, which was installed in the month of December 2023.
(vi) ` 20 lakhs received from Z Ltd. under an agreement in the form of
non-compete fees for not carrying out any business in a particular
product.

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(vii) Advance received amounting to ` 20 lakhs on proposed sale of

land, forfeited due to non-receipt of balance amount of ` 70 lakhs
on time, as per terms of agreement. The land was purchased
during F.Y. 2019-20.
(viii) Excess on sale of unlisted shares - ` 15 lakhs (Sold on
15th February 2024).
Additional Information:
(1) Normal depreciation allowable as per the Income-tax Act, 1961
` 35 lakhs [depreciation, if any required to be computed on the
amount debited or credited to Statement of profit or loss is not
included].
(2) The unlisted shares were acquired on 29.3.2021 for ` 80 lakhs.
(3) Cost Inflation Index F.Y. 2019-20 - 289, F.Y. 2020-21 - 301,
F.Y. 2023-24 - 348.
The total turnover of the company for previous year 2021-22 was ` 282
crores and for the financial year 2022-23 ` 405 crores. The company has
MAT credit of ` 20 lakhs of the assessment year 2016-17. The book
profit (computed) for the assessment year 2024-25 is ` 1520 lakhs.
Compute the total income and tax liability (computed in the most
beneficial manner) for the assessment year 2024-25.
15. Mr. Sanjay is a resident in India aged 55 years. He had an impressive
investment portfolio in various mutual funds. He redeemed his entire
mutual fund investment portfolio and bought a villa in Lonavala for
` 2.00 crores to spend rest of his life there. The details of mutual funds
are as under –

S. Type of mutual Date of Date of Amount Amount

No. fund investment redemption invested redeemed
(in ` lakhs) (in ` lakhs)
1 BLR growth fund 03.04.2020 05.06.2023 120 140
2 ABC Strategic 04.05.2023 02.02.2024 46 50
fund

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REVISION TEST PAPER FINAL EXAMINATION

3 ABD Midcap 02.12.2022 05.07.2023 115 118

fund
4 SBA Growth 08.11.2021 12.12.2023 110 120
fund

The funds stated at 1 and 2 have invested 30% of their proceeds in

equity shares of domestic companies and funds stated at 3 and 4 have
invested 70% of their proceeds in equity shares of domestic companies.
The investment pattern of funds remained unchanged over all the years.
STT is paid at the time of acquisition and redemption of mutual fund,
wherever applicable.
You are required to compute the capital gains chargeable to tax in the
hands of Mr. Sanjay for A.Y. 2024-25. CII: 2020-21: 301; 2021-22: 317;
2022-23: 331; 2023-24: 348
16. The Commissioner of Income-tax issued notice to revise the order
passed by an Assessing Officer under section 143. During the pendency
of proceedings before the Commissioner, on the basis of material
gathered during survey under section 133A after issue of the first notice,
the Commissioner of Income-tax issued a second notice, the contents of
which were different from the contents of the first notice. Examine
whether the action of the Commissioner is justified as to the second
notice.
17. In respect of Mr. Naksh, who is engaged in the export of fabrics,
information is flagged as per the risk management strategy formulated
by the CBDT for A.Y.2020-21, A.Y.2021-22, A.Y.2022-23 and A.Y.2023-24.
In case of Mr. Ramesh (friend of Mr. Naksh), who is engaged in trading
of commodities, a search was initiated u/s 132 in April 2024, 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. 2017-18 and shares of value of ` 21 lakhs purchased in the
P.Y.2018-19.
Can the Assessing Officer issue notice under section 148 to Mr. Naksh
and Mr. Ramesh in April 2024? If so, in respect of which assessment
years can notice be issued? Is it necessary that they be provided with an
opportunity of being heard before issuance of notice?

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What would be your answer with respect to issue of notice to

Mr. Ramesh if the shares purchased in the P.Y.2017-18 were of ` 30
lakhs instead of ` 28 lakhs, all other facts remain the same?
18. Mr. Rohit, an Indian citizen, returned to India in March 2013 to assume
the role of CEO at ABC (P) Ltd., an Indian company. He served in this
capacity from 1st April 2013 to 31st March 2020. Prior to this, from May
2000 to February 2013 he was working with Red Inc, in the USA. In April
2020, he went to the USA to rejoin Red Inc. and permanently settled
there. Mr. Rohit visits India every year only for 1 month during his stay in
USA. It was found that when he was CEO of ABC (P) Ltd., he accumulated
undisclosed income/wealth such as
(i) shares of listed companies in USA acquired on 10 th December,
2012;
(ii) acquired one apartment in London on 20th April 2015 and
(iii) established a leather goods manufacturing factory in Malaysia on
15th April 2020.
He also earned income by taking commission from various foreign
buyers located outside India during the period between April 2013 to
March 2020. The above undisclosed assets came to the notice of
Assessing Officer in April 2023, and he issued notice under the Black
Money Act, 2015 in July, 2023.
Is the notice issued by the Assessing Officer under the Black Money Act,
2015 on Mr. Rohit tenable in law?
19. Mahesh (Age 50 years) is the CEO of Silver India Ltd. since 01.04.2019.
His income in India consists of
(i) salary (before standard deduction) of ` 23 lakhs;
(ii) interest in respect of self-occupied property of ` 1,80,000;
(iii) interest on bank fixed deposits ` 1,60,000.
He has the following income for the year ended 31st March 2024 in
Country ‘A’.
(i) Income from business in Country A = USD 25,000;

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(ii) Rent from house property in Country A = USD 4,500;

(iii) Municipal taxes in respect of the above house (Not allowed as
deduction in Country A) = USD 450;
(iv) Dividend from shares held in Country ‘A’ where dividend was
declared and paid in March, 2024 =USD 10,000;
(v) Short term capital gain of USD 5,000 on sale of shares of
companies registered in Country ‘A’ and sale proceeds were
credited in bank account outside India on 28.03.2024.
India has DTAA with Country ‘A’ and the tax paid in Country ‘A’ is
eligible for tax credit in India. The fiscal year for income-tax is the same
both in India and Country ‘A’. Rate of tax is 20% in Country ‘A’ in respect
of all incomes. Income-tax was paid by Mahesh on 25.05.2024 for the
incomes of the year ended 31st March 2024 in Country ‘A’.
Compute the total income and net tax liability of Mahesh for the A.Y.
2024-25. Assume Mahesh pays tax under section 115BAC.
The TT buying rate of 1 USD on various dates: 29.02.2024= ` 70;
28.03.2024 = ` 70.50; 31.03.2024 = ` 71; 30.04.2024 = ` 72; and
25.05.2024 = ` 73.
20. ABC (P) Ltd., Bangalore is engaged in the manufacture of electronic goods
and exporting the same to various associated and other enterprises across
Southeast Asia. The report with respect to its international transactions
with AE has been furnished for all years. The company has applied for APA
in respect of the transactions with its AE. Application was filed on
15th February 2023 which was signed on 5 th May 2023.
The company also applied in respect of the international transactions to
which APA applies for rollback benefit which was agreed and signed in
January 2024. The details of the status of income tax assessments are as
follows:
• A.Y. 2018-19 – The matter is pending before High Court with
regard to acquisition of a company by the assessee and the
dispute is about set off of loss of the erstwhile company.
• A.Y. 2019-20 and A.Y. 2020-21 - There is no dispute and the
assessments have been completed.

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INTERNATIONAL TAXATION

• A.Y. 2021-22 - The assessment for the A.Y. 2021-22 was

completed by making reference to the TPO who enhanced the
arm’s length price of the international transaction by ` 500 lakhs.
• A.Y. 2022-23 - ALP of international transaction was disputed
before the tribunal which set aside the order for fresh
consideration by the Assessing Officer in November 2023.
• A.Y. 2023-24 - The income tax return (‘ITR’) was filed on
29th December 2023.
If the APA is applied, the ALP determined for the A.Y. 2021-22 would get
enhanced by ` 300 lakhs as against ` 500 lakhs originally determined by
TPO.
Discuss the applicability of rollback agreement for various assessment
years in case of ABC (P) Ltd.

SUGGESTED ANSWERS/HINTS

MCQ No. Most Appropriate MCQ No. Most Appropriate

Answer Answer

1. (c) 8. (c)

2. (c) 9. (b)

3. (a) 10. (a)

4. (d) 11. (d)

5. (d) 12. (d)

6. (b) 13. (d)

7. (c)

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14. Computation of total income and tax liability of Shubh Fragrance

Ltd. for A.Y.2024-25 under the regular provisions of the Act

Particulars Amount (in `)

I Profits and gains of business and
profession
Net profit as per Statement of profit 9,00,00,000
and loss
Add: Items debited but to be
considered separately or to be
disallowed
(i) Payment towards know-how for 50,00,000
a product
[Payment towards obtaining know-
how is capital expenditure i.e., an
intangible asset and eligible for
depreciation. Since the same is
debited in statement of profit and
loss, it has to be added back]
(ii) Electricity charges unpaid upto -
the due of filing return of income
[Electricity charges are not included
within the scope of section 43B1,
therefore no disallowance would be
attracted. Since the same is already
debited in statement of profit and
loss, no further adjustment is
required]
(iii) Loss due to hedging contract in -
respect of raw material
[Loss due to hedging contract
against future price fluctuations in
respect of import of raw material is

1
CIT Vs Andhra Ferro Alloys (P.) Ltd. (AP)

14 MAY 2024 EXAMINATION

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INTERNATIONAL TAXATION

not deemed to be speculative

transaction. Hence, the same is
allowable as deduction while
computing income from
manufacturing. Since the same is
already debited in statement of
profit and loss, no further
adjustment is required]
(iv) Depreciation as per books of 45,00,000
account
(v) Loss from hedging contract in 2,00,000
respect of imported machinery
from Japan
[Loss from hedging contracts
entered for mitigating loss arising
due to fluctuation in foreign
currency payment towards import
of machinery has to added to the
actual cost of the machinery as per
section 43A. Since the same is
wrongly debited to statement of
profit and loss, same has to be
added back].
97,00,000
9,97,00,000
Less: Items credited but chargeable
to tax under other head
(vi) Non-compete fees for not -
carrying out any business in a
particular product
[Non-compete fees for not
carrying out any business in a
particular product would be
chargeable to tax as business

15 MAY 2024 EXAMINATION

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income under section 28(va).

Since the same is already credited
in statement of profit and loss, no
further adjustment is required]
(vii) Advance forfeited in respect of 20,00,000
sale of land
[With effect from A.Y. 2015-16,
advance forfeited in respect of sale
of land due to non-receipt of
balance amount of consideration
taxable under the head “Income
from other sources”. Since the
same has been credited to the
statement of profit and loss, the
same has to be deducted while
computing business income]
(viii) Profit on sale of unlisted shares 15,00,000
[Profit on sale of unlisted shares is
taxable under the head “Capital
Gains”. Since profits has been
credited to the statement of profit
and loss, the same has to be
deducted while computing business
income] 35,00,000

9,62,00,000
Less: Depreciation as per Income-tax
Act, 1961 [other than on imported
plant & machinery and know-how] 35,00,000
Deprecation on:
Plant & Machinery 65,00,000
imported
Add: Loss on hedging 2,00,000
contract
67,00,000

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- Normal depreciation @7.5% of

` 67,00,000 [only 50% of the
15% is allowable since
machinery is put to use for less 5,02,500
than 180 days]
- Additional depreciation @10%
of ` 67,00,000 [only 50% of the
15% is allowable since
machinery is put to use for less
than 180 days] 6,70,000
Know-how @ 12.5% of ` 50,00,000
[50% of 25% since know how was
obtained in the month of
November 2023] 6,25,000 52,97,500
9,09,02,500
II Capital Gains
Long term capital gain on sale of
unlisted shares [Since shares were held
for more than 24 months]
Full value of consideration 95,00,000
[` 15,00,000 + ` 80,00,000]
Less: Indexed cost of acquisition
[80,00,000 x 348/301] 92,49,169 2,50,831
III Income from Other Sources
Advance forfeited on sale of land 20,00,000
Total income/Gross Total Income 9,31,53,331
Total income/Gross Total Income 9,31,53,330
(rounded off)
Computation of tax liability under the
regular provisions of the Act
Tax on ` 2,50,831@20% under section 112 50,166

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Tax on ` 9,29,02,500@25% [Since the turnover

of the company for the previous year 2021-22
does not exceed ` 400 crore] 2,32,25,625 2,32,75,791
Add: Surcharge @ 7%, since the total income 16,29,305
of the company > ` 1 crore but ≤ ` 10 crores
2,49,05,096
Add: Health and education cess @ 4% 9,96,204
Tax liability 2,59,01,300

Computation of tax liability of Shubh Fragrance Ltd. for the

A.Y. 2024-25 under section 115JB

Particulars `
Minimum Alternate Tax @15% on book profit of 2,28,00,000
` 15,20,00,000
Add: Surcharge@12%, since the book profit of the 27,36,000
company > ` 10 crores
2,55,36,000
Add: Health and Education cess@4% 10,21,440
Tax liability under section 115JB 2,65,57,440
Since the regular income-tax payable is less than the minimum alternate
tax payable, the book profit of ` 1520 lakhs shall be deemed to be the
total income and tax is leviable @15% thereof plus surcharge@12% and
cess@4%. Therefore, the tax liability is ` 2,65,57,440.

MAT Credit to be carried forward

Tax liability under section 115JB 2,65,57,440
Less: Tax liability under the regular provisions of the 2,59,01,300
Income-tax Act, 1961
Amount of Credit (115JAA) 6,56,140
MAT credit of ` 20,00,000 of A.Y. 2016-17 is allowed to be carried
forward till A.Y. 2031-32 and MAT credit of ` 6,56,140 relating to
A.Y. 2024-25 is allowed to be carried forward till A.Y. 2039-40.
Note - Shubh Fragrance Ltd. is eligible for concessional rate under
section 115BAA @25.168% i.e., tax@22% plus surcharge@10% plus

18 MAY 2024 EXAMINATION

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HEC@4% subject to tax at the rates mentioned in the said sections in

Chapter XII. In case Shubh Fragrance Ltd. opted for concessional rate of
tax u/s 115BAA, it would not be eligible for additional depreciation on
plant and machinery. In that case, its total income u/s 115BAA would be-

Particulars `
Total income/Gross Total Income under regular 9,31,53,330
provisions of the Act
Add: Additional depreciation on plant & machinery 6,70,000
Gross Total Income/ Total Income 9,38,23,330
Tax on ` 2,50,831@20% under section 112 50,166
Tax on ` 9,35,72,499 @22% under section 2,05,85,950 2,06,36,116
115BAA
Add: Surcharge @ 10% 20,63,612
2,26,99,728
Add: Health and education cess @ 4% 9,07,989
Tax liability 2,36,07,717
Tax liability (Rounded Off) 2,36,07,720
Suggestion to Shubh Fragrance Ltd
In case Shubh Fragrance Ltd opts for section 115BAA for assessment
year 2024-25, it would not be eligible for balance 10% additional
depreciation on plant & machinery in A.Y. 2025-26 and would also lose
MAT credit of ` 20 lakhs. Further, once option under section 115BAA
has been exercised for any P.Y., it cannot subsequently be withdrawn
for the same or any other P.Y. However, in such a case its tax liability for
A.Y. 2024-25 would be ` 2,36,07,720 which would be lower than tax
liability under regular provisions of the Act including MAT.

15. Computation of capital gains of Mr. Sanjay for A.Y. 2024-25

Particulars ` `
Redemption of BLR growth fund
Full value of consideration [Redemption 1,40,00,000
value]

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Less: Indexed cost of acquisition 1,38,73,754

[` 1,20,00,000 × 348/301]
Long term capital gains [Since it is debt 1,26,246
fund (as not more than 65% of the
proceeds are invested in equity shares of
domestic companies) and it was held by Mr.
Sanjay for more than 36 months
immediately preceding the date of its
transfer]
Redemption of ABC Strategic fund
Full value of consideration [Redemption 50,00,000
value]
Less: Cost of acquisition 46,00,000
Short term capital gains [Since it is a 4,00,000
specified mutual fund (as not more than
35% of its proceeds are invested in equity
shares of domestic companies) which is
acquired on or after 1.4.2023, this fund
would be considered as short-term capital
asset as per section 50AA irrespective of
the period of holding]
Redemption of ABD Midcap fund
Full value of consideration [Redemption 1,18,00,000
value]
Less: Cost of acquisition 1,15,00,000
Short term capital gains [Since it is equity- 3,00,000
oriented fund (as more than 65% of its
proceeds are invested in equity shares of
domestic companies) and it was held by Mr.
Sanjay for not more than 12 months
immediately preceding the date of its transfer]
Redemption of SBA Growth fund
Full value of consideration [Redemption 1,20,00,000
value]

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Less: Cost of acquisition [Indexation benefit 1,10,00,000

would not be available in case of income
taxable under section 112A]
Long term capital gains [Since it is equity- 10,00,000
oriented fund (as more than 65% of its
proceeds are invested in equity shares of
domestic companies) and it was held by Mr.
Sanjay for more than 12 months
immediately preceding the date of its
transfer]
18,26,246
Less: Exemption under section 54F
Capital gain arising on transfer of a long-
term capital asset other than a residential
house shall not be chargeable to tax to the
extent such capital gain is invested in the
purchase of one residential house property
in India within one year before or two years
after the date of transfer of original asset.
Therefore, in the present case, the
exemption would be available only in
respect of long-term capital gains from
redemption of BLR growth fund and SBA
Growth fund.
Exemption from long term capital gains 10,00,000
from redemption of SBA Growth fund
[10,00,000 x 1,20,00,000 /1,20,00,000]
Exemption from long term capital gains 72,141
from redemption of BLR short term fund
[1,26,246 x 80,00,000 (2 crores – 1.20
crores)/1,40,00,000]
Capital gains chargeable to tax for 7,54,105
A.Y.2024-25

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16. The action of the Commissioner in issuing the second notice is not
justified. The term “record” has been defined in clause (b) of Explanation
1 to section 263(1). According to this definition “record” shall include
and shall be deemed always to have included all records relating to any
proceeding under the Act available at the time of examination by the
Commissioner. In other words, the information, material, report etc.
which were not in existence at the time the assessment was made and
came into existence afterwards can be taken into consideration by the
Commissioner for the purpose of invoking his jurisdiction under section
263(1). However, at the same time, in view of the express provisions
contained in clause (b) of the Explanation 1 to section 263(1), such
information, material, report etc. can be relied upon by the
Commissioner only if the same forms part of record when the action
under section 263 is taken by the Commissioner,
Issuance of a notice under section 263 succeeds the examination of
record by Commissioner. In the present case, the Commissioner initially
issued a notice under section 263, after the examination of the record
available before him. The subsequent second notice was on the basis of
material collected under section 133A, which was totally unrelated and
irrelevant to the issues sought to be revised in the first notice.
Accordingly, the material on the basis of which the second notice was
issued could not be said to be “record” available at the time of
examination as emphasized in Explanation 1(b) to section 263(1).
17. In respect of Mr. Naksh, the Assessing Officer has information
suggesting that income has escaped assessment for the purposes of
section 148 and 148A, since information has been flagged for the
relevant assessment year as per risk management policy formulated by
the CBDT. Notice can be issued for A.Y.2023-24, A.Y.2022-23 and
A.Y.2021-22, since the three-year time limit from the end of the relevant
assessment year has not expired as on April, 2024. Such notice can be
issued after conducting an enquiry, if required, with respect to the
information suggesting escapement of income; and providing an
opportunity of being heard to Mr. Naksh by serving a show cause notice.
Thereafter, on the basis of material available on record including the
reply of Mr. Naksh, in response to show cause notice, the Assessing
Officer has to decide whether or not it is a fit case to issue notice under

22 MAY 2024 EXAMINATION

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section 148 by passing an order, with the prior approval of Principal

Commissioner or Principal Director or Commissioner or Director.
However, notice cannot be issued in respect of A.Y.2020-21, since the
three-year time limit from the end of the relevant assessment year (i.e.,
from 31.3.2021) has since expired on 31 st March, 2024.
In case of Mr. Ramesh, since search was conducted under section 132 in
April 2024, the Assessing Officer is deemed to have information
suggesting that income chargeable to tax has escaped assessment. In
this case, the Assessing Officer has in his possession certain documents
which reveal that income chargeable to tax, represented in the form of
an asset, has escaped assessment. Shares are included in the definition
of “asset”. However, the income chargeable to tax, represented in the
form of shares, which has escaped assessment amounts to ` 49 lakhs
(i.e., ` 28 lakhs + ` 21 lakhs). Since the amount is lower than ` 50 lakhs,
notice cannot be issued beyond 3 years from the end of the relevant
assessment year. In this case, the relevant assessment years are
A.Y.2018-19 (relevant to P.Y.2017-18) and A.Y.2019-20 (relevant to
P.Y.2018-19). The three-year period for A.Y.2018-19 and A.Y.2019-20
expired on 31.3.2022 and 31.3.2023, respectively. Accordingly, notice
cannot be issued under section 148 in April 2024.
However, where the income chargeable to tax, represented in the form
of shares, which has escaped assessment amounts to ` 51 lakhs (i.e., ` 30
lakhs + ` 21 lakhs), an extended period of 10 years from the end of the
relevant assessment year (i.e., from the end of 31.3.2019 and 31.3.2020)
would be available under section 149(1)(b) for issue of notice, which has
not expired in April, 2024. Therefore, the Assessing Officer can issue
notice under section 148 for A.Y.2018-19 and A.Y.2019-20 with the prior
approval of specified authority.
In this case, the Assessing Officer need not conduct an enquiry and
provide opportunity of being heard to Mr. Ramesh as required u/s 148A
for the purpose of issue of notice u/s 148.
Note - Notice cannot be issued under section 148 in respect of the
relevant assessment year beginning on or before 1.4.2021, if on the date
of issue of such notice, the time limit prescribed for issue of notice under

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erstwhile section 153A has expired. In case of Mr. Ramesh, where income
represented in the form of assets, being shares, which has escaped
assessment amounts to ` 50 lakhs or more, the time limit for issue of
notice under erstwhile section 153A in case of relevant assessment year
beginning on or before 1.4.2021, has also not expired in April 2024. Since
search had taken place in the P.Y.2024-25 relevant to A.Y.2025-26, the
Assessing Officer could have issued notice for ten assessment years
immediately preceding A.Y.2025-26 (i.e., from A.Y.2015-16 to A.Y.2024-
25) under the erstwhile section 153A.
18. Validity of notice issued under Black Money Act, 2015
Every assessee would be liable to tax@30% in respect of his undisclosed
foreign income and asset of the previous year. Undisclosed foreign asset
would be liable to tax in the previous year in which such asset comes to
the notice of the Assessing Officer.
Section 2(2) of the Black Money (Undisclosed Foreign Income and
Assets) and Imposition of Tax Act, 2015 defines “assessee” to include a
person being -
(a) a resident in India within the meaning of section 6 of the Income-
tax Act, 1961 in the previous year; or
(b) a non-resident or not ordinarily resident in India within the
meaning of section 6(6) of the Income-tax Act, 1961 in the
previous year but who was resident in India either in the previous
year to which the income referred to in section 4 relates; or in the
previous year in which the undisclosed asset located outside India
was acquired.
Mr. Rohit is non-resident for the P.Y. 2023-24 (the previous year in
which notice is issued by the Assessing Officer), since he returned to the
USA in April 2020 and visited every year only for 1 month. He was also a
non-resident for the P.Y. 2012-13, when he acquired shares of listed
companies in USA and P.Y. 2020-21, when he established a leather
goods manufacturing factory in Malaysia, since he was in India only
during the previous years from P.Y. 2013-14 to P.Y. 2019-20. However,
he was resident in India in the P.Y. 2015-16, when he acquired one
apartment in London.

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Accordingly, the issue of notice on Mr. Rohit under section 10 of the

Black Money Act, 2015, is tenable in law, in respect of apartment in
London since he was resident in the previous year 2015-16 when the
property was acquired.
However, notice issued in respect of shares of listed companies in USA
acquired in the P.Y.2012-13 and leather goods manufacturing factory
established in Malaysia in the P.Y.2020-21 is not tenable in law, since
Mr. Rohit was non-resident in the previous years in which undisclosed
assets were acquired and also in the previous year in which it comes to
the notice of Assessing Officer.
As regards commission earned from various foreign buyers located
outside India, notice can be issued to the extent the same relates to
P.Y.2015-16 to P.Y.2019-20. Undisclosed foreign income relating to the
period prior to P.Y.2015-16 does not fall within the scope of Black
Money Law, which is effective only from A.Y.2016-17.
19. Computation of total income of Mahesh for A.Y. 2024-25 as per
section 115BAC
Since Mr. Mahesh is a resident in India for the P.Y.2023-24, his global
income would be subject to tax in India. Therefore, income earned by
him in Country A would be taxable in India.

Particulars Amount Amount

(`) (`)
Salaries
Salary from Silver Ltd. 23,00,000
Less: Standard deduction u/s 16(ia) 50,000 22,50,000

Income from house property

Let out property in Country A
Gross Annual Value2 USD 4,500
Less: Municipal taxes USD 450

2
Rental Income has been taken as GAV in the absence of other information relating to
fair rent, municipal value etc.

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Net Annual Value USD 4,050

Less: Deduction under section 24 – 30% of USD 1,215
NAV
USD 2,835
[$ 2,835 x 71, being the last day of previous 2,01,285
year i.e., 31.3.2024 as per Rule 115]
Self-occupied property in India
Loss from self-occupied property [Interest
u/s 24(b) is not allowable in respect of self-
occupied property under section 115BAC] -
2,01,285
Profits and gains from business or
profession
Income from business in Country A 17,75,000
[$ 25,000 x 71, being the last day of previous
year i.e., 31.3.2024 as per Rule 115]
Capital Gains
Short term capital gains on sale of shares 3,50,000
of companies registered in Country A
[$ 5,000 x 70, being the last day of the
month immediately preceding the month
in which the shares are transferred i.e.,
29.2.2024 as per Rule 115]
Income from Other Sources
Interest on bank fixed deposits 1,60,000
Dividend from shares held in Country A 7,00,000
[$ 10,000 x 70, being the last day of the
month immediately preceding the month
in which the dividend is declared i.e.,
29.2.2024 as per Rule 115]
8,60,000
Gross Total Income/Total Income 54,36,285
Total Income (Rounded off) 54,36,290

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Computation of Net tax liability of Mahesh for A.Y.2024-25

Particulars Amount
Upto ` 3,00,000 Nil
` 3,00,001 – ` 6,00,000 [i.e., ` 3,00,000 @5%] 15,000
` 6,00,001– ` 9,00,000 [i.e., ` 3,00,000 @10%] 30,000
` 9,00,001– ` 12,00,000 [i.e., ` 3,00,000 @15%] 45,000
` 12,00,001– ` 15,00,000 [i.e., ` 3,00,000 @ 60,000
20%]
` 15,00,001– ` 54,36,290 [i.e., ` 39,36,290 11,80,887
@ 30%]
13,30,887
Add: Surcharge@10% [Since total income exceed
` 50 lakhs but does not exceed ` 1 crore) 1,33,089
14,63,976
Add: Health & Education Cess@4% 58,559
15,22,535
Less: Foreign tax credit, being lower of -
- Tax payable in India @28.007% on 8,47,572
` 30,26,285, being income from house
property of ` 2,01,285, business
income of ` 17,75,000 plus capital
gains of ` 3,50,000 plus dividend
income of ` 7,00,000 [i.e., ` 15,22,535/
` 54,36,290 x 100] = 28.007%
- Tax paid in Country A@20% 6,40,800
[$ 44,500 @20% x ` 72, being the rate
on 30.4.2024, being the last day of the
month immediately preceding the
month in which tax is paid, i.e.,
May 2024]
6,40,800
Net tax liability 8,81,735
Net tax liability (Rounded off) 8,81,740

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20. Rollback year means any previous year, falling within the period not
exceeding four previous years, preceding the first of the five consecutive
previous years for which advance pricing agreement is valid.
The application for advance pricing agreement may be filed at any time
before the first day of the previous year relevant to the first assessment
year for which the application is made, in respect of transactions which
are of a continuing nature from dealings that are already occurring; or
before undertaking the transaction in respect of remaining transactions.

In the present case, since ABC (P) Ltd. has made an application of APA
and also opted for rollback provisions, the APA is apparently in respect
of international transactions which are of continuing nature.
Accordingly, the APA application filed on 15th February 2023 would be in
respect of five previous years beginning with P.Y. 2023-24 relevant to
the A.Y. 2024-25.
Consequently, APA entered by ABC (P) Ltd. can provide for determining
ALP in relation to international transaction entered during rollback years
i.e., from A.Y. 2020-21 to A.Y. 2023-24 subject to satisfaction of certain
conditions.
In the present case, since A.Y. 2018-19 and A.Y. 2019-20 fall beyond the
said four year period, ABC (P) Ltd. cannot avail roll back benefit in
respect of these years. From A.Y. 2020-21 -A.Y. 2023-24, the applicability
of rollback provisions would be as follows:

Rollback Applicability of rollback provisions

year
A.Y. 2020-21 Yes, rollback provisions are applicable for A.Y.
2020-21.
A.Y. 2021-22 Yes, rollback provisions are applicable for A.Y.
2021-22 even if ALP adjustment was reduced to
addition of ` 300 lakhs as against addition of ` 500
lakhs originally determined by the TPO on account of
APA, since such reduction in the amount of ALP
adjustment does not result in reducing the total

28 MAY 2024 EXAMINATION

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income or increasing the total loss, as declared in the

return of income of the said year by ABC (P) Ltd.
A.Y. 2022-23 Yes, roll back provisions are applicable for
A.Y. 2022-23, since ITAT has only set aside the order
for fresh consideration and the matter has not
reached finality.
A.Y. 2023-24 No, rollback provisions are not applicable for
A.Y. 2023-24, since the return was filed belatedly
u/s 139(4) on 29.12.2023.

29 MAY 2024 EXAMINATION

 Downloaded from castudyweb.com

PAPER 7: DIRECT TAX LAWS & INTERNATIONAL TAXATION

The provisions of direct tax laws, as amended by the Finance Act, 2022 and the significant
notifications and circulars issued upto 30.4.2023, are relevant for November, 2023 examination.
The relevant assessment year is A.Y.2023-24. The October, 2021 edition of the Study Material
has to be read along with the Supplementary Study Paper 2022, containing the provisions of
direct tax laws as amended by the Finance Act, 2022 and notifications and circulars issued upto
31.10.2022, and the webhosted Statutory Update and Judicial Update for November, 2023
Examination. The Supplementary Study Paper 2022 has been webhosted at
https://resource.cdn.icai.org/72303bos58234.pdf, the Statutory Update for November, 2023
Examination has been webhosted at https://resource.cdn.icai.org/74470bos60409.pdf, and the
Judicial Update for November, 2023 Examination has been webhosted at
https://resource.cdn.icai.org/72695bos58611.pdf, respectively.

QUESTIONS AND ANSWERS

Case Scenario 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 Q.1 to Q.6
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, is the action of the Assessing
officer in entering the business premises of B Ltd. at 8.30 p.m. valid?

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2 FINAL EXAMINATION: NOVEMBER, 2023

(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. 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.
(c) The action of the Assessing Officer is valid in the case of A Ltd. but not in the case
of B Ltd.
(d) The action of the Assessing Officer is valid in the case of B Ltd. but not in case of
A Ltd.
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.
(c) Yes, he can do so, after following the compliances stipulated u/s 148A.
(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.
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.

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PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 3

(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.
(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.
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.
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 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.

Case Scenario 2
The following are the details about Alpha Co-operative society (referred to as Alpha Co-op),
Beta Co-operative Society (referred to as Beta Co-op) and Gamma Co-operative Bank (referred
to as Gamma Co-op) for the P.Y.2022-23 -
Alpha Co-op is engaged in providing credit facilities solely to its members, the profits and gains
from which is ` 20 lakhs (computed) for the P.Y.2022-23. Alpha Co-op also derives interest of
` 3 lakhs from investments in Delta Co-operative Society.

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4 FINAL EXAMINATION: NOVEMBER, 2023

Beta Co-op is engaged in marketing of agricultural produce grown by its members , the profits
and gains from which is ` 40 lakhs (computed) for the P.Y.2022-23. It has employed 8 new
employees with salary of ` 22,000 p.m. on 1.6.2022. Salary is paid by ECS through bank
account. It gets its books of accounts audited under section 44AB. It also earns interest of ` 12
lakhs on fixed deposits with Axis Bank and ICICI Bank.
Gamma Co-op is engaged in banking business in Bangalore, the profits and gains from which
is ` 110 lakhs (computed) for the P.Y.2022-23. It also gets its books of account audited under
section 44AB. It is not a primary agricultural credit society or a primary co-operative agricultural
and rural development bank.
On the basis of the facts given above, choose the most appropriate answer to Q.7 to Q.11
below, based on the provisions of the Income-tax Act, 1961 -
7. Would Alpha Co-op and Gamma Co-op be entitled to deduction under section 80P for
A.Y.2023-24, if they do not opt for section 115BAD?
(a) Alpha Co-op is entitled to deduction u/s 80P only in respect of interest of ` 3 lakhs
and not in respect of profits and gains of ` 20 lakhs. Gamma Co-op is not entitled
to deduction u/s 80P.
(b) Alpha Co-op is entitled to deduction u/s 80P only in respect of profits and gains of
` 20 lakhs and not in respect of interest of ` 3 lakhs. Gamma Co-op is entitled to
deduction u/s 80P in respect of profits and gains of ` 110 lakhs.
(c) Alpha Co-op is entitled to deduction u/s 80P both in respect of profits and gains
of ` 20 lakhs and interest of ` 3 lakhs. Gamma Co-op is entitled to deduction u/s
80P in respect of profits and gains of ` 110 lakhs
(d) Alpha Co-op is entitled to deduction u/s 80P both in respect of profits and gains
of ` 20 lakhs and interest of ` 3 lakhs. Gamma Co-op is not entitled to deduction
u/s 80P.
8. Would the provisions of alternate minimum tax (AMT) be attracted in case of Alp ha Co-
op, Beta Co-op and Gamma Co-op for A.Y.2023-24, if they do not opt for section
115BAD?
(a) Yes, the AMT provisions would be attracted in case of Alpha Co-op, Beta Co-op
and Gamma Co-op
(b) The AMT provisions would be attracted only in case of Alpha Co-op and Gamma
Co-op
(c) The AMT provisions would be attracted only in case of Alpha Co-op and Beta Co-op
(d) The AMT provisions would be attracted only in case of Beta Co-op.

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PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 5

9. What would be the tax liability (rounded off) of Beta Co-op for A.Y.2023-24, if it opts for
section 115BAD? It may be assumed that the gross total income is the same under the
normal provisions of the Act and section 115BAD.
(a) ` 1,69,130
(b) ` 3,02,020
(c) ` 10,68,950
(d) ` 11,75,850.
10. What would be the tax liability (rounded off) of Beta Co-op for A.Y.2023-24, if it does not
opt for section 115BAD? AMT provisions, if applicable, have to be considered.
(a) ` 1,87,200
(b) ` 2,06,540
(c) ` 2,30,880
(d) ` 8,11,200
11. Would it be beneficial for Alpha Co-op, Beta Co-op and Gamma Co-op to opt for section
115BAD for A.Y.2023-24? It may be assumed that the gross total income is the same
under the normal provisions of the Act and section 115BAD in all cases.
(a) It would be beneficial for Alpha Co-op and Gamma Co-op to opt for section
115BAD, but not for Beta Co-op.
(b) It would not be beneficial for Alpha Co-op, Beta Co-op and Gamma Co-op to opt
for section 115BAD
(c) It would be beneficial for Alpha Co-op to opt for section 115BAD, but not for Beta
Co-op and Gamma Co-op.
(d) It would be beneficial for Gamma Co-op to opt for section 115BAD, but not for
Alpha Co-op and Beta Co-op.
12. ABC Ltd. held a dealer conference on 22nd and 23rd August, 2022 in Cochin to educate
the dealers about the new product being launched by it and how the product is better than
the similar products of other companies available in the market. The spouse was allowed
to accompany the dealer and they could stay in the hotel from 20th August, 2022 (being a
Saturday). Leisure trip was organised for dealers and their spouse on 20th and 21st
August, 2022, being the weekend. The expenses on airfare, hotel stay and leisure trip of
all dealers and their spouse was met by ABC Ltd.

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6 FINAL EXAMINATION: NOVEMBER, 2023

The break-up of the expenditure incurred by ABC Ltd. in relation to Mr. Ashok Sharma, a
dealer, for the purpose of the above dealer conference, is as follows –
Particulars of expenses `
(i) To and fro airfare for Mr. Ashok Sharma from New Delhi 25,000
(ii) To and fro airfare for Mrs. Ashok Sharma from New Delhi 25,000
(iii) Hotel stay (including breakfast and dinner) for Mrs. and Mr. Ashok 30,000
Sharma on 20th and 21st August, 2022
[The expenditure was equal for each person and each day]
(iv) Hotel stay (including breakfast and dinner) for Mrs. and Mr. Ashok 28,000
Sharma on 22nd and 23rd August, 2022
[The expenditure was equal for each person and each day]
(v) Expenses for leisure trip on 20th and 21st August, 2022 attributable 22,000
to Mr. and Mrs. Ashok Sharma
[The expenditure was equal for each person and each day]
(vi) Conference expenses on 22 nd and 23rd August, 2022 attributable 20,000
to Mr. Ashok Sharma

What would be the value of benefit or perquisite to Mr. Ashok Sharma on which tax is
deductible at source under section 194R?
(a) ` 65,000
(b) ` 77,000
(c) ` 83,500
(d) ` 91,000
13. Compute the “specified income” taxable@30% u/s 115BBI in case of a registered
charitable trust, EduAid, running an educational institution, from the information given
below relating to P.Y. 2022-23. The main object of the trust is education.
Particulars Amount
in `
(1) Corpus donations received by the trust 12,20,000
The same have been invested as follows -
Mode of investment `
(i) Deposit in Post Office Savings Bank Account 2,00,000
(ii) Fixed deposits with SBI 5,00,000

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PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 7

(iii) Deposit with a co-operative land development 1,10,000

bank
(iv) Deposit with a NBFC engaged in retail car 4,10,000
finance.
(2) Income applied by the trust for the benefit of the following donors - 65,000
Name of the Total contribution Income applied for
donor to the trust upto the benefit of the
31.3.2023 (`) donor (`)
(i) Vallish 24,000 15,000
(ii) Ritesh 48,000 20,000
(iii) Arjun 96,000 30,000
(3) Income applied by the trust for the benefit of Mr. Vaibhav Gupta, 25,200
trustee of the trust
(4) Income applied by the trust for the benefit of Mr. Shyam Lal, 32,000
Mr. Manohar Arora and Mr. Sridhar Agarwal, being the employees
of the trust, by way of interest-free loan to them for pursuing higher
education.
(5) Value of educational service made available by the trust through its 14,500
educational institution to the two children of Mr. Vaibhav Gupta
(6) Value of educational service made available by the trust through its 21,300
educational institution to the children of Mr. Manohar Arora and
Mr. Sridhar Agarwal
(7) Amount set apart in the P.Y.2021-22 by the trust for charitable 2,13,000
purposes u/s 11(2) utilized in the P.Y.2022-23 for making donation
to another charitable trust, whose object is also education.
The correct answer is -
(a) ` 6,78,200
(b) ` 6,92,700
(c) ` 7,10,200
(d) ` 8,54,700
14. ABC Ltd. has failed to deduct tax at source on payment to contractors during the P.Y.
2022-23, even though the payments exceeded the threshold limits under section 194C. XYZ
Ltd. has deducted tax of ` 62 lakhs at source on payments to contractors on time during the
P.Y.2022-23 but has not remitted the same upto 31.3.2024. Which of the following

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8 FINAL EXAMINATION: NOVEMBER, 2023

statements is correct as regards the consequences for failure to deduct tax at source and
failure to remit tax so deducted under the provisions of the Income-tax Act, 1961?
(a) Interest under section 201(1A), penalty under section 271C and prosecution under
section 276B would be attracted both in the hands of ABC Ltd. and XYZ Ltd.
(b) Interest under section 201(1A) and penalty under section 271C would be attracted
in case of ABC Ltd. Interest under section 201(1A), penalty under section 271C and
prosecution under section 276B would be attracted in case of XYZ Ltd.
(c) Interest under section 201(1A) and penalty under section 271C would be attracted
in case of ABC Ltd. Interest under section 201(1A) and prosecution under section
276B would be attracted in case of XYZ Ltd.
(d) Interest under section 201(1A) would be attracted in case of ABC Ltd. Interest under
section 201(1A), penalty under section 271C and prosecution under section 276B
would be attracted in case of XYZ Ltd.
15. Mr. X, a resident Indian, is in receipt of income from Ganga REIT, Yamuna REIT and
Indus REIT in the P.Y.2022-23, the particulars of which are as follows –
Particulars Ganga REIT Yamuna REIT Indus REIT
Special Purpose Vehicle A Ltd. B Ltd. C Ltd.
(SPV) of REIT (opts for section (does not opt for (does not opt for
115BAA) section 115BAA) section 115BAA)
Date of purchase of units 1.4.2022 1.1.2022 1.4.2022
of REIT by Mr. X
Dividend component of ` 40,000 ` 35,000 ` 42,000
income received from SPV
and distributed by REIT to
Mr. X in June, 2022
The record date is 1 st June, 2022 for all the three REITs mentioned above. Are Ganga
REIT, Yamuna REIT and Indus REIT required to deduct tax at source on the dividend
component of income received from SPV and distributed to Mr. X? Also, would the
dividend stripping provisions of section 94(7) be attracted, if Mr. X sells the units h eld by
him in all three REITs at a loss in January, 2023?
(a) Yamuna REIT and Indus REIT are required to deduct tax at source@10% but not
Ganga REIT. Dividend stripping provisions u/s 94(7) would not be attracted, since
the sale of units of all three REITs was effected in January, 2023, i.e., after three
months from the record date.
(b) Yamuna REIT and Indus REIT are required to deduct tax at source@10% but not
Ganga REIT. Dividend stripping provisions u/s 94(7) would be attracted in case of

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PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 9

sale of units of Indus REIT at a loss in January, 2023 by Mr. X but not in case of
sale of units of Ganga REIT and Yamuna REIT.
(c) Ganga REIT is required to deduct tax at source@10% whereas Yamuna REIT and
Indus REIT are not required to deduct tax at source. Dividend stripping provisions
u/s 94(7) would be attracted in case of sale of units of Yamuna REIT and Indus
REIT at a loss by Mr. X in January, 2023 but not in case of sale of units of Ganga
REIT.
(d) Ganga REIT is required to deduct tax at source@10% whereas Yamuna REIT and
Indus REIT are not required to deduct tax at source. Dividend stripping provisions
u/s 94(7) would be attracted in case of sale of units of Indus REIT at a loss in
January, 2023 by Mr. X but not in case of sale of units of Ganga REIT and Yamuna
REIT.

16. The Statement of Profit and Loss of Manav Ltd., engaged in manufacturing activity for the
year ended 31st March, 2023, exhibits a Net Profit of ` 180 lakhs after debiting/ crediting
the following items:
(a) Interest of ` 24 lakhs relating to F.Y.2022-23, which is settled by issuing 8%
debentures of ` 100 each in August, 2023.
(b) Income-tax assessment of A.Y.2021-22 was completed in September, 2022 with a
tax demand of ` 5,80,000 which included surcharge of ` 50,700 and cess of
` 22,308. The entire sum has been duly paid during the F.Y. 2022-23.
(c) Provision for gratuity based on actuarial valuation ` 180 lakhs.
(d) Expenditure incurred towards foreign travel of directors ` 6.5 lakhs to explore opening
of a branch in a foreign country to market its products in the said foreign country.
(e) Paid ` 82,000 for purchase of raw material on 26 th January, 2023 by making payment
in cash to a supplier in a single day.
(f) Paid ` 11 lakhs to ST Inc. of Japan for online digital advertisement. ST Inc. has no
PE in India. No tax was deducted at source nor was equalization levy paid on the said
amount.
(g) Incurred ` 4.6 lakhs on activities related to Corporate Social Responsibility as
required under section 135 of Companies Act, 2013.
(h) Sold a vacant land to its wholly owned subsidiary Petal (P) Ltd., Mumbai. The long -
term capital gain of ` 18 lakhs is credited to the Statement of Profit and Loss.
(i) Paid ` 2.2 lakhs to a university as donation to be used for research in social science
approved under section 35(1)(iii). Out of this, ` 1.2 lakh was paid through net banking
and balance by cash.
(j) Interim dividend distributed during the year of ` 65 lakhs.

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10 FINAL EXAMINATION: NOVEMBER, 2023

(k) Contributed ` 60 lakhs towards employees' pension scheme notified by the Central
Government u/s 80CCD calculated at 15% of aggregate of salary and dearness
allowance (forming part of retirement benefits) payable to employees as per the terms
of employment.
(l) Depreciation ` 36 lakhs.
(m) ` 36 lakhs by way of dividend received from Knight Pte. of Singapore in which Manav
Ltd. has 28% voting power.
(n) Paid ` 6 lakhs as donation to a recognised political party by way of account payee
crossed cheque.
Additional Information:
(i) Normal depreciation as per Income-tax Act, 1961 - ` 62 lakhs.
(ii) Additional depreciation as per Income-tax Act,1961- ` 24 lakhs
(iii) Brought forward unabsorbed depreciation (out of normal depreciation) of A.Y.
2020-21 ` 14 lakhs.
(iv) Actual gratuity paid during the year of ` 105 lakhs is debited to provision for gratuity
account.
You are required to compute the total income and tax liability of Manav Ltd. for A.Y.
2023-24 with brief reasons for the treatment of each item given above. Manav Ltd. has
opted to pay tax as per the provisions of section 115BAA.
17. Examine the applicability of provisions relating to deduction/collection of tax at source in
the following cases for the financial year ended 31st March, 2023 as per provisions
contained in the Income-tax Act, 1961:
(i) Delta Ltd., an Indian company, which was incorporated on 1.4.2022 purchases coal
from Phi Ltd., another Indian company, for ` 75 lakhs during the P.Y.2022-23, 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.2022-23; 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 1.4.2021 and its turnover
in the P.Y.2021-22 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.2022-23-
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

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The turnover in the P.Y.2021-22 of Sigma Ltd. is ` 12 crores, Epsilon Ltd. is ` 14

crores and Omega Ltd. is ` 9 crores.
18. M/s.LMN Travels is a Travel Agent engaged in sale of air tickets of AirGo and AirJet
Airlines. It earns standard commission@5% as well as supplementary commission. AirGo
and AirJet have deducted tax at source under section 194H on the standard commission,
which is a fixed percentage designated by the International Air Transport Association
(IATA). However, they have not deducted tax on the supplementary commission, which is
the additional amount LMN Travels charges over and above the net fare quoted by AirGo
and AirJet and retained by LMN Travels as its own income.
The details of the amounts at which the tickets were sold are transmitted by LMN Travels
to an organization known as the Billing and Settlement Plan ("BSP") which functions under
the aegis of the IATA. This auxiliary amount charged on top of the net fare was portrayed
on the BSP as a "supplementary commission" in the hands of LMN Travels. The contract
between LMN Travels and the airlines stated that “all monies” received by LMN Travels
were held as the property of the air carrier until they were recorded on the billing and
settlement plan and properly gauged.
AirGo and AirJet contended that tax is not deductible on supplementary commission which
LMN Travels retains out of the sale proceeds of the air tickets, since there is no agency
relationship between the airlines and LMN Travels and that the supplementary commission
is not within the control of the airlines. Discuss the correctness of the above contention.
19. Mr. Ram, who gets his accounts audited under section 44AB filed his original return of
income under section 139 for A.Y.2020-21 on 28.12.2020 declaring income of ` 12 lakhs
and for A.Y.2021-22 on 31.10.2021 declaring loss of ` 5 lakhs.
(i) He wants to file an updated return of income under section 139(8A) for A.Y.2021 -22
on 30.11.2022 declaring total income of ` 7 lakhs. Can he do so? Examine.
(ii) Based on your answer to (i), what would be the time limit for completion of
assessment under section 143(3) in respect of A.Y.2020-21 and A.Y.2021-22?
20. Consequent to search under section 132 in the premises of Mr. Ajay Verma, the Assessing
Officer has in his possession, cash of ` 160 lakhs, which has not been recorded in the
books of account and other documents maintained in the normal course of business.
Mr. Ajay Verma is engaged in jewellery business and his brought forward business loss
relating to A.Y.2020-21 was ` 90 lakhs and unabsorbed depreciation relating to that year
was ` 30 lakhs. He wants to set-off the brought forward business loss and unabsorbed
depreciation against income of ` 160 lakhs, represented in the form of undisclosed money
discovered during search. Can he do so? Examine.
21. “The arm’s length price (ALP) determined by the Tribunal, which is the final fact-finding
authority, is final and cannot be the subject matter of scrutiny by the High Court as it does
not give rise to a substantial question of law; accordingly, in an appeal u/s 260A, the High

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12 FINAL EXAMINATION: NOVEMBER, 2023

Court is precluded from examining the correctness of determination of the ALP” – Examine
the correctness of this statement with reference to a recent Supreme Court ruling.
22. Analyze the tax consequence in the hands of Mr. Smith, a non-resident, for A.Y. 2023-24
in respect of fees for technical services (FTS) received from ABC Ltd., an Indian company,
in pursuance of an agreement approved by the Central Government, if -
(a) India has no Double Tax Avoidance Agreement (DTAA) with Country A
(b) India has a DTAA with Country A, which provides for taxation of such FTS @8%.
(c) India has a DTAA with Country A, which provides for taxation of such FTS@15%.
Assume that Mr. Smith is a resident of Country A and he has no fixed place of his profession
in India and that the technical services are utilised by ABC Ltd. for its business in India.
Also, examine whether Mr. Smith would be exempt from filing his return of income if tax
deductible at source had been fully deducted in each case mentioned above in a manner
most beneficial to him; and his total income comprises only of the said fees from technical
services.
23. Mr. Raj (aged 45 years), a resident of India employed with a private company in India,
received the following sums during the F.Y. 2022-23:
(i) Basic Salary ` 62,000 p.m.
(ii) Dearness Allowance - 10% of basic salary
(iii) Royalty Income (gross) received from Country 'M' in respect of ` 9,80,000
a literary book
(iv) Expenses incurred for earning royalty ` 98,000
(v) Rental Income (gross) from a house property situated in ` 2,80,000
Country 'N'
(vi) Dividend from a company incorporated in Country 'N' (Gross) ` 2,20,000

Mr. Raj purchased a residential house in Bhopal for his residence on 1st August, 2022 for
a consideration of ` 23,00,000 and paid 1% stamp duty on it.
He paid ` 26,000 towards his health insurance premium and ` 50,000 to insure the health
of his father, a non-resident aged 72 years, who is not dependent on him.
The rate of tax in Country 'M' is flat 12% and the rate of tax in Country 'N' is 20% in respect
of dividend income and 15% in respect of rental income. No standard deduction is allowed
in Country ‘N’ from rental income.

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PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 13

Assuming that India does not have a Double Taxation Avoidance Agreement with both the
countries, you are required to compute the total income of Mr. Raj and net tax liability
thereon for A.Y. 2023-24 as per the provisions of Income-tax Act,1961, after providing
deduction u/s 91. Mr. Raj has not opted to pay tax as per the provisions of section 115BAC.
24. Aster Inc., a company based in Canada, owns, operates and manages a digital platform
which acts as a marketplace for buying and selling E-readers of different brands globally
and which also hosts advertisements. Through this website, Aster Inc. sold E-readers of
ABC Ltd. and XYZ Inc. to customers during the P.Y. 2022-23, the details of which are given
in the table below –
Seller Customers Number of Price per E-
E-readers reader
ABC Ltd., an Indian Indian Customers 2,500 ` 10,000
Company engaged in Customers outside India 250 US$ 150
designing, buying E-readers using [1 US$ = ` 80]
manufacturing and internet protocol address
selling E-readers located in India
XYZ Inc., a Singapore Indian Customers 2,000 ` 12,000
based company not
having any PE in
Customers outside India 1,000 US$ 150
India, engaged in
buying E-readers using [1 US$ = ` 80]
designing,
internet protocol address
manufacturing and
located in India
selling E-readers
During the previous year 2022-23, ABC Ltd. paid ` 25,00,000 to Aster Inc. for hosting
advertisement for promoting sale to customers outside India; and XYZ Inc. paid
` 32,00,000 to Aster Inc. for hosting advertisement for promoting sale to customers in
India. Examine the equalization levy implications in respect of the transactions entered into
with ABC Ltd. and XYZ Ltd. Assume that Aster Inc. does not have a PE in India.
25. XYZ GmBH Germany is a foreign company engaged in manufacturing and sale of LED
lights. It opened a branch in Gurugram for sale of LED lights in India. The profit mark up
was cost plus 40% in respect of sales made by the branch. The XYZ GmBH, Germany also
supplied the goods directly to various customers in India. The turnover of the Gurugram
branch for the P.Y. 2022-23 is ` 155 lakhs and direct sales by XYZ GmBH to Indian
customers is ` 80 lakhs.
The Assessing Officer wants to tax the profits arising to XYZ GmBH from direct sale to
customers in India though PE (i.e., branch in India) had no role to play in it. Decide the
validity of the Assessing Officers view in the context of OECD and UN Model tax
Convention.

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SUGGESTED ANSWERS

MCQ No. Most Appropriate Answer MCQ No. Most Appropriate Answer
1. (a) 9. (d)
2. (c) 10. (b)
3. (c) 11. (d)
4. (b) 12. (c)
5. (c) 13. (a)
6. (a) 14. (c)
7. (d) 15. (d)
8. (d)
16. Computation of Total Income of Manav Ltd. for the A.Y.2023-24
Particulars ` `
Income from Profits and gains of business or
profession
Profit as per Statement of Profit and Loss 1,80,00,000
Add: Items debited but to be considered separately or to
be disallowed
(a) Term loan interest arrears settled by issuing 8% 24,00,000
debentures
As per Explanation 3C to section 43B, issue of debentures
by which the interest liability is deferred to a future date
shall not be deemed to have been actually paid. Since
issue of debentures is not equivalent to discharge of
interest on term loan, interest would be disallowed. Since
` 24 lakhs towards interest for F.Y. 2022-23 is debited to
statement of profit and loss, the same has to be added
back.
(b) Tax demand of A.Y. 2021-22 ` 5,80,000 which 5,80,000
includes surcharge and cess of ` 50,700 and ` 22,308,
respectively
As per Explanation 3 to section 40(a)(ii) the term ‘tax’ shall
include any surcharge or cess, by whatever name called,
on such tax. Therefore, both surcharge and cess partake
the character of income-tax and hence, are liable for
disallowance along with tax. Since tax of ` 5,80,000

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PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 15

including surcharge and cess is debited to Statement of

Profit and Loss, the same has to be added back.
(c) Provision for gratuity 75,00,000
Provision of ` 180 lakhs for gratuity based on actuarial
valuation is not allowable as deduction as per section
40A(7). However, actual payment of gratuity of ` 105
lakhs is allowable as deduction. Hence, the difference has
to be added back.
(d) Expenses on foreign travel of directors -
Expenses on foreign travel of directors for exploring
opening of a branch in foreign country for marketing its
products relates to the existing business of the company
and is, therefore, eligible for deduction. Since the same
has been debited to the Statement of Profit and Loss, no
adjustment is required.
(e) Cash payment for purchase of raw material in an 82,000
amount exceeding ` 10,000
Under section 40A(3), disallowance is attracted in respect
of expenditure for which cash payment exceeding `10,000
is made on a day to a person. Cash payment of ` 82,000
for purchase of raw material on 26 th January, 2023 is,
therefore, liable for disallowance.
(f) Expenses on online digital advertisement 11,00,000
Expenses on online digital advertisement to a non-resident
company, which has no PE in India, is liable for deduction
of equalisation levy. Since equalization levy is not
deducted and paid, 100% disallowance is attracted in
respect of such payment under section 40(a)(ib). Since
` 11 lakhs has been debited to Statement of Profit and
Loss, the same has to be added back.
(g) Expenditure on CSR Activities: 4,60,000
As per Explanation 2 to section 37(1), expenditure
incurred on CSR activities is not deductible. Assuming that
such expenditure is not deductible under sections 30 to
36, the entire amount is liable for disallowance. Since
` 4.6 lakhs has been debited to Statement of Profit and
Loss, the same has to be added back.

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16 FINAL EXAMINATION: NOVEMBER, 2023

(i) Contribution to University for research in social 2,20,000

science
As per section 35(1)(iii), contribution to university for
research in social science is eligible for 100% deduction.
However, since Manav Ltd. has opted for concessional tax
regime under section 115BAA, deduction under section
35(1)(iii) is not allowable. Since ` 2.2 lakhs has been
debited to Statement of Profit and Loss, the same has to
be added back.
(j) Interim dividend distributed 65,00,000
Interim dividend distributed is not allowable as deduction.
Since the same has been debited to Statement of Profit
and Loss, the said amount same has to be added back to
arrive at business income.
(k) Contribution towards employee's pension 20,00,000
scheme in excess of 10% of salary disallowed
Contribution to the extent of 10% of salary (basic salary +
dearness allowance, if it forms part of pay for retirement
benefits) is allowable as deduction under section
36(1)(iva). In this case, 5%, which is in excess of 10% i.e.,
` 60,00,000 x 5/15, would be disallowed.
(l) Depreciation debited to the Statement of Profit and Loss 36,00,000
(n) Donation to recognised political party
Donation to political party not allowable as deduction 6,00,000
under section 37. 2,50,42,000
4,30,42,000
Less: Items credited to Statement of Profit and Loss
which are to be considered separately/ expenditure to
be allowed
(h) LTCG on sale of vacant land 18,00,000
Capital gains on transfer of capital assets are taxable
under the head “Capital Gains”. However, long term
capital gain on sale of vacant land of ` 18 lakhs to wholly
owned subsidiary is not liable to tax since it is not regarded
as 'transfer'. Since the same is credited to the Statement
of Profit and Loss, it has to be deducted while computing
business income.
(m) Dividend received from foreign company 36,00,000
Dividend received from foreign company is taxable under
the head "Income from other sources". Since the said

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PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 17

dividend has been credited to the Statement of Profit and

Loss, the same has to be deducted while computing
business income.
AI(i) Depreciation as per Income-tax Act, 1961 62,00,000
AI(ii) Additional Depreciation as per Income-tax Act, 1961,
not allowable as deduction, since company is opting for Nil
section 115BAA 1,16,00,000
3,14,42,000
Less: Brought forward unabsorbed depreciation
Unabsorbed depreciation out of normal depreciation is
allowable as deduction though company has opted for
section 115BAA, since such deprecation is not attributable
to additional depreciation in respect of which deduction is
not permissible u/s 115BAA. 14,00,000
3,00,42,000
Income from Other Sources
Dividend received from foreign company 36,00,000
Gross Total Income 3,36,42,000
Less: Deductions under Chapter VI-A
Deduction under section 80M in respect of dividend
distributed, restricted to the amount of dividend received
from domestic/ foreign company is allowable though 36,00,000
company has opted for section 115BAA.
Deduction under section 80GGB in respect of donation
to recognised political party not available since company Nil
has opted for section 115BAA.
Total Income 3,00,42,000
Computation of tax liability
Income-tax on ` 3,00,42,000@ 22% (u/s 115BAA) 66,09,240
Add: Surcharge@10% (irrespective of the total income) 6,60,924
72,70,164
Add: Health and Education Cess@4% 2,90,807
Tax liability 75,60,971
Tax liability (rounded off) 75,60,970

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18 FINAL EXAMINATION: NOVEMBER, 2023

17. (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 under section 206C(1). In case of goods covered
under section 206C(1) but exempted under section 206C(1A), tax would not be
collectible under section 206C(1H). However, section 194Q will apply in such cases
covered under section 206C(1A) and the buyer would be liable to deduct tax under
section 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 Omega Ltd.
The second step is to examine whether the provisions of section 194Q 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 tax@0.1% 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 under section 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” under section 206C(1H).
Accordingly, in respect of sale of cars to Omega Ltd., Sigma Ltd. is required to collect
tax@0.1% of ` 30 lakhs (i.e., ` 80 lakhs – ` 50 lakhs) at the time of receipt. However,

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PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 19

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.
18. The issue under consideration in this case is whether TDS under section 194H is attracted
in respect of both standard and supplementary commission paid by AirGo and AirJet
Airlines to LMN Travels. This issue came up before the Supreme Court in Singapore
Airlines Ltd / KLM Royal Dutch Airlines v. CIT / British Airways Plc v. CIT (TDS) (2022) 49
ITR 203.
The Supreme Court observed that section 194H does not distinguish between direct and
indirect payments. Both standard commission and supplementary commission fall within
the meaning of “commission” under clause (i) of the Explanation thereto.
Section 194H is to be read with section 182 of the Contract Act, 1872. If a relationship
between two parties as culled out from their intentions as manifested in the terms of the
contract between them indicates the existence of a principal-agent relationship as defined
under section 182 of the Contract Act, the definition of “commission” under section 194H
stands attracted and the requirement to deduct tax at source arises.
The Apex Court noted that there was no transfer in terms of the title in the tickets and they
remained the property of the airline company throughout the transaction. Every action
taken by the travel agents is on behalf of the air carriers and the services they provide is
with express prior authorization. Accordingly, the Apex Court concluded that the contract
is one of agency that does not distinguish in terms of stages of the transaction involved in
selling flight tickets. The accretion of the supplementary commission to the travel agents
was an accessory to the actual principal-agent relationship. Notwithstanding the lack of
control over the actual fare, the contract definitively stated that “all monies” received by
the agent were held as the property of the air carrier until they were recorded on the bill ing
and settlement plan and properly gauged. The billing and settlement plan also demarcated
“supplementary commission” under a separate heading.
Hence, once the IATA made the payment of the accumulated amounts shown on the billing
and settlement plan, it would be feasible for the assessees, being the airlines to deduct
tax at source on this additional income earned by the agent.
Applying the rationale of the Supreme Court ruling to the case on hand, the contention of
AirGo and AirJet is not correct and they are required to deduct tax at source under section
194H on both the standard commission and supplementary commission paid to LMN
Travels.
19. (i) Yes, he can do so. If a person has a loss in any previous year and has furnished a
return of loss under section 139(3) on or before the due date of filing return of income
u/s 139(1), he shall be allowed to furnish an updated return, if such updated return is
a return of income. Accordingly, in this case, since the original return of Mr. Ram was
filed on the due date u/s 139(1) i.e., on 31.10.2021, he can file an updated return
within 2 years from the end of A.Y.2021-22, i.e., on or before 31.3.2024. Accordingly,

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20 FINAL EXAMINATION: NOVEMBER, 2023

he can file an updated return of income on 30.11.2022 declaring total income of ` 7

lakhs, after paying tax due on such total income along with interest under section
234B and section 234C and additional income-tax at 25% of aggregate of tax and
interest payable (since the updated return is filed before 31.3.2023, i.e., before 12
months from the end of A.Y.2021-22).
(ii) The time limit for completion of assessment for A.Y.2020-21 would be 30.9.2022,
being 18 months from the end of the assessment year.
The time limit for completion of assessment for A.Y.2021-22 would be 31.12.2023,
i.e., 9 months from the end of F.Y.2022-23, being the financial year in which the
updated return was furnished.
20. No, he cannot do so. As per section 79A, no loss (whether brought forward or otherwise)
or unabsorbed depreciation under section 32(2) can be set-off against undisclosed income
included in the total income of any previous year of an assessee consequent to, inter alia,
a search under section 132, while computing his total income for such previous year.
Accordingly, in this case, Mr. Ajay Verma cannot set-off the brought forward business loss
of ` 90 lakhs and unabsorbed depreciation of ` 30 lakhs against the undisclosed income
of ` 160 lakhs included in his total income of P.Y.2022-23 consequent to search u/s 132.
21. The statement is not correct.
The Apex Court, in SAP Labs India Pvt. Ltd. v. ITO [2023] 454 ITR 121, laid down the
following with respect to the powers of High Court to consider the substantial question of
law involving determination of arm’s length price (ALP):
- While determining the ALP, the Tribunal has to follow the guidelines stipulated under
Chapter X of the Income-tax Act, 1961, namely, sections 92 to 92F of the Act and
Rules 10A to 10E of the Income-tax Rules, 1962. Any determination of the ALP under
Chapter X not in accordance with the relevant provisions of the Income-tax Act, 1961
and Rules can be considered as perverse and it may be considered as a substantial
question of law as perversity itself can be said to be a substantial question of law.
Therefore, there cannot be any absolute proposition of law that in all cases where the
Tribunal has determined the ALP, the same is final and cannot be the subject matter
of scrutiny by the High Court in an appeal under section 260A.
When the determination of the ALP is challenged before the High Court, it is always
open for the High Court to consider and examine whether the ALP has been
determined while taking into consideration the relevant guidelines under the Act and
the Rules.
- The High Court can examine the question of comparability of two companies or
selection of filters and examine whether the same is done judiciously and on the basis
of the relevant material/evidence on record. The High Court can also examine
whether the comparable transactions have been taken into consideration properly or

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PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 21

not, i.e., to the extent as to whether non-comparable transactions are considered as

comparable transactions or not.
Therefore, in an appeal challenging the determination of the arm's length price, it is always
open for the High Court to examine in each case, within the parameters of section 260A,
whether while determining the ALP, the guidelines laid down under the Income-tax Act,
1961 and the Income-tax Rules, 1962 are followed or not and whether the determination
of the ALP and the findings recorded by the Tribunal while determining the ALP are
perverse or not.
22. As per section 9(1)(vii)(b), income by way of fees for technical services payable by a
resident is deemed to accrue or arise in India, except where the fees is payable, inter alia,
in respect of services utilized in a business or profession carried on by such person outside
India. In this case, since ABC Ltd. utilizes the technical services for its business in India,
the fees for technical services payable by ABC Ltd. is deemed to accrue or arise in India
in the hands of the non-resident, Mr. Smith.
In accordance with the provisions of section 115A, where the total income of a non -
corporate non-resident includes any income by way of fees for technical services other
than the income referred to in section 44DA(1), received from an Indian concern in
pursuance of an agreement made by him with the Indian concern and the agreement is
approved by the Central Government, then, the special rate of tax at 10% of such fees for
technical services is applicable. No deduction would be allowable under sections 28 to 44C
and section 57 while computing such income. The non-resident would be exempt from the
requirement of filing return of income under section 139(1), if tax deductible at source has
been fully deducted and the rate of tax deduction is not less than the rate s pecified in
section 115A and his total income comprises only of income referred to in section 115A.
Section 90(2) makes it clear that where the Central Government has entered into a DTAA
with a country outside India, then, in respect of an assessee to whom such agreement
applies, the provisions of the Act shall apply to the extent they are more beneficial to the
assessee.
(a) In this case, since India does not have a DTAA with Country A, of which Mr. Smith is
a resident, the fees for technical services (FTS) received from ABC Ltd., an Indian
company, would be taxable @10%, by virtue of the provisions of section 115A (plus
surcharge, if applicable, and health and education cess@4%). If tax deductible at
source at the said rate has been fully deducted, he would be exempt from the
requirement of filing return of income under section 139(1), since his total income
comprises only of such fees for technical services taxable u/s 115A.
(b) In this case, the FTS from ABC Ltd. would be taxable @8%, being the rate specified
in the DTAA, even though section 115A provides for a higher rate of tax, since the
tax rate specified in the DTAA is more beneficial. However, since Mr. Smith is a non -
resident, he has to furnish a tax residency certificate from the Government of Country
A for claiming such benefit. Also, he has to furnish other information, namely, his

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22 FINAL EXAMINATION: NOVEMBER, 2023

nationality, his tax identification number in Country A and his address in Country A.
Further, he would not be exempt from the requirement to file return of income under
section 139(1), since tax would have been deducted at 8%, being the rate specified
in the DTAA, which is lower than the rate of 10% u/s 115A.
(c) In this case, the FTS from ABC Ltd. would be taxable @10% as per section 115A
(plus surcharge, if applicable, and health and education cess@4%), even though
DTAA provides for a higher rate of tax, since the provisions of the Act (i.e. section
115A in this case) are more beneficial. If tax deductible at source at the said rate has
been fully deducted, he would be exempt from the requirement of filing return of
income under section 139(1), since his total income comprises only of such fees for
technical services taxable u/s 115A.
23. Computation of total income and tax liability of Mr. Raj for A.Y. 2023-24
Particulars Amount in ` Amount in `
Salaries
Basic Salary [` 62,000 x 12] 7,44,000
Add: Dearness Allowance (10% of 7,44,000) 74,400
8,18,400
Less: Standard deduction u/s 16(ia) 50,000
7,68,400
Income from house property (Country N)
Gross Annual Value 1 2,80,000
Less: Deduction u/s 24@30% 84,000
1,96,000
Income from Other Sources
Royalty income from a literary book from Country M 8,82,000
(after deducting expenses of ` 98,000)
Dividend income from a company in Country N 2,20,000
11,02,000
Gross Total Income 20,66,400
Less: Deductions under Chapter VI-A
U/s 80C - 1% stamp duty on residential house 23,000
U/s 80D – Medical insurance premium 50,000

1 In the absence of any information regarding expected rent, actual rent is considered as gross annual value.

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PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 23

- For self, restricted to ` 25,000

- For father, being a non-resident, restricted to
` 25,000
U/s 80QQB - Royalty income of a resident in respect
of literary work 3,00,000
3,73,000
Total Income 16,93,400
Computation of net tax liability of Mr. Raj for A.Y.2023-24
Particulars Amount in ` Amount in `
Tax on total income (30% of 6,93,400)+ ` 1,12,500 3,20,520
Add: Health and Education Cess@4% 12,821
Tax liability 3,33,341
Less: Deduction u/s 91 (See Working Note below) 1,41,392
Net tax liability 1,91,949
Net tax liability (rounded off) 1,91,950

Working Note – Computation of deduction u/s 91 `

Average rate of tax in India 19.6847%
(` 3,33,341/16,93,400 x 100)
Average Rate of Tax in Country M 12%
Average Rate of Tax in Country N 17.2%
[(` 44,000 + ` 42,000)/5,00,000)
Doubly taxed income in Country M = ` 5,82,000
[` 9,80,000 (royalty) - ` 98,000 (expenses incurred) -
` 3,00,000 (deduction u/s 80QQB)]
Deduction u/s 91 in respect of royalty income earned in 69,840
Country M (lower of 19.6847% and 12%) i.e., 12% on
doubly taxed income of ` 5,82,000
Doubly taxed income in Country N = ` 4,16,000
(` 1,96,000, being income from house property +
` 2,20,000, being dividend income)
Deduction u/s 91 in respect of income earned in
Country N (lower of 19.6847 % and 17.2%) i.e., 17.2% on 71,552
doubly taxed income of ` 4,16,000
Total deduction under section 91 1,41,392

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24 FINAL EXAMINATION: NOVEMBER, 2023

24. Section 165A of the Finance Act, 2016 provides 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 to -
- a person resident in India,
- a non-resident in the specified circumstance (sale of advertisement, which targets a
customer, who is resident in India or a customer who accesses the advertisement
through internet protocol address located in India) and
- a person who buys such goods or services or both using internet protocol address
located in India.
Consideration received or receivable from e-commerce supply or services shall not include
consideration for sale of such goods which are owned by a person resident in India or by
a permanent establishment in India of a person non-resident in India, if sale of such goods
is effectively connected with such permanent establishment.
Sale of E-readers
In the present case, Aster Inc. is an e-commerce operator since it is a non-resident owning,
operating and managing a digital platform for online sale of E-readers. Equalisation levy
would be attracted on the amount of consideration received for sale of E-readers of XYZ
Inc., a non-resident not having a PE in India, to Indian customers as well as to customers
buying E-readers using internet protocol address located in India. However, amount of
consideration received for sale of E-readers owned by ABC Ltd., being an Indian company,
would not be subject to equalization levy.
Since receipts from e-commerce supply of E-readers of XYZ Inc. exceed ` 2 crores, Aster
Inc. is liable to pay equalization levy of ` 7,20,000 @2% of ` 3,60,00,000 [(` 12,000 x
2,000 E-readers) + (1,000 E-readers x ` 12,000 ($ 150 x ` 80)].
Hosting of advertisement
As per section 165 of the Finance Act, 2016, an equalisation levy @6% is leviable on the
amount of consideration for online advertisement received or receivable by a non-resident
not having permanent establishment in India from a resident in India who carries on
business or profession, or from a non-resident having permanent establishment in India.
In the present case, ABC Ltd. is required to deduct equalization levy of ` 1,50,000 i.e.,
@6% of ` 25,00,000 being the amount received by Aster Inc. a non-resident not having
PE in India for online advertisement. However, XYZ Inc., a foreign company not having PE
in India, is not required deduct equalization levy for consideration paid to Aster Inc. fo r
online advertisement.
Equalization levy under section 165A would, however, be attracted in the hands of Aster
Inc. on consideration received in respect of online advertisement services provided to XYZ
Inc. being a non-resident, since such advertisement would target customers resident in

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PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 25

India. Moreover, total receipts from e-commerce supply or services by Aster Inc. exceed
` 2 crores. Accordingly, Aster Inc. is required to pay equalization levy of ` 64,000 @2%
of ` 32,00,000.
25. Business profits of an enterprise can only be taxed by the Residence State. Source State
would have the right to tax business profits of an enterprise only if a PE exists in its
jurisdiction.
Taxability as per OECD Model Convention
The OECD Model Convention provides that if the enterprise of the Residence State carries
on business in the Source State through a PE situated therein, then, the profits that are
attributable to the PE alone may be taxed in the Source State. OECD Model doe s not
incorporate “Force of Attraction” rule.
Accordingly, only profits from turnover of ` 155 lakhs, representing sale of LED lights made
by the Gurugram branch would be taxable in India in the hands of XYZ GmBH, Germany.
Thus, in this case, the Assessing Officer’s proposed action to bring to tax profit earned by
XYZ GmBH, Germany from direct supply to customers in India, in which the PE had no
role to play, is not valid.
Taxability as per UN Model Convention
The UN Model Convention amplifies this attribution principle by a limited Force of Attraction
rule, which permits Source State taxation of the enterprise, not only in respect of the
business carried on by it through a PE in the Source State, but also on business profits
arising from sales in Source State of same or similar goods or merchandise as those
sold through that PE.
Accordingly, profits from turnover of ` 235 lakhs, representing sale of LED lights made by
the Gurugram branch as well as the direct sale of LED lights made by XYZ GmBH,
Germany to Indian customers would be taxable in India in the hands of XYZ GmBH,
Germany.
Therefore, in this case, the Assessing Officer’s proposed action to bring to tax profit earned
by XYZ GmBH, Germany from direct supply to customers in India is valid, even though the
PE had no role to play.

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 PAPER 7: DIRECT TAX LAWS & INTERNATIONAL TAXATION

The provisions of direct tax laws, as amended by the Finance Act, 2022 and the significant notifications
and circulars issued upto 31.10.2022, are relevant for May, 2023 examination. The relevant assessment
year is A.Y.2023-24. The October, 2021 edition of the Study Material has to be read along with the
Supplementary Study Paper 2022 available at https://resource.cdn.icai.org/72303bos58234.pdf,
containing the provisions of direct tax laws which have been amended by the Finance Act, 2022 and
notifications and circulars issued upto 31.10.2022. The webhosted Judicial Update available at
https://resource.cdn.icai.org/72695bos58611.pdf is also relevant for May, 2023 Examination.

QUESTIONS AND ANSWERS

Case Scenario 1
Mr. Hari (aged 42 years) is a resident Indian who is a salaried employee. His salary income
(computed) for the P.Y.2022-23 is ` 17,50,000. His brother Mr. Rajesh (aged 45 years) is a
resident Indian carrying on retail trade business in which he incurred a loss of ` 5,25,000
(computed) for the P.Y.2022-23. He also trades in Virtual Digital Assets. The details of assets
transferred by Mr. Hari and Mr. Rajesh during the P.Y.2022-23 are given hereunder:
Particulars Mr. Hari Mr. Rajesh
Land and building ` `
Date of acquisition 1.4.2021
Cost of acquisition 20,00,000
Date of transfer 28.2.2023
Expenses on transfer 1,00,000
Sale consideration 30,00,000
Virtual Digital Asset
Number of units 40 50
Date of acquisition 1.4.2020 31.5.2020
Cost of acquisition (of 40 5,20,000 2,50,000
units/50 units, respectively)
Date of transfer 1.9.2022 1.3.2023
Expenses on transfer 2,000 1,000
Sale consideration (of 40 4,90,000 3,50,000
units/50 units, respectively)

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 2 FINAL EXAMINATION: MAY, 2023

FMV on the date of transfer 5,10,000 4,10,000

(of 40 units/50 units,
respectively)
Person to whom Mr. Ganesh (who is Mr. Vallish (who is
transferred engaged in the engaged in the
business of trading in business of trading
foodgrains) in furniture)
Turnover of the transferee ` 90 lakh ` 15 lakh
(Mr. Ganesh and Mr.
Vallish) in the F.Y.2021-22
Turnover of the transferee ` 110 lakh ` 22 lakh
(Mr. Ganesh and Mr.
Vallish) in the F.Y.2022-23
During the P.Y.2022-23, Mr. Hari has dividend income of ` 10 lakh from shares of Indian
companies. He has paid interest of ` 4 lakh on loan borrowed for investment in shares. Both
Mr. Hari and Mr. Rajesh have deposited ` 1,50,000 in PPF. Mr. Hari has interest on savings
account of ` 22,000 while Mr. Rajesh has income from fixed deposits of ` 50,000.
CII for F.Y.2020-21 – 301; F.Y. 2021-22 – 317 and F.Y.2022-23 – 331.
On the basis of the facts given above, choose the most appropriate answer to Q.1 to Q.6
below, based on the provisions of the Income-tax Act, 1961 -
1. What is the tax treatment of loss from transfer of virtual digital asset by Mr. Hari?
(a) It is a long-term capital loss which cannot be set-off against capital gains on transfer
of land and building; it has to be carried forward for set-off against long-term capital
gains of the subsequent year.
(b) It is a short-term capital loss which can be set-off against capital gains on transfer
of land and building.
(c) Such loss cannot be set-off against any other source of income in the P.Y.2022-23
but can be carried forward for set-off against income from transfer of virtual digital
asset in the subsequent year
(d) Such loss can neither be set-off against any other source of income in the P.Y. 2022-
23 nor can it be carried forward to the subsequent year for set-off against income
from same source.
2. What is the income includible in the total income of Mr. Rajesh on account of transfer of
virtual digital asset?
(a) ` 99,000

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 3

(b) ` 1,00,000
(c) ` 1,59,000
(d) ` 1,60,000
3. What is the amount of tax deductible by Mr. Ganesh and Mr. Vallish under section 194S
from consideration paid to Mr. Hari and Mr. Rajesh for transfer of virtual digital asset?
(a) Nil, in both cases, since their turnover of P.Y.2021-22 does not exceed ` 100 lakhs
(b) ` 4,900 and Nil, respectively. Tax is deductible by Ganesh since his turnover for
P.Y.2022-23 exceeds ` 100 lakhs. No tax is deductible by Mr. Vallish since his
turnover does not exceed ` 100 lakhs.
(c) ` 5,100 and ` 4,100, respectively. Tax is deductible@1% of higher of actual
consideration and fair market value of virtual digital assets.
(d) ` 4,900 and ` 3,500, respectively. Tax is deductible@1% of sale consideration,
since the same is in excess of the prescribed threshold limits.
4. What is the income includible in the total income of Mr. Ganesh and Mr. Vallish on receipt
of virtual digital asset for inadequate consideration?
(a) ` 20,000 and Nil, respectively
(b) Nil, in both cases.
(c) ` 20,000 and ` 60,000, respectively.
(d) Nil and ` 60,000, respectively.
5. What is the total income (rounded off) of Mr. Hari for A.Y.2023-24? Assume that he has
not opted for section 115BAC.
(a) ` 32,23,670
(b) ` 32,82,000
(c) ` 33,02,000
(d) ` 33,12,000
6. What would be the tax payable (rounded off) by Mr. Rajesh for A.Y.2023-24? What is the
amount of business loss, if any, to be carried forward to A.Y.2024 -25? Assume that he
has not opted for section 115BAC.
(a) Tax payable Nil; business loss to be carried forward ` 3,75,000

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 4 FINAL EXAMINATION: MAY, 2023

(b) Tax payable ` 30,890; business loss to be carried forward ` 4,75,000

(c) Tax payable ` 27,700; business loss to be carried forward ` 4,75,000
(d) Tax payable ` 45,820; business loss to be carried forward ` 4,75,000

Case Scenario 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 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 Q.7 to Q.11
below, based on the provisions of the Income-tax Act, 1961 -
7. 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
(c) ` 56 lakhs

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 5

(d) ` 60 lakhs
8. 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.
(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.
9. 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
(c) ` 7,00,000
(d) ` 12,00,000
10. 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
(c) ` 5,00,000
(d) ` 7,00,000
11. 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

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 6 FINAL EXAMINATION: MAY, 2023

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.
12. Mr. Aadesh, a resident Indian, purchased an apartment in Ashiana Gardens, a gated
housing complex, from M/s. Ashiana Constructions Ltd., an Indian company, for ` 48
lakhs. In addition, he paid ` 1 lakh for club membership fees and ` 1 lakh for car parking
fee. The stamp duty value of the apartment on the date of transfer was ` 49.80 lakhs. Is
Mr. Aadesh liable to deduct tax at source in respect of this transaction? If so, how much?
(a) No, Aadesh is not liable to deduct tax at source, as both the consideration and the
stamp duty value do not exceed ` 50 lakh.
(b) No, Aadesh is not liable to deduct tax at source, as the lower of stamp duty value
and the consideration, is less than ` 50 lakh.
(c) Yes, Aadesh is liable to deduct tax of ` 49,800
(d) Yes, Aadesh is liable to deduct tax of ` 50,000
13. A Ltd. is a pharmaceutical company in which public are substantially interested. It issued
bonus shares to all its shareholders. The company gives free samples of medicines to
medical practitioners. B Ltd., trading in electronic goods, offers sales discount to its
customers from the listed retail price. B Ltd. also provides free air tickets to Bangkok to
its dealers on achieving sales targets. Are A Ltd. and B Ltd. required to deduct tax at
source under section 194R? If so, in respect of which transactions? Assume that all
transactions took place on or after 1.7.2022 and the value of such transaction(s) with each
resident exceeds the prescribed threshold limit under section 194R.
(a) A Ltd. is required to deduct tax at source on issue of bonus shares and distribution
of free samples of medicine. B Ltd. is required to deduct tax at source on sales
discount to customers and provision of free air tickets to dealers.
(b) A Ltd. is required to deduct tax on distribution of free samples of medicine but not
on issue of bonus shares. B Ltd. is required to deduct tax at source on sales
discount to customers and provision of free air tickets to dealers.
(c) A Ltd. is required to deduct tax on distribution of free samples of medicine but not
on issue of bonus shares. B Ltd. is required to deduct tax at source on provision of
free air tickets to dealers but not on sales discount to customers.
(d) A Ltd. is required to deduct tax on distribution of free samples of medicine but not
on issue of bonus shares. B Ltd. is not required to deduct tax at source on sales
discount to customers and provision of free air tickets to dealers.

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 7

14. Mr. Aakash filed his original return of income under section 139(1) for A.Y.2022 -23 and
A.Y.2023-24 on 31.7.2022 and 31.7.2023, respectively. He however filed an updated
return of income under section 139(8A) for A.Y.2022-23 on 31.10.2023. What is the time
limit for completion of assessment under section 143(3) in respect of A.Y.2022-23 and
A.Y.2023-24?
(a) 31.12.2023 and 31.12.2024, respectively

(b) 31.12.2024, in both cases

(c) 31.12.2025 and 31.12.2024, respectively
(d) 31.12.2024 and 31.12.2025, respectively.

15. Mr. Ram, a resident individual aged 40 years, has total income of ` 4,15,00,000 for
A.Y.2023-24 which comprises of salary (computed) of ` 1,80,00,000, long-term capital
gains of ` 60,00,000 u/s 112, long-term capital gains of ` 45,00,000 u/s 112A, short-term
capital gains of ` 1,00,00,000 u/s 111A, dividend of ` 10,00,000 and interest income of
` 20,00,000. What would be his tax liability for A.Y.2023-24, assuming that he does not
opt for section 115BAC?
(a) ` 1,17,01,690
(b) ` 1,17,13,650
(c) ` 1,10,65,990
(d) ` 1,10,77,950

16. M/s. Alpha & Co. is a partnership firm with five partners sharing profits and losses equally.
Its return for the A.Y.2023-24 was selected for scrutiny u/s 143(3). The controversy was in
relation to the loan of ` 50 lakhs from one partner, Mr. Raghav, credited in the books of
the firm. The firm’s explanation that Mr. Raghav has given a loan for ` 50 lakhs carrying
interest@12%, as approved by the partnership deed, was not accepted since Mr. Raghav’s
explanation for the source of income in his hands was not found satisfactory by the
Assessing Officer. Accordingly, the Assessing Officer treated the said amount as cash
credits in the hands of the firm, M/s. Alpha & Co., and subjected the same to tax@78%.
Discuss the correctness of the action of the Assessing Officer.
17. On 31.3.2023, A Ltd. has an outstanding interest liability of ` 3.50 crores towards loan
payable to IFCI Ltd., a public financial institution. On the same date, it issued debentures
to IFCI Ltd. in lieu of the outstanding interest and deducted the said interest while
computing profits and gains of business of A.Y.2023-24. The Assessing Officer, however,
rejected the deduction of interest on loan claimed by A Ltd. Discuss the validity of the
action of the Assessing Officer.

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 8 FINAL EXAMINATION: MAY, 2023

18. Examine whether the following persons are required to file return of income for A.Y.2023 -
24, giving brief reasons for your answer –
(i) Mr. Albert, aged 31 years, whose turnover from business is ` 70 lakhs for the
P.Y.2022-23 and whose total income computed as per books of account is ` 2
lakhs. This is the first year of his business. He has no other income. He is not
claiming any deduction under Chapter VI-A or section 10AA.
(ii) Mr. Ashish, aged 42 years, has gross receipts of ` 5 lakhs from profession and
profits and gains of ` 2.50 lakhs (computed) from profession for the P.Y.
2022-23. In addition, he has interest of ` 4 lakhs on fixed deposits and ` 50,000
from savings bank account.
(iii) M/s. ABC & Co., a law firm, whose gross receipts from profession for the
P.Y.2022-23 is ` 9 lakhs.
(iv) XYZ (P) Ltd. which has incurred expenditure of an amount of ` 95,000 towards
consumption of electricity in the F.Y.2022-23.
(v) Mr. Vallish, aged 58 years, who has deposited ` 50 lakhs in his savings bank
account with SBI on 28th March, 2023. The said sum was received as a gift from
his son, Mr. Rishi, aged 30 years, who is employed in a company. Mr. Vallish
used the said sum to purchase a flat for ` 30 lakhs on 25 th April, 2023 for self-
residence. The balance money was transferred to a 1-year fixed deposit on 28 th
April, 2023. Mr. Vallish does not maintain any other bank account. He is not in
receipt of any other source of income other than interest on this fixed deposit.

19. The business premises of Mr. Arjun was searched on 17.4.2022 under section 132,
consequent to which the Assessing Officer has in his possession documents revealing
information pertaining to shares purchased in the P.Y.2016-17 for ` 23 lakhs and in the
P.Y.2017-18 for ` 25 lakhs.
(i) Can the Assessing Officer issue notice under section 148 for bringing to tax income
escaping assessment?
(ii) Would your answer change if the shares purchased in the P.Y.2016-17 were for ` 30
lakhs instead of ` 23 lakhs?
(iii) What would be your answer if, consequent to the search, the Assessing Officer has
in his possession, documents revealing information pertaining to expenditure of ` 52
lakhs incurred for the marriage of his daughter in the P.Y.2016-17 instead of the
information pertaining to shares? Examine.
20. ABC Co-operative society is engaged in marketing of agricultural produce grown by its
members. The profits and gains attributable to such business for A.Y.2023-24 is ` 60
lakhs (computed). It has employed ten new employees with salary of ` 20,000 p.m. on
1.5.2022. Salary is paid by account payee cheque. It gets its books of accounts audited
under section 44AB. It also earns interest of ` 32 lakhs on fixed deposits with banks.

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 9

Compute its total income and tax liability for A.Y.2023-24 and advise whether it should opt
for the special provisions under section 115BAD.
What would be your answer if ABC Co-operative society is a Co-operative bank engaged
in the business of banking, all other facts remaining the same? Assume that it is not a
primary agricultural credit society or a primary co-operative agricultural and rural
development bank.
21. Beta LLP, a limited liability partnership in India is engaged in export of computers through
two units, namely, Unit I and Unit II. Unit I is setup in Special Economic Zone (SEZ) and
Unit II is set up in a Domestic Tariff Area (DTA). The LLP furnishes the following information
relating to its 4th year of operation ended on 31-3-2023:
Items (Amount in `llakhs)
Unit I Unit II
Export Turnover 1800 1150
Domestic Turnover 300 650
Duty Draw Back 52 48
Profit on sale of Import Entitlement 33 Nil
Salaries paid 700 388
Other expenses 775 620
Net Profit of the year 710 840
Additional Information:
(i) Unit I:
- Expenses of ` 41 lakhs are disallowable under section 43B and export sales
proceeds received in India amounted to ` 1600 lakhs.
- Export sales of ` 1800 lakhs include freight and insurance of ` 300 lakhs
attributable to delivery outside India; and realization of ` 1600 lakhs includes
amount of insurance and freight charges of ` 180 lakhs attributable to delivery
outside India.
(ii) Unit II:
- Export sales received in India was ` 970 lakhs.
- Expenses charged which are to be disallowed as per section 40A(3) are of ` 55
lakhs.
Determine the total income and tax liability of Beta LLP for the A.Y.2023-24.

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 10 FINAL EXAMINATION: MAY, 2023

22. SF Ltd. is engaged in manufacturing and sale of pharmaceutical products. The net profit
of the company as per statement of profit and loss for the year ended 31 st March, 2023 is
` 930 lakhs, after debiting or crediting the following items:
(i) The opening and closing stock for the year were ` 66 lakhs and ` 63 lakhs
respectively. Opening stock was overvalued by 10% and Closing stock was
undervalued by 10%.
(ii) Payment of ` 65 lakhs on 15 th October 2022 to a foreign company for obtaining know
how for a product launched in the month of November 2022.
(iii) Profit on sale of 2200 shares of M/s. MS Ltd., a listed company ` 2,97,000. These
shares were sold on 27.11.2022 for ` 220 per share. The highest price of MS Ltd.
quoted on the stock exchange as on 31.01.2018 was ` 195 per share. The said
shares were acquired for ` 85 per share on 12.08.2016. STT was paid both at the
time of purchase and sale of shares.
(iv) Electricity charges of ` 8 lakhs for the month of February 2023 and March 2023 was
unpaid up to the due date of filing of return.
(v) Loss of ` 2.2 lakhs due to hedging contract against future price fluctuations in respect
of import of raw material, used in the course of manufacturing.
(vi) Depreciation charged to the Statement of Profit and Loss was ` 48 lakhs.
(vii) Credits to statement of Profit and Loss include dividend of ` 5,20,000 received on
September 9, 2022 from a foreign company, in which it holds 30% voting rights.
(viii) ` 32 lakhs received from Zen Ltd. under an agreement in the form of non -compete
fees for not carrying out any business in a particular product.
(ix) Advance received amounting to ` 22 lakhs on proposed sale of land, forfeited due to
non-receipt of balance amount of ` 70 lakhs on time, as per terms of agreement. The
land was purchased during FY 2018-19.
(x) Excess on sale of unlisted shares - ` 18 lakhs (Sold on 18 th January 2023).
(xi) Loss of ` 2 lakh from hedging contracts entered into for mitigating the loss arising
due to fluctuation in foreign currency payment towards an imported machinery
purchased from Japan for ` 70 lakhs, which was installed and put to use in the month
of November 2022.
Additional Information:
(1) Normal depreciation allowable as per the Income-tax Act, 1961 ` 35 lakhs.

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 11

(2) Depreciation on plant and machinery imported and installed during November 2022
and on technical know-how has not been considered while calculating normal
depreciation as per Income-tax Act, 1961 given in (1) above.
(3) During the year F.Y. 2022-23, the company has employed 59 additional employees.
All these employees contribute to a recognized provident fund. 36 out of 59
employees joined on 1-6-2022 on a salary of ` 15,000 per month, 18 joined on 1-7-
2022 on a salary of ` 35,200 per month, and 5 joined on 1-11-2022 on a salary of
` 22,000 per month. The salaries of 10 employees who joined on 1-6-2022 are being
settled by bearer cheques every month. Audit under section 44AB has been done
before the due date.
(4) The unlisted shares were acquired on 18.2.2018 for ` 80 lakhs.
(5) Cost Inflation Index F.Y. 2016-17 - 264, F.Y. 2017-18 - 272, F.Y. 2022-23- 331.
You are required to compute the total income and tax liability of the company for the
A.Y.2023-24 clearly stating the reasons for treatment of each of the items given above.
The return of income of the company is to be filed applying the provisions of section
115BAA.
23. (i) Gamma Inc., a US company, received income by way of fees for technical services
of ` 3 crore from Delta Ltd., an Indian company, in pursuance of an agreement
between Delta Ltd. and Gamma Inc. entered into in the year 2012, which is approved
by the Central Government. Expenses incurred for earning such income is ` 22 lakhs.
Examine the taxability of the above sum in the hands of Gamma Inc as per the
provisions of the Income-tax Act, 1961 and the requirement, if any, to file return of
income, assuming that Gamma Inc does not have a permanent establishment in India.
(ii) If Gamma Inc. has a permanent establishment in India and the contract/agreement
with Delta Ltd. and other Indian companies for rendering technical services is
effectively connected with such PE in India, examine the taxability based on the
following details provided –
Particulars Amount (`)
(1) Fees for technical services received from Delta Ltd. 3 crore
(2) Expenses incurred for earning such income referred to in 22 lakhs
(1) above
(3) Fees for technical services received from other Indian 5 crore
companies in pursuance of approved agreement entered
into between the years 2010 to 2015
(4) Expenses incurred for earning such income referred to in 35 lakhs
(3) above

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 12 FINAL EXAMINATION: MAY, 2023

(5) Expenditure not wholly and exclusively incurred for the 12 lakhs
business of such PE [not included in (2) & (4) above]
(6) Amounts paid by the PE to HO (not being in the nature of 15 lakhs
reimbursement of actual expenses)
What are the other requirements, if any, under the Income-tax Act, 1961 in this case?
24. (i) Phi & Co. is engaged in providing scientific research services to several non-resident
clients. Such services are also provided to Zeta Inc., which guarantees 12% of the
total loans of Phi & Co. Examine whether transfer pricing provisions are attracted in
respect of this transaction.
(ii) Without prejudice to the answer to (i) above, assuming that transfer pricing provisions
are attracted in this case and that the Assessing Officer had made a primary
adjustment of ` 310 lakhs to transfer price in the P.Y.2020-21 vide order dated
1.4.2022 and the same was accepted by Phi & Co., what are the consequent
requirements as per the Income-tax Act, 1961 and the implications of non-compliance
with the said requirements? Assume that the transaction is denominated in Indian
Rupees and no amount has been repatriated upto 31.3.2023. The one year marginal
cost of fund lending rate of State Bank of India as on 1.4.2022 is 9%.
25. Mr. Hari, aged 32 years, is a resident individual having income from the following sources:
(i) Income from a sole-proprietary business in Pune = ` 40 lakhs.
(ii) Share of profit from a partnership firm in Mumbai = ` 25 lakhs.
(iii) Agricultural Income (gross) from coffee estates in Country X, a foreign country with
which India has no DTAA, CXD 36000. Tax deducted on the above income CXD 9,000
(iv) Brought forward business loss of F.Y.2021-22 in Country X was CXD 5,000 which is
not permitted to be set off against other income as per the laws of that country.
(v) Mr. Hari has deposited ` 1,50,000 in public provident fund and paid medical insurance
premium of ` 28,000 by account payee cheque to insure his health. He has also paid
` 52,000 as insurance premium to insure the health of his mother and father, who are
resident Indians aged 65 years and 68 years, respectively. He also incurred ` 20,000
on the medical treatment of his dependent sister, who is a person with disability. His
sister does not claim deduction under section 80U.
Compute total income and net tax liability of Mr. Hari for the A.Y. 2023-24, after providing
for deduction under section 91, assuming that 1 CXD = ` 50 and that he does not opt for
section 115BAC.

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 13

SUGGESTED ANSWERS

MCQ No. Most Appropriate Answer MCQ No. Most Appropriate Answer
1. (d) 9. (c)
2. (b) 10. (a)
3. (d) 11. (d)
4. (d) 12. (d)
5. (d) 13. (c)
6. (c) 14. (b)
7. (b) 15. (c)
8. (d)

16. As per section 68, where any sum is found credited in the books of an assessee maintained
for any previous year and the assessee offers no explanation about the nature and source
or the explanation offered is not satisfactory in the opinion of the Assessing Officer, the
sum so credited may be charged as income of the assessee of that previous year.
The first proviso to section 68 provides that where the sum so credited consists of loan or
borrowing or any such amount, by whatever name called, any explanation offered by the
assessee in whose books such sum is credited would not be deemed to be satisfa ctory,
unless -
- the person in whose name such credit is recorded in the books of such assessee also
offers an explanation about the nature and source of such sum so credited and
- in the opinion of the Assessing Officer, such explanation has been found t o be
satisfactory.
Such cash credits would be taxable@78% [tax@60% under section 115BBE plus
surcharge@25% plus cess@4%].
Since Mr. Raghav was unable to explain the source of the sum of ` 50 lakhs in his hands
to the satisfaction of the Assessing Officer, such sum credited in the books of Alpha & Co.
as loan from Mr. Raghav would be treated as cash credit in the hands of the firm and
subject to tax@78%. Accordingly, the action of the Assessing Officer, in this case, is
correct.
17. As per section 43B, interest payable by the assessee on interest on loan from a public
financial institution is allowable as deduction only in the year in which such interest is
actually paid by the assessee. The proviso to section 43B permits deduction if such sum

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 14 FINAL EXAMINATION: MAY, 2023

is paid on or before the due date of filing of return under section 139(1) in respect of the
previous year in which the liability to pay such sum was incurred.
Explanation 3C to section 43B clarifies that if any sum payable by the assessee as interest
on any such loan is converted into a loan or borrowing or advance or debenture on any
other instrument by which the liability to pay is deferred to a future date, the interest
so converted and not “actually paid” shall not be deemed as actual payment, and hence,
would not be allowed as deduction.
In this case, since A Ltd. has converted the interest of ` 3.50 crores payable to IFCI Ltd.
on loan borrowed from it, the interest so converted into debentures and not actually paid
shall not be deemed as actual payment, and hence, would not be allowed as deduction
while computing its profits and gains of business for A.Y.2023-24. Accordingly, the action
of the Assessing Officer in rejecting the deduction of interest on loan claimed by A Ltd.
while computing its profits and gains of business for A.Y.2023-24, is correct.
18. Requirement of filing return of income
(i) Yes, Mr. Albert is required to file his return of income for A.Y.2023-24.
As per section 139(1)(b), an individual is required to file his return if his total
income, without giving effect to deductions under, inter alia, Chapter VI-A and
section 10AA, exceeds the basic exemption limit. In this case, Mr. Albert’s total
income of ` 2,00,000 is lower than the basic exemption limit of ` 2,50,000.
However, such person referred to in section 139(1)(b) who is not required to file
his return on account of his total income being lower than the basic exemption
limit would be required to file return of income if, inter alia, his turnover in business
exceeds ` 60 lakhs. In this case, since Mr. Albert’s turnover from business for the
P.Y.2022-23 is ` 70 lakhs, he has to file return of his income for A.Y.2023-24.
(ii) Yes, Mr. Ashish is required to file his return of income for A.Y.2023-24.
Mr. Ashish’s total income for A.Y.2023-24 without giving effect to Chapter VI-A
deductions is ` 7 lakhs [` 2.50 lakhs from profession + ` 4 lakhs interest on fixed
deposits + ` 0.50 lakhs interest on savings bank account], which exceeds the
basic exemption limit of ` 2,50,000. Hence, he is required to file his return of
income for A.Y.2023-24 as per section 139(1)(b).
Note - The threshold limit of ` 10 lakhs for gross receipts in profession has to be
looked into only in a case where an individual referred to in section 139(1)(b) is
not required to file his return of income thereunder i.e., only if Ashish’s total
income without giving effect to Chapter VI-A deductions is lower than the basic
exemption limit.

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 15

(iii) Yes, M/s. ABC & Co. is required to file its return of income for A.Y.2023-24.
As per section 139(1)(a), a firm is compulsorily required to file its return of income.
The threshold limit of ` 10 lakhs for gross receipts in profession is relevant only
for a person other than a company or a firm.
(iv) Yes, XYZ (P) Ltd. is required to file its return of income for A.Y.2023-24.
As per section 139(1)(a), a company has to mandatorily file its return of income.
The condition of filing of return of income where expenditure towards consumption
of electricity exceeds ` 1 lakh applies to a person other than a company or a firm.
(v) Yes, Mr. Vallish is required to file his return of income for A.Y.2023-24.
Gift of ` 50 lakhs received from son is not taxable under section 56(2)(x) in the
hands of Mr. Vallish, since his son is his relative, and gifts from a relative are
excluded from the applicability of section 56(2)(x). The only income of Mr. Vallish
for the P.Y.2022-23 would be interest on savings account for a period of 4 days
from 28 th March, 2023 to 31st March, 2023 on ` 50 lakhs, which would be lower
than the basic exemption limit. As per section 139(1)(b), an individual is required
to file his return if his total income exceeds the basic exemption limit. In this case,
Mr. Vallish’s total income is lower than the basic exemption limit of ` 2,50,000.
However, such person referred to in section 139(1)(b) who is not required to file
his return on account of his total income being lower than the basic exemption
limit would be required to file return of income if, inter alia, the deposit in his
savings account is ` 50 lakhs or more during the previous year.
Since a deposit of ` 50 lakhs has been made in the savings account of Mr. Vallish
in the P.Y.2022-23, he is required to file his return of income for A.Y.2023-24.

19. Where search is initiated under section 132, the Assessing Officer shall be deemed to have
information suggesting that income has escaped assessment. In such a case, where
search was initiated on or after 1.4.2021, the relevant assessment year can be any
assessment year which is not time-barred under section 149. As per section 149(1)(a), the
time limit for issue of notice under section 148 for the relevant assessment year is upto 3
years from the end of the relevant assessment year. However, if the Assessing Officer
has in his possession, books of account which reveal that income chargeable to tax,
represented in the form of an asset or expenditure in respect of a transaction or in relation
to an event or occasion or an entry or entries in the books of account, which has escaped
assessment amounts to or is likely to amount to ` 50 lakh or more, notice can be issued
beyond 3 years but not more than 10 years from the end of the relevant assessment year.
For this purpose, “asset” includes immovable property, being land or building or both,
shares and securities, loans and advances, deposits in bank account.

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 16 FINAL EXAMINATION: MAY, 2023

(i) In this case, since search was conducted under section 132 on 17.4.2022, the
Assessing Officer is deemed to have information suggesting that income chargeable
to tax has escaped assessment in the case of Mr. Arjun. In this case, the Assessing
Officer has in his possession, books of account which reveal that incom e chargeable
to tax, represented in the form of an asset, has escaped assessment. Shares are
included in the definition of “asset”. However, the income chargeable to tax,
represented in the form of shares, which has escaped assessment amounts to ` 48
lakhs (i.e., ` 23 lakhs + ` 25 lakhs). Since the amount is lower than ` 50 lakhs,
notice cannot be issued beyond 3 years from the end of the relevant assessment
year. In this case, the relevant assessment years are A.Y.2017-18 (relevant to
P.Y.2016-17) and A.Y.2018-19 (relevant to P.Y.2017-18). The three-year period for
A.Y.2017-18 and A.Y.2018-19 expired on 31.3.2021 and 31.3.2022, respectively.
Accordingly, notice cannot be issued under section 148 in April, 2022 due to expiry
of the three-year time limit under section 149(1)(a).
(ii) In this case, the income chargeable to tax, represented in the form of shares, which
has escaped assessment amounts to ` 55 lakhs (i.e., ` 30 lakhs + ` 25 lakhs). Since
the amount is more than ` 50 lakhs, an extended period of 10 years from the end of
the relevant assessment year (i.e., from the end of 31.3.2018 and 31.3.2019) would
be available under section 149(1)(b) for issue of notice, which has not expired in April,
2022. Therefore, Assessing Officer can issue notice under section 148 for A.Y.2017 -
18 and A.Y.2018-19 with the prior approval of specified authority.
(iii) If the Assessing Officer has in his possession documents revealing information
pertaining to expenditure of ` 52 lakhs incurred for the marriage of his daughter in
the P.Y.2016-17, then, the income escaping assessment, represented in the form of
expenditure in relation to an event or occasion would be ` 52 lakhs. Therefore, he
can issue notice under section 148 in April, 2022 (with the prior approval of specified
authority), since an extended period of 10 years from the end of the relevant
assessment year (i.e., end of 31.3.2018) would be available under section 149(1)(b),
which has not expired as on that date.
Note – Notice cannot be issued under section 148 in respect of the relevant assessment
year beginning on or before 1.4.2021, if on the date of issue of such notice, the time limit
prescribed for issue of notice under erstwhile section 153A has expired. In cases (ii) and
(iii) above, the time limit for issue of notice under erstwhile section 153A in case of relevant
assessment year beginning on or before 1.4.2021, has also not expired in April, 2022.
Since search had taken place in the P.Y.2022-23 relevant to A.Y.2023-24, the Assessing
Officer could have issued notice for six assessment years immediately preceding
A.Y.2023-24 (i.e., from A.Y.2017-18 to A.Y.2022-23) under the erstwhile section 153A.

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 17

20. Computation of total income & tax liability of ABC Co-operative Society for A.Y.2023-
24 (under the regular provisions of the Act)
Particulars ` `
Profits and gains of business or profession 60,00,000
Income from other sources – Interest on bank fixed 32,00,000
deposits
Gross Total Income 92,00,000
Less: Deductions under Chapter VI-A
Deduction u/s 80JJAA [30% of ` 20,000 x 10 6,60,000
employees x 11 months]
Deduction u/s 80P 60,00,000
[ABC Co-operative society is entitled for deduction
under section 80P.on the whole of the amount of
profits and gains of business attributable to the
activity of marketing of agricultural produce grown by
its members]
66,60,000
Total Income 25,40,000
Tax liability:
Upto ` 10,000 – 10% 1,000
` 10,000 – ` 20,000 – 20% 2,000
` 20,000 – ` 25,40,000 – 30% 7,56,000
7,59,000
Add: Health and education cess@4% 30,360
Tax liability 7,89,360
Alternate Minimum Tax
Total Income 25,40,000
Add: Deduction under section 80JJAA 6,60,000
Adjusted Total Income 32,00,000
Alternate Minimum Tax@15% of ` 32,00,000 4,80,000
Add: Health and education cess@4% 19,200
Alternate Minimum Tax 4,99,200
Since AMT is lower than the tax payable under the regular provisions of the Act,
the tax liability of the co-operative society would be ` 7,89,360.

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 18 FINAL EXAMINATION: MAY, 2023

Computation of total income & tax liability of ABC Co-operative Society under
section 115BAD for A.Y.2023-24

Particulars ` `
Profits and gains of business or profession 60,00,000
Income from other sources – Interest on bank fixed deposits 32,00,000
Gross Total Income 92,00,000
Less: Deductions under Chapter VI-A
Deduction u/s 80JJAA [30% of ` 20,000 x 10 6,60,000
employees x 11 months]
Deduction u/s 80P [Not allowable where the co-
operative society opts for section 115BAD] -
6,60,000
Total Income 85,40,000
Tax liability
22% of ` 85,40,000 18,78,800
Add: Surcharge@10% 1,87,880
20,66,680
Add: Health and education cess@4% 82,667
Tax liability 21,49,347
Tax liability (rounded off) 21,49,350
Since the tax liability under section 115BAD is higher than the tax liability under the
regular provisions of the Act, ABC Co-operative Society should not opt for section
115BAD.
If ABC Co-operative Society is engaged in the business of banking
Computation of total income & tax liability of ABC Co-operative Bank for
A.Y.2023-24 (under the regular provisions of the Act)
Particulars ` `
Profits and gains of business or profession 60,00,000
Income from other sources – Interest on bank fixed
deposits 32,00,000
Gross Total Income 92,00,000
Less: Deductions under Chapter VI-A
Deduction u/s 80JJAA [30% of ` 20,000 x 10 6,60,000
employees x 11 months]

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 19

Deduction u/s 80P [Not allowable in case of co- Nil

operative banks]
6,60,000
Total Income 85,40,000
Tax liability:
Upto ` 10,000 – 10% 1,000
` 10,000 – ` 20,000 – 20% 2,000
` 20,000 – ` 85,40,000 – 30% 25,56,000 _______
25,59,000
Add: Health and education cess@4% 1,02,360
Tax liability 26,61,360
Alternate Minimum Tax
Total Income 85,40,000
Add: Deduction under section 80JJAA 6,60,000
Adjusted Total Income 92,00,000
Alternate Minimum Tax@15% of ` 92,00,000 13,80,000
Add: Health and education cess@4% 55,200
Alternate Minimum Tax 14,35,200
Since AMT is lower than the tax payable under the regular provisions of the Act,
the tax liability of the co-operative bank would be ` 26,61,360.

Computation of total income & tax liability of ABC Co-operative Bank under section
115BAD for A.Y.2023-24
Particulars ` `
Profits and gains of business or profession 60,00,000
Income from other sources – Interest on bank fixed deposits 32,00,000
Gross Total Income 92,00,000
Less: Deductions under Chapter VI-A
Deduction u/s 80JJAA [30% of ` 20,000 x 10 6,60,000
employees x 11 months]
Deduction u/s 80P [Not allowable] _
6,60,000
Total Income 85,40,000

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 20 FINAL EXAMINATION: MAY, 2023

Tax liability
22% of ` 85,40,000 18,78,800
Add: Surcharge@10% 1,87,880
20,66,680
Add: Health and education cess@4% 82,667
Tax liability 21,49,347
Tax liability (rounded off) 21,49,350

Since the tax liability under section 115BAD is lower than the tax liability under the regular
provisions of the Act, ABC Co-operative Bank should opt for section 115BAD. However,
once it has exercised this option for P.Y.2022-23 relevant to A.Y.2023-24, it would apply
for subsequent assessment years as well and cannot be withdrawn for the same or any
other previous year.
21. Computation of total income and tax liability of Beta LLP for A.Y.2023-24
Particulars ` (in lakh)
Profit from Unit I [` 710 lakhs + ` 41 lakhs, being disallowance u/s 43B] 751.00
Profit from Unit II [` 840 lakhs + ` 55 lakhs, being disallowance u/s 895.00
40A(3)]
1646.00
Less: Deduction under section 10AA [See Working Note below] 525.40
Total Income 1120.60
Particulars ` (in lakh)
Tax on total income@30% 336.18
Add: Surcharge@12%, since total income > `1 crore 40.34
376.52
Add: Health and Education cess@4% 15.06
Tax liability (as per normal provisions) 391.58
Computation of Adjusted total income and Alternate Minimum tax of Beta LLP
as per the provisions of section 115JC for A.Y. 2023-24
Particulars ` (in lakh)
Total income as per the normal provisions 1120.60
Add: Deduction under section 10AA 525.40
Adjusted Total Income 1646.00
Tax@18.5% of Adjusted Total Income 304.51

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 21

Add: Surcharge @12% as the adjusted total income is > ` 1 crore 36.54
341.05
Add: Health and Education cess@4% 13.64
Alternate Minimum Tax as per section 115JC 354.69
Since the tax liability as per the normal provisions of the Act is more than the alternate
minimum tax payable, the total income as per normal provisions shall be liable to tax
and the tax liability for A.Y. 2023-24 shall be ` 391.58 lakhs.
Working Note:
Computation of deduction under section 10AA in respect of Unit I located in a SEZ
Particulars ` (in lakh)
Total turnover of Unit I 1800.00
(` 1800 lakhs + ` 300 lakhs) – ` 300 lakhs, being freight and insurance
attributable to delivery outside India included therein. Since such freight
and insurance has been excluded from export turnover, the same has
to be excluded from total turnover also 1
Export Turnover of Unit I
Export sale proceeds received in India 1600.00
Less: Insurance and freight attributable to delivery outside India not
includible in export turnover 180.00
1420.00
Profit “derived from” Unit I
Net profit for the year 710.00
Add: Disallowance under section 43B 41.00
751.00
Less: Items of business income which are in the nature of ancillary
profits and hence, do not constitute profit ‘derived from’ business
for the purpose of deduction under section 10AA
Duty drawback 52
Profit on sale of import entitlement 33
85.00
666.00

1
CIT v. Dell International Services India P. Ltd. (2012) 206 Taxman 107 (Karnataka)

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 22 FINAL EXAMINATION: MAY, 2023

Deduction under section 10AA

Export turnover of Unit I
Profit derived from Unit I  x 100%
Total turnover of Unit I 525.40
= 100% of 666 х 1420/1800 =

22. Computation of total Income and tax liability of SF Ltd. for the A.Y. 2023-24 under
section 115BAA
Particulars Amount (in `)
I Profits and gains of business and profession
Net profit as per Statement of profit and loss 9,30,00,000
Add: (i) Stock valuation adjustments
Overvaluation of opening stock [` 66,00,000 x 10/110] 6,00,000
Undervaluation of closing stock [` 63,00,000 x 10/90] 7,00,000
Add: Items debited but to be considered
separately or to be disallowed
(ii) Payment towards know-how for a product 65,00,000
[Payment towards obtaining know-how is
capital expenditure i.e., an intangible asset
and eligible for depreciation. Since the same is
debited in statement of profit and loss, it has to
be added back]
(iv) Electricity charges unpaid upto the due of -
filing return of income
[Electricity charges are not included within the
scope of section 43B2, therefore no
disallowance would be attracted. Since the
same is already debited in statement of profit
and loss, no further adjustment is required]
(v) Loss due to hedging contract in respect of -
raw material
[Loss due to hedging contract against future
price fluctuations in respect of import of raw
material for manufacturing is not deemed to be
speculative transaction. Hence, the same is

2 CIT vs Andhra Ferro Alloys (P.) Ltd. (2012) 349 ITR 255 (AP)

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 23

allowable as deduction while computing

income from manufacturing. Since the same is
already debited in statement of profit and loss,
no further adjustment is required]
(vi) Depreciation as per books of account 48,00,000
(xi) Loss from hedging contract in respect of 2,00,000
imported machinery from Japan
[Loss from hedging contracts entered for
mitigating loss arising due to fluctuation in
foreign currency payment towards import of
machinery has to be added to the actual cost
of the machinery as per section 43A. Since the
same is wrongly debited to statement of profit
and loss, same has to be added back].
AI(3) Salary paid to employees through bearer 15,00,000
cheques
[Salary paid through bearer cheques (10
employees x ` 15,000 x 10 months) will attract
disallowance u/s 40A(3) and hence, the same
has to be added back] _ ___ 1,43,00,000
10,73,00,000
Less: Items credited but chargeable to tax under
other head/ expenses allowed but not debited
(iii) Profit on sale of shares of M/s MS Ltd. 2,97,000
[Capital Gain arising on sale of shares of MS Ltd.
is taxable under the head “Capital Gains”. Since
the profit on sale of shares has been credited to
the statement of profit and loss, the same has to
be deducted while computing business income]
(vii) Dividend received from foreign company 5,20,000
[Dividend income from foreign company is
taxable under the head “Income from other
sources”. Since the said dividend has been
credited to the statement of profit and loss, the
same has to be deducted while computing
business income]
(viii) Non-compete fees for not carrying out any -
business in a particular product
[Non-compete fees for not carrying out any
business in a particular product would be

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 24 FINAL EXAMINATION: MAY, 2023

chargeable to tax as business income under

section 28(va). Since the same is already
credited in statement of profit and loss, no
further adjustment is required]
(ix) Advance forfeited in respect of sale of land 22,00,000
[With effect from A.Y.2015-16, advance
forfeited in respect of sale of land due to non-
receipt of balance amount of consideration
would be taxable under the head “Income from
other sources”. Since the same has been
credited to the statement of profit and loss, the
same has to be deducted while computing
business income]
(x) Profit on sale of unlisted shares 18,00,000
[Profit on sale of unlisted shares is taxable
under the head “Capital Gains”. Since profits
have been credited to the statement of profit
and loss, the same has to be deducted while
computing business income] ________ 48,17,000
10,24,83,000
Less: Depreciation as per Income-tax Act, 1961 35,00,000
[other than imported plant & machinery and
know-how]
Deprecation on: `
Plant & Machinery imported 70,00,000
Add: Loss on hedging contract 2,00,000
72,00,000
- Normal depreciation @7.5% of 5,40,000
` 72,00,000 [only 50% of the 15%
allowable since machinery is put to use for
less than 180 days]
- Additional depreciation not allowable, -
since company is opting for section
115BAA
Know-how @ 12.5% of ` 65,00,000 [50% of
25% since know how was obtained on 15 th
October 2022, which is used for less than 180
days] 8,12,500 48,52,500
9,76,30,500

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 25

II Capital Gains
Long term capital gain on sale of unlisted shares
[Since shares were held for more than 24 months]
Full value of consideration 98,00,000
[` 18,00,000 + ` 80,00,000]
Less: Indexed cost of acquisition
[80,00,000 x 331/272] 97,35,294
64,706
Long term capital gain on sale of listed shares of
M/s. MS Ltd. [Since shares were held for more than
12 months] `
Full value of consideration 4,84,000
(2,200 x ` 220)
Less: Cost of acquisition 4,29,000 55,000
[Higher of (i) and (ii) below]
(i) Actual cost of acquisition ` 1,87,000(2,200 x
` 85)
(ii) ` 4,29,000, being lower of fair market value as
on 31.1.2018 (i.e., ` 4,29,000, being 2,200 x
195) and sale consideration (i.e., ` 4,84,000)
1,19,706
III Income from Other Sources
Advance forfeited on sale of land 22,00,000
Dividend from foreign company 5,20,000
27,20,000
Gross Total Income 10,04,70,206
Less: Deduction under section 80JJAA 11,70,000
[Deduction under section 80JJAA is allowable
though company is opting for concessional tax rate
under section 115BAA. For computation of amount,
see working note below]
Total income 9,93,00,206
Total income (rounded off) 9,93,00,210

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 26 FINAL EXAMINATION: MAY, 2023

Computation of tax liability of SF Ltd. for the A.Y. 2023-24 u/s 115BAA
Particulars `
Tax on long-term capital gains u/s 112A would be nil, since such gain Nil
does not exceed ` 1 lakh
Tax on long term capital gain @20% under section 112 on unlisted 12,941
shares [` 64,706 x 20%]
Tax on remaining income including dividend received from foreign
company @22% remaining income is ` 9,91,80,504 [` 9,93,00,210 –
` 55,000 – ` 64,706] 2,18,19,711
2,18,32,652
Add: Surcharge@10% 21,83,265
2,40,15,917
Add: Health and education cess@4% 9,60,637
Tax liability 2,49,76,554
Tax liability (rounded Off) 2,49,76,550
Working Note - Computation of deduction u/s 80JJAA
No of eligible additional employees [59 (-) 18 (-) 5 = 36] 36
[18 employees who joined on 1.7.2022 do not qualify as “additional
employees” since their monthly emoluments exceed ` 25,000 and 5
employees who joined on 1.11.2022 also do not qualify as additional
employees, since they have not employed for more than 240 days
during the P.Y.2022-23]. In respect of these 5 employees deduction in
respect of their additional employee cost would eligible for deduction
in subsequent previous year.
Additional employee cost means the total emoluments paid or payable
to additional employees employed during the P.Y.2022-23. However,
the additional employee cost in respect of 10 employees who joined
on 1.6.2022, whose salary is paid by bearer cheque would be Nil.
Additional employee cost
[` 15,000 x 26 employees (36 - 10) x 10 months] = ` 39,00,000 ` 39,00,000
Eligible deduction = 30% of ` 39,00,000 ` 11,70,000
23. (i) Where Gamma Inc., a US company, does not have a PE in India
In this case, Gamma Inc. would be eligible for a concessional rate of tax@10% (plus
surcharge@2% and HEC@4%) of ` 3 crore under section 115A on the fees for
technical services received from Delta Ltd., an Indian company, since the same is in
pursuance of an agreement entered into after 31.3.1976, which has been approved

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 27

by the Central Government. No deduction, however, would be allowed in respect of

expenditure of ` 22 lakhs incurred to earn such income. Also, Gamma Inc. would be
exempted from filing its return of income in India under section 139 if tax deductible
at source@10% under section 115A (plus surcharge@2% and HEC@4%) has been
fully deducted from such income. If, however, tax has not been deducted or has been
deducted at a lower rate, if any, specified in the DTAA with US, then, benefit of
exemption from filing of return of income would not be available.
(ii) Where Gamma Inc., a US company, has a PE in India and rendering technical
services is effectively connected with the PE in India.
Since Gamma Inc. carries on business through a PE in India, in pursuance of an
agreement with Delta Ltd. or other Indian companies entered into after 31.3.2003,
and the income by way of fees for technical services is effectively connected with the
PE in India as per section 44DA, such income shall be computed under the head
“Profits and gains of business or profession” in accordance with the provisions of the
Income-tax Act, 1961 and subject to tax@40% plus surcharge@2% and HEC@4%.
Accordingly, expenses of ` 57 lakhs (` 22 lakhs + ` 35 lakhs) incurred for earning
fees for technical services of ` 8 crore (` 3 crore + ` 5 crore) is allowable as deduction
therefrom. However, expenditure of ` 12 lakhs which is not incurred wholly and
exclusively for the business of the PE and the amount of ` 15 lakhs paid by the PE
to the HO is not allowable as deduction.
Gamma Inc. is required to maintain books of account u/s 44AA and get the same
audited under section 44AB and furnish report on or before the specified date i.e.,
date one month prior to the due date for furnishing the return of income u/s 139(1).
24. (i) Provision of scientific research services falls within the scope of international
transaction under section 92B. Phi & Co. and Zeta Inc. are deemed to be associated
enterprises as per section 92A(2)(d), since Zeta Inc. guarantees not less than 10%
of the total borrowings of Phi & Co. Since there is an international transaction
between associated enterprises, transfer pricing provisions are attracted in this case.
(ii) Where the Assessing Officer has made a primary adjustment of ` 310 lakhs to the
transfer price and the same has been accepted by Phi & Co., secondary adjustment
has to be made in the books of account as per section 92CE, since the primary
adjustment made by the Assessing Officer and accepted by Phi & Co exceeds ` 100
lakhs and the primary adjustment is in relation to P.Y.2020-21. The excess money
determined based on the primary adjustment has to be repatriated to India within 90
days from the date of order, failing which the same would be deemed as an advance
and interest would be attracted at the one-year marginal cost of fund lending rate of
State Bank of India as on 1.4.2022 + 3.25%, since the international transaction has
been denominated in Indian Rupees. In this case, since the excess money has not
been repatriated within 90 days, the same would be deemed to be an advance made

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 28 FINAL EXAMINATION: MAY, 2023

by Phi & Co. to Zeta Inc. and interest would be attracted@12.25% (9% + 3.25%) from
1.4.2022, being the date of the order of the Assessing Officer. The interest would
amount to ` 37.975 lakhs (i.e., 12.25% of ` 310 lakhs) for the P.Y.2022-23.
Alternatively, Phi & Co. can opt to pay additional income-tax@20.9664% (tax@18%
plus surcharge@12% plus cess@4%) on ` 310 lakhs, which would amount to ` 65
lakhs. In such a case, secondary adjustment is not required to be made.
25. Computation of total income and net tax liability of Mr. Hari for A.Y. 2023-24
Particulars ` `
Profits and gains from business and profession
Income from sole proprietary concern in India 40,00,000
Share of profit from a partnership firm in India of ` 25
lakhs, is exempt Nil
Business profit 40,00,000
Less: Business Loss3 in Country X (CXD 5000 x 2,50,000
` 50/CXD) 37,50,000
Income from Other Sources
Agricultural income from coffee estates in Country X, is
taxable in India (CXD 36000 x ` 50/CXD) 18,00,000
Gross Total Income 55,50,000
Less: Deductions under Chapter VI-A
Under section 80C [deposit in PPF] 1,50,000
Under section 80D 75,000
[Medical insurance premium paid ` 28,000 for self,
restricted to ` 25,000; ` 52,000 for senior citizen parents,
restricted to ` 50,000]
Under section 80DD
[Flat deduction of ` 75,000 irrespective of the
expenditure incurred on dependent sister, being a person
with disability] 75,000
3,00,000
Total Income 52,50,000

3Since the eight year has not expired from the assessment year in which such business loss was incurred,
such business loss can be set-off against current year business income.

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 29

Tax on ` 52,50,000 [(30% x ` 42,50,000) plus 13,87,500

` 1,12,500]
Add: Surcharge@10%, since total income exceeds ` 50 1,38,750
lakh but does not exceed ` 1 crore.
15,26,250
Add: HEC@4% 61,050
15,87,300
Average rate of tax in India 30.23%
[i.e., ` 15,87,300/` 52,50,000 x 100]
Average rate of tax in Country X 25%
[i.e., CXD 9000/CXD 36000]
Doubly taxed income [` 18,00,000 – ` 2,50,000] 15,50,000
Rebate under section 91 on ` 15,50,000@25%
(lower of average Indian tax rate and rate of tax in
Country X) 3,87,500
Net tax liability [` 15,87,300 – ` 3,87,500] 11,99,800
Note: Since Mr. Hari is resident in India for the P.Y.2022-23, his global income would be
subject to tax in India. He is eligible for deduction under section 91 since the following
conditions are fulfilled:-
(a) He is a resident in India during the relevant previous year.
(b) Agricultural income accrues or arises to him outside India in Country X during that
previous year.
(c) Such agricultural income is not deemed to accrue or arise in India during the
previous year.
(d) The income in question i.e., agricultural income, has been subjected to income -tax
in Country X in his hands and he has paid tax on such income in Country X.
(e) There is no agreement under section 90 for the relief or avoidance of double taxation
between India and Country X, where the income has accrued or arisen.

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 PAPER 7: DIRECT TAX LAWS & INTERNATIONAL TAXATION
The provisions of direct tax laws, as amended by the Finance Act, 2021 and significant
notifications and circulars issued upto 30.4.2022, are relevant for November, 2022 examination.
The relevant assessment year is A.Y.2022-23. The October, 2021 edition of the Study Material,
based on the provisions of direct tax laws as amended by the Finance Act, 2021 and notifications
and circulars issued upto 31.10.2021, is relevant for November, 2022 examination. The same
has been webhosted at https://www.icai.org/post.html?post_id=17843. The Study Material has
to be read along with the Statutory Update and Judicial Update webhosted at the BoS
Knowledge Portal at https://resource.cdn.icai.org/70931bos56928s.pdf and at
https://resource.cdn.icai.org/70932bos56928j.pdf, respectively.

QUESTIONS AND ANSWERS

Case Scenario 1
Mr. Manoj (aged 45 years) is a resident Indian who has the following life insurance policies,
some of which are ULIPs. The details of such policies are given hereunder:
Particulars A B C (ULIP) D (ULIP) E (ULIP) F (ULIP)
Date of issue 1.4.2014 1.4.2015 1.2.2021 1.1.2021 1.3.2021 1.4.2021
Annual ` 50,000 ` 40,000 ` 1,00,000 ` 3,00,000 ` 1,40,000 ` 2,50,000
premium
Date when 1st April 1st April 1st Feb 1st Jan 1st March 1st April
premium falls
due every year
Date of maturity 31.3.2022 31.3.2022 31.1.2030 31.12.2029 28.2.2030 31.3.2030
Consideration ` 7,00,000 ` 4,00,000 ` 11,00,000 ` 32,00,000 ` 17,00,000 ` 28,00,000
received on
maturity
(including
bonus)
Sum assured ` 6,00,000 ` 3,50,000 ` 10,00,000 ` 30,00,000 ` 15,00,000 ` 25,00,000

During the P.Y.2021-22, Mr. Manoj has earned dividend income of ` 12 lakh from shares of
Indian companies and long-term capital gains (computed) of ` 5 lakhs on sale of land. He
deposited ` 1,50,000 in National Pension Scheme (Tier-I account) of Government. Mr. Manoj
does not opt for section 115BAC.

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 32 FINAL EXAMINATION: NOVEMBER, 2022

On the basis of the facts given above, choose the most appropriate answer to Q.1 to Q.5
below, based on the provisions of the Income-tax Act, 1961 -
1. Which are the life insurance policies (excluding ULIPs) in respect of which Mr. Manoj
would be eligible for exemption under section 10(10D) in respect of maturity proceeds
and what is the quantum of deduction which would be available under section 80C in
respect of premium paid on such policies for A.Y.2022-23? Assume that Mr. Manoj does
not have any ULIPs only for the purpose of answering this MCQ.
(a) A and B; ` 90,000
(b) A and B; ` 85,000
(c) Only A; ` 50,000
(d) Only A; ` 85,000
2. Which are the ULIPs in respect of which Mr. Manoj would be eligible for exemption under
section 10(10D) in respect of maturity proceeds? Choose the option most beneficial to
Mr. Manoj.
(a) Only C and E
(b) Only F
(c) Only C, D and E
(d) Only D and F
3. Considering the option chosen in MCQ 2 above, what would be the capital gains
computed under section 45(1B) in the hands of Mr. Manoj for A.Y.2030-31? Assume that,
for the purpose of this MCQ, no consideration was received prior to the maturity date in
case of any ULIP.
(a) ` 11,40,000
(b) ` 10,50,000
(c) ` 5,50,000
(d) ` 6,40,000
4. What is Mr. Manoj’s tax liability for A.Y.2022-23?
(a) ` 2,21,000
(b) ` 2,36,600
(c) ` 2,58,440

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(d) ` 2,74,040
5. What would be the total tax deductible under section 194DA during the P.Y.2021 -22 on
payment of maturity proceeds of life insurance policies to Mr. Manoj?
(a) ` 3,500
(b) ` 6,000
(c) ` 20,000
(d) ` 55,000

Case Scenario 2
EduAid is a charitable trust registered under section 12AB. Its main object is education for the
economically weaker sections of the society. During the P.Y.2021-22, it received ` 60 lakhs as
voluntary contributions and ` 12 lakhs as anonymous donations. The trust borrowed ` 50 lakhs
on 1.5.2021 from SBI for construction of a primary school in a village in Tambaram near
Chennai. The trust repaid principal of `10 lakhs to SBI on 31.3.2022. The trust incurred
expenditure of ` 1 lakh on purchase of books for library and ` 10 lakhs on purchase of
computers for junior computer lab. The other applications, which are revenue in nature, is ` 7
lakhs. This sum includes ` 30,000 paid in cash on 14.4.2021 for repair work to Mr. Rajesh and
` 80,000 paid towards fees for professional services on 15.6.2021 without deduction of tax at
source. The excess application by the trust in the P.Y.2020-21 is ` 4 lakhs.
The trust also received ` 25 lakhs by way of corpus donations (for construction of Arts College
in Avadi, Tamil Nadu) during the P.Y.2021-22, out of which it –
(i) deposited ` 12 lakhs in post office savings bank account in January, 2022 (the balance in
post office savings bank account after such deposit is ` 22 lakhs); and.
(ii) invested ` 8 lakhs in shares of a public sector company in October, 2021.
However, in March, 2022, due to disinvestment by the Government, the company ceased to be
a public sector company. The trust also withdrew ` 5 lakhs from post office savings bank
account in March, 2022 and applied the same for construction of the primary school in a village
in Tambaram. During the year 2021-22, the trust spent ` 72 lakhs in total for construction of the
said school.
The trust has donated to PoorAid, another trust registered under section 12AB ` 5 lakhs out of
its current year income and ` 4 lakhs out of its accumulated income. Out of the amount of ` 5
lakhs donated out of its current year income, ` 2 lakhs was towards the corpus of PoorAid.

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 34 FINAL EXAMINATION: NOVEMBER, 2022

On the basis of the facts given above, choose the most appropriate answer to Q.6 to Q.10
below, based on the provisions of the Income-tax Act, 1961 -
6. What is the quantum of donations taxable@30% under section 115BBC?
(a) ` 12 lakhs
(b) ` 11 lakhs
(c) ` 8.40 lakhs
(d) ` 7.15 lakhs
7. Can the amount donated to PoorAid be allowed as application of income in the hands of
EduAid in the P.Y.2021-22? If so, how much?
(a) No, it is not allowed as application
(b) Yes, ` 9 lakhs is allowed as application
(c) Yes, ` 5 lakhs is allowed as application
(d) Yes, ` 3 lakhs is allowed as application
8. Can the corpus donations received by EduAid be claimed as exempt u/s 11(1)(d)? If so,
how much will be exempt?
(a) ` 7,00,000
(b) ` 12,00,000
(c) ` 20,00,000
(d) ` 25,00,000
9. What is the quantum of amount spent on construction which can be treated as application
in the hands of EduAid in the P.Y.2021-22?
(a) ` 10 lakhs
(b) ` 27 lakhs
(c) ` 32 lakhs
(d) ` 40 lakhs
10. What is the total amount which can be treated as application in the hands of Edu Aid in
the P.Y.2021-22 (excluding unconditional accumulation of 15%)?
(a) ` 53.46 lakhs
(b) ` 51.46 lakhs

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(c) ` 47.46 lakhs

(d) ` 52.46 lakhs
11. ABC Ltd., an Indian company, purchases coal from XYZ Ltd., another Indian company,
for ` 60 lakhs during the P.Y.2021-22, to manufacture steel. ABC 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 the purchases were spread evenly
throughout the year and ABC Ltd.’s annual turnover was ranging between ` 12 crores
and ` 15 crores; and XYZ Ltd.’s annual turnover was ranging between ` 15 crores and
` 20 crores in the last few years?
(a) Tax@1% has to be collected by XYZ Ltd. on ` 60 lakhs under section 206C(1).
(b) Tax@0.1% has to be collected by XYZ Ltd. on ` 10 lakhs under section 206C(1H)
(c) No tax has to be collected at source by XYZ Ltd.; however, tax@0.1% has to be
deducted under section 194Q by ABC Ltd. on ` 10 lakhs.
(d) No tax has to be collected at source by XYZ Ltd.; ABC Ltd. also does not have to
deduct tax at source.
12. A survey is conducted u/s 133A in the premises of Mr. Aarav and a search is conducted
u/s 132 in the premises of his friend, Mr. Arjun, on 1.5.2021. The Assessing Officer issued
notices under section 148 for A.Y. 2019-20, A.Y.2020-21 and A.Y. 2021-22 to Mr. Aarav
and Mr. Arjun. However, such notices were not accompanied by the copy of an order
passed under section 148A. Is the action of the Assessing Officer in issuing such notices
under section 148 to Mr. Aarav and Mr. Arjun valid?
(a) No; the action of the Assessing Officer in issuing such notices under section 148
is not valid in both cases.
(b) Yes; the action of the Assessing Officer in issuing such notices under section 148
is valid in both cases.
(c) Yes, the action of the Assessing Officer in issuing such notice under section 148
is valid in the case of Mr. Arjun, but not in the case of Mr. Aarav.
(d) Yes, the action of the Assessing Officer in issuing such notice under section 148
is valid in the case of Mr. Aarav, but not in the case of Mr. Arjun.
13. The EBITDA of Ganga Ltd., an Indian company, for the F.Y.2021-22 is ` 800 lakhs. It paid
interest of ` 440 lakh to Andes Inc., Brazil, which is a specified foreign company in relation
to Ganga Ltd. The arm’s length interest applying CUP method was ` 350 lakh, and Ganga
Ltd. suo moto made the transfer pricing adjustment (primary adjustment) while computing

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 36 FINAL EXAMINATION: NOVEMBER, 2022

its total income. On the basis of the above facts, examine the correctness of the following
statements, assuming that no other interest is payable by Ganga Ltd. -
(a) The excess interest under section 94B would be ` 200 lakh. Secondary adjustment
is required to be made in respect of the said amount, unless Ganga Ltd. opts to
pay additional income-tax on such sum and has paid such additional income-tax.
(b) The excess interest under section 94B would be ` 110 lakh. Secondary adjustment
is required to be made in respect of the said amount, unless Ganga Ltd. opts to
pay additional income-tax on such sum and has paid such additional income-tax
(c) The excess interest under section 94B would be ` 110 lakh and secondary
adjustment under section 92CE is required to be made in respect of ` 90 lakh,
unless Ganga Ltd. opts to pay additional income-tax on such sum and has paid
such additional income-tax.
(d) The excess interest under section 94B would be ` 110 lakh. No secondary
adjustment is required under section 92CE.
14. M/s. ABC Ltd. has two units, Unit A and Unit B, both of which commenced operations on
1.4.2015. It sold Unit B on slump sale on 1.7.2021 for ` 1.45 crore. Unit B is engaged in
the specified business of operating a warehousing facility for storage of sugar and has
claimed deduction under section 35AD in an earlier previous year in respect of the entire
cost of eligible asset purchased.
On 1.7.2021, the following particulars relating to Unit B are given below –
Asset Value as per Other details (as on 1.7.2021)
books of account
as on 1.7.2021 (`)
Land (Revalued figure) 80,00,000 Stamp duty value – ` 95 lakhs;
Building (Cost) 50,00,000 Stamp duty value – ` 60 lakhs;
Debtors 12,00,000
Liabilities `
Unsecured loan 15,00,000
Current liabilities 5,00,000
Revaluation Reserve (Land) 6,00,000

What is the amount of capital gains on sale of Unit B in the A.Y.2022-23?

(a) ` 31 lakhs
(b) ` 75 lakhs

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 37

(c) ` 79 lakhs
(d) ` 81 lakhs
15. Mr. Akash (currently aged 40 years) is an Indian citizen who left for USA in the year 2009
for employment in Microsoft. He visited India for 15 days every year upto P.Y.2017 -18.
He resigned his job in Microsoft and returned to India with his family on 15.2.2019
permanently and he opened a start-up in Pune on 1.3.2019. He visited USA from 1 st June
to 31st July both in the calendar years 2019 and 2020 for business purposes. He has a
house property in Dallas, USA from which he derives rental income of US $ 2,000 every
month which was credited to his savings bank account in Dallas. He paid municipal taxes
of US $ 200 in December 2021, out of the said account. Interest of $ 150 was credited in
the said bank account in March, 2022. In the P.Y.2021-22, he earned business income of
` 26 lakhs from his start up venture in Pune in addition to interest on fixed deposits of
` 1,70,000 from State Bank of India, Pune Branch. He deposited ` 1,50,000 in five year
term deposit with Bank of India, Pune Branch, out of rental income earned by him in USA.
Compute his tax liability (rounded off) for A.Y.2022-23, assuming that the value of 1 US
$ = ` 79 throughout the F.Y. 2021-22 and that he does not opt for section 115BAC.
(a) ` 6,22,440
(b) ` 6,69,240
(c) ` 10,36,770
(d) ` 12,17,690

16. M/s Fit & Fair, a partnership firm, commenced operations of the business of a new three-
star hotel in Pune, Maharashtra on 1.4.2021. The firm consisting of two working partners,
with equal shares, reports a net profit of ` 26,00,000 after deduction of the following items:
(i) Depreciation as per books of accounts ` 15,80,000.
(ii) Interest on capital @ 15% per annum (as per the deed of partnership). The amount
of interest is ` 50,00,000.
(iii) Interest on loan includes an amount of ` 6,00,000 paid to Mr. Rajveer, a resident, on
which tax was not deducted.
The firm purchased a new motor car for the above business for ` 7 lakh on 10th March,
2021 and capitalized the same in its books of account as on 1st April, 2021. Further, in
April, 2021, it incurred capital expenditure of ` 2 crores (out of which ` 1.50 crores was for
acquisition of land and ` 50 lakhs on building) exclusively for the above business. The firm
also installed and put to use new centralised air conditioners on 15.5.2021 costing
` 3,20,000.
The capital expenditure incurred by the firm were paid by account payee cheque or use of
ECS through bank account.

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 38 FINAL EXAMINATION: NOVEMBER, 2022

The firm also has another existing business of running a four-star hotel in Mumbai, which
commenced operations fifteen years back, the profits from which are ` 41,38,000
computed as per Income-tax Act for the A.Y.2022-23.
Compute total income and tax payable by the firm for the A.Y.2022-23, assuming that the
firm has fulfilled all the conditions specified for claim of deduction under section 35AD and
opted for claiming deduction under section 35AD; and has not claimed any deduction under
Chapter VI-A under the heading “C. – Deductions in respect of certain incomes”.
17. M/s Diamond Industries Ltd., an Indian company, is engaged in assembling and
manufacturing of automobiles and auto components in Indore, Madhya Pradesh. The net
profit after debit/credit of the following amounts to its Statement of Profit and Loss for the
year ended 31-03-2022 was ` 9,50,00,000.
(i) Depreciation calculated as per useful life of its assets ` 2,80,00,000.
(ii) Donation of ` 12,00,000 given to a political party by way of account payee cheque.
(iii) The company has paid ` 50,00,000 on 15-08-2021 to a research institution
recognized and notified by the Central Government which has as its object,
undertaking of scientific research.
(iv) Dividend received from foreign company of ` 15,00,000 in which it holds 30% of the
equity share capital.
(v) Long-term capital gain of ` 4,00,000 on sale of equity shares on which STT was paid
at the time of acquisition and sale.
(vi) Interest at 10% p.a. on ` 4,20,00,000 being amount borrowed from State Bank of
India on 01-06-2021 for purchase of machinery. The interest outstanding as on
31-03-2022 was paid on 01-12-2022.
(vii) Profit of ` 8,00,000 on sale of a plot of land to PQR Limited, an Indian company, the
entire shares of which are held by the Diamond Industries Ltd. The plot was acquired
on 30th June, 2020.
(viii) Salary of ` 1,00,00,000 to foreign technicians for installation of machinery at the
factory premises was paid.
(ix) The company sold automobile parts for ` 22,00,000 to M/s ABC Co Engineers, a sole
proprietary concern, on 01.11.2019. On 01.02.2022 ` 12,00,000 was written off in the
books as bad debts. The sole proprietor died on 01.03.2022 and the company
managed to collect ` 11,00,000 towards full and final settlement on 30.03.2022. The
entire amount collected was shown as bad debts recovered and credited to Statement
of Profit and Loss.
Additional Information:
1. Depreciation computed as per Income-tax Rules, 1962 is ` 1,50,00,000 other than
on the additions in assets made during the year.

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2. Additions made to the assets were as follows:

(i) Office Building ` 3,00,00,000 - Put to use from 15-12-2021.
(ii) Computers ` 25,00,000 - Put to use on 11-05-2021.
(iii) Plant and machinery ` 5,00,00,000 - Installed and put to use on 01-01-2022.
3. The company declared and distributed dividend for the financial year 2021-22 on
31.5.2022 for ` 12,00,000.
Compute the total income of the company and tax liability for the assessment year
2022-23, assuming company opts for concessional tax regime under section 115BAA.
Total turnover of the company for the P.Y. 2019-20 was ` 402 crores.
18. Mr. Rajesh is a resident unitholder of PQR and Shipra. PQR is incorporated as an
Investment Fund and Shipra is a Real Estate Investment Trust. (REIT), which holds 100%
shareholding in GPL Ltd., an Indian company. Mr. Rajesh holds 10% units in both Shipra
and PQR since the year 2019.
The particulars of income of Shipra and PQR for the previous year 2021-22 are given
below:
Particulars Shipra PQR
Dividend Income from GPL Ltd. ` 2 crores
Interest Income from GPL Ltd. ` 3 crores
Short-term capital gains on sale of developmental ` 1 crore
properties
Business income ` 35 lakhs.
Long-term capital losses ` 27 lakhs
Interest income ` 52 lakhs

GPL Ltd. does not exercise option under section 115BAA for A.Y. 2022 -23. Shipra and
PQR distribute 90% of its income to the unit-holders during the year. Compute total income
and tax payable by Mr. Rajesh for the A.Y. 2022-23, assuming that he has opted for section
115BAC.
19. Examine the applicability of provisions relating to deduction/collection of tax at source and
compute the liability, if any, for deduction/collection of tax at source in the following cases
for financial year ended 31 st March, 2022 as per provisions contained under the Income-
tax Act, 1961:
(i) Mr. Devansh, an Indian Citizen, residing in New York, came to India on a visit on
15.2.2022. He paid ` 6 lakhs to a tour operator, M/s Journey Trip, based in Mumbai
for a tour package to Malaysia for 1 week. He left for Malaysia on 1.3.2022 and
returned to India on 8.3.2022. Thereafter, he was in India upto 5.4.2022 on which

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 40 FINAL EXAMINATION: NOVEMBER, 2022

date he took his return flight to New York. He does not have any source of income in
India.
(ii) XYZ Ltd. was incorporated on 1.4.2021 for trading goods. Its turnover for the
P.Y. 2021-22 is ` 12 crores. During the P.Y.2021-22, it purchased goods from M/s.
White Ride, the details of which are as follows:
On 1.8.2021 for ` 25,00,000;
On 15.9.2021 for ` 30,00,000 and
On 15.12.2021 for ` 15,00,000.
The above dates represent the date of credit to the account of M/s. White Ride.
Payment is made after one month (i.e., on the same date in the immediately following
month). M/s White Ride’s turnover for the F.Y. 2020-21 and F.Y. 2021-22 was ` 11
crores and ` 9.7 crores, respectively.
20. Mr. Ravi Prakash, a resident Indian aged 52 years, gifted a sum of ` 30 lakhs to his wife
Mrs. Sudha on the occasion of her 50 th birthday. Out of the said sum, Mrs. Sudha
purchased a car for ` 29,52,000 inclusive of RTO charges of ` 2,15,000, insurance of
` 51,575, extended warranty of ` 25,255 and accessories charges of ` 35,460 during the
P.Y. 2021-22. These charges were shown separately in the invoice. Mrs. Sudha’s
furnished her Aadhaar No. to the dealer. She is a housewife and does not have any income
except rental income of ` 25,000 p.m. in respect of a house property gifted to her by her
father.
Mr. Ravi Prakash is of the opinion that his wife is not required to furnish return of income,
since her total income does not exceed the basic exemption limit. Examine.
21. The assessment of Mr. Arora was completed u/s 143(3) of the Income-tax Act 1961 with
an addition of income of ` 9 lakh to the returned income. Mr. Arora contends that the order
of assessment is bad in law as no notice was issued u/s 143(2) even though he had
participated in the assessment proceedings. The Assessing Officer, relying on section
292BB, contends that since Mr. Arora has participated in assessment proceedings, he
cannot raise such objection.
Examine the validity of the contentions of both Mr. Arora as well as the Assessing Officer.
22. Mr. Vijay furnished his return of income for A.Y.2021-22 declaring total income of
` 28,00,000 for the A.Y. 2021-22. He received an assessment order under section 143(3)
on 26.11.2022 enhancing the total income for the A.Y.2021-22 by ` 5,00,000. He is
aggrieved by the said order and is desirous of knowing whether he can file an application
before the Dispute Resolution Committee (DRC). He informs you that no order of detention
has been made and no prosecution proceedings have been initiated or instituted against
him under any law for the time being in force. However, penalty under section 271D has
been levied on him for failure to comply with the provisions of section 269SS.

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 41

Can Mr. Vijay file an application before the DRC?

(i) If yes, what is the time limit for making an application to DRC against such order under
the Income-tax Act, 1961. He is also keen to know, whether, in case he is aggrieved by
the order passed by the DRC, can he file appeal against such order of DRC?
(ii) Would your answer be different, if assessment order is based on information received
under a DTAA with Country X?
23. Spacecraft Ltd., an Indian company, has entered into a contract for ` 4.5 crores with DOT
Inc., Country X for the Financial Year 2021-22. DOT Inc. maintains an online web-platform
through which it provides end user computer software through an End-user Licence
Agreement (EULA) as per the contract. The broad terms of the EULA between the two
companies are as follows-
Grant of licence. DOT Inc. grants Spacecraft Ltd. a limited non-exclusive licence to install,
use, access, display and run the click wrap web-based Computer Software (CWCS) on a
single local hard disk(s) or other permanent storage media of one computer. Spacecraft
Ltd. should not make CWCS available over a network where it could be used by multiple
computers at the same time.
Reservation of rights and ownership. DOT Inc. reserves all rights not expressly granted to
Spacecraft Ltd. in this EULA. The CWCS is protected by copyright and other intellectual
property laws and treaties. DOT Inc. owns the title, copyright and other intellectual property
rights in the CWCS. The CWCS is licenced (only for use and not any other purpose), not sold.
DOT Inc. does not have any offices outside Country X.
Discuss the tax implications/TDS implications of such receipt in the hands of DOT Inc.,
Country X and payment by Spacecraft Ltd., India under Chapter VIII of the Finance Act,
2016 (as amended by the Finance Act, 2021) and Income-tax Act, 1961, considering the
India- Country X DTAA also, the relevant extract of which is given hereunder:
Extract of Article 12 of India-Country X DTAA
Royalties and Fees for Technical Services
1. Royalties and fees for technical services arising in a Contracting State and paid to a
resident of the other Contracting State may be taxed in that other State.
2. However, such royalties and fees for technical services may also be taxed in the
Contracting State in which they arise and according to the laws of that Contracting
State, but if the recipient is the beneficial owner of the royalties or fees for technical
services, the tax so charged shall not exceed 10 per cent.
3. The term "royalties" as used in this Article means payments of any kind received as
a consideration for the use of, or the right to use :
(a) any copyright of a literary, artistic or scientific work, including cinematograph
film or films or tapes used for radio or television broadcasting, any patent,

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 42 FINAL EXAMINATION: NOVEMBER, 2022

trademark, design or model, plan, secret formula or process, or for information

concerning industrial, commercial or scientific experience, including gains
derived from the alienation of any such right, property or information
24. Mrs. Rajni, aged 63 years, is married and settled in Ranchi. She is a Hindustani classical
dancer and choreographer who performs in concerts in India and Country M. She visits
Country M every year in October to participate in the Spring dance concert held there. For
the rest of the year, she performs in dance programs organized in India. India does not
have a DTAA with Country M.
She earns CMD 10120 from concerts held in Country M. She also owns a residential house
property in Country M. She earned rental income of CMD 25,000 from such property. She
also paid municipal taxes of CMD 200 in respect of this property, which is not deductible
in Country M. All income from Country M is taxable in Country M @20%. The entire tax
due in Country M has been duly paid by Mrs. Rajni.
She earns ` 15 lakhs from performances in dance programs held in India. She has interest
income of ` 4.2 lakhs (gross) from bank fixed deposits in her name and ` 15,000 from
savings bank account in India.
She pays medical insurance premium of ` 29,000 to insure her health and ` 32,000 to
insure the health of her husband, a resident aged 65 years. She deposits ` 1.50 lakhs in
her public provident fund and ` 4 lakhs in five-year fixed deposit in the name of her son,
Mr. Priyanshu. The TT buying rate as on 31.3.2022 for Country M Dollar (CMD) is ` 69.
Compute the total income and net tax payable by Mrs. Rajni for A.Y.2022-23, providing for
deduction under section 91. Assume that Mrs. Rajni does not opt for section 115BAC.
25. Matrix Inc. incorporated in Country X, holds 26% controlling interest in Pilu Ltd., an Indian
Company. Pilu Ltd. declared dividend of ` 50,00,000 during the P.Y. 2021-22. The DTAA
between India and Country X, which came into force on 1.1.2018, provides for taxation of
dividend @15%. Thereafter, India entered into a DTAA with Country Y, which came into
force from 15.5.2018. The India-Country Y DTAA, inter alia, provides for concessional tax
rate of 10% in respect of dividend. Country X is an OECD member since 2015 and Country
Y is also an OECD member since 2017.
Mr. Jack, CFO of Matrix Inc. seeks your opinion on whether the concessional tax rate
provided in the DTAA between India and Country Y can be availed by a resident of Country
X and if so, are there any further conditions to be satisfied in this regard. You may assume
that the protocol annexed to India’s DTAAs with all OECD member countries contain the
relevant tax parity clause.
Would your answer change, if Country Y had become an OECD member only in the year
2020?

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 43

SUGGESTED ANSWERS

MCQ No. Most Appropriate Answer MCQ No. Most Appropriate Answer
1. (d) 9. (b)
2. (c) 10. (c)
3. (c) 11. (c)
4. (c) 12. (c)
5. (b) 13. (d)
6. (d) 14. (d)
7. (d) 15. (a)
8. (c)
16. Computation of total income and tax payable of M/s Fit & Fair for A.Y. 2022-23
Particulars `
Profits from the specified business of new hotel in Pune 26,00,000
Add: Items debited but to be considered separately or to be disallowed
Depreciation 15,80,000
Interest on capital to partners@15% p.a. (Interest allowable to 10,00,000
the extent of 12% p.a., since the same is authorized by the
partnership deed. Thus, interest of ` 10,00,000, being in
excess of 12% p.a. i.e., ` 50,00,000 x 3%/15% would be
disallowed)
30% disallowance of interest on loan on which tax is not
deducted [30% of ` 6,00,000] 1,80,000 27,60,000
53,60,000
Less: Permissible expenditures and allowances
100% of capital expenditure allowable as deduction under
section 35AD in respect of –
- Building (expenditure on land not eligible for 50,00,000
deduction)
- New Motor Car (capital expenditure for purchase 7,00,000
of car prior to 1.4.2021 (i.e., prior to
commencement of business) and capitalized in the
books of account as on 1.4.2021
- New Air conditioner 3,20,000
60,20,000
Loss from the specified business of new hotel in Pune (6,60,000)

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 44 FINAL EXAMINATION: NOVEMBER, 2022

Profit from the existing business of running a hotel in Mumbai 41,38,000

Less: Loss from the specified business of new hotel in Pune 6,60,000
Net profit from business after set-off of loss of specified business against
profits of another specified business under section 73A 34,78,000
Total Income 34,78,000
`
Income-tax @30% on total income of ` 34,78,000 10,43,400
Add: Health & education cess @4% 41,736
Tax liability 10,85,136
Tax liability (rounded off) 10,85,140
Computation of Alternate Minimum Tax liability of M/s Fit & Fair for A.Y.2022-23
Particulars `
Total income (computed above) 34,78,000
Add: Deduction under section 35AD 60,20,000
94,98,000
Less: Depreciation in respect of – `
- Building @10% of ` 50,00,000 5,00,000
- New Motor Car (capital expenditure for purchase of 1,05,000
car prior to 1.4.2021 (i.e., prior to commencement
of business) and capitalized in the books of account
as on 1.4.2021@15% of ` 7,00,000
- New Air conditioner @15% of ` 3,20,000 48,000 6,53,000
Adjusted total income 88,45,000
Alternate Minimum Tax@18.5% 16,36,325
Add: Health & education cess@4% 65,453
Tax liability under section 115JC 17,01,778
Tax liability under section 115JC (Rounded off) 17,01,780
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 health and education
cess@4%. Therefore, the tax liability is ` 17,01,780
AMT Credit to be carried forward under section 115JD `
Tax liability under section 115JC 17,01,780
Less: Tax liability under the regular provisions of the Income-tax Act, 1961 10,85,140
AMT Credit to be carried forward 6,16,640

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 45

17. Computation of total income and tax liability of M/s Diamond Industries Ltd. for the
A.Y. 2022-23 as per section 115BAA
Particulars Amount in `
I Profits and gains of business and profession
Net profit as per Statement of Profit and Loss 9,50,00,000
Add: Items debited but to be considered
separately or to be disallowed
(i) Depreciation as per useful life of assets 2,80,00,000
(ii) Donation to political party 12,00,000
[Since donation to political party is not
wholly and exclusively for the purpose of
business or profession, it is not allowable as
deduction u/s 37. Since the amount of
contribution is debited to statement of profit
and loss, the same has to be added back]
(iii) Contribution to research institution 50,00,000
approved and notified by the Central
Government for scientific research
[As per section 35(1)(ii), 100% deduction is
allowed for amount paid to a research
institution undertaking scientific research, if
such institution is approved for this purpose
and notified by the Central Government.
However, since company is opting for
section 115BAA, deduction in respect of this
contribution is not allowed. Since the
amount of contribution is debited to
statement of profit and loss, the same is
required to be added]
(vi) Interest on borrowing paid to State Bank 35,00,000
of India (SBI) [10% x ` 420 lakhs x 10/12]
[Interest on borrowing from SBI upto
1.1.2022, being the date when machinery is
installed and put to use, is not allowable as
deduction since it has to be capitalized as
part of the cost of the asset. Interest for
January, February and March 2022 is
disallowed as per section 43B since it is not
paid on or before the due date of filing return
of income i.e., 31.10.2022. Since the entire

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 46 FINAL EXAMINATION: NOVEMBER, 2022

interest has been debited to the statement

of profit and loss, it has to be added back
while computing business income]
(viii) Salary for installation of machinery 1,00,00,000
[As per ICDS V, expenses which are
specifically attributable for bringing the fixed
asset to its working condition would form
part of actual cost. Therefore, salary to
foreign technicians for installation of
machinery is a capital expenditure and not
allowable as deduction. Since it has been
debited to the statement of profit and loss, it
has to be added back while computing
business income]
4,77,00,000
14,27,00,000
Less: Items credited but not chargeable to tax
or chargeable to tax under other head of
income/expenses allowed but not
debited
(iv) Dividend received from foreign company 15,00,000
[Dividend received from foreign company is
taxable under the head “Income from other
Source”. Since the same has been credited to
Statement of Profit and loss, it has to be
deducted while computing business income.
(v) Long-term capital gain on sale of equity 4,00,000
shares
[Long-term capital gain on sale of equity
shares is taxable under the head “Capital
Gains”. Since the same has been credited to
Statement of Profit and loss, it has to be
deducted while computing business income.
(ix) Bad debt recovered 10,00,000
[The deduction of bad debt allowed u/s 36
was ` 12 lakhs out of the total debt of ` 22
lakhs; Since the amount not written off as
bad debt is ` 10 lakhs (` 22 lakhs - ` 12
lakhs) while the amount recovered in
respect of such debt is ` 11 lakhs, only the

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excess sum of ` 1 lakh would be chargeable

to tax as business income. Since the entire
amount of ` 11 lakhs recovered has been
credited to the statement of profit and loss,
` 10 lakhs has to be reduced while
computing business income.]
(vii) Profit on sale of plot of land 8,00,000
Capital gains arising on sale of plot of land
are taxable under the “Capital Gains”. Since
the same has been credited to the statement
of profit and loss, the same has to be
reduced while computing business income]
37,00,000
13,90,00,000
Less: Depreciation as per Income-tax Rules, 1,50,00,000
1962
Depreciation on assets acquired during the P.Y.
- Office building
Purchased and put to use on 15.12.2021
[` 300 lakhs x 10% x 50%, since it has been
put to use for less than 180 days during the
year] 15,00,000
- Computer
Purchased and put to use on 11.5.2021
[` 25 lakhs x 40%, since it has been put to
use for 180 days or more during the year] 10,00,000
- Plant and machinery
On P & M installed and put to use on 1.1.2022
[` 624.5 lakhs (` 500 lakhs + ` 100 lakhs of
salary for installation + ` 24.5 lakhs, being
interest from 1.6.2021 to 31.12.2021) x 15%
x 50%, since it has been put to use for less
than 180 days during the year] 46,83,750 2,21,83,750
Additional depreciation (since company is opting
for section 115BAA, additional depreciation is not
allowed) - -
Profits and gains from business or profession 11,68,16,250

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 48 FINAL EXAMINATION: NOVEMBER, 2022

II Capital Gains
Profit on sale of plot of land -
[Short-term capital gains arise on sale of plot of
land held for less than 24 months. However, in
this case, since the transfer is to a 100%
subsidiary company, which is an Indian company,
the same would not constitute a transfer for levy
of capital gains tax as per section 47(iv)]
Long-term capital gain on listed equity shares 4,00,000 4,00,000
III Income from Other Sources
Dividend received from a foreign company 15,00,000
Gross Total Income 11,87,16,250
Less: Deduction under Chapter VI-A
Deduction under section 80GGB [Donation to -
political party is not allowable as deduction to Diamond
Industries Ltd., since the company is opting for section
115BAA]
Deduction under section 80M allowable, even if, 12,00,000
company is opting for section 115BAA, to the extent of
lower of dividend received and dividend distributed.
Therefore, ` 12,00,000, being the amount of dividend
distributed allowable as deduction
Total Income 11,75,16,250
Computation of tax liability as per section 115BAA
Particulars Amount in `
Tax payable on LTCG @10% u/s 112A on ` 3,00,000, being the LTCG 30,000
in excess of ` 1,00,000
Tax payable on dividend @15% u/s 115BBD on ` 3,00,000 [15,00,000 45,000
– 12,00,000 being the amount deduction available under section 80M]
Tax @ 22% on ` 11,68,16,250 2,56,99,575
2,57,74,575
Add: Surcharge @ 10% 25,77,458
2,83,52,033
Add: Health and education cess @4% 11,34,081
Tax liability 2,94,86,114
Tax liability (rounded off) 2,94,86,110

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 49

18. Computation of total income and tax payable in the hands of Mr. Rajesh
Particulars `
(i) Dividend income from GPL Ltd. (SPV) -
As per section 10(23FD), the component of dividend income
distributed to unitholders is not taxable in the hands of unitholders,
since GPL Ltd. (SPV) has not exercised the option u/s 115BAA.
Accordingly, ` 18 lakhs (10% of ` 1.80 crore, being 90% of ` 2
crore), being the dividend component of income received by
Mr. Rajesh from Shipra is not taxable in his hands.
(ii) Interest income from GPL Ltd. (SPV) 27,00,000
As per section 115UA(3), interest income distributed to unit holders
would be deemed as income of the unit holders. Accordingly,
` 27 lakhs [i.e., 10% of ` 2.7 crores (90% of ` 3 crores)], being the
interest component of income distributed to Mr. Rajesh, is taxable
in the hands of the Mr. Rajesh.
(iii) Short-term capital gains on sale of developmental properties -
by Shipra
As per section 115UA(2), STCG on sale of development properties
is taxable at maximum marginal rate of 42.744% in the hands of
the REIT. No tax liability arises in the hands of Mr. Rajesh on ` 9
lakh (10% of ` 90 lakh, being 90% of ` 1 crore), being the capital
gain component of income distributed to him, by virtue of section
10(23FD).
(iv) Business Income of PQR -
Business income of an investment fund is taxable in the hands of
investment fund. Consequently, as per section 10(23FBB),
business income accruing or arising to or received by a unitholder
of an investment fund is not taxable in his hands.
(v) Long-term capital loss of PQR -
Long-term capital loss of ` 2,70,000 (10% of ` 27 lakhs) can be
carried forward and set-off by Mr. Rajesh, since he holds such units
for more than 12 months, against income from long-term capital
gains arising in the subsequent years, since there is no long-term
capital gain in the current year. It can be carried forward for a
maximum of 8 assessment years.
(vi) Interest income of PQR 5,20,000
As per section 10(23FBA), interest income would be exempt in the
hands of Investment fund. As per section 115UB, ` 5,20,000 lakhs

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(10% of ` 52 lakhs) would be taxable as income from other sources

in the hands of Mr. Rajesh.
Even if investment fund distributed only 90% of its income to the
unit holders during the year, the remaining 10% of income would
be deemed to be credited to the account of each unitholder on the
last day of the previous year i.e., 31.03.2022.
Further, income which has been included in the total income of the
unitholders in the previous year on accrual basis shall not once
again be included in the previous year in which such income is
actually paid to him by the investment fund.
Total income 32,20,000
Computation of tax payable by Mr. Rajesh for A.Y.2022-23
Particulars ` `
Upto ` 2,50,000 Nil
` 2,50,001 – ` 5,00,000 @5% 12,500
` 5,00,001 – `7,50,000 @10% 25,000
` 7,50,001 – `10,00,000 @15% 37,500
`10,00,001 – `12,50,000 @20% 50,000
` 12,50,001 – ` 15,00,000 @25% 62,500
` 15,00,001 – ` 32,20,000@30% 5,16,000 7,03,500
Add: Health and education cess @4% 28,140
Tax liability 7,31,640
Less: Tax deducted at source
- under section 194LBA @ 10% by Shipra in 2,70,000
respect of interest income from SPV
- under section 194LBB @10% by PQR 52,000 3,22,000
Tax payable 4,09,640
19. (i) Section 206C(1G) provides for collection of tax@ 5% by every person, being a seller
of an overseas tour programme package, who receives any amount from the buyer
who purchases the package. The threshold limit of ` 7 lakh is not applicable in case
of collection of tax at source by a seller of an overseas tour programme package from
a buyer who purchases such package. Hence, tax has to be collected@5% of the
amount received by the seller of an overseas tour programme package from a buyer
even if the amount is less than ` 7 lakh.
However, as per Notification No. 20/2022 dated 30.3.2022, TCS u/s 206C(1G) would
not be applicable, if the buyer is an individual who is not a resident in India [in terms
of section 6(1) and (1A)]; and who is visiting India.

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Mr. Devansh, an Indian citizen living in New York, came on a visit to India during the
P.Y. 2021-22. He does not have any source of income in India. During that previous
year, he stayed in India for only 39 days (14 days in February + 25 days in March).
Since his stay in India during the P.Y.2021-22 is less than 182 days, he is non-
resident in India for the said previous year.
Accordingly, in this case, since Mr. Devansh is a non-resident who is visiting India,
M/s. Journey trip, the tour package operator, is not required to collect tax at source
under section 206C(1G) on the amount of ` 6 lakh received from him for purchase of
tour programme package to Malaysia.
(ii) For the provisions of section 194Q to be attracted, a buyer is required to have a total
sales or gross receipts or turnover from the business carried on by it exceeding ` 10
crore 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 XYZ Ltd. is incorporated in the P.Y. 2021-22, it would not qualify
as a “buyer” for the purpose of section 194Q for the said previous year, inspite of its
turnover exceeding ` 10 crores in the said previous year.
However, since White Ride’s turnover for the F.Y. 2020-21 exceeds ` 10 crores and
its receipts from XYZ Ltd. exceed ` 50 lakhs, TCS provisions under section 206C(1H)
would be attracted in its hands. TCS would be attracted at the time of receipt of
consideration (i.e., in respect of receipts in excess of sale consideration of Rs.50
lakhs).
No tax is to be collected u/s 206C(1H) on 1.9.2021, since the aggregate receipts till
that date i.e., ` 25 lakhs, has not exceeded the threshold of ` 50 lakhs.
Tax of ` 500 (i.e., 0.1% of ` 5 lakhs) has to be collected u/s 206C(1H) by M/s White
Ride on 15.10.2021 (` 30 lakh – ` 25 lakhs, being the balance unexhausted threshold
limit).
Tax of ` 1,500 (i.e., 0.1% of ` 15 lakhs) has to be collected u/s 206C(1H) by
M/s. White Ride on 15.1.2022.
20. Mrs. Sudha’s income from house property would be ` 2,10,000 (` 3,00,000 less 30% of
net annual value). Since this is her only source of income, her gross total income/total
income for A.Y.2022-23 would be ` 2,10,000, which is lower than the basic exemption limit.
Hence, she is not required file her return of income for A.Y.2022-23 as per section
139(1)(b), since her gross total income/total income does not exceed the basic exemption
limit of ` 2,50,000.

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However, clause (iv) to seventh proviso of section 139(1) provides that a person (other
than a company or a firm) who is not required to furnish a return u/s 139(1) has to furnish
return on or before the due date if he/she fulfills such other conditions as may be prescribed
under Rule 12AB.
Rule 12AB, inter alia, prescribes that any person other than a company or a firm, who is
not required to furnish a return under section 139(1), has to file income-tax return in the
prescribed form and manner on or before the due date if, the aggregate of tax deducted at
source and tax collected at source during the previous year, in case of such person, is
` 25,000 or more.
Accordingly, it has to be examined whether, in Mrs. Sudha’s case, the requirement to file
return for A.Y.2022-23 arises due to TDS/TCS, in her case, exceeding ` 25,000 in the
P.Y.2021-22.
As per section 206C(1F), every person, being a seller, who receives any amount as
consideration for sale of a motor vehicle of the value exceeding ` 10 lakhs, has to collect
tax from the buyer @1% of the sale consideration.
Accordingly, dealer of the car is required to collect tax at source of ` 26,247 @1% on ex-
showroom price i.e., ` 26,24,710 (` 29,52,000 – ` 2,15,000 – ` 51,575 – ` 25,255 –
` 35,460) from Mrs. Sudha, being the buyer of the car.
Hence, as per the seventh proviso to section 139(1) read with Rule 12AB, Mrs. Sudha is
required to mandatorily file her return of income for A.Y.2022-23, even though her gross
total income/total income does not exceed the basic exemption limit, since tax collected at
source during the P.Y. 2021-22, in her case is ` 26,247 which exceeds the threshold of
` 25,000.
21. As per section 292BB, any notice which is required to be served upon an assessee shall
be deemed to have been duly served and the assessee would be precluded from taking
any objection that the notice was-
(a) not served upon him; or
(b) not served upon him in time; or
(c) served upon him in an improper manner,
if he had appeared in any proceedings or co-operated in any enquiry relating to
assessment or re-assessment.
Issue of notice under section 143(2) is mandatory for making a regular assessment under
section 143(3). The Apex Court in CIT v. Laxman Das Khandelwal (2019) 417 ITR 325 held
that section 292BB is a deeming provision that seeks to cure defects in any notice issued
under any provision of the Income-tax Act, 1961, if the assessee has participated in the
proceedings.

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For section 292BB to apply, the notice must have emanated from the Department. It is only
the infirmities in the manner of service of notice that the section seeks to cure. The section
is not intended to cure the complete absence of notice itself.
Accordingly, non-issuance of notice under section 143(2) is not a curable defect under
section 292BB inspite of participation by the assessee in assessment proceedings.
In the present case, since the assessment of Mr. Arora was completed u/s 143(3) without
issuing notice u/s 143(2), the assessment is bad in law and not a curable defect u/s 292BB.
Therefore, the contention of Mr. Arora is valid and the contention of the Assessing Officer
is invalid in spite of the fact that Mr. Arora participated in the assessment proceedings.
22. Dispute Resolution Committee (DRC) would resolve dispute in the case of a person who
opts for dispute resolution under Chapter XIX-AA in respect of dispute arising from any
variation in the specified order in his case and who fulfils the specified conditions. Specified
order includes an assessment order passed under section 143(3), where the aggregate
sum of variations made vide such order does not exceed ` 10 lakh; the total income as per
such return furnished by the assessee for the assessment year relevant to such order does
not exceed ` 50 lakhs and such order is not based on search or requisition or survey or
any information received under a DTAA.
Accordingly, in the present case, Mr. Vijay can file an application before DRC, since the
assessment order received on 26.11.2022 is a specified order and he satisfies the
specified conditions on account of no order of detention being made and no prosecution
proceedings being initiated or instituted against him. Non-levy of penalty under income-tax
law is not a specified condition, therefore, the levy of penalty under section 271D on him
does not result in non-compliance with the specified condition. Mr. Vijay has to file an
application for resolution of dispute in the prescribed form on or before 25.12.2022 i.e.,
within one month from the date of receipt of the specified order.
However, once a modified order is passed by the DRC, no appeal or revision would lie
against such order.
If assessment order is based upon the information received under an DTAA entered with
India, Mr. Vijay, will not be eligible to make an application before DRC, since it is not a
specified order.
23. Section 165A of the Finance Act, 2016 provides 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.
First, it has to be determined whether DOT Inc., Country X is an e-commerce operator.

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 54 FINAL EXAMINATION: NOVEMBER, 2022

E-Commerce Operator means a non-resident who owns, operates or manages digital or

electronic facility or platform for online sale of goods or online provision of services or both.
In the given situation, DOT Inc., Country X, a non-resident, maintains a digital platform for
providing end user computer software. Therefore, DOT Inc. is an e-commerce operator.
However, the consideration received or receivable for e-commerce supply or services
would not include the consideration, which are taxable as, inter alia, royalty or fees for
technical services in India under the Income-tax Act, read with the DTAA notified by the
Central Government under section 90 or section 90A.
The consideration paid by Spacecraft Ltd. to DOT Inc. for use of computer software as per
the terms of EULA is not “royalty” as per the meaning assigned in the DTAA, since it
does not create any interest or right to Spacecraft Ltd. which would amount to the use of
or right to use any copyright. Accordingly, the same does not give rise to any income
chargeable to tax in India. Since the provisions of the DTAA are more beneficial, the same
would apply in the case on hand as decided by Apex Court in Engineering Analysis Centre
of Excellence P. Ltd v. CIT and Another (2021) ITR 471.
In the given situation, DOT Inc. is an e-commerce operator defined in section 165A, since
it provides services through its digital platform. Further, the consideration for such services
is ` 4.5 crores which exceeds the threshold limit of ` 2 crores specified in section 165A.
Also, all the other conditions specified in section 165A are satisfied viz. namely there is no
PE for DOT Inc., Country X, in India and services are provided to a resident in India i.e.,
Spacecraft Ltd., an Indian company.
Hence, DOT Inc., Country X has to pay 2% on ` 4.5 crores which would amount to ` 9
lakhs, as equalisation levy. Spacecraft Ltd., India, the service recipient, need not deduct
the amount as equalisation levy under section 165A (e-commerce supply or services),
since the same is to be paid directly by the service provider i.e., DOT Inc., Coun try X.
24. Computation of total income and net tax payable by Ms. Rajni for the A.Y. 2022-23
Particulars ` `
Income from house property
Gross annual value 1 [CMD 25000 x 69, being conversion 17,25,000
rate as on 31.3.2022 – Rule 115)]
Less: Municipal taxes [CMD 200 x 69] 13,800
17,11,200

1Rental income assumed to be gross annual value, in absence of information regarding standard rent, fair rent
and municipal value.

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 55

Less: Deduction u/s 24@30% 5,13,360

11,97,840
Profits and gains of business or profession
From dance programs held in India 15,00,000
From concerts held in Country M [CMD 10,120 x 69
(being conversion rate as on 31.3.2022 – Rule 115) 6,98,280
21,98,280
Income from Other Sources
Income from bank fixed deposits in her name 4,20,000
Income from savings bank account 15,000 4,35,000
Gross Total Income 38,31,120
Less: Deduction under section 80C
Deposit in PPF 1,50,000
Five year fixed deposit in the name of her son -
(does not qualify for deduction under section 80C)
Under section 80D 50,000
Medical insurance premium to insure her health
and health of spouse (` 61,000, restricted to
` 50,000, being the maximum allowable for senior
citizens)
Under section 80TTB : Interest on bank FD and 50,000
savings bank account restricted to 2,50,000
Total Income 35,81,120
Tax on Total Income
Income-tax 8,84,336
Add: Health and Education Cess @4% 35,373
9,19,709
Average rate of tax in India
(i.e., ` 9,19,709/ ` 35,81,120 × 100) 25.682%
Rate of tax in Country M 20%
Doubly Taxed Income 18,96,120

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 56 FINAL EXAMINATION: NOVEMBER, 2022

[` 11,97,840 (income from house property) + ` 6,98,280

(income from concerts)]
Lower of Indian rate of tax and Rate of tax in Country M 20%
Deduction under section 91
20% of doubly taxed income of ` 18,96,120 3,79,224
Net tax payable 5,40,485
Net tax payable (rounded off) 5,40,490

25. The CBDT has, vide Circular No. 3/2022 dated 3.2.2022, clarified that the applicability of
the Most Favoured Nation (MFN) clause and benefit of the lower rate or restricted scope
of source taxation rights in relation to certain items of income including dividends provided
in India's DTAAs with the third State (Country Y, in this case) will be available to the first
(OECD) State (Country X, in this case) only when all the following conditions are met:
Condition Satisfaction of condition in the
case on hand
(i) The second treaty (with the third State) is This condition is satisfied as India
entered into after the signature/ Entry into has entered into a DTAA with
Force of the treaty between India and the Country Y on 15.5.2018, after it has
first state entered into a DTAA with Country X
on 1.1.2018.
(ii) The second treaty is entered into between This condition is satisfied as India
India and a State which is a member of has entered into a DTAA on
the OECD at the time of signing the 15.5.2018 with Country Y, which is a
treaty with it; member of OECD since 2017.
Hence, on 15.5.2018, Country Y was
an OECD member.
(iii) India limits its taxing rights in the second This condition is satisfied since in
treaty in relation to rate or scope of DTAA between India and Country Y,
taxation in respect of relevant items of dividend is taxable@10%.
income
(iv) A separate notification has been issued In this case, conditions (i), (ii) and
by India, importing the benefits of the (iii) mentioned above have been
second treaty into the treaty with the first satisfied. The concessional rate of
State as required by the provisions of 10% can be applied for taxing the
section 90(1) of the Income-tax Act, 1961. dividend received by Matrix Inc. from
Pilu Ltd., an Indian company, only if
India has issued a separate
notification importing the benefits of
India-Country Y tax treaty into India-

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 57

Country X tax treaty, as required by

the provisions of sections 90(1). If
such notification has been issued,
then, the concessional rate of 10%
can be applied for taxing the
dividend received by Matrix Inc. from
Pilu Ltd., an Indian company;
otherwise it cannot be applied, even
if other conditions are satisfied.

In case if Country Y became an OECD member only in the year 2020, then, the
concessional rate of 10% cannot be applied for taxing dividend received by Matrix Inc. from
Pilu Ltd., since Country Y was not an OECD member on 15.5.2018, at the time when India
signed the DTAA with it. Consequently, condition (ii) mentioned above would not be
satisfied in such a case. Hence, dividend received by Matrix Inc. from Pilu Ltd. would be
subject to tax@15%.

© The Institute of Chartered Accountants of India

 PAPER 7: DIRECT TAX LAWS & INTERNATIONAL TAXATION
The provisions of direct tax laws, as amended by the Finance Act, 2021 and significant
notifications and circulars issued upto 31.10.2021, are relevant for May, 2022 examination. The
relevant assessment year is A.Y.2022-23. The October, 2021 edition of the Study Material is
based on the provisions of direct tax laws as amended by the Finance Act, 2021 and notifications
and circulars issued upto 31.10.2021, and hence, the same is relevant for May, 2022
examination. The same has been webhosted at https://www.icai.org/post.html?post_id=17843

QUESTIONS AND ANSWERS

Case Scenario 1
Mr. Prem is a partner in two firms X & Co., Mumbai and Y & Co., Delhi. X & Co. has four
partners, including Prem, who share profits and losses equally. Mr. Prem resigned from X &
Co. on 1.4.2021. On the said date, the capital balance of each of the partners stood at ` 32
lakhs. In order to settle the dues of Mr. Prem, the firm revalues its land for the first time since
purchase; the valuer also valued self-generated goodwill at ` 70 lakhs. The firm has the
following capital assets, whose details are as follows.
Particulars of Assets Date of Cost of Value as on 1.4.2021 as
purchase acquisition per Valuation Report
(book value) (Rule 11U)
1. Land at Pune 21.1.2013 ` 15 lakhs ` 50 lakhs
2. Land at Nagpur 18.4.2015 ` 25.4 lakhs ` 45 lakhs
3. Land at Mumbai 14.5.2013 ` 88 lakhs ` 250 lakhs
4. Self-generated goodwill ` 70 lakhs
In April, 2021, X & Co. gave Land at Nagpur and ` 15 lakh money to Mr. Prem to settle his
capital balance.
The firm Y & Co. dissolved on 1.3.2022 and distributed its land at Chandigarh, Mohali and
Gurgaon on the same date to its three partners, Prem, Akshay and Aarav, respectively, who
were sharing profits and losses equally. The particulars of these lands are given hereunder –
Particulars of Assets Date of Cost of Value as per
purchase acquisition Valuation Report
(book value) as on 1.3.2022
(Rule 11U)
1. Land at Chandigarh (given to Prem) 3.7.2011 ` 18.4 lakhs ` 62 lakhs
2. Land at Mohali (given to Akshay) 15.9.2015 ` 15.24 lakhs ` 59 lakhs
3. Land at Gurgaon (given to Aarav) 27.2.2011 ` 16.7 lakhs ` 70 lakhs

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 2 FINAL EXAMINATION: MAY, 2022

In addition, Prem and Akshay were given money of ` 8 lakhs and ` 11 lakhs, respectively on
1st March, 2022.
Cost Inflation Index is as follows: F.Y.2010-11– 167; F.Y.2011-12 – 184; F.Y.2012-13 – 200;
F.Y.2013-14 – 220; F.Y.2014-15 – 240; F.Y.2015-16 – 254 and F.Y.2021-22 – 317.
On the basis of the facts given above, choose the most appropriate answer to Q.1 to Q.5
below, based on the provisions of the Income-tax Act, 1961 -
1. What would be the amount taxable under section 9B in the hands of X & Co. and Y & Co.
for A.Y.2022-23?
(a) ` 13,30,000 and ` 1,08,58,000, respectively
(b) ` 28,30,000 and ` 1,27,58,000, respectively
(c) ` 19,60,000 and ` 1,40,66,000, respectively
(d) ` 13,30,000 and Nil, respectively
2. What would be the capital gains taxable under section 45(4) in the hands of X & Co. for
A.Y.2022-23?
(a) Long-term capital gains of ` 23,79,160
(b) Long-term capital gains of ` 23,76,500
(c) Long-term capital gains of ` 17,55,410 and short-term capital gains of ` 6,23,750
(d) Long-term capital gains of ` 17,53,448 and short-term capital gains of ` 6,23,052
3. What would be the capital gains taxable under section 45(4) in the hands of Y & Co for
A.Y.2022-23?
(a) Nil
(b) ` 1,08,58,000
(c) ` 1,27,58,000
(d) ` 1,40,66,000
4. What would be the amount apportioned to Land at Pune and Land at Mumbai of X & Co.,
to be reduced from full value of consideration for computing capital gains of such asset,
when sold at a future date?
(a) ` 3,11,526 and ` 14,41,922
(b) ` 3,11,875 and ` 14,43,535
(c) ` 2,92,568 and ` 14,62,842

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 3

(d) ` 2,92,241 and ` 14,61,207

5. If self-generated goodwill is sold in the P.Y.2022-23 for ` 80 lakhs, what would be the
capital gains on such sale in the A.Y.2023-24?
(a) ` 10,00,000
(b) ` 73,76,250
(c) ` 73,76,948
(d) ` 80,00,000

Case Scenario 2
Mr. Sunil, Mr. Sriram and Mr. Shyam are three brothers, who are resident Indians in independent
retail trade business of food grains in Pune, Thane and Nagpur, respectively. Their turnover for
F.Y.2020-21 were ` 9 crores, ` 10 crores and ` 12 crores, respectively. They regularly
purchase food grains from another resident, Mr. Ashwath, a wholesaler in Mumbai. The turnover
of Mr. Ashwath for F.Y.2020-21 was ` 18 crores.
They all follow mercantile system of accounting. The aggregate amount credited by the brothers
to the account of Mr. Ashwath during each month of the F.Y.2021-22 is shown in the table below.
It may be assumed that the entire amount relating to Mr. Ashwath for a particular month is
credited to his account on the last date of that month and is paid entirely on the last date of the
immediately following month. Likewise, Mr. Ashwath also debits the accounts of Mr. Sunil,
Mr. Sriram and Mr. Shyam on the last date of the month with the amount of sales effected during
each month.
Month Value of purchases from Mr. Ashwath
Mr. Sunil Mr. Sriram Mr. Shyam
` ` `
April, 2021 5.90 lakhs 7.50 lakhs 9.80 lakhs
May, 2021 7.10 lakhs 6.85 lakhs 8.75 lakhs
June, 2021 8.20 lakhs 8.20 lakhs 9.45 lakhs
July, 2021 6.80 lakhs 6.45 lakhs 6.80 lakhs
August, 2021 4.90 lakhs 5.95 lakhs 6.30 lakhs
September, 2021 5.80 lakhs 7.10 lakhs 8.15 lakhs
October, 2021 7.20 lakhs 8.60 lakhs 7.80 lakhs
November, 2021 6.70 lakhs 6.80 lakhs 9.10 lakhs
December, 2021 8.10 lakhs 7.85 lakhs 7.90 lakhs
January, 2022 9.00 lakhs 8.90 lakhs 8.25 lakhs

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 4 FINAL EXAMINATION: MAY, 2022

February, 2022 7.90 lakhs 6.70 lakhs 7.95 lakhs

March, 2022 8.40 lakhs 9.10 lakhs 7.75 lakhs
Total 86 lakhs 90 lakhs 98 lakhs
Mr. Sunil’s friend Mr. Krishna entered into a one-time transaction with Mr. Ashwath for purchase
of food grains for ` 60 lakhs on 30 th June, 2021, on which date he credited the said sum to the
account of Mr. Ashwath. He, however, paid the said sum to him only on 2nd July, 2021.
Mr. Krishna’s turnover for P.Y.2020-21 is ` 15 crore.
On the basis of the facts given above, choose the most appropriate answer to Q.6 to Q.10 below -
6. Are the provisions of TDS under the Income-tax Act, 1961 attracted in respect of
purchase transactions with Mr. Ashwath? If so, in whose hands, at what rate and at
what point of time? Ignore one time transaction of Mr. Sunil’s friend, Mr. Krishna, for
the purpose of this MCQ.
(a) Mr. Sriram and Mr. Shyam are liable to deduct tax at source @1% on the amount of
each purchase made (after crossing the threshold limit of ` 50 lakhs), at the time of
payment to Mr. Ashwath towards such purchase (i.e., from 30.11.2021 onwards)
(b) Mr. Sriram and Mr. Shyam are liable to deduct tax at source @0.1% on the amount
of each purchase (after crossing the threshold limit of ` 50 lakhs), at the time of
credit of such amount to Mr. Ashwath’s account (i.e., from 31.10.2021 onwards)
(c) Mr. Shyam is liable to deduct tax at source @0.1% on the amount of each
purchase (after crossing the threshold limit of ` 50 lakhs) at the time of credit of
such amount to Mr. Ashwath’s account (i.e., from 31.10.2021 onwards).
(d) Mr. Shyam is liable to deduct tax at source @1% on the amount of each purchase
made (after crossing the threshold limit of ` 50 lakhs) at the time of payment to
Mr. Ashwath towards such purchase (i.e., from 30.11.2021 onwards).
7. Are provisions of TCS under the Income-tax Act, 1961 attracted in respect of sale
transactions effected by Mr. Ashwath? If so, from whom does he have to collect tax, at
what rate and what point of time? Ignore one time transaction of Mr. Sunil’s friend ,
Mr. Krishna, for the purpose of this MCQ.
(a) Ashwath has to collect tax at source from Mr. Sunil and Mr. Sriram@1% on the
amount exceeding the prescribed threshold of ` 50 lakhs, at the time of debit of
such amount to their account (i.e., from 30.11.2021 and 31.10.2021, respectively).
(b) Ashwath has to collect tax at source from Mr. Sunil and Mr. Sriram@0.1% on the
amount exceeding the prescribed threshold of ` 50 lakhs, at the time of receipt of
such amount every month (i.e, from 31.12.2021 and 30.11.2021, respectively).

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 5

(c) Ashwath has to collect tax at source from Mr. Sunil @1% on the amount exceeding
the prescribed threshold of ` 50 lakhs, at the time of debit of such amount to his
account (i.e., from 30.11.2021).
(d) Ashwath has to collect tax at source from Mr. Sunil@0.1% on the amount
exceeding the prescribed threshold of ` 50 lakhs, at the time of receipt of such
amount every month (i.e., from 31.12.2021).
8. What would be the applicable rate of TDS, if Mr. Ashwath fails to furnish PAN to the
deductor (based on answer to MCQ 6)? Also, what would be the applicable rate of TCS,
if the collectee (based on answer to MCQ 7) fails to furnish PAN to Mr. Ashwath?
(a) 20% and 5%, respectively
(b) 5% and 1%, respectively
(c) 5%, in both cases
(d) 1%, in both cases
9. If the value of purchases by Mr. Shyam from Mr. Ashwath was 70% of the monthly
figures given in the table, then, what would be the TDS/TCS implications in respect of
such transaction?
(a) Mr. Shyam has to deduct tax at source on purchases of ` 18.60 lakhs with effect
from 31.12.2021
(b) Mr. Shyam need not deduct tax at source, since payment for purchase
transactions with Mr. Ashwath after the date when the TDS provisions came into
force, does not exceed ` 50 lakhs
(c) Mr. Ashwath has to collect tax at source on ` 18.60 lakhs, being the amount
exceeding ` 50 lakhs with effect from 31.12.2021.
(d) Both (b) and (c) are correct statements.
10. What would be the TDS/TCS implication in respect of the single purchase transaction
by Mr. Krishna from Mr. Ashwath?
(a) Mr. Krishna has to deduct tax at source as his turnover for P.Y.2020 -21 exceeds
the prescribed threshold limit
(b) Mr. Krishna has to deduct tax at source, since his purchase transaction of ` 60
lakhs exceeds the annual threshold of ` 50 lakhs and he has made the payment
after the prescribed date when TDS provisions came into force.
(c) Mr. Krishna has to deduct tax at source on 2.7.2021 on ` 10 lakhs, being the
amount exceeding ` 50 lakhs, due to reasons stated in (a) and (b) above

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 6 FINAL EXAMINATION: MAY, 2022

(d) Mr. Ashwath has to collect tax at source on 2.7.2021 on ` 10 lakhs, being the
amount exceeding ` 50 lakhs.
11. PoorAid is a charitable trust registered under section 12AB. Its main object is relief of poor.
During the P.Y.2021-22, it received ` 50 lakhs by way of corpus donations, out of which it
invested 85%, i.e., ` 42.50 lakhs in post office savings bank account. It was of the view
that ` 7.50 lakhs, being 15% of ` 50 lakhs, is eligible for unconditional accumulation. The
trust also withdrew ` 2.50 lakhs out of ` 42.50 lakhs deposited in post office savings bank
account and applied the same for relief of the poor. Examine the tax implications, if any,
based on the above facts.
(i) The trust is eligible for unconditional accumulation of ` 7.50 lakhs, being 15%
of ` 50 lakhs. There would be no tax liability on the said amount.
(ii) The trust would be eligible to treat ` 2.50 lakhs withdrawn from post office
savings bank account as application for the purposes of the trust.
(iii) The trust will not be eligible for benefit of exemption of ` 7.50 lakhs unless it
invests such amount in any of the modes specified in section 11(5).
(iv) Amount of ` 2.50 lakhs withdrawn from post office savings bank account cannot
be treated as application
Which of the above statements are correct?
(a) (i) and (ii)
(b) (ii) and (iii)
(c) (iii) and (iv)
(d) (i) and (iv).
12. ABC developers have completed their residential housing project “Ashiana Gardens” in
Faridabad in May, 2021. It comprises of 8 residential units. 3 units were transferred to
home buyers in June, 2021 and the remaining 5 units were transferred to home buye rs
in July, 2021. All the units were transferred by way of first time allotment to home buyers.
The consideration received for each unit is ` 25 lakhs and the same was received by
prescribed electronic modes. The stamp duty value of each unit was however ` 30 lakhs
(both in June and July). What would be the full value of consideration for the purpose of
computing profits and gains of business or profession?
(a) ` 2 crore
(b) ` 2.15 crore
(c) ` 2.25 crore
(d) ` 2.40 crore

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13. The EBITDA of ABC Ltd., an Indian company, for the F.Y.2021-22 is ` 10 crore. It paid
interest of ` 5.20 crore to PQR Inc., UK, which is a specified foreign company in relation
to ABC Ltd. The arm’s length price using CUP method was ` 4.15 crore, and ABC Ltd.
suo moto made the transfer pricing adjustment while computing its total income. On the
basis of the above facts, examine the correctness of the following statements , assuming
that no other interest is payable by ABC Ltd. -
(a) The arm’s length adjustment as per section 92C would be ` 1.05 crore; The excess
interest under section 94B would be ` 1.15 crore. Secondary adjustment is required
to be made in respect of ` 2.20 crore (` 1.15 crore + ` 1.05 crore), unless ABC Ltd.
opts to pay additional income-tax on such sum and has paid such additional income-
tax.
(b) The excess interest under section 94B would be ` 2.20 crore. No secondary
adjustment is required under section 92CE.
(c) The excess interest under section 94B would be ` 2.20 crore and secondary
adjustment under section 92CE is required to be made in respect of the said amount,
unless ABC Ltd. opts to pay additional income-tax on such sum and has paid such
additional income-tax.
(d) The arm’s length adjustment as per section 92C would be ` 1.05 crore; the excess
interest under section 94B would be ` 1.15 crore. Secondary adjustment is required
to be made in respect of ` 1.05 crore, unless ABC Ltd. opts to pay additional income
tax on such sum and has paid such additional income-tax.
14. MNO Inc. and PQR Inc. are two Country M based companies engaged in trading of
oilseeds. MNO Inc. sold oilseeds of the value of ` 1.80 crore during the P.Y.2021-22 to
XYZ Ltd., an Indian company, through an agent in Delhi who secures orders in India mainly
for MNO Inc. PQR Inc. also sold oilseeds of the value of ` 2.10 crore during the P.Y.2021-
22 to XYZ Ltd., through an independent agent carrying on agency business in Mumbai.
The independent agent in Mumbai renders services to many other oilseed trading
companies which are not related to PQR Inc. in any manner. Both MNO Inc. and PQR Inc.
do not have a PE in India. Examine the taxability of income earned by MNO Inc. and PQR
Inc. from their sale transactions with XYZ Ltd., based on the provisions contained in section
9(1) of the Income-tax Act, 1961. Ignore DTAA, if any.
(a) Income of MNO Inc. attributable to the operations carried out in India by its agent
in Delhi (in respect of sale transactions with XYZ Ltd., in this case) would be
deemed to accrue and arise in India in the hands of MNO Inc. and be chargeable
to tax in its hands; and income of PQR Inc. attributable to the sale transactions
with XYZ Ltd. would be deemed to accrue or arise in India in the hands of PQR
Inc. and be chargeable to tax in its hands.
(b) No part of the income of MNO Inc. and PQR Inc. attributable to the sale
transactions with XYZ Ltd. would be chargeable to tax in India

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 8 FINAL EXAMINATION: MAY, 2022

(c) Income of MNO Inc. attributable to sale transactions with XYZ Ltd. would be
deemed to accrue or arise in India and be chargeable to tax in India in its hands
but not income of PQR Inc.
(d) Income of PQR Inc. attributable to sale transactions with XYZ Ltd. would be
deemed to accrue or arise in India and be chargeable to tax in India in its hands
but not income of MNO Inc.
15. Mr. Raj is an Indian citizen living in Country T for the last 10 years. His brother,
Mr. Rahul also left India 10 years before and settled in Country Q. He has become a
citizen of Country Q. Prior to that, they have always been in India since birth. Their
parents were also born in India. Both of them come on a visit to India during the entire
months of June, July and August every year upto P.Y.2020-21. Both brothers decided
to start a business in India and hence, visited India for setting up the busine ss on
1st December, 2021. The income of Mr. Raj and Mr. Rahul is ` 20 lakhs each, out of
which income from foreign sources is ` 5.5 lakhs for Mr. Raj and ` 4.5 lakhs for
Mr. Rahul. They left India for their respective countries only on 3rd April, 2022. What is
their residential status for A.Y.2022-23?
(a) Both of them would be non-residents
(b) Mr. Raj is a resident but not ordinarily resident and Mr. Rahul is a non -resident
(c) Mr. Rahul is a resident but not ordinarily resident but Mr. Raj is a non -resident
(d) Both of them would be resident but not ordinarily resident
16. Beta Limited has transferred its Unit Omega to Delta Limited by way of slump sale on
December 31st, 2021. The summarised Balance Sheet of Beta Limited as on
31st December, 2021 is given below:
Liabilities ` in lakhs Assets ` in lakhs
Paid up Capital 850 Fixed Assets:
Reserve & Surplus 310 Unit Gamma 75
Trade Creditors: Unit Sigma 75
Unit Gamma 20 Unit Omega 275
Unit Sigma 55 Debtors:
Unit Omega 45 Unit Gamma 260
Unit Sigma 195
Unit Omega 400
Total 1,280 Total 1,280

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 9

Using the further information given below, compute the capital gain arising from slump sale
of Unit Omega and tax on such capital gain.
(i) Cost inflation index for F.Y. 2010-11 and F.Y. 2021-22 are 167 and 317, respectively.
(ii) Lump sum consideration on transfer of Unit Omega is ` 600 lakhs.
(iii) Fixed assets of Unit Omega includes land which was purchased at ` 30 lakhs in
August 2012 and revalued at ` 45 lakhs as on 31st December, 2021. The stamp duty
value of land as on 31 st December, 2021 is ` 42 lakhs.
(iv) Other fixed assets representing machinery are reflected at ` 230 lakhs (i.e. ` 275
lakhs less value of land) which represents written down value as per books. The
written down value of machinery under section 43(6) of the Income-tax Act, 1961 on
31.12.2021 is ` 155 lakhs.
(v) Unit Omega was set up by Beta Limited in May, 2010.
(vi) The company does not opt for section 115BAA.
17. Regal (P) Limited, incorporated on 15 th December, 2019, is engaged in manufacture and
sale of ceramic tiles. It commenced manufacturing in the month of January, 2020. The net
profit of the company as per its statement of profit and loss for the year ended 31 st March,
2022 is ` 220 lakh after debiting/crediting the following items:
(i) One-time license fee of ` 22 lakh paid to ABC Ltd (an Indian company) for obtaining
franchise on 1st June, 2021.
(ii) ` 32,000 paid to B & Co., a goods transport operator, in cash on 31 st January, 2021
for carrying company’s products to the warehouse.
(iii) Rent of ` 60,000 p.m. received from letting out a part of its office premises. Municipal
tax paid in respect of the said part of the building is ` 8,000. The same has been
debited to statement of profit and loss.
(iv) ` 2 lakh, being contribution to a scientific research association approved and notified
under section 35(1)(ii).
(v) ` 5 lakh paid to a contractor for repair work at the company’s factory. No tax was
deducted on such payment.
(vi) Dividend of ` 10,000 from Gamma Limited earned on 1,000 equity shares of ` 10
each purchased at ` 100 per share on 10 th October, 2017. These shares were sold
on 1st March, 2022 at ` 280 per share. Gain on transfer of these shares credited to
books of accounts.
(vii) Depreciation on tangible fixed assets as per books of account ` 2.20 lakh.

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 10 FINAL EXAMINATION: MAY, 2022

Additional Information:
(i) Depreciation on tangible fixed assets as per Income-tax Rules ` 2.60 lakh.
(ii) Company has acquired on 15.11.2021, machinery for ` 20 lakhs and put the same to
use on the same date. Depreciation on such machinery is not included in point (i)
above.
(iii) Fair market value of shares of Gamma Limited as on 31st January, 2018 was ` 110
per share.
(iv) On account of expansion of its activities, 180 new employees joined during the
P.Y.2021-22, the details of whom are as follows –
No. of Date of Regular/ Total monthly
employees employment Contractual emoluments per
employee (`)
(i) 51 1.4.2021 Regular 23,000
(ii) 46 1.6.2021 Regular 26,000
(iii) 48 1.8.2021 Contractual 27,000
(iv) 35 1.9.2021 Regular 24,000
The emoluments are paid by use of ECS through a bank account and it may be
assumed that the employees participate in recognised provident fund .
Compute the total income of the company and tax liability for the A.Y. 2022-23, assuming
that the company opts for concessional tax regime under section 115BAB.
18. Manav Rachna Ltd., an Indian company engaged in manufacture and sale of electrical
appliances in India and abroad, started adoption of Ind AS with effect from 1 st April, 2020.
The particulars of “Other Comprehensive Income” for the year ended 31.03.2022:
Other Comprehensive Income (OCI) that will not be re-classified to Statement of
profit and loss:
Debit Credit
(` In lakhs)
(i) Deferred costs of hedging 2.80
(ii) Changes in fair values of equity instruments 7.40
(iii) Revaluation surplus for assets 6.10
(iv) Deferred gains on cash flow hedges 7.50
(v) Re-measurement of post-employment benefit obligations 6.20

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The following are other particulars furnished for the year ended 31 st March, 2022:-
(a) The book profit after adjustment of all items specified in section 115JB(2) amounted
to ` 97.54 lakhs (except the adjustment for brought forward losses/ unabsorbed
depreciation), for the year ended 31.3.2022.
(b) Brought forward losses as per books are as under: (` In lakhs)
Financial Year Business loss Depreciation
2019-20 9.10 6.40
2020-21 6.10 8.10
(c) The transition amount as on convergence date (01-04-2020) stood at ` 68 lakhs
(credit balance) including capital reserve of ` 8 lakhs and adjustment of ` 6 lakhs
relating to translation difference in a foreign operation.
(d) The National Company Law Tribunal (NCLT), Mumbai Bench has admitted an
application under section 7 of Insolvency and Bankruptcy Code, 2016 (IBC) made by
financial creditor against the company for initiation of Corporate Insolvency
Resolution Process on 30 th March, 2022.
You are required to compute the MAT liability for the assessment year 2022-23, applying
the provisions relating to Ind AS compliant companies. Assuming that the income tax under
normal provisions of Income-tax Act, 1961 for the assessment year 2022-23 works out to
` 12.80 lakhs, compute the tax credit, if any, to be carried forward by the company
including the period up to which it will be available to be carried forward.
19. Examine the correctness of contention/action/treatment of the institution/charitable trust in
each of the following separate cases –
(a) An institution runs a university solely for educational purposes and a hospital solely
for philanthropic purposes. Both the university and the hospital are not for profit. The
gross receipts from the university and hospital during the F.Y.2021-22 are ` 3 crores
each. The institution contended that the income from university is eligible for
exemption u/s 10(23C)(iiiad) and income from hospital is eligible for exemption u/s
10(23C)(iiiae), since the aggregate annual receipts in each case does not exceed the
prescribed threshold; and there would be no requirement to get the approval of
Principal Commissioner or Commissioner for availing the benefit of exemption under
section 10(23C).
(b) A registered charitable trust, with the main object of relief of poor, wants to set off its
excess application of ` 27 lakhs in the P.Y.2020-21 while computing its income
required to be applied during the P.Y.2021-22.

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 12 FINAL EXAMINATION: MAY, 2022

(c) A charitable trust registered u/s 12AB borrowed ` 40 lakhs from SBI in April, 2021 for
purchase of building for opening a school in a rural area for primary education of
children in backward areas. It spent the entire amount for the said purpose and
claimed the same as application of income. In March, 2022, it repaid the first
instalment of ` 5 lakhs to SBI.
20. Examine the applicability of provisions relating to deduction/collection of tax at source and
compute the amount of tax to be deducted/collected at source in the following cases for
financial year ended 31 st March, 2022 as per provisions contained in the Income-tax Act,
1961:
(i) Mr. Rajesh remitted an amount of ` 5,80,000 towards maintenance expenses of his
son pursing education in University of Australia. He also remitted ` 7,80,000 to
University of Australia, for the purpose of his son’s education, out of loan taken from
his employer, ABC Ltd., an Indian manufacturing company. Both the remittances were
made through the same authorized dealer under the Liberalised Remittance Scheme
of RBI.
(ii) Mr. Appy, a resident Indian, [E-commerce participant] sells goods worth ` 84 lakhs
through e-commerce website of HIGHSALE [E-commerce Operator]. Mr. Appy has
not furnished PAN or AADHAR No. to the E-commerce Operator. He has furnished
his return of income for all the assessment years before the due date of filing return
of income.
21. ABC Ltd., a domestic company, applied for advance ruling on 1.4.2021 in relation to tax
liability arising out of transactions valuing ` 110 crore which is proposed to be undertaken
by it. The advance ruling was pronounced on 31.8.2021. Is the same binding on ABC Ltd.?
Examine.
Would your answer change if the advance ruling was pronounced on 30.9.2021? What
would be the remedy available to ABC Ltd. if it is aggrieved by the advance ruling
pronounced on 30.9.2021? Examine.
22. In respect of Mr. Hari, who is engaged in export of fabrics, information is flagged as per
the risk management strategy formulated by the CBDT for A.Y.2017-18, A.Y.2018-19,
A.Y.2019-20 and A.Y.2020-21. The income escaping assessment for these years
aggregate to ` 42 lakhs.
In respect of Mr. Hari’s friend Mr. Rajesh, who is engaged in trading of commodities, a
search was initiated u/s 132 in April, 2021.
Can the Assessing Officer issue notice under section 148 to Mr. Hari and Mr. Rajesh in
April, 2021? If so, in respect of which assessment years can notice be issued? Is it

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 13

necessary that they be provided an opportunity of being heard before issuance of notice?
Examine.
23. Trex Ltd., a company incorporated in Country “T”, has the following incomes in India during
the year ended on 31.03.2022. Compute the total income and tax liability of Trex Ltd. for
the Assessment Year 2022-23, assuming that its POEM is outside India.
(i) Interest of ` 2,85,000 earned on debentures of ` 30,00,000 issued on 1 st August
2021, in consideration of providing technical knowhow to MNO Ltd., an Indian
Company, for the purpose of business carried out in India.
(ii) Dividend of ` 6,50,000 earned on Global Depository Receipts of YL Ltd., an Indian
company, issued under a scheme of Central Government against the initial issue of
shares of the company and purchased by Trex Ltd. in foreign currency through an
approved intermediary.
(iii) Dividend of ` 15,50,000 earned on equity shares of Indian companies.
(iv) Income by way of royalty amounting to ` 12,56,470, received from Z Ltd., an Indian
company, in pursuance of an agreement approved by Central Government.
(v) Business Income of ` 8,50,000 from a unit established at Delhi.
(vi) Long-term capital gain of ` 1,32,000 on transfer of unlisted shares of an Indian
Company (computed with indexation benefit). If computed without indexation benefit,
the long-term capital gains would be ` 2,32,000.
Notes –
(i) No DTAA exists between India and Country “T”.
(ii) The Unit in Delhi is not involved in any manner in provision of technical
knowhow/royalty.
24. Mr. Ganesh, a resident individual aged 52 years, has furnished the following details of his
income earned during the previous year 2021-22:
India
(i) Income from a sole-proprietary business in Pune ` 80 lakhs.
(ii) Share of profit from a partnership firm in Mumbai ` 20 lakhs.
Country G
(iii) Agricultural Income (gross) of CGD 40000 from tea gardens. Taxable @20%.
(iv) Brought forward business loss of F.Y.2018-19 in Country G was CGD 5,200 which is
not permitted to be set off against other income as per the laws of that country.

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 14 FINAL EXAMINATION: MAY, 2022

Country M
(v) Dividend income (gross) of CMD 30,000. Taxable @10%.
(vi) Rental Income of CMD 52,000 from house property. Taxable @15%. He paid CMD
6,000 towards municipal taxes in Country M. Municipal taxes are not allowed as
deduction in Country M.
Other Information
- Mr. Ganesh has deposited ` 1,50,000 in public provident fund and paid medical
insurance premium of ` 28,000 by account payee cheque to insure the health of
himself and his wife (aged 48 years).
- India has no DTAA with Country G and Country M.
Compute total income and tax liability of Mr. Ganesh for the A.Y. 2022-23 after providing
for deduction under section 91, assuming that 1 CGD/CMD = ` 70. Mr. Ganesh is not
opting for section 115BAC.
25. Mr. Divakar is a resident of the Contracting States, namely, India and Country “Y”, as per
the domestic tax laws of the respective countries. Would it be necessary to apply tie -
breaker rule in case of Mr. Divakar? If yes, explain the manner of determining residential
status of Mr. Divakar as per the UN Model Convention applying the tie breaker rule.

SUGGESTED ANSWERS

MCQ Most Appropriate MCQ Most Appropriate Answer

No. Answer No.
1. a 9. a
2. c 10. d
3. a 11. c
4. b 12. c
5. b 13. d
6. c 14. a
7. b 15. c
8. b

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 15

16. As per section 50B, any profits and gains arising from the slump sale effected in the
previous year shall be chargeable to income-tax as capital gains arising from the transfer
of capital assets and shall be deemed to be the income of the previous year in which the
transfer took place.
Computation of capital gain on slump sale of Unit Omega under section 50B
Particulars ` (in lakhs)
Full value of consideration for the slump sale of Unit Omega 627
Less: Net worth of Unit Omega (Refer Note 1 below) 540
Long term capital gain arising on slump sale _87
Computation of tax liability of Beta Ltd. on slump sale of Unit Omega for the
A.Y. 2022-23
Particulars ` (in lakhs)
Tax on capital gains@20% 17.400
Add: HEC@4% _0.696
Total tax liability on capital gain arising on slump sale of Unit 18.096
Omega
Notes:
(1) Computation of full value of consideration
Particulars ` (in lakhs)
Fair Market Value of capital assets transferred by way of
slump sale as on 31.12.2021
Land (stamp duty value as on 31.12.2021, being the date of slump 42
sale)
Machinery (book value as appearing in the books of account) 230
Debtors (book value appearing in the books of account) 400
672
Less: Value of trade creditors of Unit Omega 45
Fair market value of capital assets transferred by way of slump 627
sale [FMV 1]
Fair market value of the consideration received or accruing as a 600
result of transfer by way of slump sale [value of monetary
consideration received, in this case] [ FMV 2]
Full value of consideration [Higher of FMV 1 and FMV 2] 627

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 16 FINAL EXAMINATION: MAY, 2022

(2) The net worth of an undertaking transferred by way of slump sale shall be deemed to
be the cost of acquisition and cost of improvement for the purposes of section 48 and
49 [Section 50B(2)].
Computation of net worth of Unit Omega
Particulars ` (in lakhs)
(A) Book value of non-depreciable assets:
(i) Land (Revaluation is to be ignored for computing net 30
worth)
(ii) Debtors 400
(B) Written down value of machinery under section 43(6) 155
Aggregate value of total assets 585
Less: Value of trade creditors of Unit Omega 45
Net worth of Unit Omega 540
(3) Since Unit Omega is held for more than 36 months, the capital gains of ` 87 lakhs
arising on transfer of such unit would be a long term capital gain taxable under section
112. However, indexation benefit is not available in the case of slump sale.
17. Computation of total income of Regal (P) Ltd. for the A.Y. 2022-23 u/s 115BAB
Particulars ` `
Income from House Property
Rental income [` 60,000 x 12] 7,20,000
[No deduction is allowable in respect of such income, since
the company has opted for concessional regime under
section 115BAB. Hence, deduction for municipal taxes paid
and deduction@30% of net annual value is not allowable]
Profits and gains of business or profession
Net profit as per Statement of profit and loss 2,20,00,000
Add: Income debited to statement of profit and loss,
but considered separately or disallowed
Licence fee for obtaining franchise 22,00,000
(Franchise is an intangible asset eligible for
depreciation @ 25%. Since one-time licence fee of
` 22 lakh paid for obtaining franchise has been
debited to statement of profit and loss, the same has
to be added back. Depreciation @ 25% has to be

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 17

provided in respect of the intangible asset since it has

been used for more than 180 days during the year)
Payment in cash to a goods transport operator -
[` 32,000 paid to B & Co., a goods transport operator,
in cash is deductible while computing business
income, as the disallowance under section 40A(3)
would be attracted in case of payment to a transport
contractor only when such cash payment exceeds
` 35,000. Since it is already debited to statement of
profit and loss, no further adjustment is required]
Municipal taxes in respect of let-out part of office 8,000
premises
[Municipal taxes paid in respect of office premises,
debited to Statement of Profit and Loss has to be
added back to compute business income, since same
is to be considered separately under the head
“Income from house property”]
Contribution to approved and notified scientific 2,00,000
research association
[Not allowable as deduction since company is opting
for section 115BAB]
Amount paid to contractor without deduction of tax 1,50,000
at source [` 5 lakhs x 30%]
[Payment to contractor without deduction of tax at
source would attract disallowance at 30% of the
expenditure under section 40(a)(ia)]
Depreciation on tangible fixed assets
[The amount of ` 2.20 lakh, being depreciation as per
books of account, debited to statement of profit and
loss has to be added back] 2,20,000
2,47,78,000
Less: Depreciation under section 32
Tangible fixed assets 2,60,000
Intangible asset (Franchise)
25% of ` 22,00,000 5,50,000

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 18 FINAL EXAMINATION: MAY, 2022

Plant & Machinery

- Normal Depreciation (` 20,00,000 x
7.5%, since put to use for less than 180
days during the P.Y. 2021-22) 1,50,000
- Additional depreciation [not allowable
since company is opting for section
-
115BAB]
9,60,000
2,38,18,000
Less: Income credited to Statement of Profit and Loss,
but taxable under other heads of income
Rental income from letting out of office premises 7,20,000
(Rental income from letting out a part of the office
premises is taxable under “Income from house
property”. Therefore, it has to be deducted while
calculating business income, since the income has
been credited to statement of profit and loss)
Dividend from Gamma Limited
Dividend credited to statement of profit and loss 10,000
account to be deducted as it is taxable under the
“Income from other sources”
Capital gain on sale of shares
Gain on transfer of shares to be taxed under the head 1,80,000
“Capital Gains” [1000 x 180 (280- 100)]
2,29,08,000
Capital Gains
Sales consideration (` 280 x 1000 shares) 2,80,000 1,70,000
Less: Cost of acquisition 1,10,000
Higher of
- Actual cost [` 1,00,000 (` 100 x 1000)]
- ` 1,10,000, being lower of
- FMV as on 31.1.2018 of ` 1,10,000
[` 110 x 1,000]
- Sale consideration of ` 2,80,000
[` 280 x 1000]

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 19

Income from Other Sources

Dividend from Gamma Limited 10,000
Gross Total Income 2,38,08,000
Less: Deduction under section 80JJAA [allowable even
though company opts for section 115BAB]
30% of additional employee cost of ` 1,40,76,000
[` 23,000 x 51 employees employed on 1.4.2021 x 12 42,22,800
months] [See Note below]
Total Income 1,95,85,200
Tax liability
Tax payable on LTCG @10% on ` 70,000 in excess of 7,000
` 1,00,000
Tax payable on dividend @22% on ` 10,000 2,200
Tax payable on rental income @22% on ` 7,20,000 1,58,400
Tax @ 15% on ` 1,86,85,200 [i.e., business income of 28,02,780
` 2,29,08,000 – ` 42,22,800]
29,70,380
Add: Surcharge@10% 2,97,038
32,67,418
Add: Health and education cess@4% 1,30,697
Tax liability 33,98,115
Tax liability (rounded off) 33,98,120
Note – For the purpose of deduction under section 80JJAA, employees employed on
1.6.2021 and 1.8.2021 do not qualify as additional employees, since their monthly
emoluments exceed ` 25,000. Employees employed on 1.9.2021 also do not qualify as
additional employees for A.Y.2022-23, since they have been employed for less than 240
days in the P.Y.2021-22. Therefore, only the employees employed on 1.4.2021 qualify as
additional employees for the purpose of deduction u/s 80JJAA for A.Y.2022-23.
18. Computation of MAT liability of Manav Rachna Ltd. u/s 115JB for A.Y.2022-23
Particulars ` `
Book profit after adjustment of items under section 115JB(2) 97,54,000
[except brought forward business loss and unabsorbed
depreciation]

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 20 FINAL EXAMINATION: MAY, 2022

Less: Brought forward business loss [` 9,10,000 + ` 6,10,000] 15,20,000

Unabsorbed depreciation [` 6,40,000 + ` 8,10,000] 14,50,000
[Since Manav Rachana Ltd. is a company against which 29,70,000
an application for corporate insolvency resolution process
has been admitted by NCLT under section 7 of the
Insolvency and Bankruptcy Code, 2016, the aggregate
amount of loss brought forward and unabsorbed
depreciation is allowed to be reduced from the book profit
for the purposes of levy of MAT under section 115JB].
Book profit computed in accordance with Explanation 1 to 67,84,000
section 115JB(2)
Add: Items credited to OCI that will not be reclassified to
profit or loss:
Deferred gains on cash flow hedges 7,50,000
Re-measurement of post-employment benefit obligations 6,20,000
Revaluation surplus for assets ` 6,10,000 [Book profit not
to be increased by revaluation surplus for assets as per
first proviso to section 115JB(2A)] Nil
13,70,000
81,54,000
Less: Items debited to OCI that will not be reclassified to
profit or loss:
Deferred costs of hedging 2,80,000
Changes in fair values of equity instruments ` 7,40,000
[Book profit not to be decreased by changes in fair
values of equity instruments as per first proviso to
section 115JB(2A)] Nil 2,80,000
78,74,000
Add: One-fifth of Transition amount [Credit Balance]
Transition amount 68,00,000
Less: Amounts to be excluded from above
Capital Reserve 8,00,000
Translation difference in foreign operations 6,00,000
54,00,000
One-fifth of ` 54,00,000 10,80,000
Book Profit for levy of MAT 89,54,000

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 21

MAT on book profit under section 115JB = 15% of ` 89,54,000 13,43,100

Add: Health and education cess@4% 53,724
MAT liability for A.Y.2022-23 13,96,824
Computation of tax credit to be carried forward
Particulars `
MAT liability for A.Y.2022-23 (rounded off) 13,96,820
Income-tax computed as per the normal provisions of the Act for A.Y.2022-23 12,80,000
Since the income-tax liability computed as per the regular provisions of the
Income-tax Act,1961 is less than the MAT payable, the book profit would
be deemed to be the total income and tax is leviable @15%. The total tax
liability (rounded off) is ` 13,96,820.
Computation of tax credit to be carried forward
Tax payable for A.Y.2022-23 on deemed total income 13,96,820
Less: Income-tax payable as per the normal provisions of the Act 12,80,000
MAT credit 1,16,820
[Can be carried forward for 15 Assessment Years i.e., upto A.Y.2037-38]
19. (a) The contention of the institution is not correct. Since the institution has receipts from
a university specified under section 10(23C)(iiiad) and a hospital specified under
section 10(23C)(iiiae), and the combined receipts of ` 6 crore exceed the threshold
receipt of ` 5 crore, the institution would not be eligible for exemption under sections
10(23C)(iiiad) and 10(23C)(iiiae) [Explanation below section 10(23C)(iiiae)]. The
institution has to make an application to the Principal Commissioner or Commissioner
within the prescribed time limit for grant of approval for claiming exemption under
section 10(23C)(vi) and (via).
(b) The proposed action of the trust is not correct. As per Explanation 5 to section 11(1),
with effect from A.Y.2022-23, no set off or deduction or allowance of any excess
application of any of the year preceding the previous year shall be made in
computation of income required to be applied or accumulated during the previous
year. Accordingly, excess application of ` 27 lakhs in the P.Y.2020-21 cannot be set-
off while computing income required to be applied or accumulated during the
P.Y.2021-22.
(c) The proposed claim of the trust is not correct. As per clause (ii) of Explanation 4 to
section 11(1), application for charitable purposes from a loan or borrowing shall not
be treated as application of income for charitable purposes. However, the amount not
so treated as application, or part thereof, would be treated as application for
charitable purposes in the previous year in which the loan is repaid from the income
of that year and to the extent of such repayment.

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 22 FINAL EXAMINATION: MAY, 2022

Accordingly, the trust cannot claim ` 40 lakhs as application of income of

A.Y.2022-23, since the amount is spent out of loan taken from SBI. However, it can
treat the amount of ` 5 lakhs repaid to SBI during the P.Y.2021-22 as application of
income in that year.
20. (i) An authorised dealer, who receives an amount for overseas remittance from a buyer,
being a person remitting such amount out of India under the Liberalised Remittance
Scheme of RBI, is required to collect tax at source @5%. In case the remittance is
for a purpose other than purchase of overseas tour programme package, then, no tax
has to be collected at source, if the amount or aggregate of amount remitted by a
buyer is less than ` 7 lakhs; and where the said amount exceeds ` 7 lakhs, tax has
to be collected at source @5% of the amount or aggregate of amount in excess of
` 7 lakhs.
Tax is required to be collected at source @0.5% of the amount or aggregate of
amount in excess of ` 7 lakhs where remittance is made out of loan from a bank or
financial institution notified by the Central Government referred under section 80E.
However, in the present case, Mr. Rajesh remitted the amount out of the loan taken
from his employer, being a manufacturing company. Hence, concessional rate of tax
collection at source@0.5% would not be available.
Accordingly, the authorised dealer has to collect tax at source @5% on the amount
remitted by Mr. Rajesh towards maintenance expenses of his son studying in
Australia as well as on amount remitted out of the loan taken from his employer not
being the financial institution defined under section 80E in excess of ` 7,00,000.
Since both remittances are through the same authorised dealer, tax collection at
source@5% would be attracted on the aggregate amount remitted in excess of
` 7,00,000. Thus, ` 33,000 [5% of ` 6,60,000 (` 7,80,000 + ` 5,80,000 – ` 7,00,000)]
has to be collected at source by the authorised dealer on the remittances made by
Mr. Rajesh.
(ii) In a case where sale of goods of an e-commerce participant (Mr. Appy) is facilitated
by an e-commerce operator (HIGHSALE) through its e-commerce website, section
194-O requires the e-commerce operator to deduct tax at source@1% on ` 84 lakhs,
being the gross amount of sales facilitated through the e-commerce website.
As per section 206AA, in case where the deductee has not furnished his PAN, tax is
required to deducted at source at higher of 1% or 5%. Accordingly, tax has to be
deducted at source @5% of ` 84 lakhs = ` 4.2 lakhs.
21. Upto 31.8.2021, advance ruling was pronounced by the Authority for Advance Rulings. As
per section 245S, the advance ruling pronounced by the Authority for Advance Rulings
(AAR) would be binding on the applicant. Accordingly, the advance rulings pronounced on
31.8.2021 by the AAR would be binding on ABC Ltd.

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 23

With the constitution of Boards for Advance Rulings (BAR) for giving advance rulings on
or after 1.9.2021, the Authority for Advance Rulings (AAR) ceased to operate with effect
from such date. With effect from 1.9.2021, advance ruling would be pronounced by the
Board for Advance Rulings (BAR).
By virtue of section 245Q(4), since the application for advance ruling was made on
1.4.2021 (i.e., before 1.9.2021) by ABC Ltd. and no ruling has been pronounced by the
AAR before 1.9.2021, such application along with all relevant records, documents or
material, on the file of AAR shall be transferred to BAR and shall be deemed to be records
before the BAR for all purposes.
The binding provision contained in section 245S will, however, not apply to an advance
ruling pronounced on or after 1.9.2021 by the Board for Advance Rulings. Accordingly, in
the case of ABC Ltd., the binding provision would not apply in respect of the advance ruling
pronounced on 30.9.2021 by the Board for Advance Rulings. As per section 245W(1), if
ABC Ltd. is aggrieved by the advance ruling pronounced by the Board for Advance Rulings
on 30.9.2021, it may appeal to the High Court against such ruling, within 60 days from the
date of communication of that ruling.
22. In respect of Mr. Hari, the Assessing Officer has information suggesting that income has
escaped assessment for the purposes of section 148 and 148A, since information has been
flagged for the relevant assessment year as per risk management policy formulated by the
CBDT. Notice can be issued for A.Y.2020-21, A.Y.2019-20 and A.Y.2018-19, since the
three year time limit from the end of the relevant assessment year has not expired as on
April, 2021. Such notice can be issued after conducting an enquiry, if required, with respect
to the information suggesting escapement of income; and providing an opportunity of being
heard to Mr. Hari by serving a show cause notice. Thereafter, on the basis of material
available on record including the reply of Mr. Hari, in response to show cause notice, the
Assessing Officer has to decide whether or not it is a fit case to issue notice under section
148 by passing an order, with the prior approval of Principal Commissioner or Principal
Director or Commissioner or Director. However, notice cannot be issued in respect of
A.Y.2017-18, since the three year time limit from the end of the relevant assessment year
(i.e., from 31.3.2018) has since expired on 31st March, 2021. The extended time limit of 10
years from the end of the relevant assessment year cannot be invoked in this case to issue
notice for A.Y.2017-18, since the income escaping assessment in respect of Mr. Hari is
not ` 50 lakh or more for that year.
In case of Mr. Rajesh, the Assessing Officer shall be deemed to have information
suggesting that income has escaped assessment for three assessment years immediately
preceding A.Y.2022-23, relevant to P.Y.2021-22 in which search is initiated. Hence, the
relevant assessment years in respect of which the Assessing Officer can issue notice to
Mr. Rajesh are A.Y.2021-22, A.Y.2020-21 and A.Y.2019-20. In this case, for the purpose
of issue of notice u/s 148, there is no requirement to conduct an enquiry or provide an
opportunity of being heard to Mr. Rajesh.

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 24 FINAL EXAMINATION: MAY, 2022

23. Computation of total income and tax liability of Trex Ltd., a non-resident foreign
company, for the A.Y. 2022-23
Computation of total income for A.Y.2022-23
Particulars ` `
Profits and gains of business or profession
Business Income from a unit established at Delhi 8,50,000
Fees for technical services [would be equivalent to the 30,00,000
amount of debentures of ` 30,00,000 received from an
Indian company, issued in consideration of providing
technical knowhow] for the purpose of business carried out
in India
Royalty income received from Z Ltd., an Indian company,
in pursuance of an agreement approved by Central
Government [`12,56,470 x 100/89.6, since tax would have
been deducted at source @ 10.4%] 14,02,310
52,52,310
Capital Gains
Long-term capital gains on transfer of unlisted shares 1,32,000
Income from Other Sources
Interest on debentures issued by an Indian company 2,85,000
Dividend on Global Depository Receipts (GDRs) of YL Ltd., 6,50,000
an Indian company, issued under a scheme of Central
Government against the initial issue of YL Ltd. and
purchased in foreign currency by Trex Ltd.
Dividend income on equity shares of Indian companies 15,50,000
24,85,000
Gross Total Income/ Total income 78,69,310
Computation of tax liability for A.Y.2022-23
Particulars ` `
Business income of ` 8,50,000 [taxable @40%] 3,40,000
FTS of ` 30,00,000, taxable @40%, since it is not in 12,00,000
pursuance of an agreement approved by the Central
Government
Royalty income of ` 14,02,310, taxable @10% u/s 115A,
since it is in pursuance of an agreement approved by the 1,40,231
Central Government
16,80,231

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 25

Particulars ` `
Long-term capital gain of ` 2,32,000 (computed without 23,200
indexation benefit) on unlisted shares taxable @10%
under section 112(1)(c)(iii)

Interest on debentures of ` 2,85,000, taxable @40% 1,14,000

[Since debt is incurred in Indian currency, it is not eligible
for concessional rate of 20% u/s 115A]
Dividend on GDRs of ` 6,50,000, taxable @10% u/s 65,000
115AC
Dividend income of ` 15,50,000, taxable @20% u/s 115A 3,10,000 4,89,000
21,92,431
Add: Health and education cess@4% 87,697
Tax liability 22,80,128
Tax liability (rounded off) 22,80,130
Note – Since the unit in Delhi does not play any role in provision of technical know/royalty,
the provisions of section 44DA are not attracted in this case in respect of fees for technical
services and royalty.
24. Computation of total income and tax liability of Mr. Ganesh for A.Y. 2022-23
Particulars ` `
Income from house property
Gross annual value 1 of house property in Country M 36,40,000
[` 52,000 x ` 70/CMD]
Less: Municipal taxes [` 6,000 x ` 70/CMD] 4,20,000
Net Annual Value 32,20,000
Less: Deduction @30% 9,66,000 22,54,000

Profits and gains from business and profession

Income from sole proprietary concern in India 80,00,000
Share of profit from a partnership firm in India of ` 20
lakhs, is exempt under section 10(2A) Nil

1
In absence of any information regarding fair rent and standard rent, actual rent is considered as gross
annual value.

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 26 FINAL EXAMINATION: MAY, 2022

Business profit 80,00,000

Less: Business Loss2 in Country G (CGD 5200 x 3,64,000
` 70/CGD) 76,36,000
Income from Other Sources
Agricultural income from tea gardens in Country G, is 28,00,000
taxable in India (CGD 40000 x ` 70/CGD)
Dividend income from Country M (CMD 30000 x
` 70/CGD) 21,00,000 49,00,000
Gross Total Income 1,47,90,000
Less: Deductions under Chapter VI-A
Under section 80C [deposit in PPF] 1,50,000
Under section 80D 25,000
[Medi-claim premium paid ` 28,000, restricted to 1,75,000
Total Income 1,46,15,000

Particulars ` `
Tax on total income
Tax on ` 1,46,15,000 [(30% x ` 1,36,15,000) plus 41,97,000
` 1,12,500]
Add: Surcharge@15%, since total income exceeds ` 1
crore but does not exceed ` 2 crore 6,29,550
48,26,550
Add: HEC@4% 1,93,062
50,19,612
Average rate of tax in India 34.3456%
[i.e., ` 50,19,612/` 1,46,15,000 x 100]
Rebate u/s 91 in respect of income in Country G
Average rate of tax in Country G 20%
Doubly taxed income [` 28,00,000 – ` 3,64,000] 24,36,000
Rebate under section 91 on ` 24,36,000 @20%
(lower of average Indian tax rate and rate of tax in 4,87,200
Country G)

2 Since the eight year has not expired from the assessment year in which such business loss was
incurred, such business loss can be set-off against current year business income.

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 27

Rebate u/s 91 in respect of income in Country M

Average rate of tax in Country M 13.1707%
[CMD 3,000 (30,000 x 10%) + CMD 7800 (52,000 x
15%)/ CMD 82,000] x 100
Doubly taxed income [` 22,54,000 + ` 21,00,000]
Rebate under section 91 on ` 43,54,000 @13.1707%
(lower of average Indian tax rate and rate of tax in
Country M) 5,73,452
Tax payable in India 39,58,960
25. Since Mr. Divakar is an individual who is a resident of two Contracting States, namely,
India and Country Y, tie-breaker rule contained in Paragraph 1 of Article 4 of UN Model
Convention need to be applied to determine the single state of residence.
The tie-breaker rule would be applied in the following manner:
(i) Permanent Home: The first test is based on where he has a permanent home.
Permanent home would mean a dwelling place available to him at all times
continuously and not occasionally and includes place taken on rent for a prolonged
period of time.
(ii) Personal and economic relations: If that test is inconclusive for the reason that he
has permanent home available to him in both Contracting States, he will be
considered a resident of the Contracting State where his personal and economic
relations are closer, in other words, the place where lies his centre of vital interests.
Thus, preference is given to family and social relations, occupation, place of business,
place of administration of his properties, political, cultural and other activities of the
individual.
(iii) Habitual abode: In the following distinct and different situations, preference is given
to the Contracting State where he has a habitual abode:
• The case where he has a permanent home available to him in both Contracting
States and it is not possible to determine in which one he has his c entre of vital
interests;
• The case where he has a permanent home available to him in neither
Contracting State.
(iv) Nationality: If he has habitual abode in both Contracting States or in neither of them,
he shall be treated as a resident of the Contracting State of which he is a national.
(v) Competent Authority: If he is a national of both or neither of the Contracting States,
the matter would be left to be considered by the competent authorities of the
respective Contracting States.

© The Institute of Chartered Accountants of India

 PAPER 7: DIRECT TAX LAWS & INTERNATIONAL TAXATION

The provisions of direct tax laws, as amended by the Finance Act, 2020, the Taxation and Other
Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 and significant notifications
and circulars issued upto 30.4.2021, are relevant for November, 2021 examination. The
relevant assessment year is A.Y.2021-22. The November, 2020 edition of the Study Material
has to be read along with the Statutory Update and Judicial Update for November, 2021
Examination webhosted at https://resource.cdn.icai.org/65081bos52350s.pdf and
https://resource.cdn.icai.org/65080bos52350j.pdf, respectively, at the BoS Knowledge Portal.

QUESTIONS AND ANSWERS

Case Scenario 1
Mr. Harshit, a resident Indian, is in retail business in Mumbai and his turnover for F.Y.2019-20
was ` 8 crores. He regularly purchases goods from another resident, Mr. Pranav, a wholesaler
in Mumbai, and the aggregate payments made by Mr. Harshit to Mr. Pranav during the F.Y.2020-
21 was ` 80 lakh (` 20 lakh on 8.5.2020, ` 25 lakh on 27.8.2020, ` 20 lakh on 18.10.2020 and
` 15 lakh on 11.2.2021). Mr. Pranav’s turnover for F.Y.2019-20 was ` 11 crores.
Mr. Pranav paid ` 5 lakhs on 1.9.2020 to M/s. Thomas Cook for a holiday package to Singapore
for a week with his family, comprising of his wife and two children, being twins aged 22 years,
in the last week of September. He also took an education loan of ` 15 lakhs on 1.2.2021 from
State Bank of India, Madam Cama Road, Mumbai, for his son’s two-year Master of Public
Administration program in Columbia University, USA and remitted the said amount through the
same bank, which is an authorised dealer, under the Liberalised Remittance Scheme of RBI
(LRS). For his daughter’s MBA in Iowa State University, USA, he remitted ` 12 lakhs on
15.2.2021, out of his personal savings, through Bank of India, Bandra branch, Mumbai which is
also an authorised dealer, under LRS. Mr. Pranav also remitted ` 6 lakh on 28.3.2021, out of
his personal savings, under LRS through Bank of India, Bandra branch, as gift to his sister
residing in London, on the occasion of her 50 th birthday.
On the basis of the facts given above, choose the most appropriate answer to Q.1 to Q.5 below -
1. Are provisions of TDS/TCS under the Income-tax Act, 1961 attracted in respect of
purchase/sale transaction between Mr. Harshit and Mr. Pranav? If so, what is the
quantum of tax to be deducted/collected for the P.Y.2020-21?
(a) No; TDS/TCS provisions are not attracted for F.Y.2020-21, since the turnover of
Mr. Harshit in the immediately preceding financial year i.e., F.Y.2019-20 does not
exceed ` 10 crores.
(b) Yes, Mr. Harishit has to deduct tax@0.075% of ` 30 lakhs (` 15 lakhs on
18.10.2020 and ` 15 lakhs on 11.2.2021)

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 29

(c) Yes, Mr. Pranav has to collect tax@0.075% of ` 30 lakhs (` 15 lakhs on

18.10.2020 and ` 15 lakhs on 11.2.2021)
(d) Yes, Mr. Pranav has to collect tax@0.1% of ` 30 lakhs (` 15 lakhs on 18.10.2020
and ` 15 lakhs on 11.2.2021)
2. In case of failure to furnish PAN by the deductee/collectee as required based on the
answer to Q.1 above, what would be the applicable rate of TDS/TCS?
(a) Not applicable, since there is no requirement to deduct or collect tax
(b) 20%
(c) 5%
(d) 1%
3. Is Thomas Cook required to collect tax at source on receipt of ` 5 lakh from Mr. Pranav
for holiday package to Singapore? If so, what is the amount of tax to be collected?
(a) TCS provisions are not attracted in respect of this transaction
(b) Yes; ` 25,000
(c) Yes; ` 2,500
(d) No tax is required to be collected at source, since the receipt does not exceed
` 7 lakh
4. What is the amount of tax to be collected from Mr. Pranav in respect of the remittance
of amounts overseas for his son’s and daughter’s education?
(a) TCS@0.5% of ` 8 lakhs and ` 5 lakhs are attracted in respect of remittance for
son’s and daughter’s education, respectively.
(b) TCS@5% of ` 8 lakhs and ` 5 lakhs are attracted in respect of remittance for
son’s and daughter’s education, respectively
(c) TCS@0.5% of ` 8 lakhs and TCS@5% of ` 5 lakhs are attracted in respect of
remittance for son’s and daughter’s education, respectively.
(d) TCS@5% of ` 8 lakhs is attracted in respect of remittance for son’s education;
No TCS is attracted in respect of remittance for daughter’s education.
5. Are TCS provisions attracted in respect of remittance of gift to sister? If so, what is the
amount of tax to be collected from Mr. Pranav?
(a) No, since the remittance is out of personal savings for a personal purpose
(b) No, since the amount remitted to his sister is less than ` 7 lakhs
(c) No, due to reasons stated in (a) and (b) above
(d) Yes, ` 30,000.

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 30 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

Case Scenario 2
A Ltd. is an Indian company which has invested in shares of other Indian and foreign companies.
During the P.Y.2020-21, A Ltd. received dividend from these companies as follows:
% of Date of Date of Amount Interest
holding declaration distribution of expenditure on
of A Ltd. of dividend of dividend dividend loan borrowed
by the by the [Gross] for investment
company company (`) in shares (`)
B Ltd., an Indian 10% 20.6.2020 3.7.2020 2,00,000 45,000
company
C Inc, a foreign 22% 17.9.2020 12.10.2020 4,00,000 90,000
company
D Inc., a foreign 30% 13.11.2020 28.11.2020 6,00,000 1,30,000
company
E Ltd., an Indian 15% 14.1.2021 2.2.2021 3,20,000 70,000
company
A Ltd. declared and distributed dividend of ` 6 lakhs for the F.Y.2019-20 in June, 2020 and
dividend of ` 7 lakhs for the F.Y.2020-21 in July, 2021.
Mr. Aakash and Mr. Aarav are two brothers who have invested in shares of A Ltd. Both of them
were born in India; their parents and grand parents were also born in India. Mr. Aakash is an
Indian citizen who lives in Hyderabad. He is employed with a leading textile manufacturing unit
at a salary of ` 1 lakh per month. His brother, Mr. Aarav is settled in Country Y since the year
2010. He is a citizen of Country Y and is a partner with a software development firm in Country
Y. His share of profit in the Country Y firm for the F.Y.2020-21 is CYD 1,20,000, which was
credited to his bank account in Country Y. The value of one CYD may be taken as ` 25. He is
not subject to income-tax in Country Y, since the share of profits of a firm is exempt in the hands
of partners in Country Y. Mr. Aarav visits India for four months (in continuation) every year. He
earns interest of ` 14 lakhs from fixed deposits with Bank of India.
The details of investment in shares of A Ltd. by Mr. Aakash and Mr. Aarav are given below –
Name of the % of Month of Amt of dividend Interest expenditure
shareholder holding declaration & [Gross] on loan borrowed for
distribution of (`) investment in shares
dividend (`)
Akash 10% June, 2020 60,000 15,000
10% July, 2021 70,000 15,000
Aarav 15% June, 2020 90,000 20,000
15% July, 2021 1,05,000 20,000

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 31

On the basis of the facts given above, choose the most appropriate answer to Q.6 to Q.10
below, on the basis of the provisions of the Income-tax Act, 1961 [Ignore the provisions of
DTAA, if any, with Country Y for the purpose of answering these questions] -
6. What is the amount of dividend income includible in the gross total income of A Ltd. for
A.Y.2021-22 under the provisions of the Income-tax Act, 1961?
(a) ` 11,85,000
(b) ` 12,16,000
(c) ` 13,15,000
(d) ` 13,36,000
7. What is the deduction allowable under section 80M to A Ltd. for A.Y.2021-22?
(a) ` 6,00,000
(b) ` 7,00,000
(c) ` 9,20,000
(d) ` 13,00,000
8. What is the tax liability (rounded off) of Mr. Aakash for A.Y.2021-22 under the provisions
of the Income-tax Act, 1961 if he wishes to make maximum tax savings (ignore TDS)?
(a) ` 1,32,600
(b) ` 1,44,040
(c) ` 1,78,780
(d) ` 1,29,580
9. What is the residential status of Mr. Aarav for A.Y.2021-22?
(a) Resident and Ordinarily resident
(b) Resident but not ordinarily resident
(c) Non-resident
(d) Deemed resident
10. What is the tax liability (rounded off) of Mr. Aarav under the provisions of the Income -
tax Act, 1961 for A.Y.2021-22, if he wishes to make maximum tax savings (ignore TDS)?
(a) ` 11,22,260
(b) ` 2,60,520
(c) ` 1,87,720
(d) ` 1,90,840

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 32 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

11. During the F.Y.2020-21, the following income accrues or arises to a specified fund –
(i) Capital gains on transfer of rupee denominated bonds of NTPC Ltd., an Indian
company (transfer effected in September, 2020 through India International
Exchange, GIFT City, Gujarat and consideration received in US dollars)
(ii) Interest on debentures issued by PQR Inc., a Country P company, whose POEM
is outside India (assume that such income does not otherwise accrue or arise
in India)
(iii) Capital gains on transfer of shares of MNO Ltd., an Indian company
(iv) Capital gains on transfer of debentures issued by MNO Ltd.
(v) Income under the head “Profits and gains of business or profession” of a
securitisation trust

Which of the income referred to above when computed in the prescribed manner would be
exempt in the hands of the specified fund under section 10(4D), assuming that the same
are attributable to units held by a non-resident (not being the permanent establishment of
a non-resident in India)?
(a) (i) and (ii) only
(b) (i), (ii) and (v) only
(c) (i), (ii), (iv) and (v) only
(d) (i), (ii), (iii), (iv) and (v).

12. During the P.Y.2020-21, Helpage, a charitable trust, made voluntary contributions, not
being corpus donations, to –
(i) another charitable trust registered u/s 12AA out of its current year income derived
from property held under trust
(ii) an educational institution referred to in section 10(23C)(vi) out of its current year
income derived from property held under trust
(iii) another charitable trust registered u/s 12AA out of the accumulated income of the
trust
Which of the above voluntary contributions are permitted as application of income for
charitable purposes for A.Y.2021-22 under the provisions of the Income-tax Act, 1961?
(a) None of the above
(b) Only (i) above
(c) (i) and (ii) above
(d) (i) and (iii) above

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 33

13. What would be your answer to Q.12 above, had the voluntary contributions to the said
trust/institution been in the form of corpus donations?
(a) None of the above
(b) Only (i) above
(c) (i) and (ii) above
(d) (i) and (iii) above
14. A real estate investment trust (REIT) receives dividend of ` 8 lakh in February, 2021
from A Ltd., a special purpose vehicle, in which the business trust holds 80% of
shareholding. The REIT distributes the dividend to its unit holders in March, 2021. Mr. X
is a resident Indian holding 5% units and Mr. Y is a non-resident holding 10% units. What
would be the tax consequence in the hands of the REIT and its unit-holders Mr. X and
Mr. Y?
(i) REIT enjoys pass-through status in respect of dividend received from A Ltd., only
if A Ltd. does not opt for section 115BAA
(ii) REIT enjoys pass-through status in respect of dividend received from A Ltd., only
if A Ltd. opts for section 115BAA
(iii) REIT enjoys pass-through status in respect of dividend received from A Ltd.,
irrespective of whether A Ltd. opts for section 115BAA
(iv) In cases where dividend is taxable in the hands of REIT, the same would be
subject to tax at maximum marginal rate
(v) Dividend is exempt in the hands of Mr. X and Mr. Y, only if A Ltd. opts for section
115BAA
(vi) Dividend is exempt in the hands of Mr. X and Mr. Y, only if A Ltd. does not opt for
section 115BAA
(vii) Dividend is exempt in the hands of Mr. X and Mr. Y, irrespective of whether A Ltd.
opts for section 115BAA.
(viii) Tax is deductible by REIT on dividend distributed to Mr. X and Mr.Y@10%, only
in cases where dividend is taxable in their hands
(ix) Tax is deductible by REIT on dividend distributed to Mr. X@7.5% and Mr.Y@10%,
only in cases where dividend is taxable in their hands
(x) Tax is deductible by REIT on dividend distributed to Mr. X and Mr.Y@7.5%, only
in cases where dividend is taxable in their hands
Which of the above statements are correct?
(a) (i), (iv) and (vii)
(b) (iii), (v) and (x)

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 34 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

(c) (iii), (vi) and (ix)

(d) (ii), (v) and (viii)
15. A Ltd. is a Singapore Company (whose POEM is in Singapore) which owns and operates
an electronic platform for provision of services. B Ltd. is a Malaysian company (whose
POEM is in Malaysia) which provides online advertisement services. The gross receipts
from such services may be taken as ` 3 crores in the F.Y.2020-21 for both A Ltd and B
Ltd. A Ltd. does not have a branch in India whereas B Ltd. has a branch in India at
Mumbai and the online advertisement services are effectively connected to that branch.
If Mr. X, a citizen and resident of India, has availed services from A Ltd. and B Ltd. in
September, 2020 for purposes of business in India, and the amount payable to A Ltd.
and B Ltd. is ` 5 lakhs and ` 12 lakhs, respectively, would equalisation levy be attracted
in respect of the same?
(a) Equalisation levy would be attracted in both cases, albeit at different rates
(b) Equalisation levy@2% would be attracted in the hands of A Ltd. in respect of
consideration received from Mr. X.
(c) Equalisation levy@6% would be attracted in respect of the transaction between
Mr. X and B Ltd. However, no equalisation levy would be attracted in respect of
transaction between Mr. X and A Ltd., since the said transaction has taken place
before 1.10.2020.
(d) No equalisation levy would be attracted in both cases.
16. X Ltd. is an Indian company engaged in the business of generation of electricity. The
company was set up on 1.4.2018 and on that date, it had employed 500 new employees,
all of whom participate in recognized provident fund. The emoluments of these employees
are paid by ECS through bank account @ ` 18,000 per month per employee for 150
employees, @` 22,000 per month per employee for 150 employees and @` 26,000 per
month per employee for 200 employees. On 28.9.2019, it had exercised option for
depreciation on written down value method on block of assets for A.Y.2019-20. Its turnover
for P.Y.2018-19 and P.Y.2019-20 are ` 402 crores and ` 249 crores, respectively. On
1.10.2020, the company installed new plant and machinery of ` 9 crore and put the same
to use immediately. The company has received dividend of ` 60 lakhs from other domestic
companies during the P.Y.2020-21. X Ltd. distributed dividend of ` 72 lakhs for the
F.Y.2020-21 in July, 2021.
Y Ltd. is an Indian company set up on 1.10.2020 for printing of books. On the same date,
it installed new plant and machinery for ` 2 crore and put the same to use immediately. It
employed 200 new employees on the said date@ ` 25,000 per month per employee. Their
emoluments were paid by account payee cheque and all of them participate in recognized
provident fund.

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 35

The gross total income for A.Y.2021-22 computed under the special provisions of the Income-
tax Act, 1961 inserted by the Taxation Laws (Amendment) Act, 2019 is ` 6.60 crore for X
Ltd. and ` 1 crore for Y Ltd. Both X Ltd. and Y Ltd. are subject to tax audit for A.Y.2021-22.
You are required to -
(i) Compute the tax liability of X Ltd. and Y Ltd. for A.Y.2021-22, assuming that the
companies desire to avail the beneficial tax rates under the special provisions
inserted by the Taxation Laws (Amendment) Act, 2019 in the Income -tax Act, 1961
by fulfilling the conditions specified thereunder.
(ii) Compute the total income of X Ltd. and Y Ltd. under the regular provisions of the
Income-tax Act, 1961.
(iii) Examine whether it would it be beneficial for X Ltd. to opt for the special provisions
inserted by the Taxation Laws (Amendment) Act, 2019. For this purpose, you may
assume that the book profit of X Ltd. computed under section 115JB for A.Y.2021-22
for levy of minimum alternate tax is ` 4.20 crore.
17. Examine the tax consequences for A.Y.2021-22 in the case of the following charitable
institution/trust, considering each case independently -
(i) A charitable institution, having its main object as “any other object of general public
utility”, carries on business in the course of actual carrying out of such
advancement of any other object of general public utility and maintains separate
books of account in respect of business. The gross receipts during the P.Y.2020 -
21 is ` 2 crore, which comprises of receipts of ` 44 lakh from such business and
` 1.56 crore by way of voluntary contributions (not being corpus donations). It has
applied 85% of its gross receipts for charitable purposes.
(ii) A charitable trust paid annual rent of ` 12 lakh in the P.Y.2019-20 and ` 15 lakh in
the P.Y.2020-21 in respect of a building used for charitable purposes, after
deducting tax at source. However, tax deducted on such rent in the P.Y.2019-20
was remitted only in January, 2021; and tax deducted in the P.Y.2020-21 was
remitted only in July, 2021.
(iii) A charitable trust registered under section 12AA with the object of “Relief of poor”
changed its object on 1.4.2020 to “any other object of general public utility”. The
application of income in the year P.Y.2020-21 was towards general public utility
and not relief of poor. It has, however, not applied for fresh registration under
section 12AA (based on the modified object) upto 31.3.2021.
18. Saraswati Centre of Excellence Ltd. (SCEL) is an Indian company which is the end -user
of shrink-wrapped computer software directly imported from Kallang Ltd. (KAL), a
Singapore company (whose POEM is in Singapore) through an End-User Licence
Agreement (EULA).

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The broad terms of the EULA between the two companies are as follows -
Grant of licence. KAL grants SCEL a limited non-exclusive licence to install, use, access,
display and run one copy of the shrink-wrapped Computer Software (SWCS) on a single
Kallang Mobile Device, local hard disk(s) or other permanent storage media of one
computer. SCEL should not make SWCS available over a network where it could be used
by multiple computers at the same time. SCEL may make one copy of the SWCS in
machine readable form for backup purposes only; provided that the backup copy must
include all copyright or other proprietary notices contained on the original.
Reservation of rights and ownership. KAL reserves all rights not expressly granted to
SCEL in this EULA. The SWCS is protected by copyright and other intellectual property
laws and treaties. KAL owns the title, copyright and other intellectual property rights in the
SWCS. The SWCS is licenced (only for use and not any other purpose), not sold.
Limitations on end user rights. SCEL shall not, and shall not enable or permit others to,
copy, reverse engineer, decompile, disassemble, or otherwise attempt to discover the source
code or algorithms of, SWCS (except and only to the extent that such activity is expressly
permitted by applicable law notwithstanding this limitation), or modify, or disable any features
of, SWCS, or create derivative works based on the SWCS. SCEL should not rent, lease,
lend, sub-license or provide commercial hosting services with the SWCS. SCEL should not
transfer this EULA or the rights to the SWCS granted herein to any third party.
Based on the above terms of EULA, the provisions of the Income-tax Act, 1961 and the
India-Singapore DTAA (the relevant extract of which is given below), examine whether the
amount paid by SCEL to KAL, as consideration for the use of the SWCS can be considered
as payment of royalty for the use of copyright in the computer software . If yes, are tax
deduction provisions u/s 195 attracted in this case? Examine.
Extract of Article 12 of India-Singapore DTAA – Royalties and Fees for Technical
Services
1. Royalties and fees for technical services arising in a Contracting State and paid to a
resident of the other Contracting State may be taxed in that other State.
2. However, such royalties and fees for technical services may also be taxed in the
Contracting State in which they arise and according to the laws of that Contracting State,
but if the recipient is the beneficial owner of the royalties or fees for technical services, the
tax so charged shall not exceed 10 per cent.
3. The term "royalties" as used in this Article means payments of any kind received as
a consideration for the use of, or the right to use :
(a) any copyright of a literary, artistic or scientific work, including cinematograph film or
films or tapes used for radio or television broadcasting, any patent, trade mark, design or
model, plan, secret formula or process, or for information concerning industrial, commercial
or scientific experience, including gains derived from the alienation of any such right,
property or information

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19. A petition for stay of demand was filed by XYZ Ltd. before the Income-tax Appellate
Tribunal in respect of a disputed demand for which appeal was pending before it . The
Appellate Tribunal granted stay vide order dated 1.1.2021 for a period of 180 days from
the date of such order, on deposit of 20% of the amount of tax by XYZ Ltd. The reafter, the
bench was functioning intermittently till 1.2.2022 on account of the COVID pandemic and
therefore, the disputed matter could not be disposed of. In the meanwhile, in June 2021,
XYZ Ltd. had made an application for extension of stay and was granted extension of stay
upto 31.12.2021. Thereafter, on 5.1.2022, the Assessing Officer attached the bank account
of XYZ Ltd. and recovered the amount of ` 15 lakhs against the arrear demand of ` 25
lakhs. The company requested the Assessing Officer to refund the amount as it holds stay
over it. The Assessing Officer, however, rejected the contention of the assessee stating
that the stay period expired on 31.12.2021, after which the order of stay stood vacated
automatically. Examine the correctness of contention of the Assessing Officer.
20. Hutch Ltd., engaged in development of housing projects, filed its return of income for
A.Y.2021-22 claiming deduction of ` 40 lakhs under section 80-IBA. The return was
selected for scrutiny. In the assessment, a sum of ` 18 lakhs, being 30% of ` 60 lakhs,
towards sub-contract payment was disallowed for non-deduction of tax at source by
invoking section 40(a)(ia). The Assessing Officer, however, limited the deduction under
section 80-IBA to the original amount claimed by Hutch Ltd. Hutch Ltd. contended that it
was eligible for a higher deduction of ` 58 lakhs under section 80-IBA consequent to
disallowance under section 40(a)(ia). Examine the correctness of contention of Hutch Ltd.
21. Mr. Vaibhav, a resident Indian aged 61 years, furnishes you the following particulars of income
earned in India, Country P and Country Q for the P.Y. 2020-21. India does not have a double
taxation avoidance agreement (DTAA) with Country P and Country Q.
Particulars `
Income from profession carried on in India 11,00,000
Agricultural income in Country P 75,000
Dividend received from a company incorporated in Country Q 2,20,000
Royalty income from a literary book from Country P (gross) 4,50,000
Expenses incurred for earning royalty 80,000
Business loss of proprietary business in Country Q 72,000
Rent from a house situated in Country Q (gross) 3,09,000
Municipal tax paid in respect of the above house in Country Q (not 9,000
allowed as deduction in Country Q)

Note: Business loss in Country Q not eligible for set off against other incomes as per
law of that country. Royalty income is brought into India in August, 2021 in US dollars.

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The rates of tax in Country P and Country Q are 15% and 20%, respectively. Compute
total income and tax payable by Mr. Vaibhav in India for A.Y.2021 -22, assuming that
he does not opt for the provisions of section 115BAC.
22. Jupiter Ltd. is an Indian company whose turnover for the P.Y. 2018-19 was ` 380 crores
and P.Y.2019-20 was ` 410 crores. The following are the particulars furnished for the
Assessment Year 2021-22:
Particulars Total Income (`)
As per return of income filed under section 139(1) (10,00,000)
Determined under section 143(1)(a) (7,00,000)
Assessed under section 143(3) (2,00,000)
Reassessed under section 147 1,00,000
Can penalty be levied u/s 270A on M/s Jupiter Ltd.? If yes, compute the penalty leviable
u/s 270A, assuming that –
(i) the company has not opted for section 115BAA;
(ii) none of the additions or disallowances made in the assessment or reassessment
qualifies under section 270A(6); and
(iii) the under-reporting of income is not on account of mis-reporting.
23. Delta Ltd., an Indian company, declared total income of ` 2,100 crores computed in
accordance with Chapter IV-D before making primary adjustment, if required, in respect of
the loan transaction with Alps Inc, a Swiss company, for the year ended 31.03.2021. Alps
Inc. had advanced a loan of Euro 350 crores carrying interest@9% p.a. on 1.4.2020 to
Delta Ltd. The total book value of assets of Delta Ltd. was ` 60,000 crores. Assume that
the amount of interest computed@9% p.a. and payable to Alps Inc. does not exceed 30%
of EBITDA and that this is the only loan taken by Delta Ltd.
Alps Inc also advanced a loan of similar nature and amount to Beta Ltd., another Indian
company@7% p.a. during the F.Y. 2020-21. The value of 1 Euro may be taken as ` 88.
You are required to:
(i) Examine whether transfer pricing provisions under the Income-tax Act, 1961 would
be attracted in this case and if so, on what basis.
(ii) Advise Delta Ltd. regarding primary adjustments, if any, to be made to the above
income keeping in mind the transfer pricing provisions contained in the Income-tax
Act, 1961 and compute the total income for A.Y.2021-22.
(iii) Elaborate on secondary adjustments, if any, required to be made under the provisions
of Income-tax Act, 1961, assuming that Delta Ltd. has made the primary adjustment
suo moto.

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(iv) Calculate the additional income-tax liability, if Delta Ltd. opts for payment of additional
income-tax in lieu of making secondary adjustment.
24. Analyze the tax consequence in the hands of Mr. Hugh Grant, a non-resident, for A.Y.
2021-22 in respect of fees for technical services (FTS) received from Himalaya Ltd., an
Indian company, in pursuance of an agreement approved by the Central Government, if -
(a) India has no Double Tax Avoidance Agreement (DTAA) with Country X
(b) India has a DTAA with Country X, which provides for taxation of such FTS @8%.
(c) India has a DTAA with Country X, which provides for taxation of such FTS@15%.
Assume that Mr. Hugh Grant is a resident of Country X and he has no fixed place of his
profession in India and that the technical services are utilised by Himalaya Ltd. for its
business in India.
Also, examine whether Mr. Hugh Grant would be exempt from filing his return of income if
tax deductible at source had been fully deducted in each case mentioned above in a
manner most beneficial to him; and his total income comprises only of the said fees from
technical services.
Would your answer change if he has a fixed place of his profession in India and he renders
technical services through that place? Examine, in a case where India has no DTAA with
Country X.
25. The Assessing Officer, with prior approval of Commissioner of Income-tax, surveyed Good
Day Cyber Café, which was within his jurisdiction, at 1 a.m. on 1.6.2020 for the purpose of
obtaining information which may be relevant to the proceedings under the Income -tax Act,
1961. The Cyber Café is kept open for business every day between 2 p.m. and 2 a.m.
On 15.6.2020, the Assessing Officer entered Bright Light Cyber Café which was also within
his jurisdiction at 11 p.m. for the purpose of collecting information which may be useful for
the purposes of the Income-tax Act, 1961. This Cyber Café is kept open for business every
day between 12 noon to 12 midnight.
In both the above cases, the Assessing Officer impounded and retained in his custody 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 prior permission from the Commissioner for doing so.
The owners of these Cyber Cafés claim that the Assessing Officer could not enter the café
after sunset and take away with him the books of account kept at the Cyber Café. Also,
the owner of Bright Light Cyber Café claimed that the Assessing Officer ought to have
obtained the prior approval of the Commissioner before entering the Café. Examine the
validity of the claim made by the owners and the action of the Assessing Officer in both
the cases.

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Would your answer change if the Assessing Officer had surveyed Good Day Cyber Café
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? Examine.
SUGGESTED ANSWERS/HINTS

MCQ No. Most Appropriate Answer MCQ No. Most Appropriate Answer
1. c 9. c
2. d 10. c
3. a 11. c
4. c 12. c
5. d 13. a
6. d 14. c
7. d 15. b
8. d

16. (i) Computation of tax liability of X Ltd. and Y Ltd. for A.Y.2021-22 u/s 115BAA
Particulars X Ltd. Y Ltd.
` `

Gross Total Income computed u/s 115BAA 6,60,00,000 1,00,00,000

Less: Permissible deductions under Chapter VI-A
Under section 80JJAA 2,16,00,000 -
X Ltd - [(` 18,000 x 12 x 150) + (` 22,000 x 12 x
150)] x 30%
Under section 80M 60,00,000 -
Dividend received (` 60 lakhs), to the extent of
dividend distributed on or before the due date i.e.,
the date one month prior to the due date of filing of
return u/s 139(1) (` 72 lakhs)
Total Income 3,84,00,000 1,00,00,000
Computation of tax liability
Income-tax@22% [As per section 115BAA] 84,48,000 22,00,000
Add: Surcharge@10% 8,44,800 2,20,000
92,92,800 24,20,000

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Add: Health and Education cess@4% 3,71,712 96,800

Total tax liability 96,64,512 25,16,800
Total tax liability (rounded off) 96,64,510 25,16,800

Notes:
(1) X Ltd. is eligible to opt for special provisions under section 115BAA, as per
which the rate of tax would be 22% plus surcharge@10% plus HEC@4%. It
is not eligible to opt for section 115BAB even though it is engaged in
generation of electricity, since it was set up before 1.10.2019.
Y Ltd. is a set up after 1.10.2019, but it is not eligible to opt for section 115BAB,
and avail benefit of concessional rate of tax@15% plus surcharge@10% and
HEC@4%., since business of manufacture or production of any article or thing
does not include business of printing of books. It is, however, eligible to opt
for section 115BAA and pay tax@22% plus surcharge@10% plus HEC@4%.
(2) X Ltd. is eligible to claim deduction u/s 80JJAA, which is a permissible Chapter
VI-A deduction while computing total income under section 115BAA, subject
to fulfillment of conditions specified thereunder.
Since new employees are employed on 1.4.2018 in case of X Ltd., it can claim
30% of additional employee cost for three years, namely, P.Y.2018-19,
P.Y.2019-20 and P.Y.2020-21. Accordingly, it would be entitled to deduction
u/s 80JJAA for P.Y.2020-21. 150 employees whose emoluments are ` 18,000
p.m. and 150 employees whose emoluments are ` 22,000 p.m. qualify as
additional employees. Further, these employees also participate in recognized
provident fund and their emoluments are paid by way of ECS through bank
account. 200 employees whose emoluments exceed ` 25,000 p.m. do not
qualify as additional employees.
Y Ltd. is not entitled to claim deduction u/s 80JJAA for A.Y.2021-22, since its
employees are not employed for a minimum period of 240 days in the
P.Y.2020-21.
(3) X Ltd. is eligible to claim deduction u/s 80M, which is also a permissible
Chapter VI-A deduction while computing total income under section 115BAA,
subject to fulfillment of conditions specified thereunder. X Ltd. would be
eligible to claim deduction in respect of dividend of ` 60 lakhs received from
other domestic companies in the P.Y.2020-21, to the extent of the amount
distributed to its shareholders on or before the due date, i.e., the date one
month prior to the date of furnishing return of income under section 139(1). In
this case, since it has distributed ` 72 lakhs in July, 2021, it is entitled to claim
deduction of the entire amount of ` 60 lakhs received in the P.Y.2020-21 as
dividend from other domestic companies.

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(ii) Computation of total income of X Ltd. and Y Ltd. for A.Y.2021-22 under the regular
provisions of the Income-tax Act, 1961
Particulars X Ltd. Y Ltd.
` `

Gross Total Income computed u/s 115BAA 6,60,00,000 1,00,00,000

Less: Additional Depreciation [20% of ` 9 crore
and ` 2 crore, respectively, since the plant and
machinery has been put to use for 182 days (180
days or more) in the P.Y.2020-21] 1,80,00,000 40,00,000
Gross Total Income (computed under the 4,80,00,000 60,00,000
regular provisions of the Act)
Less: Deductions under Chapter VI-A
Under section 80JJAA 2,16,00,000 -
X Ltd - [(` 18,000 x 12 x 150) + (` 22,000 x 12 x
150)] x 30%
Under section 80M 60,00,000 -
Dividend received (` 60 lakhs), to the extent of
dividend distributed on or before the due date
i.e., the date one month prior to the due date of
filing of return u/s 139(1) (` 72 lakhs)
Total Income 2,04,00,000 60,00,000

Note – Both X Ltd. and Y Ltd. are entitled to additional depreciation@20% on new
plant and machinery installed by them. X Ltd. is engaged in the business of
generation of electricity, and hence qualifies for additional depreciation, since it has
opted for depreciation as per written down value method. Once it has opted for
WDV method for A.Y.2019-20, the same will apply for subsequent years also, as
such option, once exercised shall be final and shall apply to all the s ubsequent
assessment years. Further, the CBDT has, vide Circular No.15/2016 dated
19.5.2016 clarified that the business of printing amounts to manufacture or
production of article or thing and is, therefore, eligible for additional depreciation.
Hence, Y Ltd., engaged in the business of printing of books, is also eligible to claim
additional depreciation.

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(iii) Computation of tax liability of X Ltd. for A.Y.2021-22 as per the other provisions
of the Act (other than section 115BAA)
Particulars `
Tax@30% on ` 2,04,00,000 [Since turnover of P.Y.2018-19 61,20,000
exceeds ` 400 crore]
Add: Surcharge @7% (since total income exceeds ` 1 crore but
does not exceed ` 10 crore) 4,28,400
65,48,400
Add: Health and Education cess@4% 2,61,936
Total tax liability 68,10,336
Total tax liability (rounded off) 68,10,340
Computation of MAT liability for A.Y.2021-22
15% of book profit of ` 4.2 crore 63,00,000
Add: Surcharge@7% since book profit exceeds ` 1 crore but does
not exceed ` 10 crore 4,41,000
67,41,000
Add: Heath and Education cess@4% 2,69,640
70,10,640
MAT credit to be carried forward u/s 115JAA
MAT liability u/s 115JB 70,10,640
Less: Tax computed under the regular provisions of the Act 68,10,340
MAT credit to be carried forward 2,00,300
Since the MAT liability u/s 115JB is higher than the income-tax payable under the
regular provisions of the Act, the book profit of ` 4.20 crore of X Ltd. would be deemed
to be its total income and tax would be payable@16.692% (15% plus surcharge@7%
plus HEC@4%). Hence, the tax liability of X Ltd. for A.Y.2021-22 would be
` 70,10,640. X Ltd. would, however, be entitled to carry forward MAT credit of
` 2,00,300 and set it off in future years, when the tax liability under the regular
provisions of the Act is higher than the MAT liability.
Accordingly, since the tax liability under the other provisions of the Act (i.e., MAT
liability) for A.Y.2021-22 is ` 70,10,640 vis-à-vis tax liability of ` 96,64,510 computed
under section 115BAA, it is not beneficial for X Ltd. to opt for the special provisions
under section 115BAA for A.Y.2021-22. Moreover, X Ltd. would be eligible to carry
forward MAT credit of ` 2,00,300, if it pays tax as per the other provisions of the Act
(i.e., other than section 115BAA). Hence, X Ltd. should not opt for the special
provisions under section 115BAA for A.Y.2021-22.

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17. Tax consequences in the hands of the charitable trust/institution for A.Y.2021-22
(i)
In this case, the main object of the charitable institution is “any other object of
general public utility” and therefore, its aggregate receipts from business
undertaken in the course of actual carrying out of such advancement of any other
object of general public utility should not exceed 20% of total receipts, if it wants
to retain its “charitable status”. However, the aggregate receipts from business for
P.Y.2020-21, in this case, is 22% of total receipts. Hence, the institution would
lose its “charitable status” for the P.Y.2020-21. Application of 85% of receipts for
its main object during the year would not help in retaining its “charitable” status
for that year.
(ii) Rent paid in respect of a building used for charitable purposes can be claimed as
application of income for charitable purposes. However, since tax deducted on
such rent paid for P.Y.2019-20 was remitted after the due date of filing of return
of income u/s 139(1) for A.Y.2020-21, ` 3,60,000, being 30% of annual rent of
` 12 lakh, would not have been allowed as application in the P.Y.2019-20, by
virtue of Explanation 3 to section 11(1) read with section 40(a)(ia). However, since
the tax so deducted was remitted in January, 2021, the said amount of ` 3,60,000
(i.e., 30% of rent not allowed as application in the P.Y.2019-20) would be allowed
as application in the P.Y.2020-21 (A.Y.2021-22). Further, the rent of ` 15 lakh
paid in the P.Y.2020-21 would also be allowed as application in A.Y.2021-22,
since the tax deducted in respect of such rent was remitted in July, 2021 i.e.,
before the due date of filing of return u/s 139(1) for A.Y.2021-22. Therefore, an
amount of ` 18,60,000 towards rent paid would be allowed as application of
income in the P.Y.2020-21 (A.Y.2021-22).
(iii) As per section 115TD(3)(ii)(a), a trust would be deemed to have been converted
into any form not eligible for registration under section 12AA in the P.Y.2020 -21,
if it has adopted or undertaken modification of its objects which do not confirm to
the conditions of registration and it has not applied for fresh registration under
section 12AA in that previous year. Accordingly, it would tantamount to deemed
conversion of the trust into a form not eligible for registration under section 12AA
and the accreted income of the trust shall be taxable at maximum marginal rate
(@34.944%) as per section 115TD(1).

18. The issue of whether the amount paid by a resident Indian end-user to a non-resident
computer software supplier for use of computer software can be treated as royalty came
up before the Apex Court in Engineering Analysis Centre of Excellence P. Ltd v. CIT and
Another (2021) ITR 471.

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The Apex Court observed that as per the definition given in Explanation 2(v) to section
9(1)(vi) of the Income-tax Act, 1961, “royalty” means consideration for, inter alia, the
transfer of all or any rights (including the granting of a licence), in respect of any copyright,
literary, artistic or scientific work. Further, as per Explanation 4 thereto, such transfer of all
or any rights includes transfer of all or any right for use or right to use a computer software
(including the granting of a licence).
As per the meaning assigned in the DTAA with Singapore, however, “royalty” means
payment of any kind received as consideration for “the use of, or the right to use, any
copyright” of a literary, artistic or scientific work. The Apex Court observed that where
computer software is purchased directly by an end-user, resident in India, from a foreign,
non-resident supplier or manufacturer, the end-user licence agreement (EULA) does not
create any interest or right to such end-user, which would amount to the use of or right to
use any copyright. The "licence" that is granted vide the EULA, is not a licence in terms of
the Copyright Act, but is a "licence" which imposes restrictions or conditions for the use of
computer software.
There is an important difference between the right to reproduce and the right to use
computer software. Whereas the former would amount to parting with a copyright by the
owner thereof, the latter would not. Under the non-exclusive licence, the end-user only
receives a right to use the software and nothing more.
Accordingly, the Apex Court held that the amount paid by a resident Indian end -user to a
non-resident computer software manufacturer or supplier, as consideration for the use of
the computer software through EULA, is not royalty for the use of copyright in the computer
software.
As per section 90(2), the provisions of the Income-tax Act, 1961 will apply only to the extent
they are more beneficial to the assessee, in a case where India has entered into a DTAA
with the other country. In this case, since the provisions under the DTAA are more
beneficial, the taxability of the payment would be determined as per the meaning of royalty
assigned under the DTAA between India and Singapore. The Apex Court, accordingly, held
that the provisions contained in the Income-tax Act, 1961 [namely, section 9(1)(vi) read
along with Explanations 2 and 4 thereof], which deal with royalty, not being more beneficial
to the assessee, would not be applicable.
Applying the rationale of the above decision to the facts of this case, the consideration paid
by SCEL to KAL for use of SWCS as per the terms of EULA is not “royalty” as per the
meaning assigned in the DTAA, since it does not create any interest or right to SCEL which
would amount to the use of or right to use any copyright. Accordingly, the same does not
give rise to any income chargeable to tax in India. Since the provisions of the DTAA are

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more beneficial, the same would apply in the case on hand. Hence, the tax deduction at
source provisions u/s 195 would not be attracted in this case.
19. As per section 254(2A), the Appellate Tribunal may, on merit, pass an order of stay in any
proceedings relating to an appeal. However, such period of stay cannot exceed 180 days
from the date of such order subject to the condition that the assessee deposits not le ss
than 20% of the amount of tax, interest, fee, penalty, or any other sum payable under the
provisions of this Act, or furnishes security of equal amount in respect thereof.
No extension of stay shall be granted by the Appellate Tribunal, where such appe al is not
so disposed of within the said period as specified in the order of stay, unless the assessee
makes an application and has complied with the condition of depositing 20% of tax and the
Appellate Tribunal is satisfied that the delay in disposing of the appeal is not attributable
to the assessee. However, the aggregate of the period of stay originally allowed and the
period of stay so extended cannot exceed 365 days and the Appellate Tribunal has to
dispose of the appeal within the period or periods of stay so extended or allowed.
If such appeal is not so disposed of within 180 days or the period or periods extended not
exceeding 365 days, the order of stay shall stand vacated after the expiry of such period
or periods, only if the delay in disposing of the appeal is attributable to the assessee.
It was so held by the Supreme Court in DCIT v. Pepsi Foods Ltd (2021) 433 ITR 295.
Accordingly, if an appeal is not heard by the bench, due to the bench functioning
intermittently on account of the COVID pandemic, the delay is not attributable to XYZ Ltd.
In such a case, though the extended stay period of 365 days had expired on 31.12.2021,
the recovery of ` 15 lakhs against the arrear demand of ` 25 lakhs made by the Assessing
Officer on 5.1.2022 is not in order, since the delay in disposing of the appeal is not
attributable to XYZ Ltd. Therefore, the contention of the Assessing Officer is not correct.
The order of stay would stand vacated after 31.12.2021, only in a case where the delay in
disposing of the appeal had been attributable to XYZ Ltd.
Note – On account of the Supreme Court ruling in DCIT v. Pepsi Foods Ltd (2021) 433 ITR
295, the answer to Q.9 in pages 18.52 – 18.53 of the November, 2020 edition of the Study
Material has undergone a change. Students are advised to read Q. 19 in this RTP and the
answer given above in the place of Q.9 and its answer given in the Study Material.
20. The issue under consideration in this case is whether the increase in gross total income
on account of disallowance of expenditure under section 40(a)(ia) can be considered for
the purpose of deduction under section 80-IBA.
The Bombay High Court, in CIT v. Sunil Vishwambharnath Tiwari (2016) 388 ITR 630,
observed that if on account of non-deduction of tax at source by a company, expenses
have been disallowed under section 40(a)(ia) which goes to increase the income
chargeable under the head ‘Profits and gains of business or profession’, such enhanced

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income becomes eligible for deduction as profit-linked deduction under Chapter VI-A is
with reference to an assessee’s gross total income.
The High Court held that the company is entitled to claim profit-linked deduction under
Chapter VI-A in respect of the enhanced gross total income as a consequence of
disallowance of expenditure under section 40(a)(ia).
Further, the CBDT has, in its Circular No.37/2016 dated 2.11.2016, mentioned that the
courts have generally held that if the expenditure disallowed is related to the business
activity against which the Chapter VI-A deduction has been claimed, the deduction needs
to be allowed on the enhanced profits. Thus, the settled position is that the disallowances
made under, inter alia, section 40(a)(ia), relating to the business activity against which the
Chapter VI-A deduction has been claimed, result in enhancement of the profits of the
eligible business, and that deduction under Chapter VI-A is admissible on the profits so
enhanced by the disallowance.
Accordingly, applying the rationale of the Bombay High Court ruling and the CBDT Circular
in this regard to the facts of this case, Hutch Ltd. would be entitled to claim deduction under
section 80-IBA in respect of the enhanced profits of ` 58 lakhs, consequent to disallowance
under section 40(a)(ia).
21. Computation of total income of Mr. Vaibhav for A.Y.2021-22
Particulars ` `
Income from House Property [House situated in
Country Q]
Gross Annual Value 1 3,09,000
Less: Municipal taxes paid in Country Q 9,000
Net Annual Value 3,00,000
Less: Deduction under section 24 – 30% of NAV 90,000 2,10,000

Profits and Gains of Business or Profession

Income from profession carried on in India 11,00,000
Royalty income2 from a literary book from Country P (after
deducting expenses of ` 80,000) 3,70,000
Less: Business loss of proprietary business in Country Q 72,000
13,98,000
Income from Other Sources
Agricultural income in Country P [Not exempt] 75,000

1Rental income has been taken as GAV in the absence of other information relating to fair rent, municipal value etc.
2 Alternatively, royalty income can be taxable under the head “Income from Other Sources”.

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Dividend received from a company in Country Q 2,20,000 2,95,000

Gross Total Income 19,03,000
Less: Deduction under Chapter VI-A
Under section 80QQB – Royalty income of a
resident from literary book allowable as deduction
since the amount has been brought into India in
convertible foreign exchange within six months from
the end of the previous year 3,00,000
Total Income 16,03,000
Note – Since the adjusted total income of ` 19,03,000 [i.e.,
` 16,03,000 (total income) + ` 3,00,000 (deduction u/s
80QQB)] does not exceed ` 20 lakhs, AMT would not be
attracted in this case.
Computation of tax liability of Mr. Vaibhav for A.Y.2021-22
Particulars `
Tax on total income [30% of ` 6,03,000 + ` 1,10,000, since 2,90,900
Mr. Vaibhav is a senior citizen, he is eligible for higher basic exemption
limit of ` 3,00,000]
Add: Health and education cess@4% 11,636
3,02,536
Less: Deduction u/s 91 (See Working Note below) 89,315
Tax Payable 2,13,221
Working Note: Computation of deduction under section 91
Deduction u/s 91 is available in respect of doubly taxed income earned in Country P
and Q, with whom India does not have a double taxation avoidance agreement.
Average rate of tax in India 18.873%
[i.e., ` 3,02,536/16,03,000 x 100]
Rate of tax in Country P 15%
Rate of tax in Country Q 20%
Particulars ` `
Doubly taxed income pertaining to Country P3
Agricultural Income 75,000
Royalty Income [` 4,50,000 – ` 80,000 (Expenses) –

3Doubly taxed income includes only that part of income which is included in the assessees total income. The amount
deducted under Chapter VIA is not doubly taxed and hence, no relief is allowable in respect of such amount – CIT v. Dr.
R.N. Jhanji (1990) 185 ITR 586 (Raj.).

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` 3,00,000 (deduction under section 80QQB)] 70,000

1,45,000
Deduction under section 91 on ` 1,45,000 @15% [being the 21,750
lower of average Indian tax rate (18.873%) and Country P
tax rate (15%)]
Doubly Taxed Income pertaining to Country Q
Income from house property 2,10,000
Dividend 2,20,000
4,30,000
Less: Loss from business set-off against other business
income 72,000
3,58,000
Deduction under section 91 on ` 3,58,000 @18.873% [being
the lower of average Indian tax rate (18.873%) and Country 67,565
Q tax rate (20%)]
Total deduction under section 91 89,315
Note: Mr. Vaibhav shall be allowed deduction u/s 91, since the following conditions are
fulfilled:-
(a) He is a resident in India during the relevant previous year (i.e., P.Y.2020 -21).
(b) The income in question accrues or arises to him outside India in foreign countries P
and Q during that previous year and such income is not deemed to accrue or arise in
India during the previous year.
(c) The income in question has been subjected to income-tax in the foreign countries P
and Q in his hands and it is presumed that he has paid tax on such income in those
countries.
(d) There is no agreement u/s 90 for the relief or avoidance of double taxation between
India and Countries P and Q where the income has accrued or arisen.
22. Jupiter Ltd. is deemed to have under-reported its income since:
(1) the assessment u/s 143(3) has the effect of reducing the loss determined in a return
processed u/s 143(1)(a); and
(2) the reassessment u/s 147 has the effect of converting the loss assessed u/s 143(3)
into income.
Therefore, penalty is leviable under section 270A for under-reporting of income.
The applicable rate of income-tax for Jupiter Ltd., an Indian company, for A.Y.2021-22
is 25%, since its turnover for the P.Y.2018-19 does not exceed ` 400 crores.

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Computation of penalty leviable under section 270A

Particulars ` `
Assessment under section 143(3)
Under-reported income:
Loss assessed u/s 143(3) (2,00,000)
(-) Loss determined under section 143(1)(a) (7,00,000)
5,00,000
Tax payable on under-reported income @25% 1,25,000
Add: HEC@4% 5,000
1,30,000
Penalty leviable @50% of tax payable 65,000
Reassessment under section 147
Under-reported income:
Total income reassessed under section 147 1,00,000
(-) Loss assessed under section 143(3) (2,00,000)
3,00,000
Tax payable on under-reported income @25% 75,000
Add: HEC @4% 3,000
78,000
Penalty leviable@50% of tax payable 39,000

23. (i) Delta Ltd., an Indian company and Alps Inc, a Swiss company are deemed to be
associated enterprises since the latter has advanced a loan to the former which
constitutes 51.33% of the book value of total assets of the former [Euro 350 crores x
` 88/Rs.60,000 crores]. Since the loan advanced by Alps Inc is not less than 51% of
the book value of the total assets of Delta Ltd., the two companies are deemed to be
associated enterprises.
A loan transaction between two enterprises, one of whom is a non-resident (Alps Inc,
Switzerland, in this case), would be an international transaction. Accordingly, transfer
pricing provisions would be attracted in this case.
(ii) The interest rate charged by Alps Inc. on loan advanced to Delta Ltd. is 9% p.a.
whereas the arm’s length interest charged by Alps Inc. in a comparable uncontrolled
transaction with Beta Ltd., another Indian company, is 7% p.a. Therefore, the arm’s
length adjustment (primary adjustment) to be made is = 9% - 7% = 2% of ` 30,800
crores (Euro 350 crores x ` 88, being the value of 1 Euro) = ` 616 crores

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The total income (after primary adjustment) of Delta Ltd for P.Y.2020-21 = ` 2,100
crores + primary adjustment of ` 616 crores = ` 2,716 crores.
(iii) Since the primary adjustment has been made by Delta Ltd. suo moto while filing its
return of income for A.Y.2021-22, Delta Ltd. has to carry out secondary adjustment
in the following manner.
The excess money (i.e., ` 616 crores) lying with Alps Inc has to be repatriated within
90 days from 30.11.2021, being the due date for filing return of income.
If the excess money is not repatriated on or before 28 th February, 2022, it would be
deemed as an advance made by Delta Ltd. to Alps Inc and interest would be
chargeable from 30.11.2021 at six month LIBOR as on 30 th September, 2021 + 3%,
since the loan is denominated in Euros. Such interest for the period from 30.11.2021
to 31.3.2022 (assuming that it has not been repatriated upto 31.3.2022) would be
included in the total income of Delta Ltd. for P.Y.2021-22.
(iv) If Delta Ltd. opts for payment of additional income-tax, it has to pay ` 129.153 crores
[i.e., 20.9664% (tax@18% + surcharge@12% + cess@4%) of ` 616 crores].
24. As per section 9(1)(vii)(b), income by way of fees for technical services payable by a
resident is deemed to accrue or arise in India, except where the fees is payable, inter alia,
in respect of services utilized in a business or profession carried on by such person outside
India. In this case, since Himalaya Ltd. utilizes the technical services for its business in
India, the fees for technical services payable by Himalaya Ltd. is deemed to accrue or arise
in India in the hands of the non-resident, Mr. Hugh Grant.
In accordance with the provisions of section 115A, where the total income of a non -
corporate non-resident includes any income by way of fees for technical services other
than the income referred to in section 44DA(1), received from an Indian concern in
pursuance of an agreement made by him with the Indian concern and the agreement is
approved by the Central Government, then, the special rate of tax at 10% of such fees for
technical services is applicable. No deduction would be allowable under sections 28 to 44C
and section 57 while computing such income. The non-resident would be exempt from the
requirement of filing return of income under section 139(1), if tax deductible at source has
been fully deducted and the rate of tax deduction is not less than the rate specified in
section 115A and his total income comprises only of income referred to in section 115A.
Section 90(2) makes it clear that where the Central Government has entered into a DTAA
with a country outside India, then, in respect of an assessee to whom such agreement
applies, the provisions of the Act shall apply to the extent they are more beneficial to the
assessee.

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(a) In this case, since India does not have a DTAA with Country X, of which Mr. Hugh
Grant is a resident, the fees for technical services (FTS) received from Himalaya Ltd.,
an Indian company, would be taxable @10%, by virtue of the provisions of section
115A (plus surcharge, if applicable, and health and education cess@4%). If tax
deductible at source at the said rate has been fully deducted, he would be exempt
from the requirement of filing return of income under section 139(1), since his total
income comprises only of such fees for technical services taxable u/s 115A.
(b) In this case, the FTS from Himalaya Ltd. would be taxable @8%, being the rate
specified in the DTAA, even though section 115A provides for a higher rate of tax,
since the tax rate specified in the DTAA is more beneficial. However, since Mr. Hugh
Grant is a non-resident, he has to furnish a tax residency certificate from the
Government of Country X for claiming such benefit. Also, he has to furnish other
information, namely, his nationality, his tax identification number in Country X and his
address in Country X. Further, he would not be exempt from the requirement to file
return of income under section 139(1), since tax would have been deducted at 8%,
being the rate specified in the DTAA, which is lower than the rate of 10% u/s 115A.
(c) In this case, the FTS from Himalaya Ltd. would be taxable @10% as per section 115A
(plus surcharge, if applicable, and health and education cess@4%) , even though
DTAA provides for a higher rate of tax, since the provisions of the Act (i.e. section
115A in this case) are more beneficial. If tax deductible at source at the said rate has
been fully deducted, he would be exempt from the requirement of filing return of
income under section 139(1), since his total income comprises only of such fe es for
technical services taxable u/s 115A.
If Mr. Hugh Grant has a fixed place of profession in India, and he renders technical services
through the fixed place of profession, then, by virtue of section 44DA, such income by way
of fees for technical services received by Mr. Hugh Grant from Himalaya Ltd., India, would
be computed under the head "Profits and gains of business or profession" in accordance
with the provisions of Income-tax Act, 1961, since technical services are provided from a
fixed place of profession situated in India and fees for technical services is received from
an Indian concern in pursuance of an agreement with the non-resident and is effectively
connected with such fixed place of profession. No deduction would, however, be allowed
in respect of any expenditure or allowance which is not wholly and exclusively incurred for
the fixed place of profession in India. Mr. Hugh Grant would be required to keep and
maintain books of account and other documents in accordance with the provisions
contained in section 44AA and get his accounts audited by an accountant and furnish the
report of such audit in the prescribed form duly signed and verified by such accountant on
or before the specified date referred to in section 44AB [i.e., date one month prior to the
due date of filing of return of income u/s 139(1)].

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It may be noted that the concessional rate of tax@10% under section 115A would not apply
in this case. Further, he would not be exempt from the requirement of filing return of income
under section 139(1).
25. Good Day Cyber Cafe
For the period upto 31.10.2020, the Assessing Officer can exercise his power of survey
under section 133A only after obtaining the approval of the Joint Director/Joint
Commissioner, where information is received from prescribed authority and
Director/Commissioner, in any other case. In this case, since he has obtained prior
approval of the Commissioner, he is empowered under section 133A to enter any place of
business of the Good Day Cyber Café, which was within his jurisdiction, only during the
hours at which such place is open for the conduct of business. It is only in case he wishes
to enter any other place, other than the place of business, he has to do so before sunset.
Good Day Cyber Cafe is open from 2.00 p.m. to 2.00 a.m. for the conduct of business. The
Assessing Officer entered the cyber cafe at 1 a.m. which falls within the working hours of
the cyber cafe. Therefore, the claim made by the owner of Good Day Cyber Cafe to the
effect that the Assessing Officer could not enter the cyber cafe after sunset is not correct.
Further, as per section 133A(3)(ia), the Assessing Officer may, impound and retain in his
custody for such period as he thinks fit, any books of account or other documents inspected
by him. However, he shall not impound any books of account or other documents except
after recording his reasons for doing so. He shall not retain in his custody any such books
of account or other documents for a period exceeding 15 days (exclusive of holidays)
without obtaining the approval of the Principal Chief Commissioner or Chief Commissioner
or Principal Director General or Director General or Principal Commissioner or
Commissioner or Principal Director or Director therefor, as the case may be. In this case,
since the Assessing Officer has recorded his reasons for impounding and t he period of
retention is only 12 days (inclusive of holidays), prior approval of higher authorities is not
required for this purpose.
Hence, the action of the Assessing Officer in entering the premises at 1 a.m. and
impounding and retaining books of account and other documents inspected by him for 12
days is within the powers of survey conferred on him under section 133A.
However, in case the Assessing Officer had surveyed the Cyber Café 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, then, he cannot enter the Café after sunset and
impound and retain books of account inspected by him, by virtue of the restrictions laid
down in section 133A(2A) read with the proviso to section 133A(3).

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Bright Light Cyber Cafe

Section 133B empowers an income-tax authority to enter any place of business during the
hours at which such place is open for the conduct of business for the purpose of collecting
information which may be useful for the purposes of the Income-tax Act, 1961. The Cyber
Cafe is open from 12 noon to 12 midnight for the conduct of business. The Assessing
Officer entered the hotel at 11 p.m. which fell within the working hours. The claim made
by the Cyber Café owner to the effect that the Assessing Officer could not enter the Cyber
Cafe after sunset is not in accordance with law. Also, in case of section 133B, the prior
permission of Commissioner or any other higher authority is not required 4.
Section 133B(3) provides that the Assessing Officer acting under this section shall, on no
account, remove or cause to be removed from the place wherein he has entered, any
books of account. In view of this clear prohibition in section 133B(3), the action of the
Assessing Officer in impounding and retaining with him the books of account kept at the
Bright Light Cyber Cafe is not valid in law.

4
Except in case the income-tax authority happens to be an Inspector of Income-tax, in which authorisation of Assessing
Officer is required.

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The November, 2020 edition of the Study Material, based on the provisions of direct tax laws,
as amended by the Finance Act, 2020, the Taxation and Other Laws (Relaxation and
Amendment of Certain Provisions) Act, 2020 and significant notifications issued upto
31.10.2020, is relevant for May, 2021 examinations. The relevant assessment year for May,
2021 examination is A.Y.2021-22.
QUESTIONS AND ANSWERS
Case Scenario 1
Mr. Rajesh, aged 53 years, and his wife Mrs. Sowmya, aged 50 years, were born in India.
They were living in India till the year 2000, when they moved to Country X and settled there
permanently. Since the year 2010, they have become citizens of Country X. They have two
sons who are twins, Mr. Dinesh and Mr. Karthik, who are also citizens of Country X. They
completed their schooling in an Indian school in Country X. Thereafter, in the year 2015,
Mr. Dinesh joined mechanical engineering in IIT Delhi. After completing his engineering, he
took up employment in ABC Ltd., a multinational company, in Gurgaon at a monthly salary of
` 1,50,000 from September, 2019. Dinesh visits his parents in Country X for one month every
year. For the rest of the year, he is in India. Mr. Karthik completed architecture in College of
Architecture in Country X and took up a job in LMN Inc., San Fransisco, in the year 2019 for a
monthly salary of US $ 5,000. Mr. Rajesh has a textile business in Country X. Mrs. Sowmya,
a Carnatic musician, gives concerts in Country X in music programs organized by the Indian
community in Country X.
Mr. Rajesh visits India for one month every year to be with his parents, who were born in
Coimbatore and have always lived in Coimbatore. The details of his income for P.Y.2020-21
are as follows –
Income from textile business in Country X - US $ 80,000 (You may assume that the currency
of Country X is US dollars)
Rental income from house property in Coimbatore – ` 60,000 p.m.
Interest on fixed deposits with SBI, Coimbatore – ` 10 lakh
Country X does not levy tax on income from business of textiles in order to give a fillip to
textile industry in that country. Country X also does not levy tax on income earned by a
resident of Country X outside India.
In the P.Y.2020-21, Mrs. Sowmya visited India from 3rd October, 2020 to 31st January, 2021.
She was in Trichy during the months of October and November to take care of her ailing
mother in Trichy. During the months of December and January, she rendered Carnatic music
concerts in the Margazhi Maha Utsav organized in the various music academies in Chennai.
Every year, she is in Chennai entirely during these two months for this purpose. She also

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visits Trichy every year for the full month of May to spend time with her mother. She owns a
house property in Trichy which she has let out for ` 40,000 per month. The municipal taxes of
` 6,000 p.a. are paid by her tenant. For the P.Y.2020-21, income from music concerts in
Chennai is ` 3 lakhs. She also earns interest of ` 9 lakhs on fixed deposits with Indian Bank,
Trichy Branch.
Mr. Dinesh resigned from his job in ABC Ltd. on 20 th September, 2020 and took up an offer for
employment in MNC Inc., New York at a salary of US $ 7,000 p.m. He had submitted his
resignation to ABC Ltd. on 20th August, 2020, and thereafter, served a notice period of one
month as per the condition stipulated in his terms of employment. He left India on
28th September, 2020 and joined MNC Inc. on 1 st October, 2020. He earned interest of
` 40,000 from fixed deposits with Axis Bank, New Delhi.
Mr. Karthik resigned from LMN Inc. on 30 th November, 2020 to join PQR Ltd. in Mumbai. He
came to India on 2nd December, 2020 and joined PQR Ltd. on 5 th December, 2020. His salary
in PQR Ltd. is ` 99,200 p.m. He used to visit his maternal and paternal grandparents in India
for two months (July and August) during his summer holidays upto the year 2018. In the year
2019, he visited India for one month in July 2019. He earned interest of ` 9,500 from savings
bank account in SBI, Mumbai.
TT buying rate of US $ on various dates is given below –

Date TT buying rate of US $ Date TT buying rate of US $

31.3.2020 ` 68.00 30.9.2020 ` 70.00
30.4.2020 ` 68.60 31.10.2020 ` 70.40
31.5.2020 ` 69.10 30.11.2020 ` 71.00
30.6.2020 ` 69.50 31.12.2020 ` 71.30
31.7.2020 ` 69.70 31.1.2021 ` 71.90
31.8.2020 ` 69.90 28.2.2021 ` 72.00
31.3.2021 ` 72.40
On the basis of the facts given above, choose the most appropriate answer to Q.1 to Q.5
below: Your answer should be based on the provisions of the Income-tax Act, 1961. Ignore the
provisions of DTAA, if any, between India and Country X.
1. What is the residential status of Mrs. Sowmya for A.Y.2021-22?
(a) Resident and Ordinarily resident
(b) Resident but not ordinarily resident
(c) Non-resident
(d) Deemed resident

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2. What is the residential status of Mr. Dinesh and Mr. Karthik for A.Y.2021-22?
(a) Both are non-residents
(b) Resident and ordinarily resident & Resident but not ordinarily resident,
respectively.
(c) Non-resident & Resident but not ordinarily resident, respectively
(d) Resident and ordinarily resident & non-resident, respectively.
3. What is the total income of Mr. Dinesh chargeable to tax under the regular provisions
of the Income-tax Act, 1961 for A.Y.2021-22?
(a) ` 38,93,000
(b) ` 38,26,200
(c) ` 8,90,000
(d) ` 8,40,000.
4. What is the total income of Mr. Karthik chargeable to tax under the regular provisions
of the Income-tax Act, 1961 for A.Y.2021-22?
(a) ` 31,10,000
(b) ` 31,34,500
(c) ` 3,34,000
(d) ` 3,93,500
5. What is the residential status of Mr. Rajesh for A.Y.2021-22?
(a) Resident and ordinarily resident
(b) Resident but not ordinarily resident
(c) Deemed resident
(d) Non-resident
Case Scenario 2
The following details pertain to Mr. Arvind and his three brothers, Mr. Arjun, Mr. Anand and
Mr. Aakash. Mr. Arvind, Mr. Arjun and Mr. Anand are engaged in retail trade business.
Mr. Aakash is engaged in the profession of interior decoration. All of them maintain books of
account under section 44AA. While the brothers engaged in retail trade business follow s
mercantile system of accounting, Mr. Aakash engaged in interior decoration profession follow s
cash system of accounting. The details pertaining to their business for the year ending
31.3.2021 are as under –

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Particulars Mr. Arvind Mr. Arjun Mr. Anand

(i) Turnover of P.Y.2020-21 ` 95 lakhs ` 1.80 crore ` 5.00 crore
(ii) Amount received in cash [out of (i) ` 5 lakh ` 8 lakh ` 4 lakh
above]
(iii) Amount received through ` 85 lakh ` 1.65 crore ` 4.80 crore
NEFT/RTGS on or before
31.7.2021 [out of (i) above]
(iv) Total receipts in the P.Y.2020-21 ` 1.07 crore ` 2.00 crore ` 5.50 crore
(v) Cash receipts [out of (iv) above] ` 7 lakh ` 10 lakhs ` 27 lakhs
(vi) Total payments in the P.Y. ` 80 lakhs ` 1.60 crore ` 4.50 crore
2020-21
(vii) Cash payments [out of (vi) above] ` 5 lakhs ` 8.10 lakhs ` 22 lakhs
(viii) Profits and gains as per books of ` 5.90 lakhs ` 10.50 lakhs ` 30 lakhs
account u/s 44AA
Mr. Aakash’s gross receipts for P.Y.2020-21 are ` 48 lakhs, out of which ` 3 lakhs has been
received in cash and the remaining ` 45 lakhs through NEFT/RTGS. His profits as per books
of account u/s 44AA for P.Y.2020-21 are ` 24.75 lakhs.
From the details given above, choose the most appropriate answer to Q. 6 to Q.10 given
below–
6. Which of the following individuals are eligible to declare income on presumptive basis
under the provisions of the Income-tax Act, 1961 for A.Y.2021-22?
(a) Mr. Arvind and Mr. Aakash
(b) Mr. Arvind, Mr. Arjun, Mr. Anand and Mr. Aakash
(c) Mr. Arvind, Mr. Arjun and Mr. Aakash
(d) Mr. Arvind and Mr. Arjun
7. Which of the following individuals have to mandatorily get their books of account
audited under section 44AB for A.Y.2021-22?
(a) Mr. Arjun and Mr. Anand
(b) Mr. Arjun and Mr. Arvind
(c) Only Mr. Anand
(d) None of them.

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8. What is the amount of profits and gains of business chargeable to tax in the hands of
Mr. Arvind, Mr. Arjun and Mr. Anand, assuming that they wish to make maximum tax
savings without getting their books of account audited?
(a) ` 5.50 lakhs, ` 10.54 lakhs and ` 29.12 lakhs, respectively
(b) ` 5.90 lakhs, ` 11.10 lakhs and ` 30.40 lakhs, respectively
(c) ` 5.90 lakhs, ` 11.10 lakhs and ` 30 lakhs, respectively
(d) ` 5.50 lakhs, ` 10.50 lakhs and ` 30 lakhs, respectively.
9. Would your answer to MCQ 8 (i.e., the profits and gains of business chargeable to tax
in the hands of Mr. Arvind, Mr. Arjun and Mr. Anand) undergo a change, if they decide
to get their books of account audited?
(a) The profits and gains of business chargeable to tax in the hands of Mr. Arjun and
Mr. Anand would undergo a change; however, there would be no change in the
case of Mr. Arvind.
(b) The profits and gains of business chargeable to tax in the hands of Mr. Anand
would undergo a change; however, there would be no change in the hands of
Mr. Arvind and Mr. Arjun.
(c) The profits and gains of business chargeable to tax in the hands of Mr. Arjun
would undergo a change; however, there would be no change in the hands of
Mr. Arvind and Mr. Anand.
(d) The profits and gains of business chargeable to tax in the hands of Mr. Arvind
and Mr. Arjun would undergo a change; however, there would be no change in
the hands of Mr. Anand.
10. What is the due date of filing of return of income of Mr. Arvind, Mr. Arjun , Mr. Anand
and Mr. Aakash for A.Y.2021-22, if they wish to make maximum tax savings?
(a) 31st July, 2021 for all of them.
(b) 31st July, 2021 for Mr. Arvind and Mr. Aakash; and 31 st October, 2021 for
Mr. Arjun and Mr. Anand
(c) 31st July, 2021 for Mr. Arvind, Mr. Aakash and Mr. Arjun; and 31 st October, 2021
for Mr. Anand
(d) 31st July, 2021 for Mr. Arvind, Mr. Aakash and Mr. Anand; and 31 st October,
2021 for Mr. Arjun

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 44 FINAL (NEW) EXAMINATION: MAY, 2021

11. ABC & Co. and PQR & Co. are two non-resident entities based in Country A and Country
P, respectively. Both the entities own and operate an electronic facility through which
they effect online sale of organic products manufactured by them. The details of their
receipts from such sale during the P.Y.2020-21 are –
Particulars ABC & Co., PQR & Co.,
Country A Country P
(a) Receipts from sale of organic products to ` 138 lakhs ` 126 lakhs
persons resident in India
(b) Receipts from sale of organic products to ` 285 lakhs ` 377 lakhs
persons resident in other parts of the world
Out of the sum mentioned in (b), the receipts ` 63 lakhs ` 73 lakhs
from persons using internet protocol address
located in India
Is equalisation levy attracted in the hands of ABC & Co. and PQR & Co., assuming that
both the entities do not have a permanent establishment in India?
(a) Equalisation levy is attracted in the hands of both ABC & Co. and PQR & Co.
(b) No equalisation levy is attracted in the hands of either ABC & Co. and PQR & Co.
(c) Equalisation levy is attracted in the hands of ABC & Co. but not PQR & Co.
(d) Equalisation levy is attracted in the hands of PQR & Co. but not ABC & Co.

12. ABC Inc., a Country A company whose place of effective management is outside India,
receives royalty from A Ltd., an Indian company, in pursuance of an agreement made
which is approved by the Central Government. XYZ Inc., a Country B company whose
place of effective management is outside India, receives fees for technical services (FTS)
from A Ltd. in pursuance of an agreement made which is approved by the Central
Government. The DTAA between India and Country A provides that royalty will be
subject to tax in the Source State at 9% and the DTAA between India and Country B
provides that FTS will be subject to tax in the Source State at 12%. Both ABC Inc. and
XYZ Inc. do not have a permanent establishment in India. ABC Inc. and XYZ Inc. have
also invested in shares of Indian companies in respect of which they receive dividend.
The treaty states that the dividend will be taxed at the rates provided under the domestic
laws of the source country. Are ABC Inc. and XYZ Inc. required to file their return of
income for A.Y.2021-22, assuming that the tax deductible at source has been fully
deducted?
(a) Both ABC Inc. and XYZ Inc. have to file their return of income u/s 139 for
A.Y.2021-22
(b) Both ABC Inc. and XYZ Inc. need not file their return of income u/s 139 for

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 45

A.Y.2021-22
(c) ABC Inc. has to file its return of income u/s 139 for A.Y.2021-22, but XYZ Inc.
need not file its return of income
(d) XYZ Inc. has to file its return of income u/s 139 for A.Y.2021-22, but ABC Inc.
need not file its return of income.

13. Mr. Harsh has to pay ` 3 lakhs on 3.3.2021 to “Plan your trip”, a travel agency, for a
holiday package in Singapore and Malaysia for himself and his wife. He obtained a loan
of ` 10 lakhs for higher education of his son studying in Columbia University, New York,
on 20.3.2021 from SBI, and remitted the said sum through the same bank, which is also
an authorised dealer. Is tax required to be collected at source from Mr. Harsh by travel
agency and the bank? If so, how much?
(a) No tax is required to be collected by the travel agency since the payment for
overseas tour programme package is less than ` 7 lakhs; tax has to be collected
by SBI@5% of ` 3 lakhs, being the amount in excess of ` 7 lakhs.
(b) No tax is required to be collected by the travel agency since the payment for
overseas tour programme package is less than ` 7 lakhs; tax has to be collected
by SBI@0.5% of ` 3 lakhs, being the amount in excess of ` 7 lakhs.
(c) Tax has to be collected by the travel agency@5% on ` 3 lakhs; and by SBI@5%
of ` 3 lakhs, being the amount in excess of ` 7 lakhs.
(d) Tax has to be collected by the travel agency@5% on ` 3 lakhs; and by SBI@0.5%
of ` 3 lakhs, being the amount in excess of ` 7 lakhs.
14. Mr. Pranav, a resident aged 48 years, and his brother Mr. Vaibhav, a non-resident
aged 45 years, received dividend of ` 7 lakhs and ` 5 lakhs, respectively, from A Ltd.,
an Indian company in January, 2021. The interest expenditure incurred by them in the
P.Y. 2020-21 on loan taken for investing in shares of A Ltd. is ` 1.50 lakh and
` 80,000, respectively. What is the tax payable by them on such income, assuming it
is the only source of income of Mr. Pranav and Mr. Vaibhav and they wish to make
maximum tax savings?
(a) ` 25,480 and ` 8,840, respectively
(b) ` 23,400 and ` 7,800, respectively
(c) ` 19,240 and ` 8,840, respectively
(d) ` 19,240 and ` 1,04,000, respectively
15. ABC Ltd., an Indian company, receives dividend of ` 10 lakhs from its subsidiary
company XYZ Ltd., also an Indian company in January, 2021. It also receives dividend
of ` 8 lakhs in February, 2021 from MNC Inc., a foreign company, in which it holds
25% shareholding. ABC Ltd. declares dividend of ` 20 lakhs in April, 2021 for the
F.Y.2020-21. What is the deduction available to ABC Ltd. under section 80M for

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 46 FINAL (NEW) EXAMINATION: MAY, 2021

A.Y. 2021-22?
(a) ` 8 lakhs
(b) ` 10 lakhs
(c) ` 18 lakhs
(d) ` 20 lakhs

16. Lords Inc., a British company, received, in the P.Y.2020-21, income by way of fees for
technical services of ` 3.20 crore from Yamuna Ltd., an Indian company, in pursuance of
an agreement between Yamuna Ltd. and Lords Inc. entered into in the year 2012, which
is approved by the Central Government. Expenses incurred for earning such income is
` 28 lakhs.
(i) Examine the taxability of the above sum in the hands of Lords Inc as per the
provisions of the Income-tax Act, 1961 and the requirement, if any, to file return of
income, assuming that Lords Inc does not have a permanent establishment in India.
(ii) If Lords Inc. has a permanent establishment in India and the contract/agreement
with Yamuna Ltd. for rendering technical services is effectively connected with such
PE in India, examine the taxability based on the following details provided relating to
P.Y.2020-21 –
Particulars Amount
(1) Fees for technical services received from Yamuna Ltd. ` 3.20 crore
(2) Expenses incurred for earning such income ` 28 lakhs
(3) Fees for technical services received from other Indian ` 2 crore
companies in pursuance of approved agreement entered
into between the years 2006 to 2010
(4) Expenses incurred for earning such income ` 21 lakhs
(5) Expenditure not wholly and exclusively incurred for the ` 8 lakhs
business of such PE [not included in (2) & (4) above]
(6) Amounts paid by the PE to HO (not being in the nature ` 14 lakhs
of reimbursement of actual expenses)
What are the other requirements, if any, under the Income-tax Act, 1961 in this
case?
17. M/s. ABC LLP filed its return of income for A.Y.2021-22, declaring total income of ` 18
lakhs, on 2 nd October, 2021. On processing of return, the total income determined under
section 143(1)(a) was ` 22 lakhs, after disallowing claim for deduction under section
10AA on account of late furnishing of return of income. Thereafter, on scrutiny, the
Assessing Officer made some additions under section 40(a)(ia) and section 43B and

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 47

passed an assessment order under section 143(3) assessing total income of ` 35 lakhs.
Later on, the Assessing Officer noticed that certain income had escaped assessment and
issued notice for reassessment under section 148. The total income reassessed under
section 147 was ` 42 lakhs.
Considering that none of the additions or disallowances made in the assessment or re -
assessment as above qualifies under section 270A(6), compute the amount of pena lty to
be levied under section 270A of the Income-tax Act, 1961 at the time of assessment
under section 143(3) and at the time of reassessment under section 147 (Assume under -
reporting of income is not on account of misreporting).
18. Ganga Ltd., an Indian company, earned a profit of ` 52 lakhs after debit/credit of the
following items to its Statement of Profit and Loss for the year ended on 31.3.202 1 -
(i) Items debited to Statement of Profit and Loss:
No. Particulars `
1. Provision for the loss of subsidiary 84,000
2. Provision for doubtful debts 93,000
3. Provision for income-tax 1,46,000
4. Provision for gratuity based on actuarial valuation 4,17,000
5. Depreciation 3,08,000
6. Interest to financial institution (unpaid before filing of return) 72,000
7. Penalty for infraction of law 14,000
(ii) Items credited to Statement of Profit and Loss:
No. Particulars `
1. Profit from unit established in special economic zone. 15,20,000
2. Share in income of an AOP as a member 1,95,000
3. Long term capital gains 3,20,000
Other Information:
(i) Depreciation includes ` 80,000 on account of revaluation of fixed assets.
(ii) Depreciation as per Income-tax Rules, 1962 is ` 4,12,000.
(iii) Balance of Statement of Profit and Loss shown in Balance Sheet at the asset
side as at 31.3.2020 was ` 32 lakhs which includes unabsorbed depreciation
of ` 18 lakhs.
(iv) The AOP, of which the company is a member, has paid tax at maximum
marginal rate.
(v) Provision for income-tax includes ` 65,000 of interest payable on income-tax.

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 48 FINAL (NEW) EXAMINATION: MAY, 2021

Based on the above information, you are required to –

(i) Compute minimum alternate tax under section 115JB of the Income-tax Act, 1961,
for A.Y. 2021-22;
(ii) What would be your answer to Q.(i), if Ganga Ltd. is a unit located in an IFSC and
derives its income solely in convertible foreign exchange?
(iii) If Ganga Ltd. is a unit of an IFSC and derives its income solely in convertible foreign
exchange, what would be the tax consequence of dividend distributed by it in the
hands of Ganga Ltd. and its shareholders?
19. EduAid is a charitable trust set up on 1.4.2011 with the object of providing relief of the
poor. Later on, in April, 2013, it changed its object to “providing education to the under
privileged”. It applied for registration for the first time on the basis of its new object, i.e.,
“education to the under privileged”, on 12.8.2013 and was granted registration on
15.3.2014.
On 1.4.2020, EduAid got merged with M/s. Educare (P) Ltd, a company not entitled for
registration under section 12AA. All the assets and liabilities of the erstwhile trust
became the assets and liabilities of M/s. Educare (P) Ltd. 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) Land
Location Date of Stamp duty Value which the land Book
purchase value on would fetch, if sold in the Value on
1.4.2020 open market on 1.4.2020 1.4.2020
` ` `
Surat 1.10.2011 42 lakhs 46 lakhs 40 lakhs
Baroda 21.11.2014 90 lakhs 105 lakhs 100 lakhs
(ii) Shares
Type of Date of Face Purchase Price at which Open
shares purchase value price of each share is market
of each quoted on NSE as value as
each share on 1.4.2020 on
share Highest Lowest 1.4.2020#
price price
` ` ` ` `
3000 Quoted 4.4.2015 100 130 280 250
equity shares
of PQR Ltd.

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 49

1800 21.8.2016 100 100 - - 210

Preference
shares of
LMN Ltd.
# on the basis of report of Merchant Banker
(iii) Liabilities
Book value of liabilities on 1.4.2020 = ` 112 lakhs. This includes –
(a) Corpus fund ` 14 lakhs.
(b) Provision for taxation ` 10 lakhs; and
(c) Reserves and Surplus ` 21 lakhs
20. Mr. Shyam, aged 47 years, is a resident individual having income from the following
sources:
(i) Income from a sole-proprietary business in Noida = ` 50 lakhs.
(ii) Share of profit from a partnership firm in Gurgaon = ` 30 lakhs.
(iii) Agricultural Income (gross) from coffee estates in Country A, a foreign country with
which India has no DTAA, CAD 32000. Tax deducted on the above income CAD
8,000
(iv) Brought forward business loss of F.Y.2019-20 in Country A was CAD 4,000 which is
not permitted to be set off against other income as per the laws of that country.
(v) Mr. Shyam has deposited ` 1,50,000 in public provident fund and paid medical
insurance premium of ` 30,000 by account payee cheque to insure his health. He
has also paid ` 55,000 as insurance premium to insure the health of his mother and
father, who are resident Indians aged 70 years and 75 years, respectively. He also
incurred ` 50,000 on the medical treatment of his dependent sister, who is a person
with disability. His sister does not claim deduction under section 80U.
Compute total income and tax liability of Mr. Shyam for the A.Y. 2021-22, assuming that
1 CAD = ` 60.

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 50 FINAL (NEW) EXAMINATION: MAY, 2021

SUGGESTED ANSWERS

MCQ Most MCQ Most

No. Appropriate No. Appropriate
Answer Answer
1. b 11. c
2. d 12. c
3. b 13. d
4. c 14. d
5. d 15. c
6. c
7. d
8. c
9. c
10. d

16. (i) Where Lords Inc., a British company, does not have a PE in India
In this case, Lords Inc. would be eligible for a concessional rate of tax@10% (plus
surcharge@2% and HEC@4%) of ` 3.20 crore under section 115A on the fees for
technical services received from Yamuna Ltd., an Indian company, since the same
is in pursuance of an agreement entered into after 31.3.1976, which has been
approved by the Central Government. No deduction, however, would be allowed in
respect of expenditure of ` 28 lakhs incurred to earn such income.
If tax deductible at source@10.608% has been fully deducted, Lords Inc. need not
file its return of income in India under section 139 for A.Y.2021-22.
(ii) Where Lords Inc., a British company, has a PE in India and rendering
technical services is effectively connected with the PE in India .
Since Lords Inc. carries on business through a PE in India, in pursuance of an
agreement with Yamuna Ltd. or other Indian companies entered into after
31.3.2003, and the income by way of fees for technical services is effectively
connected with the PE in India as per section 44DA, such income shall be computed
under the head “Profits and gains of business or profession” in accordance with the
provisions of the Income-tax Act, 1961.
Accordingly, expenses of ` 49 lakhs (` 28 lakhs + ` 21 lakhs) incurred for earning
fees for technical services of ` 5.20 crore (` 3.20 crore + ` 2 crore) is allowable as

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 51

deduction therefrom. However, expenditure of ` 8 lakhs which is not incurred wholly

and exclusively for the business of the PE and the amount of ` 14 lakhs paid by the
PE to the HO is not allowable as deduction.
Lords Inc. is required to maintain books of account under section 44AA and get the
same audited under section 44AB and furnish report before the specified date i.e.,
the date one month prior to the due date of filing return u/s 139(1) for A.Y.2021-22.
17. M/s. ABC LLP is deemed to have under-reported its income since:
(1) its income assessed under 143(3) exceeds its income determined in a return
processed under section 143(1)(a); and
(2) the income reassessed under section 147 exceeds the income assessed under
section 143(3).
Therefore, penalty is leviable under section 270A for under-reporting of income.
Computation of penalty leviable under section 270A
Particulars ` `
Assessment under section 143(3)
Under-reported income:
Total income assessed under section 143(3) 35,00,000
(-) Total income determined u/s 143(1)(a) 22,00,000
13,00,000
Tax payable on under-reported income:
Tax on under-reported income of ` 13 lakhs plus total
income of ` 22 lakhs determined u/s 143(1)(a) [30% of ` 10,92,000
35 lakh + HEC@4%]
Less: Tax on total income determined u/s 143(1)(a) [30% 6,86,400
of ` 22 lakh +HEC@4%]
4,05,600
Penalty leviable@50% of tax payable 2,02,800
Reassessment under section 147
Under-reported income:
Total income reassessed under section 147 42,00,000
(-) Total income assessed under section 143(3) 35,00,000
7,00,000
Tax payable on under-reported income:
Tax on under-reported income of ` 7 lakhs plus total
income of ` 35 lakhs assessed u/s 143(3) [30% of ` 42 13,10,400

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 52 FINAL (NEW) EXAMINATION: MAY, 2021

lakh + HEC@4%]
Less: Tax on total income assessed u/s 143(3) [30% of
` 35 lakh + HEC@4%] 10,92,000
2,18,400
Penalty leviable@50% of tax payable 1,09,200
18. (i) Computation of “Book Profit” for levy of MAT under section 115JB for
A.Y. 2021-22
Particulars ` `
Net Profit as per Statement of Profit and Loss 52,00,000
Add: Net profit to be increased by the following amounts
as per Explanation 1 to section 115JB:
- Provision for the loss of subsidiary 84,000
- Provision for doubtful debts, being the amount 93,000
set aside as provision for diminution in the
value of any asset
- Provision for income-tax 1,46,000
[As per Explanation 2 to section 115JB,
income-tax shall include, inter alia, any interest
charged under the Act, therefore, whole of the
amount of provision for income-tax including `
65,000 towards interest payable has to be
added]
- Depreciation as per books of account 3,08,000 6,31,000
58,31,000
Less: Net profit to be decreased by the following amounts
as per Explanation 1 to section 115JB:
- Share in income of an AOP as a member 1,95,000
[In a case where AOP has paid tax on its total
income at maximum marginal rate, no income-
tax is payable by the company, being a member
of AOP, in accordance with the provisions of
section 86. Therefore, share in income of an
AOP on which no income-tax is payable in
accordance with the provisions of section 86,
would be reduced while computing book profit,
since the same has been credited to statement
of profit and loss]

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 53

- Depreciation other than depreciation on

revaluation of assets (` 3,08,000 – ` 80,000) 2,28,000
- Unabsorbed depreciation or brought forward
business loss, whichever is less, as per the 14,00,000
books of account.
[Lower of unabsorbed depreciation ` 18,00,000
and brought forward business loss ` 14,00,000
as per books of accounts has to be reduced
while computing the book profit] 18,23,000
Book Profit 40,08,000
Computation of MAT liability under section 115JB
Particulars `
15% of book profit of ` 40,08,000 6,01,200
Add: Health & Education Cess@4% 24,048
Minimum Alternate Tax liability 6,25,248
MAT liability (rounded off) 6,25,250
Notes:
(1) It is only the specific items mentioned under Explanation 1 to section 115JB,
which can be adjusted from the net profit as per the Statement of Profit and
Loss prepared as per the Companies Act for computing book profit for levy of
MAT. Since the following items are not specified thereunder, the same cannot
be adjusted for computing book profit:
Interest to financial institution (unpaid before filing of return) and
Penalty for infraction of law
(2) Provision for gratuity based on actuarial valuation is an ascertained liability
[CIT v. Echjay Forgings (P) Ltd. (2001) 251 ITR 15 (Bom.)]. Hence, the same
should not be added back to compute book profit.
(3) As per proviso to section 115JB(6), the profits from unit established in special
economic zone cannot be excluded while computing the book profit, and
hence, such income would be liable for MAT.
(ii) Computation of MAT liability u/s 115JB where Ganga Ltd. is a unit located in an
IFSC and derives its income solely in convertible foreign exchange
Particulars `
9% of book profit of ` 40,08,000 3,60,720
Add: Health & Education Cess@4% 14,429

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 54 FINAL (NEW) EXAMINATION: MAY, 2021

Minimum Alternate Tax liability 3,75,149

MAT liability (rounded off) 3,75,150
(iii) As per section 115-O(8), no tax on distributed profits is chargeable in respect of the
total income of a company, being a unit of an IFSC deriving income solely in
convertible foreign exchange, on any amount of declared, distributed or paid by the
company by way of dividends, either in the hands of the company or the person
receiving such dividend.
Thus, neither the company nor the shareholders have to pay any tax on dividend
distributed by Ganga Ltd.
19. As per section 115TD, the accreted income of “EduAid”, a charitable trust, registered
under section 12AA which is merged with M/s Educare (P) Ltd., an entity not entitled for
registration under section 12AA, would be chargeable to tax at the rate of 34.944% [30%
plus surcharge @12% plus cess@4%].
Computation of accreted income and tax liability in the hands of the EduAid trust
arising as a result of merger with M/s. Educare (P) Ltd.
Particulars Amount (`)
Aggregate FMV of total assets as on 1.4.2020, being the specified 1,16,73,000
date (date of merger)
[See Working Note 1]
Less: Total liability computed in accordance with the prescribed
method of valuation
[See Working Note 2] 67,00,000
Accreted Income 49,73,000
Tax Liability @ 34.944% of ` 49,73,000 (rounded off) 17,37,765
Working Notes:
(1) Aggregate fair market value of total assets on the date of
merger
- Land at Surat, being immovable property, -
purchased on 1.10.2011
Since the trust was registered only on 15.3.2014 and
benefit of section 11 and 12 was available to the trust
only from A.Y.2014-15, relevant to P.Y.2013-14, being
the previous year in which the application for registration
is made, the value of land purchased in P.Y.2011-12, in
respect of which benefit under sections 11 and 12 was
not availed, has to be ignored for computing accreted
income.

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 55

- Land at Baroda, being an immovable 1,05,00,000

property, purchased on 21.11.2014
[The fair market value of land would be higher of ` 105
lakhs i.e., price that the land would ordinarily fetch if sold
in the open market and ` 90 lakhs, being stamp duty
value as on the specified date, i.e., 1.4.2020]
- Quoted equity shares of PQR Ltd. [3,000 x ` 265 per 7,95,000
share]
[` 265 per share, being the average of the lowest (` 250)
and highest price (` 280) of such shares on the specified
date]
- Preference shares of LMN Ltd. [1,800 x ` 210 per
share]
[The fair market value which it would fetch if sold in the 3,78,000
open market on the specified date i.e. FMV on 1.4.2020]
1,16,73,000
(2) Total liability
- Reserves and Surplus ` 21 lakhs [not includible] -
- Corpus Fund of ` 14 lakhs [not includible] -
- Provision for taxation ` 10 lakhs [not includible] -
- Other Liabilities
[` 112 lakhs - ` 21 lakhs - ` 14 lakhs - ` 10 lakhs] 67,00,000
67,00,000
20. Computation of total income and tax liability of Mr. Shyam for A.Y. 2021-22
Particulars ` `
Profits and gains from business and profession
Income from sole proprietary concern in India 50,00,000
Share of profit from a partnership firm in India of ` 30
lakhs, is exempt Nil
Business profit 50,00,000
Less: Business Loss1 in Country A (CAD 4000 x 2,40,000
` 60/CAD) 47,60,000

1Since the eight year has not expired from the assessment year in which such business loss was incurred,
such business loss can be set-off against current year business income.

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 56 FINAL (NEW) EXAMINATION: MAY, 2021

Income from Other Sources

Agricultural income from coffee estates in Country A, is
taxable in India (CAD 32000 x ` 60/CAD) 19,20,000
Gross Total Income 66,80,000
Less: Deductions under Chapter VI-A
Under section 80C [deposit in PPF] 1,50,000
Under section 80D 75,000
[Medical insurance premium paid ` 30,000 for self,
restricted to ` 25,000; ` 55,000 for senior citizen
parents, restricted to ` 50,000]
Under section 80DD
[Flat deduction of ` 75,000 irrespective of the
expenditure incurred on dependent sister, being a 75,000
person with disability]
3,00,000
Total Income 63,80,000
Tax on total income
Tax on ` 63,80,000 [(30% x ` 53,80,000) plus 17,26,500
` 1,12,500]
Add: Surcharge@10%, since total income exceeds ` 50 1,72,650
lakh
18,99,150
Add: HEC@4% 75,966
19,75,116
Average rate of tax in India 30.96%
[i.e., ` 19,75,116/` 63,80,000 x 100]
Average rate of tax in Country A 25%
[i.e., CAD 8000/CAD 32000]
Doubly taxed income [` 19,20,000 – ` 2,40,000] 16,80,000
Rebate under section 91 on ` 16,80,000@25%
(lower of average Indian tax rate and rate of tax in 4,20,000
Country A)
Tax payable in India [` 19,75,116 – ` 4,20,000] 15,55,116
Tax payable in India (rounded off) 15,55,120

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 57

Note:
(1) Since Mr. Shyam is resident in India for the P.Y.2020-21, his global income would be
subject to tax in India. He is eligible for deduction under section 91 since the
following conditions are fulfilled:-
(a) He is a resident in India during the relevant previous year.
(b) Agricultural income accrues or arises to him outside India during that previous
year.
(c) Such agricultural income is not deemed to accrue or arise in India during the
previous year.
(d) The income in question i.e., agricultural income, has been subjected to
income-tax in Country A in his hands and he has paid tax on such income in
Country A.
(e) There is no agreement under section 90 for the relief or avoidance of double
taxation between India and Country A, where the income has accrued or
arisen.
(2) If Mr. Shyam opts for section 115BAC, he would not be able to claim deduction of
` 3,00,000 under Chapter VI-A. His total income would be ` 66,80,000. His tax
liability would be ` 19,92,276 (working shown below), which is higher than the tax
liability of ` 19,75,116 computed as per the regular provisions of the Act. Hence, he
would not opt for section 115BAC.
Particulars `
Upto ` 2,50,000 Nil
` 2,50,001 – ` 5,00,000 [` 2,50,000 @ 5%] 12,500
` 5,00,001 – ` 7,50,000 [` 2,50,000 @ 10%] 25,000
` 7,50,001 – ` 10,00,000 [ ` 2,50,000 @ 15%] 37,500
` 10,00,001 – ` 12,50,000 [` 2,50,000 @ 20%] 50,000
` 12,50,001 – ` 15,00,000 [` 2,50,000 @ 25%] 62,500
` 15,00,001 – ` 66,80,000 [` 51,80,000 @ 30%] 15,54,000
17,41,500
Add: Surcharge @ 10% 1,74,150
19,15,650
Add: HEC @ 4% 76,626
Total tax liability 19,92,276
Total tax liability (rounded off) 19,92,280

© The Institute of Chartered Accountants of India

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PAPER – 5:
INDIRECT TAX LAWS

(1) All questions have been answered on the basis of position of (i) GST
law as amended by the Finance Act, 2023 including significant
notifications and circulars and other legislative amendments made,
up to 30th April, 2024 and (ii) customs law as amended by the
Finance Act, 2023 including significant notifications and circulars
and other legislative amendments made, up to 30th April, 2024.
(2) Unless otherwise specified, the section numbers and rules referred
in questions and answers relating to GST pertain to the Central
Goods and Services Tax Act, 2017 and the Central Goods and
Services Tax Rules, 2017 respectively.
(3) The GST rates for goods and services mentioned in various
questions are hypothetical and may not necessarily be the actual
rates leviable on those goods and services. The rates of customs
duty are also hypothetical and may not necessarily be the actual
rates. Further, GST compensation cess should be ignored in all the
questions, wherever applicable.

QUESTIONS

Case scenario - I
Shreyans Ltd. (hereinafter referred as “company”) is a conglomerate having
diversified businesses including hotels, FMCG (Fast-Moving Consumer Goods),
information technology etc. It has its corporate office in Delhi and operations
across multiple States in India. As an internal policy, the company has
obtained single GST registration in each State irrespective of the diversified
business operations being undertaken in the State. During the month of April,
the company undertook the following transactions:

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(a) The FMCG division of the company in Jaipur, Rajasthan agreed to use
the vacant godown within the premises of Hotel Division in Udaipur,
Rajasthan for storage of its goods. The value of such an arrangement
was agreed at ` 5 lakh per month. Said amount was agreed to be
adjusted by way of intra-division book adjustment on a monthly basis.
(b) The Hotel Division of the company in Maharashtra used the IT platform
owned and managed by the IT Division of the company in Delhi. The
value of such services was determined as ` 12 lakh per month. The IT
division treated the same as deemed supply liable to GST as per
Schedule I of the CGST Act, 2017 and charged GST on such deemed
supply in the invoice issued to Hotel Division on 25th April. The Hotel
Division availed the input tax credit of such deemed supplies from its
Maharashtra Office in April itself. However, no payment was made for
such services by the Hotel Division to the IT Division.
(c) The Executive Director, as part of his salary and perquisites under the
employment agreement, was eligible for a voucher worth ` 5 lakh,
redeemable at any hotel property of the company in India. The voucher
was used by the Executive Director for the stay of his family in a
company owned hotel in Udaipur, Rajasthan. The total amount charged
from the Executive Director was ` 25 lakh. The voucher value of ` 5 lakh
was deducted from such amount at the time of payment.
(d) The Hotel Division provided accommodation services to a US citizen and
resident for a wedding ceremony organized at its hotel in Udaipur,
Rajasthan. The total amount of ` 2 crores for such services was paid by
an Indian individual residing in Delhi on behalf of the US resident in
Indian currency. The amount was received by the Mumbai, Maharashtra
Office of Hotel Division.
(e) The company received long term lease of an industrial plot from
Maharashtra Industrial Development Corporation (MIDC) in auction
against payment of an upfront amount as lease premium of ` 20 crores
for a period of 50 years. The company paid location charges of ` 5
crores in addition to the said premium.
The rate of GST in case of intra-State supplies, unless otherwise provided shall
be 9% CGST and 9% SGST) and for inter-State supplies shall be 18% IGST. All

2 NOVEMBER 2024 EXAMINATION

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the divisions of the Company are eligible for 100% input tax credit unless
otherwise specified.
Based on the facts of the case scenario given above, choose the most
appropriate answer to Q. Nos. 1 to 5 below:-
1. Which of the following statements is correct in respect of the services
related to usage of vacant godown?
(a) The Hotel Division shall charge CGST and SGST amounting to
` 45,000 each in the tax invoice issued to FMCG Division.
(b) No GST is chargeable on usage of vacant godown of Hotel
Division.
(c) The Hotel Division shall charge IGST amounting to ` 90,000 in the
tax invoice issued to FMCG Division.
(d) The Hotel Division, Rajasthan shall charge IGST amounting to
` 90,000 in the tax invoice issued to Corporate Office in Delhi.
2. Assuming that the payment for utilization of IT platform has not been
made by the Hotel Division to the IT Division till the end of October
month of the current financial year, the Hotel Division:
(a) should reverse the input tax credit so availed while filing Form
GSTR-3B of the October month.
(b) need not reverse the input tax credit so availed in Form GSTR-3B
of the October month.
(c) should have availed the input tax credit only after the end of the
current financial year and not in April.
(d) should not have availed the input tax credit in respect of said
transaction as the same is deemed supply under Schedule I of the
CGST Act, 2017.
3. In relation to the stay of Executive Director’s family in the company owned
hotel in Udaipur, Rajasthan, value of supply of accommodation services
provided by the Hotel Division is:
(a) ` 25 lakh
(b) ` 20 lakh

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(c) Supply of services by employer to employee is not a taxable supply

under GST.
(d) ` 5 lakh
4. For the accommodation services provided to the US resident and citizen,
the place of supply shall be:
(a) Udaipur
(b) Delhi
(c) Mumbai
(d) USA
5. In respect of the long-term lease of the industrial plot received from
Maharashtra Industrial Development Corporation (MIDC),
(a) upfront lease premium of ` 20 crores is exempt. However, the
location charges of ` 5 crore are liable to GST.
(b) GST is payable on the upfront lease premium of ` 20 crores. No
GST is payable on the location charges.
(c) GST is exempt on the entire premium of ` 25 crores including
location charges.
(d) GST is payable on the entire upfront premium of ` 25 crores
including location charges.
Vlook Smart Ltd. (hereinafter referred as “company”) is a leading retail chain
of India. It has retail stores in multiple States with its corporate office located
in Mumbai, Maharashtra. The company has GST registrations across all States
from where it operates its retail stores. The company undertook following
transactions during the month of April:
(a) Supplied goods worth ` 100 crores through its retail store in Jaipur,
Rajasthan and offered a cash discount of ` 2 crores to the customers in
the State of Rajasthan during the month.
(b) Ghanshyam Das, a retailer in Gujarat, purchased goods worth ` 5 lakh in
the month of January of the preceding financial year. Subsequently, the
company offered an incentive on such purchases to Ghanshyam Das by
issuing a commercial credit note of ` 50,000 in the month of April.

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(c) The company also charges slotting fee from the manufacturers of goods
to keep their products on the shelf for sale. The company received ` 5
crores from a manufacturer located in West Bengal for keeping its
products on shelf of its store for sale in the State of Haryana. The
payment for the same was received at Mumbai Head Office of the
company. The invoice for the same was issued by the Haryana
registration of the company.
(d) The company received an amount of ` 2 crores in April as penalty for
delayed receipt of consideration from its customers for sale of goods
made in the month of January of the preceding financial year in the
retail store of Jaipur, Rajasthan.
(e) The company entered into a rental agreement with a registered person
for an upcoming retail store (a commercial property) in Ahmedabad,
Gujarat. The said store location is outside the municipal limits of
Ahmedabad. The rental per month payable from April is ` 50 lakh which
is paid to the owner registered in Ahmedabad, Gujarat, by the Mumbai
Head Office of the company as the company follows a centralized rental
agreement policy for all stores. The invoice for the same is issued to the
respective registered office in Gujarat.
(f) The company incurred an expense of ` 50 lakh in transportation of
empty cargo containers to its centralized warehouse in Mumbai from all
the States through a Goods Transport Agency.
The rates of GST, unless otherwise specified, shall be 9% CGST, 9% SGST and
18% IGST. All the divisions of the company are eligible for 100% input tax
credit unless otherwise specified.
Based on the facts of the case scenario given above, choose the most
appropriate answer to Q. Nos. 6 to 11 below:-
6. The value of supply on which GST is payable for the month of April for
the Rajasthan State is:
(a) ` 96 crores
(b) ` 100 crores
(c) ` 98 crores
(d) ` 102 crores

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7. In relation to the incentive paid to Ghanshyam Das in Gujarat,

(a) the company shall reverse proportionate input tax credit.
(b) there is no GST implication on the company and Ghanshyam Das.
(c) Ghanshyam Das shall reverse the input tax credit availed on the
purchase.
(d) the company shall reduce the tax liability and Ghanshyam Das shall
increase the tax liability for the month of April.
8. In relation to the slotting fee charged,
(a) tax is payable by the company in Haryana.
(b) tax is payable by the manufacturer in West Bengal.
(c) tax is payable by the company in Maharashtra.
(d) slotting fee is exempted from GST.
9. The tax on penalty received on account of delayed payment of
consideration is payable at the time of filing return of ___________.
(a) April
(b) January
(c) Either April or January at the option of the company
(d) No tax is payable on the penalty received on account of delayed
payment of consideration.
10. The GST on rental amount of upcoming store near Ahmedabad shall be:
(a) ` 4.5 lakh CGST and ` 4.5 lakh SGST, payable by owner in Gujarat.
(b) ` 9 lakh IGST, payable by owner in Gujarat.
(c) nil since store is located outside the municipal limits.
(d) ` 9 lakh IGST, payable under reverse charge mechanism by
Mumbai Head Office, Maharashtra.
11. For the empty cargo containers transported to Mumbai warehouse,:
(a) e-way bill shall be issued by respective dispatch locations of the
company.

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(b) e-way bill shall be issued by the warehouse location in Mumbai.

(c) no e-way bill is required to be issued.
(d) e-way bill shall be issued by the Goods Transport Agency.
12. Mr. Mota Lal is engaged in the wholesale business of dry fruits. He
imported 5,150 kg of almonds from California. Post importation, he did
not clear them for home consumption but kept the imported almonds in
a customs warehouse due to the renovation work going on in his retail
store. Mr. Bansi Lal, the warehouse keeper, is of the view that titular
rights of the almonds vest with him and Mr. Mota Lal has no access to
them. However, Mr. Mota Lal wishes to inspect the goods and ensure
that goods do not deteriorate during storage in the warehouse and
thereafter, show them for sale to Mr. Manohar Lal.
Which of the following statement(s) is correct in the given case as per
the provisions of the Customs Act, 1962?
(a) The view taken by Mr. Bansi Lal is correct.
(b) The view taken by Mr. Bansi Lal is incorrect. However, Mr. Mota Lal
can only inspect the goods.
(c) The view taken by Mr. Bansi Lal is incorrect. However, Mr. Mota Lal
can only inspect the goods and ensure that goods do not
deteriorate during storage in the warehouse but thereafter he
cannot show them in warehouse for sale to Mr. Manohar Lal.
(d) The view taken by Mr. Bansi Lal is incorrect. Further, Mr. Mota Lal
can inspect the goods and ensure that goods do not deteriorate
during storage in the warehouse and also thereafter, he can show
them in warehouse for sale to Mr. Manohar Lal.
13. Mr. Dinkar is the owner of Dinkar Associates which is registered in
Ahmedabad, Gujarat. He is engaged in supply of various goods and
services in the domestic market and exporting the same outside India.
During the month of February, he has undertaken the following
transactions:

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Outward Supplies
(i) Transferred the tenancy rights of a commercial complex (taken on
rent) located in Vadodra for a tenancy premium of ` 8,00,000 to
DB Morgan Ltd. of Ahmedabad, Gujarat. Stamp duty and
registration fee have already been paid on the tenancy premium.
(ii) Hired out excavators and dumpers alongwith operators to mining
lease holders of Kuchchh, Gujarat for extracting and transporting
minerals within the mining area for a period of 5 years. The
excavators/dumpers are invariably hired out along with operators.
Similarly, operators are supplied only when the
excavators/dumpers are hired out. Hire charges for excavators and
dumpers are ` 10,00,000 and service charges for supply of
manpower for operation of the excavators/dumpers - ` 2,00,000.
(iii) Supplied goods of value of ` 35,00,000 to Choksi Ltd. Jamnagar,
Gujarat (including goods worth ` 10,00,000 supplied to SEZ unit of
Choksi Ltd. in Gujarat).
(iv) Agreed to provide consultancy services to Mr. Krishna of Surat,
Gujarat who is an unregistered person in connection with his newly
commenced business for a consideration of ` 6,80,000. An
advance of ` 1,50,000 has been received for the same on 10th
February.
(v) Exported the goods to George Inc. of the USA. FOB value of the
goods is ` 8,40,000.
(vi) Sold a heavy printing machinery purchased from Japan for
` 5,10,000 in high sea to Dhoomketu Printers, Mumbai,
Maharashtra on 10th February.
(vii) Supplied goods to Timahi Corporation, China for ` 12,00,0000 on
15th February. These goods were purchased for ` 10,00,000 from
Jamsam Corporation, Japan on 5th February and were supplied in
China without bringing them to India.

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Inward Supplies
(i) The goods exported to George Inc., USA, were purchased by
Mr. Dinkar as a merchant exporter for ` 7,00,000 from Shravan Ltd.,
a manufacturer registered in Bengaluru, Karnataka.
(ii) The heavy printing machinery sold in high sea to Dhoomketu
Printers was originally imported by Mr. Dinkar from Japan on 2nd
February, with CIF value of ` 5,00,000 and FOB value of ` 4,50,000.
(iii) Mr. Dinkar paid a sales commission of ` 5,00,000 to Mr. Kenzo of
Japan, his agent in connection with all the imports from Japan.
(iv) Imported raw materials from Italy under a CIF contract. CIF value
of the goods for the purpose of customs included ` 2,00,000 as
ocean freight paid by the exporter on transport of goods through
vessel from port of shipment to port of import. The value for the
purpose of levy of IGST worked out by the customs was ` 9,00,000.
(v) Purchased raw cotton for manufacture of garments for ` 12,00,000
from Mr. Poonawala, an agriculturist of Kuchch, Gujarat.
(vi) Monthly rent of ` 35,00,000 payable to Dharam Ltd., Gujarat, for
the retail outlet (a commercial property) in Ahmedabad, Gujarat
(one third of total space available is used by Mr. Dinkar for
personal residential purposes).
Compute the net GST payable in cash [CGST and SGST or IGST, as the
case may be], by Mr. Dinkar for February.
Notes:
A. Rates of CGST, SGST and IGST for hiring out of excavators and
dumpers are 6%, 6% and 12%. As regards the supply received as a
merchant exporter, Mr. Dinkar paid GST at the concessional rates by
fulfilling all requisite conditions thereof. Rates of CGST, SGST and
IGST for all the other supplies of goods and services including supply
of manpower services are 9%, 9% and 18%. Ignore GST compensation
cess.
B. Mr. Dinkar had an opening balance of ITC of CGST of ` 35,000 and
SGST of ` 35,000 for the relevant period. In respect of all the
inward supplies, suppliers have uploaded their invoices in

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respective Form GSTR-1 and the supplies are reflected in Form

GSTR 2B.
C. All the figures given above are exclusive of GST, wherever
applicable. The amounts given in respect of import and export
transactions in rupees have been arrived after conversion thereof,
though transactions were undertaken in convertible foreign
currency.
D. Mr. Dinkar always makes zero-rated supplies under a bond or
letter of undertaking (LUT).
Provide supporting explanatory notes for your conclusion wherever
required.
14. Mr. Jignesh of Delhi books accommodation, though an e-commerce
operator - Plan My Trip Ltd. (PMTL), registered under GST in
Uttarakhand, in a newly established budget hotel – Paras Resorts Ltd.
(PRL) located in Nainital, Uttarakhand. The turnover of PRL in the
current financial year is ` 18 lakh.
PRL raises an invoice for ` 1,00,000 to Mr. Jignesh. PMTL collects the
payment from Mr. Jignesh and after deducting its fees and other
charges from the same, remits the balance amount to PRL.
Advise PRL as to whether it is required to obtain GST registration. Also,
whether tax is required to be collected at source by PMTL under section 52
on the services provided by PRL to Mr. Jignesh through electronic
commerce operator – PMTL. If yes, determine the amount of tax to be
collected at source.
Suppose in the above case, other facts remaining same, if PRL, supplying
accommodation services, is also an e-commerce operator (registered in
Uttarakhand as TCS collector as well as a regular tax payer since its
aggregate turnover exceeds the threshold limit) and PMTL has an
agreement with PRL for booking the accommodation at the time when
Mr. Jignesh booked the accommodation, ascertain whether tax is required
to be collected at source under section 52 on the services provided by PRL
to Mr. Jignesh through electronic commerce operator – PMTL. If yes,
determine the amount of tax to be collected at source and since two

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e-commerce operators are involved in the said transaction, who is

required to collect the tax at source under section 52?
Note – Amounts given above are exclusive of GST. Assume applicable
rate of CGST and SGST to be 9% each and IGST to be 18%.
15. A notice for audit under section 65 is served by the proper officer on the
basis of risk assessment to Ghoomghoom Pvt. Ltd. on 02.12.2023 for
audit of financial years 2021-22 and 2022-23. The tax authorities visited
its place of business on 20.12.2023 and requested for certain records,
documents and books of accounts, from the company. The required
records, documents and books of accounts are provided by
Ghoomghoom Pvt. Ltd. on 30.12.2023. After in-depth checking of
records, documents and books made available by Ghoomghoom Pvt.
Ltd. during audit, the audit was completed on 25.03.2024 and audit
findings were communicated to the taxpayer in prescribed form by said
date. However, the accountant of Ghoomghoom Pvt. Ltd. is of the view
that-
(i) the tax authorities have completed the audit of Ghoomghoom Pvt.
Ltd. after the lapse of the maximum time-period permitted by the
GST law and
(ii) the tax authorities cannot conduct the audit of two financial years
at a time.
Ghoomghoom Pvt. Ltd. has approached you to advise you on the said
issues. You are required to determine the technical veracity of the
above views of the accountant of Ghoomghoom Private Ltd. on the
same with reference to the relevant provisions of the GST law.
16. Agora Ltd. exported certain goods to its customer located in Germany
against which a refund of IGST amounting to ` 50 lakh was claimed and
received by Agora Ltd. The sale proceeds covering 50% of the value of
exports were immediately received by Agora Ltd. However, due to
financial constraints, the customer failed to pay the balance amount of
sale proceeds within the permissible time limits under regulatory
provisions prevailing in India.

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In view of the aforesaid scenario:

(a) Determine the amount of refund, if any, which Agora Ltd. is
required to deposit back. Also, discuss the time limit which is
permissible under law within which the sale proceeds in respect of
exported goods should have been realized by Agora Ltd.

(b) Will your answer to sub-part (a) differ if the Reserve Bank of India
writes off the requirement of realisation of sale proceeds on
merits?

(c) Whether Agora Ltd. can claim the refund back in case sale
proceeds are realised at a later date?
17. Discuss the cases where a registered person is not allowed to furnish the
details of outward supplies under section 37 in Form GSTR-1 or using
invoice furnishing facility, as enumerated in rule 59.
18. Paramjit Ltd. imported a machine from Oliver Equipments, UK. The FOB
price of the machine was settled at 6,000 UK Pound. The machine was
shipped on 01.10.2023. Meanwhile, Paramjit Ltd. re-negotiated the price
of the machine with Oliver Equipments which agrees on the reduced
price of 5000 UK pound on 10.10.2023. The machine arrived in India on
18.10.2023. Other details pertaining to machine are as under:
(i) License fee that the buyer was required to pay in UK as a condition
of sale was 500 UK Pound
(ii) Buying commission paid in India was ` 20,000
(iii) Due to deep draught at the port, machine was not taken to the
jetty in the port but was unloaded at the outer anchorage. The
charges incurred for such unloading and transport of machine
from outer anchorage to the jetty in barges (small boats) were
` 50,000.
(iv) Date of presentation of bill of entry was 15.10.2023 and the rate of
exchange notified by CBIC on this date was ` 100 per pound. Rate
of basic customs duty was 10%

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(v) Date of entry inwards was 18.10.2023 and the rate of exchange
notified by CBIC on this date was ` 105 per pound. Rate of basic
customs duty was 15%
(vi) Insurance premium details were not ascertainable.
Compute the assessable value and basic customs duty payable (rounded
off to nearest one rupee) by Paramjit Ltd.
19. Aayaat Enterprises imported goods vide a bill of entry presented before
the proper officer on 15th April. The proper officer decided that the
goods should be subject to a chemical test and therefore, the same were
to be provisionally assessed. You are required to advise Aayaat
Enterprises regarding the conditions which are to be complied with
before payment of duty is made for the purpose of provisional
assessment.
Subsequently, the goods imported by Aayaat Enterprises were
provisionally assessed at a value of ` 24,00,000 on 16th April and Aayaat
Enterprises paid the provisional duty of ` 2,40,000 on the same date
after fulfilling the requirements for provisional assessment. Further, the
chemical test report was received on 5th May. Advise Aayaat Enterprises
regarding the maximum time limit upto which its provisional assessment
should be finalized.
Determine the amount of interest payable, if any, under section 18 of
the Customs Act, 1962 (considering a year of 365 days) assuming that
the provisional assessment was finalized on 30th June finally assessing
the customs duty at ` 2,80,000 and the differential duty was paid on the
same day.
20. With reference to the Foreign Trade Policy 2023, explain in brief the
objectives and salient features of Remission of Duties and Taxes on
Exported Products (RoDTEP) scheme.

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SUGGESTED ANSWERS

Question Answer
No.
1 (b) No GST is chargeable on usage of vacant godown of Hotel
Division
2 (b) need not reverse the input tax credit so availed in GSTR-3B
of the October month.
3 (a) ` 25 lakh
4 (a) Udaipur
5 (c) GST is exempt on the entire premium of ` 25 crores
including location charges.
6 (b) ` 100 crores
7 (b) there is no GST implication on the company and Ghanshyam
Das.
8 (a) tax is payable by the company in Haryana.
9 (a) April
10 (a) ` 4.5 lakh CGST and ` 4.5 lakh SGST, payable by owner in
Gujarat
11 (c) no e-way bill is required to be issued.
12 (d) The view taken by Mr. Bansi Lal is incorrect. Further, Mr.
Mota Lal can inspect the goods and ensure that goods do
not deteriorate during storage in the warehouse and also
thereafter, he can show them for sale to Mr. Manohar Lal.

13. Computation of net GST payable in cash, by Mr. Dinkar

Particulars Value (`) CGST (`) SGST (`) IGST (`)

GST payable on outward supplies
Transfer of tenancy 8,00,000 72,000 72,000
rights (8,00,000 (8,00,000

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[Transfer of tenancy x 9%) x 9%)

rights to a new tenant
against consideration in
the form of tenancy
premium is taxable even
though stamp duty and
registration fee have
been paid on the same
(Circular No. 44/2018 CT
dated 02.05.2018). It is
an intra-State supply
since place of supply is
location of immovable
property being
Ahmedabad, Gujarat.]
Hiring out excavators 12,00,000 72,000 72,000
and dumpers including [10,00,000 (12,00,000 (12,00,000
operators + x 6%) x 6%)
[Taxable since renting 2,00,000]
of trucks and other
freight vehicles with
driver for a period of
time is a service of
renting of transport
vehicles (with operator)
and not service of
transportation of goods
by road. Further, since
the excavators and
dumpers are invariably
hired out along with
operators and the
operators are supplied
only when the
excavators/ dumpers
are hired out, it is a case

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of composite supply
under section 2(30)
wherein the principal
supply is the hiring out
of the excavators and
dumpers.
As per section 8(a), the
composite supply is
treated as the supply of
the principal supply.
Therefore, the supply of
manpower for operation
of the excavators/
dumpers will also be
taxed at the rate
applicable for hiring out
of the excavator and
dumpers (principal
supply).
Further, it is a taxable
intra-State supply since
place of supply is
location of recipient
being Kuchchh, Gujarat.]
Goods supplied to SEZ 10,00,000 Nil
unit of Choksi Ltd.
[Supply to SEZ unit is a
zero-rated supply in
terms of section
16(1)(b) of the IGST Act,
2017. No IGST is
payable since Mr.
Dinkar makes all zero-
rated supplies under
LUT/bond.]

16 NOVEMBER 2024 EXAMINATION

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Supply of goods to 25,00,000 2,25,000 2,25,000

Choksi Ltd., Gujarat [35,00,000 [25,00,000 [25,00,000
[It is a taxable intra- - × 9%] × 9%]
State supply since place 10,00,000]
of supply is location of
goods when movement
of such goods
terminates, viz.,
Jamnagar, Gujarat.
Advance received for 1,50,000 13,500 13,500
the consultancy services [1,50,000 [1,50,000
to be provided to × 9%] × 9%]
Mr. Krishna
[Tax on the services to
be provided is payable
at the time of receipt of
advance. Since the
place of supply is
location of recipient, i.e.
Gujarat, it is an intra-
State supply.]
Export of goods to USA 8,40,000 Nil
under LUT/bond
[Export of goods
outside India is a zero-
rated supply in terms of
section 16(1)(b) of the
IGST Act, 2017. No IGST
is payable since Mr.
Dinkar makes all zero-
rated supplies under
LUT/bond.]
High sea sales of heavy Nil -- -- --
printing machinery
imported from Japan

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[High sea sales is

neither treated as
supply of goods nor as
supply of services in
terms of para 8(b) of
Schedule III of the CGST
Act, 2017.]

Goods purchased from Nil -- -- --

Japan sold in China
without bringing them
into India
[Third country shipments
or triangular trade is
neither treated as
supply for goods nor as
supply of services in
terms of para 7 of
Schedule III of the CGST
Act, 2017.]

Total output tax 3,82,500 3,82,500 Nil

Less: ITC [Refer working 81,350 81,350
note below] (IGST) (IGST)
[IGST credit has been 3,01,150
utilized for payment of
(CGST)
CGST and SGST liability
in equal proportion. 3,01,150
Thereafter, CGST credit (SGST)
and SGST credit have
been utilized to pay the
CGST liability and SGST
liability respectively.]
Net GST payable Nil Nil Nil

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Add: GST payable on inward supplies

Imported raw material 9,00,000 1,62,000
from Italy [9,00,000
× 18%]
Raw material purchased 12,00,000 1,08,000 1,08,000
from Mr. Poonawala, [12,00,000 [12,00,000
Gujarat × 9%] × 9%]
[Tax on the raw cotton
purchased by any
registered person from
an agriculturist is
payable under reverse
charge vide Notification
No. 4/2017 IT (R) dated
28.06.2017.]

Total net GST payable 1,08,000 1,08,000 1,62,000

in cash
(CGST and SGST of
` 1,08,000 each will be
paid in cash through
GSTN portal and IGST of
` 1,62,000 will be paid
in cash through
ICEGATE portal while
making customs
clearance.)

Working Note - Computation of admissible ITC for February

Particulars Value CGST SGST IGST

(`) (`) (`) (`)
Opening balance 35,000 35,000
Goods purchased as 7,00,000 -- -- 700
merchant exporter
[It is an inter-State

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supply since the place of

supply is Gujarat, i.e.
location where the
movement of goods
terminates. Shravan Ltd.
would have supplied the
goods to merchant
exporter – Mr. Dinkar - at
concessional rate of IGST
of 0.1% prescribed under
Notification Nos. 41/2017
IT(R) dated 23.10.2017.
Further, the merchant
exporter is eligible to
take ITC of concessional
IGST so paid 1.]
Heavy printing machinery Nil -- -- --
imported from Japan
[No ITC is available since
tax is not payable by Mr.
Dinkar on the same since
in case of high sea sales,
IGST is paid by the last
high sea sales buyer who
clears the goods for home
consumption by filing the
bill of entry.]
Goods purchased from Nil -- -- --
Jamsam Corporation,
Japan
[No ITC is available since
tax is not payable by Mr.
Dinkar on the same as
goods do not become

1
Circular No. 125/44/2019 GST dated 18.11.2019

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part of the landmass of

the country.]
Sales commission paid to 5,00,000 -- -- --
agent - Mr. Kenzo
[Since service provider -
Mr. Kenzo - is an
intermediary in the given
transaction, place of
supply is location of
supplier - Mr. Kenzo, i.e.
outside India (Japan), in
terms of section 13(8)(b)
of the IGST Act, 2017.
Since location of supplier
and place of supply are
outside India, tax is not
payable on said
transaction under reverse
charge on said services.]
Imported raw material 9,00,000 1,62,000
from Italy [9,00,000
[Input tax, inter alia, × 18%]
includes IGST charged
on import of goods, in
terms of section 2(62).
No separate levy of IGST
will be there on the
component of ocean
freight paid by the
foreign exporter to the
foreign shipping line in
the CIF contract by
virtue of Union of India
vs. Mohit Minerals Pvt.
Ltd. 2022 (61) G.S.T.L.
257 (SC) since the Indian

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importer is liable to pay

IGST on the ‘composite
supply’, comprising of
supply of goods and
supply of services of
transportation,
insurance, etc. in a CIF
contract.
Raw cotton purchased 12,00,000 1,08,000 1,08,000
from Mr. Poonawala, [12,00,000 [12,00,000
Gujarat × 9%] × 9%]
[It is an intra-State
supply since the place of
supply is location where
movement of goods
terminates, i.e. Gujarat,
in terms of section
10(1)(a) of the IGST Act,
2017. ITC on goods
used in course or
furtherance of business
is allowed in terms of
section 16.]
GST paid on monthly rent 35,00,000 2,10,000 2,10,000 --
[In case of services used [35,00,000 [35,00,000
partly for the business × ×
purpose and partly for 9%×2/3] 9%×2/3]
other purposes, ITC is
restricted to so much of
ITC as is attributable to
the purposes of
business. Thus, ITC for
GST paid on only 2/3rd of
monthly rent is available
since GST paid on
monthly rent

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attributable to personal
purposes (one-third) is
not allowed. Further, it
is an intra-State supply
since the place of supply
of services provided in
relation to an immovable
property is location of
immovable property, i.e.
Gujarat in terms of
section 12(3) of the IGST
Act, 2017.]
Total ITC available 3,53,000 3,53,000 1,62,700

Note – Since as per section 49(5) read with rule 88A, ITC of IGST can be
utilised towards payment of CGST and SGST in any proportion and in any
order, the ITC of IGST of ` 1,62,700 can be set off against the CGST and
SGST liability in any proportion and in any order. In above answer, ITC of
IGST has been set off in equal proportion against the payment of CGST
and SGST liability. However, multiple answers are possible to given
question owing to multiple ways of utilizing the ITC of IGST for payment
of CGST and SGST liability.
14. As per section 22, every supplier of goods or services or both is required
to obtain registration in the State/ Union territory from where he makes
the taxable supply if his aggregate turnover exceeds threshold limit in a
financial year. However, section 24, inter alia, provides that persons who
supply goods or services or both through an electronic commerce
operator (hereinafter referred as ECO), who is required to collect tax at
source under section 52, are required to obtain registration mandatorily.
However, said mandatory registration is not applicable, inter alia, to the
suppliers of the services which are notified under section 9(5) or section
5(5) of the IGST Act, 2017; such suppliers are entitled for threshold
exemption.
In case where services are notified under section 5(5) of the IGST Act,
2017, the ECO is liable to pay the entire tax on behalf of the suppliers of
services. Notification No. 14/2017 IT (R) dated 28.06.2017 issued under

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said section notifies services by way of providing accommodation in

hotels, provided the person supplying such service through ECO is not
liable for registration under section 22(1), as one such service where the
ECO is liable to pay tax on behalf of the suppliers.
In the given case, PRL provides services by way of providing
accommodation in hotel through an ECO. Services by way of providing
accommodation in hotels provided by a supplier - PRL - which is not
liable for registration under section 22(1) as its turnover is less than the
threshold limit for registration, [viz. ` 20 lakh], is a service notified under
section 5(5). Thus, PRL will be entitled for threshold exemption for
registration and will not be required to obtain registration even though
it supplies services through ECO.
As per section 52, ECO is not required to collect tax at source (TCS) in
cases where the service is notified under section 9(5) of the CGST Act,
2017/section 5(5) of the IGST Act, 2017. The applicable tax on such
services is to be paid by the ECO as if he is the supplier liable to pay tax
on the supply of such services.
Thus, in the given case, no tax is required to be collected at source
under section 52. Further, the supply of accommodation services by PRL
to Mr. Jignesh is an intra-State supply liable to CGST and SGST since the
place of supply of services by way of lodging accommodation by a hotel
is the location at which the immovable property is located in terms of
section 12(3) of the IGST Act, 2017. Accordingly, in the given case, place
of supply is Uttarakhand and location of supplier – PRL - is also
Uttarakhand.
As discussed above, entire tax of ` 9,000 (each under CGST and SGST)
on ` 1,00,000 will be paid by the ECO – PMTL.
In case where PRL is registered under GST, service by way of providing
accommodation in hotels provided by it through ECO will no longer be a
service notified under section 5(5). The reason for the same is that
services by way of providing accommodation in hotels are notified
under section 5(5) only where the person supplying such service through
ECO is not liable for registration under section 22(1). Consequently, said
services shall be subject to the TCS provisions under section 52.

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Further, in a situation where multiple ECOs are involved in a single

transaction of supply of goods or services or both through ECO platform
and the supplier-side ECO is himself the supplier of the said supply,
Circular No. 194/06/2023 GST dated 17.07.2023 clarifies that the buyer-
side ECO will be required to collect TCS, as applicable, pay the same to
the Government in accordance with section 52 and also make other
compliances under said section.
As discussed above, the supply of accommodation services by PRL to
Mr. Jignesh is an intra-State supply liable to CGST and SGST.
Accordingly, in the given case, buyer side ECO – PMTL - is required to
collect TCS on ` 1,00,000 @ 0.5% each under CGST and SGST as follows:
= ` 1,00,000 × 0.5%
=` 500 each under CGST and SGST
15. As per section 65, audit of any registered person may be undertaken by:
 the Commissioner; or
 any officer authorized by him, by way of a general or a specific order.
The audit shall be completed within a period of 3 months from the date
of commencement of the audit. However, where the Commissioner is
satisfied that audit in respect of such registered person cannot be
completed within 3 months, he may, for the reasons to be recorded in
writing, extend the period by a further period not exceeding six months.
For the purposes of this sub-section, the expression "commencement of
audit" shall mean:
(a) the date on which the records and other documents, called for by
the tax authorities, are made available by the registered person
or
(b) the actual institution of audit at the place of business,
whichever is later.
In the given case, the date of commencement of audit shall be
determined as follows:

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(a) The date on which requisite information is made available by

Ghoomghoom Private Ltd., i.e., on 30.12.2023.
(b) The date of the actual institution of audit at the place of business,
i.e., on 20.12.2023
whichever is later.
Therefore, the date of commencement of the audit shall be 30.12.2023
Accordingly, the audit has to be completed within 3 months from the
date of commencement of the audit, i.e., by 30.03.2024.
Thus, in the given case, the audit was completed by the tax authorities
within 3 months from the date of commencement of the audit, i.e.,
before 30.03.2024. Resultantly, the view of the accountant of
Ghoomghoom Pvt. Ltd. that the audit by the tax authorities was
completed after the maximum time period prescribed by law for the
same, is not correct.
Further, as per section 65 read with rule 101(1), the period of audit to be
conducted under said section shall be a financial year or part thereof or
multiples thereof. Thus, the view of the accountant that audit cannot be
conducted for two financial years is also not correct.
16. (a) As per proviso to section 16(3) of the IGST Act, 2017 read with rule
96B(1) of the CGST Rules, 2017, in the given case, Agora Ltd. shall
deposit the amount of refund proportionate to the sale proceeds
not realized i.e. 50% of the value of exports. The amount of such
refund is ` 25 lakh alongwith applicable interest under section 50.
Further, such amount is required to be deposited by Agora Ltd.
within 30 days of the expiry of the time period allowed under
Foreign Exchange Management Act, 1999, including any extension
of such time period permitted.
(b) As per proviso to rule 96B, where sale proceeds, or any part
thereof, in respect of such export goods are not realised by the
applicant within the time period allowed under the Foreign
Exchange Management Act, 1999, but the Reserve Bank of India
writes off the requirement of realisation of sale proceeds on
merits, the refund paid to the applicant shall not be recovered.

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Thus, if the RBI writes off the requirement of realisation of sale

proceeds by Agora Ltd., the refund amount received by Agora Ltd.
is not liable to be recovered.
(c) As per rule 96B(2), where the sale proceeds are realised by the
applicant, in full or part, after the amount of refund has been
recovered from him under rule 96B(1) and the applicant produces
evidence about such realisation within a period of 3 months from
the date of realisation of sale proceeds, the amount so recovered
shall be refunded by the proper officer, to the applicant to the
extent of realisation of sale proceeds, provided the sale proceeds
have been realised within such extended period as permitted by
the Reserve Bank of India.
In case the refund amount is deposited by Agora Ltd. alongwith
interest as per rule 96B(1) on account of non-realization of sale
proceeds from the customer, which is realized on a later date,
Agora Ltd. can claim the refund within 3 months from the date of
realization of sale proceeds in proportion of the sale proceeds
recovered. However, in order to claim such refund, the sale
proceeds should have been realized within such extended period
as may be permitted by the RBI.
17. Rule 59(6) provides that:
(i) a registered person shall not be allowed to furnish the details of
outward supplies in Form GSTR-1, if he has not furnished the
return in Form GSTR-3B for the preceding month.
(ii) a registered person, opting for QRMP scheme, shall not be allowed
to furnish the details of outward supplies in Form GSTR-1 or using
Invoice Furnishing Facility (IFF), if he has not furnished the return
in Form GSTR-3B for preceding tax period.
(iii) a registered person, to whom an intimation has been issued on the
common portal under the provisions of rule 88C(1) in respect of a
tax period, shall not be allowed to furnish the details of outward
supplies in Form GSTR-1 or using IFF for a subsequent tax period,
unless he has either deposited the amount specified in the said
intimation or has furnished a reply explaining the reasons for any

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amount remaining unpaid, as required under the provisions of rule

88C(2).
(iv) a registered person, to whom an intimation has been issued on the
common portal under the provisions of rule 88D(1) in respect of a
tax period/periods, shall not be allowed to furnish Form GSTR-
1/IFF for a subsequent tax period, unless he has either paid the
amount equal to the excess ITC as specified in the said intimation
or has furnished a reply explaining the reasons in respect of the
amount of excess ITC that still remains to be paid, as required
under the provisions of rule 88D(2);
(v) a registered person shall not be allowed to furnish Form GSTR-
1/IFF, if he has not furnished the details of the bank account as per
the provisions of rule 10A.
18. As per section 14 of the Customs Act, 1962, the value of the imported
goods is the transaction value, which means the price actually paid or
payable for the goods at the time and place of importation. Further, the
Supreme Court in case of Garden Silk Mills v. UOI 1999 (113) E.L.T. 358
held that importation gets complete only when the goods become part
of mass of goods within the country.
Since in the instant case, the price of the goods was reduced when the
goods were in transit, i.e. before the goods arrived in India, the goods
should be valued as per the revised reduced price of 5,000 UK pound,
which was the price payable at the time of importation.
Computation of assessable value and basic customs duty
payable by Paramjit Ltd

Particulars Amount
FOB value of machine 5,000 UK Pound
Add: License fee required to pay in UK 500 UK Pound
(Licence fee relating to imported goods payable by
the buyer as a condition of sale is includible in the
assessable value)
Customs FOB 5,500 UK Pound

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Amount (`)
Value in rupees (5500 x ` 100) 5,50,000
Rate of exchange as notified by CBIC on the date on
which bill of entry is presented under section 46 of
the Customs Act, 1962 is to be considered
[Explanation to section 14 of the Customs Act, 1962].
Add: Buying commission Nil
(Buying commission is not included in the assessable
value)
Add: Barge charges 50,000
(In case where the big mother vessels cannot enter
the harbour for any reason and goods are brought to
the docks by smaller vessels like barges, small boats,
etc., the cost incurred by the importer for bringing
the goods to the landmass, such as lighterage
charges, barge charges will be included in the cost of
transportation. In other words, the cost of transport
of the imported goods includes ship demurrage
charges on chartered vessels, lighterage charges or
barge charges.)
Add: Insurance 6187.50
[If insurance cost is not ascertainable, the same
shall be added @ 1.125% of FOB value of the
goods.]
CIF value / Assessable value 6,06,187.50
Basic customs duty @ 15% (` 6,06,187.50X 15%) 90,928
(Rounded off)
[Section 15 of the Customs Act, 1962 provides that
rate of duty shall be the rate in force on the date of
presentation of bill of entry or on the date of entry
inwards, whichever is later.]

19. As per section 18 of the Customs Act, 1962 read alongwith Circular No.
38/2016 Cus. dated 22.08.2016, wherever, duty is to be assessed
provisionally, the importer shall:

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(a) execute a bond in the prescribed form, for the purposes of

undertaking to pay on demand the deficiency, if any, between the
duty as may be finally assessed and the duty provisionally
assessed; and
(b) furnish prescribed amount of security for the payment of the duty
deficiency. The security to be obtained shall be in the form of a
bank guarantee or a cash deposit, as convenient to the importer.
As per the Customs (Finalisation of Provisional Assessment) Regulations,
2018, the proper officer has to finalise the provisional assessment within
2 months of receipt of a chemical or other test report, where the
provisional assessment was ordered for that reason.
The proper officer can finalize the provisional assessment within 2
months of receipt of a chemical or other test report, where the
provisional assessment is ordered for that reason. The Commissioner of
Customs may allow a further time period of 3 months in case the proper
officer is not able to finalize the provisional assessment within the
period of 2 months.
Thus, in the given case, provisional assessment will be finalized by 5th
July [within 2 months of receipt of test report (5th May)]. However, if the
proper officer is not able to finalize the provisional assessment by 5th
July, the Commissioner may allow a further period of 3 months, i.e., till
5th October to the proper officer to finalize the provisional assessment.
Had provisional assessment been finalized on 30th June and differential
duty been paid on same day, as per section 18(3) of the Customs Act,
1962, the importer would have been liable to pay interest, on any
amount payable consequent to the final assessment order @ 15% p.a.
from the first day of the month in which the duty is provisionally
assessed till the date of payment thereof.
Accordingly, amount of interest payable will be:
= ` 40,000 x 15% x 91/365
= ` 1,496 (rounded off)

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20. Remission of Duties and Taxes on Exported Products (RoDTEP) scheme is

based on the globally accepted principle that taxes and duties should
not be exported, and taxes and levies borne on the exported products
should be either exempted or remitted to exporters. RoDTEP scheme
aims to refund such duties and taxes on exported products, as are
otherwise not being refunded under other provisions of law. The rebate
under the Scheme shall not be available in respect of duties and taxes
already exempted or remitted or credited.
The objective of the scheme is to refund, currently unrefunded:-
(i) Duties/taxes/levies, at the Central, State & local level, borne on the
exported product, including prior stage cumulative indirect taxes
on goods & services used in production of the exported product,
and
(ii) Such indirect duties/taxes/levies in respect of distribution of
exported products.
Salient features of the scheme: -
(i) Rebate amount is issued in the form of a transferable duty
credit/electronic scrip (e-scrip), which will be maintained in an
electronic ledger by the CBIC.
(ii) Such duty credit shall be used only to pay basic customs duty on
imported goods.
(iii) The duty credit scrips are freely transferable, i.e. credits can be
transferred to other importers.
(iv) The rebate under the scheme shall not be available in respect of
duties and taxes already exempted or remitted or credited.

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 PAPER – 5:
INDIRECT TAX LAWS

QUESTIONS

(1) All questions have been answered on the basis of position of (i) GST
law as amended by the Finance Act, 2023 including significant
notifications and circulars and other legislative amendments made,
up to 31 st October, 2023 and (ii) customs law as amended by the
Finance Act, 2023 including significant notifications and circulars
and other legislative amendments made, up to 31 st October, 2023.
(2) Unless otherwise specified, the section numbers and rules referred
herein pertain to the Central Goods and Services Tax Act, 2017 and
the Central Goods and Services Tax Rules, 2017 respectively.
(3) The GST rates for goods and services mentioned in various
questions are hypothetical and may not necessarily be the actual
rates leviable on those goods and services. The rates of customs
duty are also hypothetical and may not necessarily be the actual
rates. Further, GST compensation cess should be ignored in all the
questions, wherever applicable.

Case scenario - I

Dhairya Limited, India, a registered supplier under GST in the State of Kerala,
is engaged in supplying goods and services. Dhairya Inc., San Francisco, USA,
is a subsidiary of Dhairya Limited, India and is engaged in supply of
information technology services to customers in USA. Dhairya Limited, India
has undertaken following transactions during the month of April:

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 REVISION TEST PAPER
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Particulars Amount
(`)
Supplied large paper rolls to Ford Mount School, Bengaluru 15,00,000
(Karnataka), for printing of question papers. As directed by
the school, Dhairya Limited delivered the paper rolls at a
printing press located in Trivandrum, Kerala.
Bond amount recovered from the outgoing Managing 2,50,000
Director (residing in Kerala) of Dhairya Limited since he had
left the employment before contracted period.
Supplied steel sheets in the territorial waters* to Dhruvank 6,00,000
Builders.
*Located at a distance of 12 nautical miles from the baseline
of Kerala and 15 nautical miles from the baseline of Tamil
Nadu.
Received an advance for future supplies of goods from a 2,10,000
customer based in Kerala
Received an advance for future supplies of services from a 4,90,000
customer based in Kerala
Computer (used for business purpose & on which no ITC has Nil
been taken yet) given free of cost to unrelated person based
in Kerala
[Purchased 2 years’ back at a price of ` 1,12,100 (including
GST). Open market value is ` 75,000.]

Dhairya Limited provided the following additional information for the month
of April:
(i) The company paid the sitting fee of ` 6,00,000 to an independent
director, based at Cochin, Kerala, for attending meetings.
(ii) Room charges of ` 2,25,000 were paid to Hillwoods Hotel located in
Mumbai, Maharashtra for stay of the CEO of the company on a business
trip.
(iii) The company availed the services of an Arbitral Tribunal in Cochin,
Kerala to settle a business dispute and paid ` 7,00,000.

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(iv) Salary of ` 15,00,000 was paid to employees on payroll.

(v) The company purchased a new machinery from a dealer based in
Cochin, Kerala for ` 12,00,000. Depreciation has been claimed under the
Income-tax Act, 1961 on the same including on all applicable taxes.
In the month of May, Dhairya Limited sent a team of 25 employees to San
Francisco for receiving the training in emerging information technologies. The
training was given by Dhairya Inc., USA, at its office located in San Francisco.
The expenses related to such training were paid by Dhairya Limited to Dhairya
Inc., USA.
Further, Dhoom Events Ltd., an event management company, located and
registered at Karnataka, had organized a cultural event in the month of May
for Dhairya Limited, in Dubai. Dhariya Limited paid a sum of ` 10,00,000 to
Dhoom Events Ltd. for the same.
Notes –
(A) Rates of CGST, SGST and IGST are 9%, 9% and 18% respectively for both
inward and outward supply of goods and services, wherever applicable.
(B) All the amounts given above are exclusive of taxes, wherever applicable.
(C) The opening balance of input tax credit for the relevant tax periods of
Dhairya Limited, India is Nil.
(D) Assume that there is no other outward or inward transaction apart from
aforesaid transactions, in the months of April and May.
Based on the facts of the case scenario given above, choose the most
appropriate answer to Q. Nos. 1 to 6 below:-
1. Which of the following activities/transactions undertaken by Dhairya
Limited do not amount to supply?
(i) Supply of steel sheets in territorial waters
(ii) Computer being used for business purpose given free of cost to
unrelated person

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(iii) Supply of paper rolls for printing of question papers to Ford

Mount Senior Secondary School
(iv) Recovery of bond amount from the outgoing Managing Director
Choose the most appropriate option.
(a) (ii) and (iv)
(b) (ii), (iii) and (iv)
(c) (i), (iii) and (iv)
(d) (i), (ii) and (iii)

2. Which of the inward supplies received by Dhairya Limited in the month

of April are taxable under reverse charge?
(i) Services received from the independent director
(ii) Accommodation services received from Hillwoods Hotel, Mumbai
(iii) Services of the Arbitral Tribunal
(iv) New machinery purchased from the dealer based in Cochin
(v) Salary paid to employees on payroll
Choose the most appropriate option.
(a) (ii) and (v)
(b) (ii), (iii) and (iv)
(c) (i), (iii) and (v)
(d) (i) and (iii)

3. Compute the total GST payable on outward supplies before setting off
of ITC for the month of April by Dhairya Limited.
(a) CGST - ` 1,03,050, SGST - ` 1,03,050 and IGST - ` 2,70,000

(b) CGST - ` 98,100, SGST - ` 98,100 and IGST - ` 2,70,000

(c) CGST - ` 1,35,000, SGST - ` 1,35,000

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(d) CGST - ` 98,100, SGST - ` 98,100

4. Compute the total ITC admissible to Dhairya Limited for the month of
April.

(a) CGST - ` 63,000, SGST - ` 63,000 and IGST - ` 40,500

(b) CGST - ` 1,17,000, SGST - ` 1,17,000 and IGST - Nil
(c) IGST - ` 2,74,500

(d) CGST - ` 2,25,000, SGST - ` 2,25,000 and IGST - ` 40,500

5. Whether GST is applicable on the event organized by Dhoom Events
Ltd., Karnataka for Dhairya Limited in Dubai and what is the place of
supply in such case?
(a) GST is applicable and the place of supply is Karnataka.
(b) GST is applicable and the place of supply is Kerala.
(c) GST is not applicable and the place of supply is Dubai.
(d) GST is applicable and the place of supply is Dubai.
6. How shall the amount paid towards the training expenses of employees
of Dhairya Limited be treated under the GST law?
(a) No GST is applicable on the transaction since training was
imparted in San Francisco, i.e., a place outside India.
(b) GST is applicable on the training expenses and is payable as IGST
by Dhairya Limited since the place of supply for training services in
case of registered person is location of such registered person.
(c) Dhairya Inc., USA, is required to obtain registration as casual
taxable person in India and discharge the GST liability on training
expenses in India.

(d) Dhairya Inc., USA, is required to obtain registration as - online

information and database access or retrieval service provider in
India and discharge the tax liability on training service.

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Case scenario - II
Alpha Cargo Private Limited, a company registered under GST in the State of
Rajasthan, is engaged in supplying services of transportation of goods. In
addition to its head office registered in Rajasthan, the company has also
obtained registration in other States where it is operating as supplier of goods
transportation services. During the month of January, following transactions
were undertaken:
1. Revenue from service of transportation of goods provided to registered
persons is ` 70,00,000.
2. Revenue from supply of goods transportation services provided to Dhoop
Garments, registered in Rajasthan, for transport of goods to Japan is
` 18,10,000.
3. The company paid rent to the local municipal authorities of respective
States for its offices located in different States as mentioned below:
- Rajasthan – ` 50,000

- Maharashtra – ` 75,000
- Delhi – ` 25,000
- Gujarat – ` 40,000
The invoice was issued by the local municipal authority in these States to
the offices of the company located in respective States.
4. There are 5 independent directors in the company (all based in Rajasthan)
and the sitting fees paid to each such director during the month is ` 25,000
from the head office of the company.
Out of these directors, Mr. X, a chartered accountant and an
independent director of the company, is also a partner in ABC LLP, a
chartered accountant firm in Delhi. ABC LLP provided professional
services to the company during the month. The LLP has issued an
invoice for ` 1,50,000 on the head office in the month of January.
Another independent director, Mr. Z, on account of his long-term
relationship with Alpha Cargo Private Limited, has provided personal
guarantee of ` 1 crore to Dhandhan Bank for loan taken by the company

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during the month of January. He has not charged any commission or

brokerage for the same.
5. The company obtained services of Mr. Y (based in Rajasthan), who is
providing agency services for payment of annual road tax payable to the
Government for the vehicles owned and operated by the company.
Mr. Y issued an invoice amounting to ` 10,00,000 on the head office.
Such amount includes ` 9,50,000 as amount of road tax paid on actual
basis and is indicated separately in the invoice and ` 50,000 as fee of
Mr. Y for said services.
6. The company also paid an amount of ` 5,00,000 for an event related to
goods transport industry in the State of Rajasthan as sponsorship
amount.
7. The company, registered as Goods Transport Agency, has opted for
payment of GST on goods transportation services on forward charge basis.
In the month of February, Rajasthan office of the company has following balances
available in its electronic cash ledger:

Description IGST (`) CGST SGST (`) Total

(`) (`)
Tax 25,000 20,000 20,000 65,000
Interest 2,000 3,000 3,000 8,000

All the amounts given in the scenario are exclusive of GST, unless otherwise
provided. The opening balance of input tax credit of Alpha Cargo Private Limited
for the relevant tax periods is nil. GST is payable (wherever applicable) on all
inward and outward transactions in the aforesaid case scenario at the following
rates, unless otherwise specified:
I. Intra-State supply – 9% CGST and 9% SGST
II. Inter-State supply – 18% IGST
Based on the facts of the case scenario given above, choose the most
appropriate answer to Q. Nos. 7 to 11 below:-
7. Total amount of GST payable (before setting off of ITC) by the company
including GST payable under reverse charge for the month of January,
for all its locations, is:

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(a) ` 16,20,000
(b) ` 12,60,000
(c) ` 13,72,000
(d) ` 17,32,500
8. In February, after paying all its dues for the month, Rajasthan office
wants to transfer certain amounts using Form GST PMT-09 from its
electronic cash ledger to the electronic cash ledger of Orissa office. It
wants to transfer:
(i) from tax (minor head) under IGST (major head) amounting to:
(a) ` 12,000 to tax under CGST head and
(b) ` 12,000 to tax under SGST head,
of Orissa office, and
(ii) from interest (minor head) under the major head of:
(a) CGST of ` 3,000 to interest under IGST head, and
(b) SGST of ` 3,000 to interest under IGST head,
of Orissa office.
Balance under all the heads in electronic cash ledger of Orissa office is
nil at that time. The balance of tax under IGST, CGST and SGST heads of
the electronic cash ledger of Orissa office and that of interest under
IGST, CGST and SGST heads of the electronic cash ledger of Rajasthan
office will be:
(a) Tax: Nil; `12,000; Nil and Interest: ` 2,000; Nil; ` 3,000
(b) Tax: Nil; `12,000; `12,000 and Interest: `2,000; Nil; Nil
(c) Tax: Nil; Nil; `12,000 and Interest: `2,000; Nil; Nil
(d) Tax: `24,000; Nil; Nil and Interest: `2,000; Nil; `3,000
9. The total amount payable to Mr. Y including GST as applicable is
_________.
(a) ` 10,00,000

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(b) ` 11,80,000
(c) ` 11,71,000
(d) ` 10,09,000
10. Total input tax credit available to the company at PAN India level is:
(a) ` 1,82,700 as IGST
(b) ` 3,53,700 as IGST
(c) ` 77,850 as CGST, ` 77,850 as SGST and ` 27,000 as IGST
(d) ` 91,350 as CGST and ` 91,350 as SGST
11. The value of supply of the service of providing personal guarantee by
Mr. Z to Dhandhan Bank for sanctioning of credit facilities to the
company is:
(a) Nil since it is not a supply under GST.
(b) Nil. Services provided by a director to a company is deemed as
supply, even without consideration, under Schedule I of the CGST
Act, 2017. However, since as per RBI Guidelines, no consideration
can be paid to the director by the company for providing
guarantee, Open Market Value (OMV) of said supply will be zero.
(c) 1% of the amount of the guarantee provided, i.e. ` 1 lakh.
(d) 10% of the amount of the guarantee provided, i.e. ` 10 lakh.
12. Ms. Paarvati, an Indian resident who was on a visit to USA, returned after
1 year for contesting in assembly elections of her State. She was carrying
with her the following items:
(i) Personal effects ` 59,000
(ii) Laptop computer ` 37,000
(iii) Jewellery - 25 grams (purchased in USA) ` 67,000
(iv) Music system ` 1,25,000
Compute the customs duty payable by Ms. Paarvati with reference to the
Baggage Rules, 2016. Ignore Agriculture Infrastructure and Development
Cess.

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(a) ` 28,875
(b) ` 54,670
(c) ` 68,915
(d) ` 43,120
13. Sitaram Industries Limited, a registered entity under GST, in the State of
Karnataka, is engaged in manufacture and supply of both taxable and
exempt goods and services. Following information for the month of
October, 2023 is provided by it:

S. No. Particulars Amount (`)

OUTWARD SUPPLIES:
A Sold an old warehouse building in the State of 30,00,000
Karnataka to a retail giant in the same State
B Supplied 30 laptops over the counter to 12,00,000
Mr. Sudhakar, an unregistered buyer, who took
it to his residence in Haryana.
[Invoice issued to him mentions only his name
and State. However, his complete address of
Haryana is missing in the invoice.]
Special boxes for packing of the laptops 1,30,000
C Provided Direct Selling Agent service to 4,00,000
Kumkum Bank, registered in Karnataka
D Provided pure labour services pertaining to a 6,20,000
single residential unit in Mumbai, Maharashtra
(otherwise than as a part of residential
complex) for erection and installation of
renovation works for a client registered in
Maharashtra
E Provided free of cost training in a resort in
Puducherry to its agents based in the State of
Karnataka on effective use of the products of
the company.
[Open market value of the said service is

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` 1,00,000. Value of supply of service of like

kind and quality is ` 1,20,000.]
F Interest received on fixed deposits from 2,00,000
Sulakshan Bank, registered in Karnataka
INWARD SUPPLIES:
G Received a debit note in respect of inward intra- 4,00,000
State taxable supplies received in the financial
year 2020-21 for the quantity difference as
agreed. These inward supplies were used for all
goods manufactured in factory. Date of debit
note is 16th October, 2023.
H Solar panels installed in the factory for 5,00,000
providing electricity to be used in factory (Intra-
State)
I Purchased employee uniforms for 1000 7,00,000
employees (Inter-State)
[Uniforms worth ` 3,00,000 were necessary to
ensure the safety of the workers while carrying
out the manufacturing activity. Remaining
uniforms worth ` 4,00,000 were sometimes
worn by the employees outside the factory for
personal purposes.]

The company provided the following additional information:

i. In respect of sale of old warehouse building, stamp duty was paid on
` 32 lakh.
ii. The company provided a corporate guarantee of ` 2 crores to
Laxmi Logistics Limited, its related company having registered
office in the State of Karnataka, for loan availed by the latter from
Jandhan Bank Ltd., Karnataka.
iii. The accountant of the company did not claim input tax credit in
respect of debit note received for the reason that the original
purchase related to earlier years for which ITC claim eligibility was
over.

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iv. Rates of CGST, SGST and IGST are 9%, 9% and 18% respectively for
both inward and outward supply of goods and services, except
special packing boxes for which the applicable rates of CGST, SGST
and IGST are 6%, 6% and 12% respectively.
v. All the amounts given above are exclusive of taxes, wherever
applicable
From the information given above, you are required to compute the
eligible ITC available for set off and minimum net GST payable in cash
(CGST, SGST or IGST, as the case may be) for the month of October,
2023. Provide brief reasons for the treatment of each item.
14. Fortune 365 is an online money gaming platform operating from UAE. It
provides its users a platform to play and win money in different games
that are available on its portal.
In the month of December, Player A, an unregistered person located in
India, deposited an amount of ` 10,000 (inclusive of GST) in the master
wallet available on the portal of Fortune 365. Subsequently, following
transactions were undertaken by Player A in said month:
i. Player A utilized the amount of ` 2,000 from the master wallet
towards playing a virtual racing game on the portal. As a winning
amount, ` 10,000 was credited to the master wallet of Player A.
ii. On another portal operated by Fortune 365 in the name of Bet 180,
Player A placed a bet of face value of ` 11,000 on an international
wrestling match. The amount of such bet was paid by the master
wallet of Player A. However, he lost the bet and hence the bet
amount of ` 11,000 with applicable taxes was transferred from the
master wallet to the bank account of Bet 180.
iii. Player A transferred the balance amount from the master wallet to his
bank account after the aforesaid transactions. Assume all the above
transactions to be exclusive of GST unless otherwise specified.
iv. Rate of GST applicable is 28% (Please ignore the bifurcation of GST
amount into CGST, SGST and IGST.)
Based on the information provided above, answer the following
questions, providing brief reasons:

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(1) Compute the total GST payable on the aforesaid given transactions.
(2) Determine the net amount transferred by Player A to his bank
account after the aforesaid transactions.
(3) Ascertain whether Fortune 365 is required to obtain registration
under GST in India. Will your answer be different if Player A is
registered under GST in India?
15. Bindusara commences the business of supplying taxable goods locally
within the State of Rajasthan in April. He is not yet registered under GST.
As his aggregate turnover reaches ` 8 lakh by the end of the month of
June, Bindusara starts exploring the option to sell the goods supplied by
him within Rajasthan on a popular electronic commerce platform –
E-vastustore by listing the goods on the said platform.
He approaches you for advice on following issues in this regard:
(A) Bindusara wishes to continue his business without registering
under GST since it will enhance the compliance burden under GST
law. Can he supply the goods through E-vastustore without
obtaining GST registration? You are required to advise him.
(B) Discuss the GST implications in case Bindusara supplies goods
through electronic commerce platform - E-vastustore.
16. A Ltd. is registered under GST in Rajasthan, Delhi, Haryana and Punjab.
Due to closure of business activities in Rajasthan with effect from
May 31, 2023, A Ltd. filed an application for cancellation of registration
before the jurisdictional tax authorities of Rajasthan. The application for
cancellation of registration was filed on June 30, 2023. The registration
was suspended with immediate effect from June 30, 2023, by the
jurisdictional tax authorities. The final order of cancellation was dated
July 31, 2023.
You are required to advise A Ltd. regarding the last date for filing the
final return by it in Rajasthan.
Further, A Ltd. was also registered as an ISD (Input Service Distributor) in
Rajasthan; said registration was cancelled with effect from June 30, 2023
with an order dated July 31, 2023. Advise whether the final return is

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required to be filed upon cancellation of ISD registration by A Ltd.? If

yes, what is the due date for filing said final return?
17. Zebrex, registered in Delhi, enters into a contract with Shine Ltd., an
advertising company, located and registered in Gurugram, Haryana, to
arrange the display of an advertisement of Zebrex’s newly launched
product on a hoarding placed in Marine Drive-Mumbai, Maharashtra for
initial 3 months of the launch of the product. Shine Ltd., in turn, enters
into a contract with the owner of Seaside Hotel located and registered in
Marine Drive-Mumbai, Maharashtra for display of the advertisement on
a hoarding placed in the lawn of the hotel. What will be the place of
supply of service(s) provided in the given case?
18. Product ‘Hexa’ was imported by Mr. Narayan by air. The details of the
import transaction are as follows:

Particulars US $
Price of ‘Hexa’ at exporter’s factory 8,000
Freight from factory of the exporter to load airport 500
(airport in the country of exporter)
Loading and handling charges at the load airport 500
Freight from load airport to the airport of importation in 4,000
India
Insurance charges 2,000
Though the aircraft arrived on 24 th November, the bill of entry for home
consumption was presented by Mr. Narayan on 20 th November.
The other details furnished by Mr. Narayan are:

20th November 24th November

Rate of basic customs duty 15% 10%
Exchange rate notified by CBIC ` 70 per US$ ` 73 per US$
Exchange rate prescribed by ` 72 per US$ ` 74 per US$
RBI
Integrated tax leviable under 15% 12%
section 3(7) of the Customs
Tariff Act, 1975

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Compute-

(i) value of product ‘Hexa’ for the purpose of levying customs duty

(ii) total customs duty and tax payable

19. Shivansh Ltd. imported a machine from Germany for ` 180 lakh during
the month of March 2022 on payment of all duties of customs. Due to
some technical manufacturing defect the machine was exported (sent
back) to supplier for repairs in October 2022. The machine was re-
imported without any re-manufacturing or reprocessing in August 2023
after repairs. Since the machine was under warranty period, the repairs
were carried out free of cost.

However, the fair cost of repairs carried out (excluding cost of material
` 10 lakh) would have been ` 5 lakh. Actual insurance and freight
charges (to and from) were ` 5 lakh (` 2.50 lakh each side). The
ownership of machinery has not been changed during the period.

You are required to advice Shivansh Ltd. on the concessions (if any)
available for importation of the machinery after repairs, also state the
conditions to be satisfied for availing such concession.

Also compute the customs duty and integrated tax payable (if any) on
the re-import of the machine after repairs.

The rate of basic customs duty is 15% and integrated tax is 12%. Ignore
Agriculture infrastructure and development cess.

20. Sudhakar Export House, Madhya Pradesh, is engaged in export of goods

to various neighbouring countries. It is keen on becoming a Status
Holder and is desirous to know the privileges granted under Foreign
Trade Policy (FTP) to various Status Holders. You are required to discuss
the same with reference to FTP.

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SUGGESTED ANSWERS

Question Answer
No.
1 (a) (ii) and (iv)
2 (d) (i) and (iii)
3 (b) CGST - ` 98,100, SGST - ` 98,100 and IGST - ` 2,70,000
4 (b) CGST - ` 1,17,000, SGST - ` 1,17,000 and IGST - Nil
5 (b) GST is applicable and the place of supply is Kerala.
6 (a) No GST is applicable on the transaction since training was
imparted in San Francisco, i.e. place outside India.
7 (d) ` 17,32,500
8 (a) Tax: Nil; `12,000; Nil and Interest: `2,000; Nil; `3,000
9 (d) ` 10,09,000
10 (c) ` 77,850 as CGST, ` 77,850 as SGST and ` 27,000 as IGST
11 (b) nil. Services provided by a director to a company is deemed
supply, even without consideration, under Schedule I of the
CGST Act, 2017. However, since as per RBI Guidelines, no
consideration can be paid to the director by the company
for providing guarantee, Open Market Value (OMV) of said
supply will be zero.
12 (a) ` 28,875

13. Computation of eligible ITC and net GST payable by M/s Sitaram
Industries Ltd., for the month of October, 2023

Particulars Value IGST @ CGST SGST

18% @ 9% @ 9%
` ` ` `
Outward Supply:
Sale of old warehouse Nil - - -

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building
[Since sale of building is
neither supply of goods
nor supply of services in
terms of para 5 of
Schedule III of the CGST
Act, 2017, it does not
qualify as supply.]
Supply of laptops 13,30,000 2,39,400 - -
[Inter-State supply since [12,00,000
place of supply here is the +
location as per the 1,30,000]
address of the
unregistered recipient
(name of the State)
recorded in the invoice
issued in respect of the
supply, viz. Haryana, in
terms of section 10(1)(ca)
of the IGST Act, 2017.
Further, as per section
8(a), supply of laptops
with packing is a
composite supply,
chargeable to tax at the
rate applicable to the
principal supply (viz.
supply of laptops)
i.e.,18%.]
Direct Selling Agent 4,00,000 - 36,000 36,000
service
[Intra-State supply since
place of supply here is the
location of recipient, viz.
Karnataka, in terms of

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section 12(2)(a) of the

IGST Act, 2017.
Further, tax will be
payable under forward
charge since such services
are provided by a person
other than individual -
Notification No. 13/2017
CT(R) dated 28.06.2017.]
Pure labour servicer 6,20,000 1,11,600 - -
[Inter-State supply since
place of supply here is the
location of immoveable
property, viz. Maharashtra
in terms of section 12(3)
of the IGST Act, 2017.
Further, services by way of
pure labour contracts of
erection and installation
of original works
pertaining to a single
residential unit otherwise
than as a part of a
residential complex are
exempt in terms of
Notification No. 12/2017
CT(R) dated 28.06.2017
However, such services in
relation to renovation
work are not exempt.]
Free training to agents 1,00,000 - - -
[Services provided by the
company to agents
without consideration is
not deemed as supply in

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terms of para 3 of
Schedule-I since only
goods supplied by
principal to agent are
covered therein. Further,
such services are also not
covered in para 2 of
Schedule I as agents are
not related persons.]
Corporate guarantee 2,00,000 - 18,000 18,000
provided to Laxmi
Logistics Limited
[Supply of service
between related parties
even when made without
any consideration is
deemed supply in terms
of Schedule I.
Further, value of
corporate guarantee, in
terms of rule 28(2), will
be higher of:
(i) 1% of the amount of
such guarantee
offered,
or
(ii) actual consideration]
(i.e. 1% of ` 2 crore)
[Circular No. 204/16/2023
GST dated 27.10.2023]
Interest received on fixed 2,00,000 - - -
deposits
[Services by way of
extending deposits, loans

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or advances in so far as
the consideration is
represented by way of
interest are exempt vide
Notification No. 12/2017
CT (R) dated 28.06.2017]
Gross GST liability [A] 3,51,000 54,000 54,000
Less: ITC available for set 24,958 16,639 16,639
off [Refer Note (iii) below]
Net GST payable in cash 3,26,042 37,361 37,361

Notes:
(i) Computation of ITC admissible to Sitaram Industries Ltd. for
the month of October, 2023

Particulars Value IGST CGST SGST

` ` ` `
Debit note received 4,00,000 - 36,000 36,000
[ITC on debit notes issued in a
financial year can be availed any
time till 30th November of the
succeeding financial year or the
date of filing of the relevant
annual return, whichever is
earlier, irrespective of the date
of original invoice/ supply, in
terms of section 16(4).]
Solar panels purchased - - -
[ITC cannot be claimed in
respect of solar panels, since
ITC on goods or services or
both received by a taxable
person for construction of an
immovable property (other
than plant and machinery on

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his own account including

when such goods or services or
both are used in the course of
furtherance of business is
blocked in terms of section
17(5)(d).]
Uniforms purchased 3,00,000 54,000 - -
[ITC on the uniforms which are
necessary to ensure the safety
of the employees while
carrying out the business
activity, is available. However,
uniforms not provided for any
safety purpose are construed
as being used for personal
consumption and thus, ITC
thereon is blocked in terms of
section 17(5)(d).]
Total 54,000 36,000 36,000

(ii) Computation of common credit attributable to exempt

supplies in respect of Sitaram Industries Ltd. for the month of
October, 2023

Particulars IGST CGST SGST

(`) (`) (`)
Common credit on receipt of debit note -- 36,000 36,000
[Debit note, although received in respect of
taxable inward supply, is being used for all
goods manufactured in factory which
comprises of both taxable and exempt
goods.]
Common credit on purchase of uniforms 54,000
[Uniforms are being used commonly for
manufacturing of both taxable and exempt
goods.]

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Common credit attributable to exempt 29,042 19,361 19,361

supplies (rounded off)
= Common credit x (Exempt turnover
during the period / Total turnover during
the period)
= ` 54,000 x ` 32,00,000/` 59,50,000 (IGST)
= ` 36,000 x ` 32,00,000 / ` 59,50,000
(CGST/SGST)
Exempt turnover = ` 32,00,000 and total
turnover = ` 59,50,000 [Refer note below]

Note: As per explanation to section 17(3), the expression "value of

exempt supply" shall not include the value of activities or transactions
specified in Schedule III, except, inter alia, sale of building subject to
clause (b) of paragraph 5 of Schedule II. Further, as per explanation to
Chapter V (Input Tax Credit) of the CGST Rules, 2017, for determining
the value of an exempt supply as referred to in section 17(3), the value
of exempt supply in respect of land and building is the value adopted
for the purpose of paying stamp duty.
Further, as per explanation 1 to rule 43, the aggregate value of exempt
supplies for the purpose of rules 42 and 43, inter alia, excludes the value
of services by way of accepting deposits, extending loans or advances in
so far as the consideration is represented by way of interest or discount,
except in case of a banking company or a financial institution including
a non-banking financial company, engaged in supplying services by way
of accepting deposits, extending loans or advances.
Therefore, value of exempt turnover in the given case will be the value
of building (` 32,00,000).
Total turnover will be sum of value of building (` 32,00,000) + supply of
laptop (` 13,30,000) + supply of Direct Selling Agent service (` 4,00,000)
+ supply of pure labour service (` 6,20,000) + supply of corporate
guarantee (` 2,00,000) + interest received on fixed deposits (` 2,00,000)
= ` 59,50,000

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(iii) Computation of ITC available for set off of Sitaram Industries

Limited for the month of October, 2023

Particulars IGST CGST SGST

(`) (`) (`)
Common credit on inputs and input 54,000 36,000 36,000
services
ITC available in the Electronic 54,000 36,000 36,000
Credit Ledger
Less: Common credit attributable to 29,042 19,361 19,361
exempt supplies during the tax
period
[As calculated in Note (ii) above]
ITC available for set off 24,958 16,639 16,639

14. The value of online money gaming related supply shall be determined as
per rule 31B. As per said rule, the value of supply of online gaming,
including supply of actionable claims involved in online money gaming,
shall be the total amount paid or payable to or deposited with the
supplier by way of money or money’s worth, including virtual digital
assets, by or on behalf of the player.
Further, rule 31A provides the manner of determining the value of
supply of actionable claim in the form of chance to win in betting. The
value for such supply shall be 100% of the face value of the bet.
In accordance with the above provisions:
(1) Total GST payable on given transactions is as follows:
(i) Value of supply of online money gaming = Total amount
deposited with the supplier by the player in terms of rule 31B
= Initial deposit of ` 10,000 (inclusive of GST) by Player A
with Fortune 365 after excluding GST= ` 7,812.50 (` 10,000 ×
100/128)

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GST payable = ` 7,812.50 × 28%

= ` 2,188 – [A]
(ii) Value of supply of online bet = 100% of the face value of the
bet in terms of rule 31A = ` 11,000
GST payable = ` 11,000 × 28%)
= ` 3,080 – [B]
Total amount of GST that would be collected by the Government
on the given transactions = [A] + [B] = 5,268 (rounded off)

(2) Total amount transferred by Player A to his bank account from

the master wallet is as follows:
Particulars Amount (`)
Initial Deposit 10,000
Less – GST on deposit 2,188
Less – Payment for virtual racing game 2,000
Add – Winning from virtual racing game 10,000
Less – Payment for bet placed on Bet 180 11,000
Less – GST on the bet place on Bet 180 3,080
Net balance available for transfer 1,732
(3) As per section 24(xia), every person supplying online money
gaming from a place outside India to a person in India shall be
required to obtain registration on a mandatory basis in India.
Accordingly, Fortune 365 being a supplier of online money gaming
operating from UAE and supplying services in India shall be liable
to obtain registration compulsorily in India. The answer will not
change irrespective of the fact that Player A is registered under
GST in India or not.

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15. (A) Yes, Bindusara can supply goods through E-vastustore without
obtaining GST registration.
As per section 24(ix), persons who supply goods and/or services,
other than services notified under section 9(5), through such
electronic commerce operator (hereinafter referred as ECO) who is
required to collect TCS under section 52 is required to obtain
registration mandatorily.
However, the persons making supplies of goods through an ECO
who is required to collect TCS and having an aggregate turnover in
the preceding financial year and in the current financial year not
exceeding the threshold limit in accordance with the provisions of
section 22(1), are exempted from obtaining registration, vide
Notification No. 34/2023 CT dated 31.07.2023, subject to the
following conditions, namely:
(i) such persons shall not make any inter-State supply of goods;
(ii) such persons shall not make supply of goods through ECO in
more than one State/Union territory;
(iii) such persons shall be required to have a PAN issued under
the Income-tax Act, 1961;
(iv) such persons shall, before making any supply of goods
through ECO, declare on the common portal:
a. their PAN
b. address of their place of business and
c. State/UT in which such persons seek to make such
supply,
which shall be subjected to validation on the common portal;
(v) such persons have been granted an enrolment number on
the common portal on successful validation of the PAN
declared above;
(vi) such persons shall not be granted more than one enrolment
number in a State/UT;
(vii) no supply of goods shall be made by such persons through

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ECO unless such persons have been granted an enrolment

number on the common portal; and
(viii) where such persons are subsequently granted registration
under section 25, the enrolment number shall cease to be
valid from the effective date of registration.
Thus, Bindusara can supply goods through E-vastustore without
obtaining GST registration till the time its aggregate turnover does
not exceed the threshold limit in accordance with the provisions of
section 22(1) thereby complying with the aforesaid conditions.
(B) As Bindusara is not required to obtain registration under GST,
there shall be no GST implications on the supplies made by him
through electronic commerce platform - E-vastustore.
However, the electronic commerce operator - E-vastustore – is
required to submit the details of supplies made through it by the
unregistered suppliers (including Bindusara) having enrolment
number in Form GSTR 8. Further, no tax at source shall be
collected by the E-vastustore in respect of such supplies.
16. As per section 45 read with rule 81, every registered person who is
required to file a return under section 39(1) and whose registration has
been cancelled is required to file a final return electronically in Form
GSTR-10 through the common portal. The final return has to be filed
within 3 months of the:
(i) date of cancellation
or
(ii) date of order of cancellation
whichever is later.
Thus, in the given case, final return for Rajasthan registration has to be
furnished within three months of the date of order of cancellation of
registration (July 31, 2023). Hence, final return has to be filed by A Ltd.
on or before October 31, 2023.
Further, since an ISD is not required to furnish return under section 39(1)
but under section 39(4), final return is not required to be filed upon

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cancellation of ISD registration. Therefore, A Ltd. is not required to

furnish final return for ISD registration cancelled.
17. In the given case, two supplies are involved:
(i) Services provided by Shine Ltd. to Zebrex by way of arranging the
display of the advertisement of its newly launched product, and
(ii) Services provided by Seaside Hotel to Shine Ltd. by way of placing
a hoarding in the lawn of the hotel.
The place of supply in each of the above supplies is as follows:
(i) As per section 12(2)(a) of the IGST Act, 2017, the place of supply of
services, except the services specified in sub-sections (3) to (14) of
section 12 of the IGST Act, 2017, made to a registered person is
the location of the person receiving the services. Advertisement
services provided by Shine Ltd. to Zebrex is not covered in any of
the sub-sections of section 12 of the IGST Act, 2017. Therefore,
the place of supply shall be determined by the default provision
under section 12(2)(a) of the IGST Act, 2017, viz. the location of the
recipient.
Thus, the place of supply, in the given case, is the location of
Zebrex, i.e. Delhi.
(ii) In case where there is supply (sale) of space or supply (sale) of
rights to use the space on the hoarding/ structure (immovable
property) belonging to vendor to the client/advertising company
for display of their advertisement on the said hoarding/ structure,
the hoarding/structure erected on the land should be considered
as immovable structure or fixture as it has been embedded in
earth. Further, place of supply of any service provided by way of
supply (sale) of space on an immovable property or grant of rights
to use an immovable property shall be governed by the provisions
of section 12(3)(a) of the IGST Act. Therefore, the place of supply
of service provided by way of grant of rights to use the hoarding/
structure for advertising in this case would be the location where
such hoarding/ structure is located.

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Thus, the place of supply, in the given case, is location of hotel

where the hoarding is located, viz. Marine Drive-Mumbai,
Maharashtra.
18. Computation of assessable value of product ‘Hexa’

Particulars Amount
Ex-factory price of the goods ‘Hexa’ 8,000 US $
Freight from factory of the exporter 500 US $
to load airport (airport in the country
of exporter)
Loading and handling charges at the 500 US $
load airport
Freight from load airport to the 4,000 US $
airport of importation in India
Total cost of transport, loading and 5,000 US $
handling charges associated with the
delivery of the imported goods to the
place of importation
Add: Cost of transport, loading, unloading and 1,800 US $
handling charges associated with the delivery
of the imported goods to the place of
importation (restricted to 20% of FOB value)
[Note 1]
Insurance (actual) 2,000 US $
CIF for customs purpose 11,800 US $
Value for customs purpose 11,800 US $
Exchange rate as notified by CBIC [Note 2] ` 70 per US $
Amount (`)
Assessable value (` 70 x 11,800 US $) 8,26,000
Add: Basic customs duty @ 10% [Note 3] 82,600

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Add: SWS @ 10% 8,260

Value for the purpose of levying integrated tax 9,16,860
[Note 4]
Add: Integrated tax @ 12% 1,10,023.20
Total duty & tax payable (rounded off) 2,00,883

Notes:
(1) In the case of goods imported by air, the cost of transport,
loading, unloading and handling charges associated with the
delivery of the imported goods to the place of importation shall
not exceed 20% of the FOB value of the goods [Fifth proviso to
rule 10(2) of the Customs Valuation (Determination of Value of
Imported Goods) Rules, 2007].
FOB value in this case is the ex-factory price of the goods
(8,000 US $) plus the cost of transport from factory to load airport
(500 US $) plus loading and handling charges at the load airport
(500 US $) which is 9,000 US $.
(2) Rate of exchange as notified by CBIC on the date on which bill of
entry is presented under section 46 of the Customs Act, 1962 is to
be considered [Clause (a) of the explanation to section 14 of the
Customs Act, 1962].
(3) Section 15 of the Customs Act, 1962 provides that rate of duty
shall be the rate in force on the date of presentation of bill of
entry or the rate in force on the date of arrival of aircraft,
whichever is later.
(4) Integrated tax is levied on the sum total of the assessable value of
the imported goods and customs duties [Section 3(8) of the
Customs Tariff Act, 1962]. Social Welfare Surcharge (SWS) leviable
on integrated tax has been exempted.
19. As per Notification No. 45/2017 Cus. dated 30.06.2017, duty payable on
re-importation of goods which had been exported for repairs abroad is
the duty of customs which would be leviable if the value of re-imported
goods after repairs were made up of the fair cost of repairs carried out

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including cost of materials used in repairs (whether such costs are

actually incurred or not), insurance and freight charges, both ways.
However, following conditions need to be satisfied for availing this
concession:
(a) goods must be re-imported within 3 years, extendable by further 2
years, after their exportation;
(b) exported goods and the re-imported goods must be the same;
(c) ownership of the goods should not change.
Since all the conditions specified above are fulfilled in the given case,
the customs duty payable on re-imported goods will be computed as
under:

Particulars `
Value of goods re-imported after exports [Cost of 20,00,000
materials ` 10 lakh + fair cost of repairs ` 5 lakh +
actual insurance and freight Rs. 5 lakh]
Add: Basic customs duty @ 15% (A) 3,00,000
Add: Social Welfare Surcharge @ 10% on ` 3,00,000 30,000
(B)
Value for computing integrated tax 23,30,000
Integrated tax @ 12% (` 23,30,000 x 12%) - (C) 2,79,600
Customs duty and integrated tax payable [(A) +(B)+ 6,09,600
(C)]

20. Status holders are eligible the following privileges under FTP:
(a) Authorisation and custom clearances for both imports and exports
on self-declaration basis.
(b) Fixation of Input Output Norms on priority i.e., within 60 days by
Norms Committee.
(c) Exemption from compulsory negotiation of documents through
banks. Exception are remittance/ receipts.

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(d) Exemption from furnishing of Bank Guarantee in Schemes under

FTP unless otherwise specified.
(e) Two Star Export Houses and above are permitted to establish
export warehouses as per the guidelines of Department of
Revenue.
(f) Manufacturers who are also status holders (Three Star/Four
Star/Five Star) will be enabled to self-certify their manufactured
goods (as per their Industrial Entrepreneurs Memorandum (IEM) /
Industrial License (IL) /Letter of Intent (LOI)) as originating from
India with a view to qualify for preferential treatment under
specified agreements.
(g) Status holders shall be entitled to export freely exportable items
on free of cost basis for export promotion subject to a specified
annual limit.
(h) The status holders would be entitled to preferential treatment and
priority in handling of their consignments by the concerned
agencies.

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QUESTIONS
(1) All questions should be answered on the basis of position of (i) GST law as
amended by the Finance Act, 2022 including significant notifications and circulars
and other legislative amendments made, up to 30th April, 2023 and (ii) customs law
as amended by the Finance Act, 2022 including significant notifications and
circulars and other legislative amendments made, up to 30th April, 2023.
(2) Unless otherwise specified, the section numbers and rules referred her ein pertain
to the Central Goods and Services Tax Act, 2017 and the Central Goods and
Services Tax Rules, 2017 respectively.
(3) The GST rates for goods and services mentioned in various questions are
hypothetical and may not necessarily be the actual rates leviable on those goods
and services. The rates of customs duty are also hypothetical and may not
necessarily be the actual rates. Further, GST compensation cess should be
ignored in all the questions, wherever applicable.
Infotel Ltd. (hereinafter referred to as Infotel) is a telecommunication company operating in
India. The company has obtained registration in all the States in India and has its head office
in Haryana. The invoice for telecommunication services in India is issued to the customer by
head office located in Haryana for all the services.
During the month of January, following transactions were undertaken:
1. Receipts from post-paid mobile customers are ` 25,00,000 (` 5,00,000 is from customers
located in Haryana and remaining amount is from customers located in rest of India).
Apart from this, Infotel collected an amount of ` 20,00,000 as subscription income
(identifiable separately on the post-paid bill) from the customers (this amount is not
included in the collection at point No. 1). The same was collected for payment to
Cloudzone Ltd. (hereinafter referred to as Cloudzone), an online content provider [OTT
Platform] located in Maharashtra. Full amount was remitted to Cloudzone by Infotel on
behalf of the post-paid customers. Cloudzone issues invoice to the customers in its own
name. As per the agreement, Infotel is not involved in any sort of facilitation or
arrangement of supply from Cloudzone to the customers. The customers on their own
availed the facility to pay for the services provided by Cloudzone by way of payment
through Infotel. Subscription income is charged from the customers on actual basis and
no fee is charged by Infotel from the customers for such payment facility.
Infotel receives an amount equivalent to 10% of the total amount collected from the
customers as collection charges from Cloudzone.
2. Direct receipts from prepaid mobile customers are ` 50,00,000 (Entire payment is
received from customers located outside Haryana).

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3. Mobile telecommunication revenue received from Paykwik Ltd. (hereinafter referred to as

Paykwik), a reseller/ selling agent of Infotel, is ` 30,00,000. The location of Paykwik is in
Maharashtra. Commission paid to Paykwik is 10% of the revenue received.
4. Infotel collected an amount of ` 5,00,000 from the customers located in Haryana against
the direct to home (DTH) service provided in Haryana. This amount includes a one -time
installation charges of ` 50,000.
5. Infotel purchased certain equipment for installation of its towers in the State of
Rajasthan. The goods were delivered and installed by the supplier (based in Rajasthan)
at Infotel’s site in Rajasthan and invoice was issued to Infotel at Haryana Head Office.
Total amount charged was ` 75,00,000.
6. Infotel collaborated with Amaze Inc., a company based in USA, for receiving
technological support in relation to provision of cloud storage services to its customers.
The amount paid by Infotel to Amaze Inc. is ` 5,00,00,000 for technology support.
Further, the cloud storage services were provided by Infotel to its unrelated premium
customers on free of cost basis for the trial period. The open market value of such
services is ` 75,00,000.
7. As per the agreement with Amaze Inc., in case of any failure in provision of cloud storage
services to the customers by Infotel, Amaze Inc. shall provide the backup server access
to Infotel’s customers for data storage. The customer is not aware of the fact that data is
being stored on Amaze Inc.’s server in case of failure at Infotel’s end. Amaze Inc.
charged an amount of ` 50,00,000 from Infotel for such instance in the month of January.
All the amounts given above are exclusive of GST unless otherwise provided. The
opening balance of input tax credit for the relevant tax period of Infotel is Nil for all the
registrations.
GST is applicable in the aforesaid case scenario at the following rates, unless otherwise
specified:
I. Intra-State supply – 9% CGST and 9% SGST
II. Inter-State supply – 18% IGST
Assume that there is no other outward or inward supply transaction apart from aforesaid
transactions, in the month of January.
Based on the facts of the case scenario given above, choose the most appropriate answer to
Q. Nos. 1 to 5 below:-
1. The GST payable in cash for the month of January by the Head Office of Infote l in
Haryana (assuming that no ITC is utilised by it) is __________________.
(a) ` 20,16,000
(b) ` 1,22,76,000

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(c) ` 29,16,000
(d) ` 1,19,16,000
2. The input tax credit available to Infotel in the month of January at its Head Office in
Haryana is ________________.
(a) ` 99,54,000
(b) ` 1,13,04,000
(c) ` 54,000
(d) ` 14,04,000
3. In terms of GST Law, please select the correct statement for transaction between Infotel,
Cloudzone and the subscribing customer:
(a) Infotel is an agent of Cloudzone.
(b) Infotel is a pure agent of Cloudzone.
(c) Infotel is a pure agent of the subscribing customer.
(d) Infotel is an intermediary of Cloudzone.
4. The jurisdictional tax authorities are contemplating to bring Amaze Inc. under the tax net
for the transaction related to cloud storage. Please choose the most appropriate
statement:
(a) Amaze Inc. is liable to obtain registration and pay GST in India on the said
transaction as it is providing online information and database access or retrieval
services to Infotel.
(b) Amaze Inc. is liable to obtain registration in India and pay tax as principal supplier
since it is providing cloud storage services to the customers through its agent i.e.,
Infotel in India.
(c) Infotel is an intermediary of Amaze Inc. and therefore, the tax liability of Amaze Inc.
shall be discharged by Infotel on behalf of Amaze Inc.
(d) Amazon Inc. is not liable to, obtain registration and pay tax in India, in respect of the
said transaction.
5. For the direct to home services, Infotel is exploring the possibility of providing equipment
like dish antenna and cables (liable to GST at 28%) to the customers at an additional
charge of ` 2,000. Currently, the company collects ` 1,000 from new customers as
installation and one-month charges for services (liable to GST at 18%). In case the dish
antenna and cables are also provided, the combined charge would be ` 3,000. Please
select the most appropriate statement.

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(a) GST on amount of ` 2,000 shall be charged at the rate of 28% and balance amount
of ` 1,000 to be charged at 18%.
(b) GST on amount of ` 3,000 shall be charged at the rate of 28%.
(c) GST on amount of ` 3,000 shall be charged at the rate of 18%.
(d) No GST on ` 2,000 and GST at the rate of 18% on ` 1,000.
6. Guruji & Associates is engaged in retail business of selling wedding outfits in the State of
West Bengal. It has effected supplies to the customers in the State of Uttar Pradesh and
Haryana. It’s total turnover during the current financial year is ` 15,00,000. Owing to low
profit margins in the business, it has decided to shut down the business in the next
financial year.
The proper officer has collected evidence of the inter-State supply of wedding outfits
effected by Guruji & Associates during the current financial year. Now, the proper officer
wants to make the assessment as it was liable to obtain registration but did not get itself
registered under GST.
You are required to assist the proper officer by determining which assessment can be
done in this case under the CGST Act, 2017.
(a) Self-assessment
(b) Provisional Assessment
(c) Assessment of unregistered persons
(d) Special assessment
7. Lalla (Pedewala) owns a famous sweets shop located and registered under GST in
Vrindavan, Uttar Pradesh. He received an order for 100 kg of sweets on 2 nd May from
Parindey Travels (P) Ltd., located in same locality of Vrindavan and registered under
GST, for a total consideration of ` 50,000. Complete order of sweets was delivered to
Parindey Travels (P) Ltd. on 5 th May but without invoice, as accountant of Mr. Lalla was
on leave on that day. However, the invoice was raised for the same on 6 th May, when the
accountant joined the office after leave. Payment in full was made on 7 th May.
Determine the time of supply of goods in this case.
(a) 2nd May
(b) 5th May
(c) 6th May
(d) 7th May
8. Countervailing duty under section 9 of the Customs Tariff Act, 1975 shall not be levied
unless it is determined that the subsidy provided by the exporting country on
manufacture of an article:

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PAPER – 8: INDIRECT TAX LAWS 5

(i) relates to export performance.

(ii) relates to use of domestic goods over imported goods in export article.
(iii) is conferred on all persons engaged in the manufacture of said article.
Choose the most appropriate option.
(a) (i), (ii) or (iii)
(b) Only (iii)
(c) (ii) or (iii)
(d) (i) or (ii)
9. Swadeshi Enterprises exported goods having FOB value of ` 20 lakh. The All-Industry
duty drawback on exports of these goods is 5%. Market price of the goods in India is
` 80,000. Calculate the duty drawback receivable by Swadeshi Enterprises.
(a) ` 1,00,000
(b) ` 80,000
(c) Swadeshi Enterprises is not entitled to get any duty drawback since the market
price of such goods is less than the amount of drawback.
(d) Either (a) or (b) at the option of the exporter
10. Which of the following statements is correct for destroyed goods under section 23 of the
Customs Act, 1962?
(a) It is applicable in case of total loss of goods even if same can be recovered.
(b) The provisions of this section are also applicable if goods are lost due to pilferage at
any time before clearance for home consumption.
(c) The provisions of this section are also applicable even if the goods are destroyed at
the warehouse.
(d) The importer need not prove the loss to the proper officer.
11. Sudarshan Ltd., a registered supplier under GST in the State of Kerala, is engaged in
providing a bouquet of goods and services (other than renting of cars). It provides the
following information for the month of January:
S. No. Particulars Amount (`)
OUTWARD SUPPLY:
(i) Distributed 1,000 free gifts (electronic items worth ` 5,000 Nil
each purchased from unregistered local vendors) to its
customers within Kerala in the month of January to promote
sales

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(ii) Supplies a consignment of goods in the territorial waters to 6,00,000

Dhruvtara Enterprises. The said territorial waters is located
at a distance of 11 nautical miles from the baseline of State
of Kerala and 12 nautical miles from the baseline of State of
Tamil Nadu.
(iii) Advance received during the month for future intra-State 7,00,000
taxable supply
[Advance of ` 2,10,000 was related to supply of goods and
the rest was related to service]
(iv) Provided pure labour services of construction of single 15,00,000
commercial unit located in Mumbai not forming part of any
residential complex to a customer in Mumbai (Maharashtra).
INWARD SUPPLY:
(i) Monthly rent paid to Kerala State Government for an office 6,00,000
taken on rent
(ii) Purchased raw material from Saksham Steels Ltd., 15,00,000
registered in the State of Andhra Pradesh
(iii) Purchased a new truck from a dealer in Cochin, Kerala for 12,00,000
transport of materials
The company provided the following additional information:
(i) During the course of arranging and filing documents, the accountant of Sudarshan
Ltd. observed that an invoice for ` 96,000 (excluding GST) dated 2 nd December of
last year was omitted to be recorded in the books of accounts and no payment was
made against the same till the end of January. This invoice was issued by Mr. Rishi
of Kerala, from whom Sudarshan Ltd. had taken cars on rental basis. Invoice
included cost of fuel also.
(ii) Availed services of an arbitral tribunal in Kannur, Kerala worth ` 7,00,000 to settle a
case relating to Companies Act.
(iii) The company claimed depreciation under the Income-tax Act, 1961 on the new
truck purchased including all applicable taxes.
(iv) Saksham Steels Ltd. is mandatorily required to issue e-invoice. However, it did not
issue e-invoice with invoice reference number (IRN). The invoice was reflected in
GSTR-2B.
(v) Turnover of Sudarshan Ltd. for the previous financial year was ` 180 lakh.
(vi) Rates of CGST, SGST and IGST are 9%, 9% and 18% respectively for both inward
and outward supply of goods and services.
(vii) All the amounts given above are exclusive of taxes wherever applicable.

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PAPER – 8: INDIRECT TAX LAWS 7

From the information given above, you are required to compute the minimum net GST
liability payable in cash (CGST, SGST or IGST, as the case may be) for the month of
January. Reason for treatment needs to be given.
12. Gautam Pvt. Ltd., Coimbatore, Tamil Nadu, exclusively manufactures and sells product
‘Alpha’ which is exempt from GST vide notifications issued under relevant GST
legislations. The company sells product ‘Alpha’ only within Tamil Nadu and it not
registered under GST. Further, all the inward supplies of the company are taxable under
forward charge. The turnover of the company in the previous year was ` 55 lakh. The
company expects the sales to grow by 15% in the current year. Owing to the growing
demand for the product, the company decided to increase its production capacity and
purchased additional machinery for manufacturing ‘Alpha’ on 1st July. The purchase
price of such capital goods was ` 30 lakh exclusive of GST @ 18%.
However, effective from 1 st November, exemption available on ‘Alpha’ was withdrawn by
the Central Government and GST @ 12% was imposed thereon. The turnover of the
company for the half year ended on 30 th September was ` 60 lakh.
(a) The Board of Directors of Gautam Pvt. Ltd. wants to know whether they have to
register under GST (after withdrawal of exemption notification)?
(b) In case in the above question, Gautam Pvt. Ltd. is already registered with respect to
certain taxable supplies being made by it along with manufacture of exempt product
‘Alpha’, other facts remaining the same, can it take input tax credit on additional
machinery purchased exclusively for manufacturing ‘Alpha’? If yes, then when and
how much credit can be availed?
Advice Gautam Pvt. Ltd. on the above issues with reference to the provisions of GST
law.
13. Advance Ruling once issued cannot be held to be void ab-initio under any circumstances.
Discuss the correctness of the statement by explaining relevant provisions.
14. Pathan Vohra of Pune, Maharashtra enters into an agreement to sell goods to Sukumar
Enterprises of Bareilly, Uttar Pradesh. While the goods were being packed i n Pune
godown of Pathan Vohra, Sukumar got an order from Sindhu Pvt. Ltd. of Shimoga,
Karnataka for the said goods. Sukumar Enterprises agreed to supply the said goods to
Sindhu Pvt. Ltd. and asked Pathan Vohra to deliver the goods to Sindhu Pvt. Ltd. at
Shimoga.
You are required to determine the place of supply(ies) in the above situation.

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15. Briefly explain the applicability of GST on the application fee charged for entrance or the
fee charged for issuance of eligibility certificate for admission or for issuance of migration
certificate by educational institutions.
16. Mounty Ltd. entered into a high sea sale transaction with Fuji Ltd. for certain goods.
Mounty Ltd. wishes to understand the taxability of the high sea sales under GST law and
Customs Act, 1962.
Examine whether the view taken by Mounty Ltd. is correct.
17. Discuss the precautions to be observed while issuing summons under GST law.
18. Ampine Ltd. imported a machine from UK in April. The details in this regard are as
under:
(i) FOB value of the machine: 9,800 UK Pound
(ii) Freight (Air): 3,000 UK Pound
(iii) Licence fee, the buyer was required to pay in UK: 600 UK Pound
(iv) Buying commission paid in India ` 15,000
(v) Date of filing bill of entry was 20 th April and the rate of exchange notified by CBIC
on this date was ` 99 per one pound. Rate of BCD was 7.5%.
(vi) Date of arrival of aircraft was 25 th April and the rate of exchange notified by CBIC on
this date was ` 98.50 per pound and rate of BCD was 10%.
(vii) Integrated tax was 12% and ignore GST Compensation Cess.
(viii) Insurance premium details were not available.
You are required to compute the total customs duty and integrated tax payable on the
importation of machine. You may make suitable assumptions wherever required.
19. After visiting USA for a month, Mrs. and Mr. Rajesh Jain (Indian residents aged 35 and
40 years respectively) brought to India a laptop computer valued at ` 80,000, used
personal effects valued ` 2,20,000 and a personal computer for ` 65,000.
Calculate the custom duty payable by Mrs. & Mr. Rajesh Jain, if any. Ignore Agriculture
infrastructure and development cess.
20. Briefly explain duties which are exempted in case of imports under Advance
Authorisation.

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SUGGESTED ANSWERS

Question Answer
No.
1 (d) ` 1,19,16,000
2 (a) ` 99,54,000
3 (c) Infotel is a pure agent of the subscribing customer.
4 (d) Amazon Inc. is not liable to, obtain registration and pay tax in India, in
respect of the said transaction.
5 (c) GST on amount of ` 3,000 shall be charged at the rate of 18%.
6 (c) Assessment of unregistered persons
7 (b) 5th May
8 (d) (i) or (ii)
9 (c) Swadeshi Enterprises is not entitled to get any duty drawback since the
market price of such goods is less than the amount of drawback.
10 (c) The provisions of this section are also applicable even if the goods are
destroyed at the warehouse.
11. Computation of minimum net GST payable in cash by Sudarshan Ltd. for January
Particulars Value CGST SGST IGST
(`) (`) (`) (`)
GST payable under forward
charge
Free gifts to customers Nil - - -
[Not a supply as it is made without
consideration and is also not
covered in Schedule I because free
gifts have been distributed to an
unrelated person (customers are
not related persons) and ITC has
also not been availed on the same.]
Supply of consignment in territorial 6,00,000 54,000 54,000
waters [6,00,000 [6,00,000
[Where the supply is in the x 9%] x 9%]
territorial waters, the place of
supply is deemed to be in the
coastal State where the nearest

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10 FINAL EXAMINATION: NOVEMBER, 2023

point of the appropriate baseline is

located. Therefore, place of supply
will be in Kerala being nearer to
base line and hence, supply will be
intra-State supply]
Receipt of advance from customer 4,90,000 44,100 44,100
[Tax will be payable only on (7,00,000 [4,90,000 [4,90,000
advance for services. In case of -2,10,000) x 9%] x 9%]
goods, tax is payable at the time of
issuance of invoice and not at the
time of receipt of advance.]
Inter-State supply of pure labour 2,70,000
services for construction of single [15,00,000
commercial unit in Mumbai x 18%]
[Services by way of pure labour
contracts of construction of original
works pertaining to a single
residential unit otherwise than as a
part of a residential complex is
exempt. Hence, such services in
relation to a commercial unit shall
be taxable.]
Total output GST 98,100 98,100 2,70,000
Less: Input tax credit [Refer 98,100 98,100 18,900
working note below] (CGST)
[CGST credit be first utilized for - - 18,900
payment of CGST liability and then
(SGST)
for payment of IGST liability in that
order. Similarly, SGST credit be
first utilized for payment of SGST
liability and then for payment of
IGST liability in that order. ITC of
CGST cannot be utilized for
payment of SGST and vice versa.]
Net output GST payable in cash [A] Nil Nil 2,32,200
GST payable under reverse
charge
Tax on rent paid to State
Government of Kerala by 6,00,000 54,000 54,000
Sudharshan Ltd. (a registered

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PAPER – 8: INDIRECT TAX LAWS 11

person) is payable under reverse

charge
Tax on services provided by the
arbitral tribunal is payable under 7,00,000 63,000 63,000
reverse charge by the recipient of
service.
GST payable in cash under reverse 1,17,000 1,17,000
charge [B]
[Tax payable under reverse charge,
being not an output tax, cannot be
set off against ITC and thus, will
have to be paid in cash.]
Minimum net GST payable in 1,17,000 1,17,000 2,32,200
cash [A] + [B]
Working Note:
Computation of ITC available with Sudarshan Ltd. for January
Particulars CGST SGST IGST
(`) (`) (`)
Monthly rent paid to Kerela State Government for an 54,000 54,000
office taken on rent [6,00,000 [6,00,000
[Being services used in the course of furtherance of x 9%] x 9%]
business, ITC shall be available thereon.]
Cars taken on rental basis from Mr. Rishi -- -- --
[Tax on renting of motor car services wherein cost of
fuel is included in consideration provided by a non-
body corporate to a body corporate and invoice is
issued charging CGST/SGST @ 2.5% is payable
under reverse charge.
Time of supply of such services is 1 st February
being earlier of date of payment, or date
immediately following 60 days since issue of invoice
by the supplier. Since the time of supply of renting
of motor car services in the given case does not fall
in January, tax liability on the same does not arise in
said month.
Further, ITC on renting of motor car services
received is blocked since the recipient - Sudarshan
Ltd. is not in the same line of business.]

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Services of an arbitral tribunal 63,000 63,000

[Services provided by an arbitral tribunal to a [7,00,000 [7,00,000
business entity with an aggregate turnover up to x 9%] x 9%]
threshold limit of registration in the previous
financial year are exempt from GST.
Thus, services provided by the arbitral tribunal to
Sudarshan Ltd., a business entity whose aggregate
turnover in the previous financial year exceeds the
applicable threshold limit for registration [viz. ` 20
lakh, being a supplier of goods and services in the
State of Kerala] shall be liable to tax. Further, being
services used in the course of furtherance of
business, ITC shall be available thereon.]
Purchase of raw material from Saksham Steels Ltd. - -
[An e-invoice without IRN is not treated as invoice
and hence, without a valid document, ITC cannot be
claimed on such inputs]
Purchase of truck - -
[Motor vehicle used for transportation of goods is
eligible for credit. However, since depreciation has
been claimed on applicable taxes as well, ITC of tax
paid on purchase of such truck cannot be claimed.]
Total ITC 1,17,000 1,17,000
12. (a) Section 22(1) of the CGST Act, 2017 read with Notification No. 10/2019 CT dated
07.03.2019, inter alia, provides that every supplier who is exclusively engaged in
intra-State supply of goods is liable to be registered under GST in the State/
Union territory from where he makes the taxable supply of goods only when
aggregate turnover in a financial year exceeds ` 40,00,000.
However, the above provisions are not applicable to few specified States, i.e. States
of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry,
Sikkim, Telangana, Tripura, Uttarakhand.
Further, a person exclusively engaged in the business of supplying goods and/or
services that are not liable to tax or are wholly exempt from tax is not liable to
registration in terms of section 23(1)(a) of the CGST Act, 2017.
In the given case, the turnover of the company for the half year ended on
30th September is ` 55 lakh which is more than the applicable threshold limit of ` 40
lakh. Therefore, as per section 22 of the CGST Act, 2017, the company will be liable
to registration. However, since Gautam Pvt. Ltd. supplied exempted goods till

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PAPER – 8: INDIRECT TAX LAWS 13

31st October, it was not required to be registered till that day; though voluntary
registration was allowed under section 25(3) of the CGST Act, 2017.
However, the position will change from 1 st November as the supply of goods
become taxable from that day and the turnover of company is above ` 40 lakh. It is
important to note here that in terms of section 2(6) of the CGST Act, 2017, the
aggregate turnover limit of ` 40 lakh includes exempt turnover also.
Therefore, turnover of ‘Alpha’ before 1 st November will also be considered for
determining the threshold limit even though the same was exempt from GST.
Therefore, the company needs to register within 30 days from 1 st November (the
date on which it becomes liable to registration) in terms of section 25(1) of the
CGST Act, 2017.
(b) Rule 43(1)(a) of the CGST Rules, 2017 disallows input tax credit on capital goods
used or intended to be used exclusively for effecting exempt supplies.
However, as per section 18(1)(d) of the CGST Act, 2017, where an exempt supply
of goods and/or services by a registered person becomes a taxable supply, such
person gets entitled to take credit of input tax in respect of inputs held in stock and
inputs contained in semi-finished or finished goods held in stock relatable to such
exempt supply and on capital goods exclusively used for such exempt supply on the
day immediately preceding the date from which such supply becomes taxable.
Rule 40(1)(a) of the CGST Rules, 2017 lays down that the credit on capital goods
can be claimed after reducing the tax paid on such capital goods by 5% per quarter
of a year or part thereof from the date of the invoice.
Therefore, in the given case, Gautam Pvt. Ltd. could not claim credit on machinery
till the time the supply of product ‘Alpha’ for which said machinery was being used
was exempt. However, it can claim credit from 31 st October - the day immediately
preceding the date from which the supply of product ‘Alpha’ became taxable
(1st November).
The credit will be available for the remaining useful life of the machinery and will be
computed as follows:
Date of purchase of machinery 1st July
Date on which credit becomes eligible 31st October
Number of quarters for which credit is to be reduced 2 (including
part of quarter)
GST paid on machinery [` 30,00,000 x 18%] ` 5,40,000
Credit to be reduced [`5,40,000 x 5% x 2] ` 54,000
Amount of credit that can be taken [` 5,40,000 – ` 54,000] `4,86,000

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14 FINAL EXAMINATION: NOVEMBER, 2023

13. The said statement is incorrect. Section 104 of the CGST Act, 2017 states the
circumstances under which the advance ruling would be considered as void and hence
would lose its binding value.
If the Authorities (AAR and Appellate Authority) find that the advance ruling pronounced
has been obtained by the applicant/appellant by fraud or suppression of material facts or
misrepresentation of facts, it may, by order, declare such ruling to be void ab-initio.
Consequently, all the provisions of the CGST Act shall apply to the applicant as if such
advance ruling had never been made (but excluding the period when advance ruling was
given and up to the period when the order declaring it to be void is is sued).
An order declaring advance ruling to be void can be passed only after hearing the
applicant/ appellant. A copy of the order so made shall be sent to the applicant, the
concerned officers and the jurisdictional officer.
14. The supply between Pathan Vohra (Pune) and Sukumar Enterprises (Bareilly) is a bill to
ship to supply where the goods are delivered by the supplier [Pathan Vohra] to a
recipient [Sindhu Pvt. Ltd. (Shimoga)] or any other person on the direction of a third
person [Sukumar Enterprises]. The place of supply in case of domestic bill to ship to
supply of goods is determined in terms of section 10(1)(b) of the IGST Act, 2017.
As per section 10(1)(b) of the IGST Act, 2017, where the goods are delivered by the
supplier to a recipient or any other person on the direction of a third person, whether
acting as an agent or otherwise, before or during movement of goods, either by way of
transfer of documents of title to the goods or otherwise, it shall be deemed that the said
third person has received the goods and the place of supply of such goods shall be the
principal place of business of such person.
Thus, in the given case, it is deemed that the Sukumar Enterprises has received the
goods and the place of supply of such goods is the principal place of business of
Sukumar Enterprises. Accordingly, the place of supply between Pathan Vohra (Pune)
and Sukumar Enterprises (Bareilly) will be Bareilly, Uttar Pradesh.
This situation involves another supply between Sukumar Enterprises (Bareilly) and
Sindhu Pvt. Ltd. (Shimoga). The place of supply in this case will be determined in terms
of section 10(1)(a) of the IGST Act, 2017.
Section 10(1)(a) stipulates that where the supply involves movement of goods, whether
by the supplier or the recipient or by any other person, the place of supply of such goods
shall be the location of the goods at the time at which the movement of goods terminates
for delivery to the recipient.
Thus, the place of supply in second case is the location of the goods at the ti me when
the movement of goods terminates for delivery to the recipient (Sindhu Pvt. Ltd.), i.e.
Shimoga, Karnataka.

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PAPER – 8: INDIRECT TAX LAWS 15

15. Educational services supplied by educational institutions to its students are exempt from
GST vide Exemption Notification No. 12/2017 CT (R) dated 28.06.2017. As per said
notification, services provided –
(a) by an educational institution to its students, faculty and staff;
(aa) by an educational institution by way of conduct of entrance examination against
consideration in the form of entrance fee
are exempt from GST.
Therefore, it can be seen that all services supplied by an ‘educational institution’ to its
students are exempt from GST. Further, consideration charged by the educational
institutes by way of entrance fee for conduct of entrance examination is also exempt.
It has been clarified by CBIC vide Circular No. 177/09/2022 GST dated 03.08.2022 that
the exemption is wide enough to cover the amount or fee charged for admission or
entrance, or amount charged for application fee for entrance, or the fee charged from
prospective students for issuance of eligibility certificate to them in the process of their
entrance/admission to the educational institution. Services supplied by an educational
institution by way of issuance of migration certificate to the leaving or ex-students are
also covered by the exemption.
In view of the same, GST is not payable on the application fee charged for entrance or
the fee charged for issuance of eligibility certificate for admission or for issuance of
migration certificate by educational institutions.
16. Supply of goods by the consignee to any other person, by endorsement of documents of
title to the goods, after the goods have been dispatched from the port of origin located
outside India but before clearance for home consumption (high sea sale) is neither
treated as supply of goods nor supply of services in terms of paragraph 8(b) of Schedule
III to the CGST Act. Thus, GST is not leviable on high sea sales at the time of making
such sales.
As per section 14 of the Customs Act, 1962, the value for the purpose of charging
customs duty on imported goods is the value at the time of importation, i.e. at the time of
filing of the bill of entry. Further, IGST on imported goods is also levied at the time of
filing of bill of entry. In case of high sea sales, the assessable value of imported goods
for levying customs duty and IGST is determined on the basis of the price paid by the last
high sea sales buyer who files the bill of entry for home consumption.
17. The following precautions should generally be observed when summoning a person
under GST law: -
(i) A summon should not be issued for appearance where it is not justified. The power
to summon can be exercised only when there is an inquiry being undertaken and
the attendance of the person is considered necessary.

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16 FINAL EXAMINATION: NOVEMBER, 2023

(ii) Normally, summons should not be issued repeatedly. As far as practicable, the
statement of the accused or witness should be recorded in minimum number of
appearances.
(iii) Respect the time of appearance given in the summons. No person should be made
to wait for long hours before his statement is recorded except when it has been
decided very consciously as a matter of strategy.
(iv) Preferably, statements should be recorded during office hours; however, an
exception could be made regarding time and place of recording statement having
regard to the facts in the case.
18. Computation of assessable value and total customs duty and integrated tax
payable by Ampine Ltd.
Particular Amount (£)
FOB value 9,800
Add: License fee required to be paid in UK [Note – 1] 600
Customs FOB value 10,400
Exchange rate is ` 99 per £ [Note – 2]
`
Value in rupees 10,29,600.00
Add: Air freight [Restricted to 20% of ` 10,29,600 (customs FOB 2,05,920.00
value)] [Note – 3]
Insurance @ 1.125% of ` 10,29,600 [Note – 4] 11,583.00
Buying commission is not includible in the assessable
value [Note – 5] -
CIF Value 12,47,103.00
Assessable value 12,47,103.00
Rate of duty is 10% [Note – 6]
Add: Basic custom duty @ 10% (` 12,47,103 × 10%) 1,24,710
– rounded off (A)
Add: Social Welfare Surcharge (10% of ` 1,24,710) 12,471
[rounded off] (B)
Value for integrated tax 13,84,284
Add: Integrated tax @ 12% -rounded off (C) [Note – 7] 1,66,114
Total customs duty and integrated tax payable [(A) + (B) + (C)] 3,03,295

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Note:
1. Licence fee relating to imported goods payable by the buyer as a condition of sale is
includible in the assessable value - Rule 10(1)(c) of the Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007 [hereinafter referred to as
Customs Valuation Rules].
2. Rate of exchange notified by CBIC on the date of filing of bill of entry has to be
considered [Third proviso to section 14 of the Customs Act, 1962].
3. In case of goods imported by air, freight cannot exceed 20% of FOB value [Fifth
proviso to rule 10(2) of the Customs Valuation Rules].
4. Insurance charges, when not ascertainable, have to be included @ 1.125% of FOB
value of goods [Third proviso to rule 10(2) of the Customs Valuation Rules].
5. Buying commission is not includible in the assessable value [Clause (a)(i) of sub-
rule (1) of rule 10 of the Customs Valuation Rules].
6. Rate of duty will be the rate in force on the date of presentation of bill of entry or on
the date of arrival of the aircraft, whichever is later [Proviso to sect ion 15 of the
Customs Act, 1962].
7. Integrated tax is levied on the sum total of the assessable value of the imported
goods, customs duties and applicable social welfare surcharge.
19. (1) As per the Baggage Rules, 2016, an Indian resident arriving from a country other
than Nepal, Bhutan, or Myanmar,is allowed duty free clearance of-
(i) Used personal effects and travel souvenirs without any value limit.
(ii) Articles [other than certain specified articles] up to a value of
` 50,000 carried as accompanied baggage [General duty free baggage
allowance].
(iii) Further, such general duty free baggage allowance of a passenger cannot be
pooled with the general duty free baggage allowance of any other passenger.
(2) One laptop computer when imported into India by a passenger of the age of 18
years or above (other than member of crew) is exempt from whole of the customs
duty [Notification No. 11/2004 Cus. dated 08.01.2004].
(3) (i) Accordingly, there will be no customs duty on used personal effects (worth
` 2,20,000) of Mrs. and Mr. Rajesh Jain and laptop computer brought by them
will be exempt from duty.
(ii) Duty payable on personal computer after exhausting the duty free baggage
allowance will be ` 65,000 – ` 50,000 = ` 15,000.

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18 FINAL EXAMINATION: NOVEMBER, 2023

(iii) Effective rate of duty for baggage =38.50% [including Social Welfare
Surcharge]
(iv) Therefore, total customs duty = ` 5,775.
20. Imports under Advance Authorisation are exempted from payment of:
• Basic Customs Duty,
• Additional Customs Duty,
• Education Cess,
• Anti- dumping Duty,
• Countervailing Duty,
• Safeguard Duty,
• Transition Product Specific Safeguard Duty, wherever applicable.
However, specified deemed exports as given under are not exempted from payment of
applicable anti-dumping duty, countervailing duty, safeguard duty and transition product
specific safeguard duty, if any:-
• Supply of capital goods against EPCG authorisation
• Supply to goods to UN or international organisations for their official use or supplied
to projects financed by them.
It may be noted that imports under Advance Authorisation for physical as well as deemed
exports are also exempt from whole of the Integrated Tax and Compensation Cess.

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 PAPER-8: INDIRECT TAX LAWS

QUESTIONS

(1) All questions should be answered on the basis of position of (i) GST law as
amended by the Finance Act, 2022 including significant notifications and circulars
and other legislative amendments made, up to 31 st October, 2022 and (ii) customs
law as amended by the Finance Act, 2022 including significant notifications and
circulars and other legislative amendments made, up to 31 st October, 2022.
(2) Unless otherwise specified, the section numbers and rules referred herein pertain
to the Central Goods and Services Tax Act, 2017 and the Central Goods and
Services Tax Rules, 2017 respectively.
(3) The GST rates for goods and services mentioned in various questions are
hypothetical and may not necessarily be the actual rates leviable on those goods
and services. The rates of customs duty are also hypothetical and may not
necessarily be the actual rates. Further, GST compensation cess should be
ignored in all the questions, wherever applicable.
Mr. X is engaged in the business of supplying FMCG (Fast-moving consumer goods) to the
customers on retail as well as wholesale basis. X has its head office located in Delhi and
branches in Rajasthan and Madhya Pradesh. It is registered under GST in all the three
States.
During the month of January, following transactions were undertaken:
(i) X supplied goods to its agent A from its factory located in Rajasthan. A sold them to the
unrelated wholesalers in the State of Rajasthan by issuing an invoice in his own name.
The goods of like kind and quality were sold by A to an unrelated customer for
` 1,00,000. A also purchased goods of like kind and quality from another independent
supplier for ` 80,000 on the same day.
(ii) X appointed a consultancy firm – Rudra Consultancy registered in Rajasthan- to
incorporate a new company and to undertake all the legal formalities for incorporation of
said company, for an agreed consideration of ` 35,000. Rudra Consultancy paid the
legal fee of ` 15,000 to the relevant Government Department during the process of
incorporation of the company. The GST invoice was issued by Rudra Consultancy on X’s
branch in Rajasthan for an amount of ` 35,000 without any breakup of its own service
charges and other legal expenses or fees.
(iii) X imported certain digital data warehousing services from Mazon Inc. located in USA.
The amount charged by Mazon Inc. was ` 5,00,000. The services were for personal
consumption of X and were not used in course or furtherance of business of X. The
transaction was billed to X on the GST registration number of Rajasthan.

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(iv) X imported certain online gaming services from Balibaba Inc. located in China. The
services were provided to X on free of cost basis. The open market value of such
services was ` 1,00,000. These services were also for personal consumption of X and
were received on a device whose internet protocol address was registered in India. The
transaction was billed to X on the GST registration number of Rajasthan.
(v) Madhya Pradesh branch of X purchased goods worth ` 15,00,000 (liable to GST @ 5%)
from a Madhya Pradesh dealer and procured certain input services worth ` 5,00,000
(liable to GST @ 28%) in Madhya Pradesh. In the later part of the month, X sold these
goods for ` 18,00,000 (liable to GST @ 5%).
(vi) Rajasthan branch paid the sponsorship fee of ` 5,00,000 to Ganga Solutions, registered
in Rajasthan, for an entertainment event organised by Ganga Solutions in Haryana.
The opening balance of input tax credit of X in the States of Delhi, Rajasthan and Madhya
Pradesh is nil. Further, there is no other inward or outward supply transaction for X in the
months of January apart from the aforementioned transactions. Subject to the information
given above, assume that all the other conditions necessary for availing ITC have been
fulfilled.
All the above transactions are exclusive of GST, wherever applicable. GST is applicable in
the aforesaid case scenario at the following rates unless otherwise specified:
I. Intra-State supply – 9% CGST and 9% SGST
II. Inter-State supply – 18% IGST
Based on the facts of the case scenario given above, choose the most appropriate answer to
Q. Nos. 1 to 5 below:
1. In respect of the goods supplied by X to its agent A in Rajasthan, the value of supply
shall be __________.
(a) ` 1,10,000
(b) ` 72,000
(c) Nil, since the supply between agent and principal without consideration is not a supply.
(d) ` 80,000 or at the option of X - ` 90,000
2. GST payable on the services of incorporation of the company provided by Rudra
Consultancy to X is _____________.
(a) ` 6,300 and full input tax credit of the same is available to X
(b) ` 3,600 and full input tax credit of the same is available to X
(c) ` 6,300 and input tax credit of ` 3,600 is available to X
(d) ` 6,300 and no input tax credit is available to X

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3. Which of the following statements is true in respect of import of digital data warehousing
services and online gaming services?
(a) IGST of ` 1,08,000 is payable by X under reverse charge mechanism and full input tax
credit of the same is available to X.
(b) Service providers i.e. Mazon Inc. and Balibaba Inc. need to obtain registration as
OIDAR (Online Information Database Access and Retrieval) service providers and pay
IGST of ` 1,08,000 and no input tax credit is available to X.
(c) IGST of ` 90,000 is payable by X under reverse charge mechanism and no input tax
credit of the same is available to X.
(d) No GST is payable since import of services by individuals for personal use is specifically
exempt under GST.
4. Which of the following statements is true in respect of the sponsorship fee paid by
Rajasthan branch of X to Ganga Solutions?
(a) X is liable to pay IGST of ` 90,000.
(b) Ganga Solutions is liable to pay IGST of ` 90,000.
(c) X is liable to pay CGST and SGST of ` 45,000 each.
(d) Ganga Solutions is liable to pay CGST and SGST of ` 45,000 each.
5. Compute the net GST liability of X in Madhya Pradesh and amount of input tax credit
refund, if any, available to X.
(a) Net GST liability is ` 15,000 and eligible refund amount under inverted duty
structure is ` 1,40,000.
(b) Net GST payable is nil and eligible refund amount under inverted duty structure is
` 1,25,000.
(c) Net GST payable is nil and no refund is available.
(d) Net GST payable is nil and eligible refund amount under inverted duty structure is
` 75,000.
6. Dhoomketu, registered under GST in Virar, Maharashtra, is appointed as a del-credre
agent by Bigbang Ltd. He sells shoes to his customers locally within the same State.
Bigbang Ltd. is also registered under GST in Maharashtra.
During the current financial year, Bigbang Ltd. supplied taxable goods worth ` 9.50 crore
whose open market value is ` 9.82 crore, from its Navi Mumbai unit to Dhoomketu.
Dhoomketu has further sold these goods for ` 10.10 crore by raising invoices using his
own GSTIN.
Dhoomketu has received a commission of ` 65 lakh from Bigbang Ltd. during the year
and has guaranteed the payment of the value of such goods from the customers to

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 4 FINAL EXAMINATION: MAY, 2023

Bigbang Ltd. Dhoomketu has also provided financial assistance in the form of larger
credit period to his customers, on which he has also earned interest of ` 25 lakh.
Compute the value of supply of Bigbang Ltd. and Dhoomketu for the current financial
year assuming that both of them wish to adopt minimum value of supply to the extent
possible.
(a) Bigbang Ltd.: ` 9.09 crore and Dhoomketu: ` 11.00 crore
(b) Bigbang Ltd.: ` 10.05 crore and Dhoomketu: ` 10.85 crore
(c) Bigbang Ltd.: ` 10.15 crore and Dhoomketu: ` 10.85 crore
(d) Bigbang Ltd.: ` 10.15 crore and Dhoomketu:` 75.00 lakh
7. Which of the following activity is liable to GST?
(i) Supply of food by a hospital to patients (not admitted) or their attendants or visitors
(ii) Transportation of passengers by non-air-conditioned railways
(iii) Services by a brand ambassador by way of folk-dance performance where
consideration charged is ` 1,40,000
(iv) Transportation of agriculture produce by air from one place to another place in India
(v) Services by way of loading, unloading, packing, storage or warehousing of rice
Choose the most appropriate option.
(a) (i), (v)
(b) (iii), (iv), (v)
(c) (i), (iii), (iv)
(d) (iv), (v)
8. Which of the following statements is correct in relation to value of imported goods
determined under rule 4 of the Customs Valuation (Determination of Value of Imported
Goods) Rules, 2007, i.e. transaction value of identical goods?
(a) The transaction value of identical goods in a sale at any commercial level and in
substantially the same quantity as the goods being valued shall be used to
determine the value of imported goods.
(b) The transaction value of identical goods in a sale at same commercial level and in
any quantity as the goods being valued shall be used to determine the value of
imported goods.
(c) The transaction value of identical goods in a sale at same commercial level and in
substantially the same quantity as the goods being valued shall be used to
determine the value of imported goods.

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(d) The transaction value of identical goods in a sale at any commercial level and in
any quantity as the goods being valued shall be used to determine the value of
imported goods.
9. Safeguard duty cannot be imposed if:
(a) the article on which it is proposed to be imposed originates from a developed
country provided its share of imports is not more than 3% of total imports of that
article in India.
(b) the article on which it is proposed to be imposed originates from a developin g
country provided its share of imports is not more than 5% of total imports of that
article in India.
(c) the article on which it is proposed to be imposed originates from more than one
developing country and its aggregate share of imports from developing countries
each with less than 3% share taken together does not exceed 9% of total imports of
that article into India.
(d) the article is imported by a person in special category State.
10. Jankinandan Associates, a proprietorship firm in Lucknow registered under GST,
manufactures three taxable products ‘Zeta’, ‘Sigma’ and ‘Omega’. The following
information has been provided by Jankinandan Associates for a particular tax period.
(i) ‘Omega’ and ‘Zeta’ are sold in the domestic market as well as exported outside
India. The domestic turnover (excluding export sales) of ‘Zeta’ and ‘Omega’ are
` 21 lakh and ` 15 lakh respectively. Export turnover of ‘Zeta’ with payment of IGST
(not eligible to avail benefit of merchant exports under Notification No. 41/2017) is
` 3.75 lakh. ‘Omega’ worth ` 15 lakh is exported.
(ii) Tax on ‘Sigma’ is payable under reverse charge. ‘Sigma’ is being sold only
domestically and the domestic turnover of ‘Sigma’ is ` 9 lakh.
(iii) The firm is also engaged in providing taxable consultancy services. Consultancy
services of ` 30 lakh have been provided to unrelated clients located in foreign
countries. In all cases, consideration has been received in convertible foreign
exchange.
(iv) The firm sold the shares held by it for ` 375 lakh which were earlier purchased at a
price of ` 360 lakh.
(v) Due to shortage of funds, it sold one of its factory buildings for ` 180 lakh
(excluding stamp duty of ` 3.50 lakh, being 2% of value). The entire consideration
is received post issuance of completion certificate; building was occupied thereafter .
(vi) The firm earned an interest of ` 6 lakh on the money invested in fixed deposits with
Gaba Bank.

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 6 FINAL EXAMINATION: MAY, 2023

The details of the inputs/input services availed by the firm during the said tax period are
as under:
(i) The firm received legal services from an advocate in relation to product ‘Zeta’ for a
consideration of ` 5.25 lakh.
(ii) Remaining inputs and input services availed during the tax period worth ` 52.50
lakh and ` 22.50 lakh respectively have been commonly used for supply of goods
and services mentioned above.
You are required to compute the net GST liability of Jankinandan Associates, payable
from Electronic Credit Ledger and/or Electronic Cash Ledger, as the case may be, for the
given tax period using the above-mentioned information.
Note: All the above transactions are exclusive of GST, wherever applicable. Assume that
rates of GST on inward and outward supply of goods and services are 12% and 18%
respectively (Ignore bifurcation of CGST, SGST or IGST for the sake of simplicity).
Subject to the information given above, assume that all the other conditions necessary
for availing ITC have been fulfilled.
Turnover of Jankinandan Associates was ` 72 lakh in the preceding financial year.
Unless otherwise mentioned, exports are made under letter of undertaking.
11. Jigyasa Ltd. has multiple wholesale outlets of toys in Mumbai, Maharashtra. It receives
an order for toys worth ` 1,20,000 (inclusive of GST leviable @ 18%) from Upasana,
owner of a retail toy store in Delhi. While checking the stock, it is found that order worth
` 55,000 can be fulfilled from the company’s Bandra (Mumbai) store and remaining
goods worth ` 65,000 can be sent from its Goregaon (Mumbai) store.
Both the stores are instructed to issue separate invoices for the goods sent to Upasana.
The goods are transported to Upasana in Delhi, in a single conveyance owned by Jaidev
Transporters.
You are required to advise Jigyasa Ltd. with regard to issuance of e-way bill(s).
12. Vividh Pvt. Ltd. is engaged in supplying various services in Bangalore. It is registered in
the State of Karnataka. It has furnished the following information for the month of June:
S.No. Particulars Amount (`)
(i) Services provided by way of fumigation in a warehouse of 13,00,000
agricultural produce.
(ii) Service of transportation of passengers by metered cabs 5,40,000
provided through Webcastle Ltd., an electronic commerce
operator (ECO)
(iii) 4 buses each with a seating capacity of 72 passengers given 6,00,000
on hire to State Transport Undertaking (STU). Such buses
run on a route and timing as decided by STU.

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 PAPER – 8: INDIRECT TAX LAWS 7

(iv) Goods transport services received from GTA for transporting 1,80,000
the goods to be used in respect of the buses given on hire to
STU. Tax on such services is payable @ 12%.
Compute net GST payable in cash by Vividh Pvt. Ltd. for the month of June assuming
that the above amounts are exclusive of GST and rate of GST, wherever applicable, is
18% unless otherwise mentioned.
13. Swasthya Nursing Home, a clinical establishment, offers the following services:
(i) Rooms provided to the in-patients where the room charges per day are ` 6,500.
(ii) Plastic surgery conducted to repair cleft lip of a new born baby.
(iii) Air ambulance services to transport critically ill patients from distant locations to
Swasthya Nursing Home.
(iv) Supply of food to the in-patients as per the advice of the doctor/nutritionist from its
restaurant – Annapurna Bhawan - located in the basement of Swasthya Nursing
Home. The food is prepared by its employees and nothing is outsourced to any
third-party vendors.
(v) Homeopathic medical treatment.
Swasthya Nursing Home also operates a cord blood bank which provides services in
relation to preservation of stem cells.
Determine whether GST is payable in respect of each of the above services provided by
Swasthya Nursing Home.
14. Alpha is a manufacturer and supplier of a machine in India. Gamma of USA helps Alpha
in selling the machine by identifying client in USA, viz., Beta who wants to purchase this
machine and helps in finalizing the contract of supply of machine by Alpha to Beta.
Gamma charges Alpha for his services of locating Beta and helping in finali zing the sale
of machine between Alpha and Beta, for which Gamma invoices Alpha and is paid by
Alpha for the same. Determine the place of supply of the services provided by Gamma to
Alpha.
15. Answer the following questions elaborating the relevant provisions of section 44:
(a) Who is required to furnish the annual return and what is the due date for furnishing
the same?
(b) What is the prescribed form for furnishing annual return/statement?
(c) Who is required to furnish a self-certified reconciliation statement?
16. Nitya Associates is engaged in supplying taxable services in Kerela. The Assistant
Commissioner of Central Tax passed an adjudication order under section 73 which was
received by Nitya Associates on 18th October. In the said order, GST liability of
` 6,00,000 (CGST + SGST) was decided alongwith interest payable @ 18% p.a. for

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 8 FINAL EXAMINATION: MAY, 2023

number of delayed days and a penalty of ` 60,000. Nitya Associates was in complete
disagreement with said order. So, it filed an appeal before the Appellate Authority on
31st October.
Determine the amount of pre-deposit to be made by Nitya Associates for filing the
appeal.
Whether your answer would be different if Nitya Associates appeals only against part of
the demanded amount, say ` 4,00,000 and admits the balance liability of tax amounting
to ` 2,00,000 and proportionate penalty arising from the said order?
17. Robert & Sons is engaged in the supply of taxable goods. It enters into a contract to
supply a consignment of said goods. However, since it is unable to determine the value
of the goods to be supplied by it, it applies for payment of tax on such goods on a
provisional basis along with the required documents in support of its request. On 7th
January, an order allowing payment of tax on provisional basis was passed by the proper
officer indicating the value on the basis of which the assessment is allowed on
provisional basis and the amount for which the bond is to be executed and security is to
be furnished.
Robert & Sons complies with the same and supplies the goods on 29th January thereafter
paying the tax on provisional basis in respect of said consignment on 19th February.
Consequent to the final assessment order passed by the proper officer on 18th March, a
tax of ` 1,80,000 becomes due on the consignment. Robert & Sons pays the tax due on
9thApril.
Determine the interest payable, if any, by Robert & Sons in the above case.
18. Jumbo Steels imported heavy machine from USA. The cost of the machine at the factory
of the exporter was US $ 10,000. The transport charges of US $ 500 were incurred from
the factory of exporter to the port for shipment. At the load port, handling charges of
US $ 50 were paid for loading the machine in the ship. Freight charges from exporting
country to India were US $ 1,000. Jumbo Steels paid a buying commission of US $ 50.
From the information given above, you are required to compute the assessable value of
the imported goods under the Customs Act, 1962 assuming that actual insurance
charges paid are not ascertainable and exchange rate is 1$ = ` 70.
19. Balu Ltd. imported Super Kerosene Oil (SKO) and stored it in a warehouse. An ex -bond
bill of entry for home consumption was filed and duty was paid as per the rate prevalent
on the date of presentation of such bill of entry; and the order for clearance for home
consumption was passed.
On account of highly combustible nature of SKO, the importer made an application to
permit the storage of such kerosene oil in the same warehouse until actual clearance for
sale/use. The application was allowed. However, the rate of duty increased when the
goods were actually removed from the warehouse.

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 PAPER – 8: INDIRECT TAX LAWS 9

The Department demanded the differential duty. Balu Ltd. challenged the demand. Will
it succeed? Discuss briefly taking support of decided case law, if any.
20. ABC Ltd. imported an offset printing machine from Germany for ` 5 crores and the bill of
entry for home consumption was cleared in April on payment of duty. However, due to
certain technical glitches the said machine could not start functioning and the said
machine was sent-back to the supplier for repairs in May.
The manufacturer of machinery in Germany had made necessary repairs and ha d sent
back the machine again to ABC Ltd. Accordingly, ABC Ltd. re-imported the machine
without any re-manufacturing or reprocessing in September.
Since the machine was having manufacturing defect, the repairs were carried out by the
machine manufacturer without charging any amount for the repairs. However, the fair
cost of repairs carried out including cost of material consumed during repairs of ` 70
lakh, would have been ` 90 lakh. Actual insurance and freight charges incurred were `
7.5 lakh each side from India to Germany and from Germany to India.
Assume that the rate of basic customs duty is 10%, social welfare surcharge is 10% and
integrated tax is 18%.
You are required to compute the amount of customs duty payable (if any) on
re-importation of the machine.

SUGGESTED ANSWERS

1. (d)
2. (a)
3. (c)
4. (d)
5. (c)
6. (a)
7. (c)
8. (c)
9. (c)
10. (i) Computation of GST payable on outward supply
Particulars Value (`) GST (`)
Turnover of ‘Zeta’ [liable to GST @ 12%] 21,00,000 2,52,000
Turnover of ‘Sigma’ [Tax on ‘Sigma’ is payable under 9,00,000 Nil

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 10 FINAL EXAMINATION: MAY, 2023

reverse charge by the recipient of such goods]

Turnover of ‘Omega’ [liable to GST @ 12%] 15,00,000 1,80,000
Export of ‘Zeta’ with payment of IGST @ 12% 3,75,000 45,000
Export of ‘Omega’ 15,00,000 Nil
[Export of goods is a zero rated supply in terms of
section 16(1)(a) of the IGST Act, 2017. A zero rated
supply can be supplied without payment of tax under
a LUT in terms of section 16(3)(a) of that Act.]
Consultancy services provided to independent 30,00,000 Nil
clients located in foreign countries.
[The activity is an export of service in terms of
section 2(6) of the IGST Act, 2017 as the supplier of
service is located in India; the recipient of service is
located outside India; place of supply of service is
outside India (in terms of section 13(2) of the IGST
Act, 2017); payment for the service has been
received in convertible foreign exchange or in Indian
rupees wherever permitted by the Reserve Bank of
India; and supplier of service and recipient of service
are not merely establishments of distinct person.
[Export of services is a zero rated supply in terms of
section 16(1)(a) of the IGST Act, 2017. A zero rated
supply can be supplied without payment of tax under
a LUT in terms of section 16(3)(a) of that Act.]
Sale of shares 3,75,00,000 Nil
[Shares are neither goods nor services in terms of
section 2(52) and 2(102). Hence, sale of shares is
neither a supply of goods nor a supply of services
and hence, is not liable to any tax.]
Sale of building 1,80,00,000 Nil
[Sale of building is neither a supply of goods nor a
supply of services in terms of para 5 of Schedule III
to the CGST Act, provided the entire consideration
has been received after issue of completion
certificate by the competent authority or after its
occupation, whichever is earlier. Hence, the same is
not liable to GST]

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 PAPER – 8: INDIRECT TAX LAWS 11

Interest received on investment in fixed deposits with 6,00,000 Nil

a bank
[Exempt vide Notification No. 12/2017 CT (R) dated
28.06.2017]
Total GST payable on outward supply 4,77,000

(ii) Computation of common credit attributable to exempt supplies during the tax
period
Particulars (`)
Common credit on inputs and input services [Tax on inputs - 10,35,000
` 6,30,000 (` 52,50,000 x 12%) + Tax on input services –
` 4,05,000 (` 22,50,000 x 18%)]
Common credit attributable to exempt supplies (rounded off) 6,97,742
= Common credit on inputs and input services x (Exempt turnover
during the period / Total turnover during the period)
= ` 10,35,000 x ` 1,87,75,000/ ` 2,78,50,000
Exempt turnover = ` 1,87,75,000 and total turnover = ` 2,78,50,000
[Refer note below]

Note:
As per section 17(3), value of exempt supply includes supplies on which the recipient is
liable to pay tax on reverse charge basis, transactions in securities, sale of land and,
subject to clause (b) of paragraph 5 of Schedule II, sale of building. As per explanation
to Chapter V of the CGST Rules, the value of exempt supply in respect of land and
building is the value adopted for paying stamp duty and for security is 1% of the sale
value of such security.
Further, as per explanation to rule 42, the aggregate value of exempt supplies inter alia
excludes the value of services by way of accepting deposits, extending loans or
advances in so far as the consideration is represented by way of interest or discount,
except in case of a banking company or a financial institution including a non-banking
financial company, engaged in supplying services by way of accepting deposits,
extending loans or advances.
Therefore, value of exempt supply in the given case will be the sum of value of output
supply on which tax is payable under reverse charge (` 9,00,000), value of sale of
building (` 3,50,000 / 2 x 100 = ` 1,75,00,000) and value of sale of shares (1% of
` 3,75,00,000 = ` 3,75,000), which comes out to be ` 1,87,75,000.
Total turnover = ` 1,94,00,000 (` 21,00,000 + ` 9,00,000 + ` 15,00,000 + ` 3,75,000 +
` 15,00,000 + ` 30,00,000 + ` 1,75,00,000 + ` 6,00,000 + ` 3,75,000)

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 12 FINAL EXAMINATION: MAY, 2023

(iii) Computation of ITC available in the Electronic Credit Ledger of the

Jankinandan Associates for the tax period
Particulars (`)
Common credit on inputs and input services 10,35,000
Add: Legal services used in the manufacture of taxable product 94,500
‘Zeta’
ITC available in the Electronic Credit Ledger 11,29,500
Less: Common credit attributable to exempt supplies during the tax 6,97,742
period
[As calculated in above table]
Net ITC available 4,31,758

(iv) Computation of net GST liability of Jankinandan Associates for the tax period
Particulars (`)
GST payable on outward supply [As computed earlier] 4,77,000
Less: Input tax credit (ITC) [As computed earlier] 4,31,758
GST payable from Electronic Cash Ledger [A] 45,242
Add: GST payable on legal services under reverse charge 94,500
[` 5,25,000 X 18%] [B]
[Tax on legal services provided by an advocate to a business
entity, is payable under reverse charge by the business entity in
terms of Notification No. 13/2017 CT (R) dated 28.06.2017.
Further, such services are not eligible for exemption provided
under Notification No. 12/2017 CT (R) dated 28.06.2017 as the
turnover of the business entity (Jankinandan Associates) in the
preceding financial year exceeds ` 20 lakh.]
Total GST paid from Electronic Cash Ledger [A] + [B] 1,39,742
[As per section 49(4) amount available in the electronic credit
ledger may be used for making payment towards output tax.
However, tax payable under reverse charge is not an output tax in
terms of section 2(82). Therefore, input tax credit cannot be used
to pay tax payable under reverse charge and thus, tax payable
under reverse charge will have to be paid in cash.]

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11. Jigyasa Ltd. would be required to prepare two separate e-way bills since each invoice
value exceeds ` 50,000 and each invoice is considered as one consignment for the
purpose of generating e-way bills.
The FAQs on E-way Bill issued by CBIC clarify that if multiple invoices are issued by the
supplier to one recipient, that is, for movement of goods of more than one invoice of
same consignor and consignee, multiple e-way bills have to be generated. In other
words, for each invoice, one e-way bill has to be generated, irrespective of the fact
whether same or different consignors or consignees are involved.
Multiple invoices cannot be clubbed to generate one e-way bill. However, after
generating all these e-way bills, one consolidated e-way bill can be prepared for
transportation purpose, if goods are going in one vehicle.
12. Computation of gross GST liability of Vividh Pvt. Ltd.
Particulars GST (`)
Services by way of fumigation in a warehouse of agricultural produce. 2,34,000
[Taxable since the exemption earlier available with respect to the [13,00,000
services provided by way of fumigation in a warehouse of agricultural ×18%]
produce has been withdrawn.]
Service of transportation of passengers by metered cabs through Nil
Webcastle Ltd., an ECO
[Taxable since services of transport of passengers by metered cabs
supplied through ECO are not exempt from GST. However, tax on such
services shall be paid by ECO. Therefore, Vividh Pvt. Ltd. is not liable to
pay GST on the same.]
Buses with seating capacity of 72 passengers each given on hire to State Nil
Transport Undertaking
[Services by way of giving on hire to a state transport undertaking (STU),
a motor vehicle meant to carry more than 12 passengers, are exempt
from GST irrespective of whether such vehicles are run on routes and
timings as decided by the State Transport Undertakings.]
Total GST payable 2,34,000
Less: Goods transport services availed Nil
[Since GST is payable @ 12% on goods transport services, GST is
payable by the GTA1 under forward charge mechanism and not by Vividh
Pvt. Ltd.

1 It has been most logically assumed that since the applicable rate of GST is 12%, GTA must have exercised
the option to itself pay GST on the services supplied by it.

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 14 FINAL EXAMINATION: MAY, 2023

Further, ITC of the same is not available as such services are exclusively
used for supplying the exempt services of giving on hire the buses to
STU.]
Net GST payable in cash 2,34,000

13. Health care services provided by a clinical establishment, an authorised medical

practitioner or para-medics are exempt from GST vide Notification No. 12/2017 CT (R)
dated 28.06.2017. In light of the same, the eligibility to exemption in respect of each
service offered by Swasthya Nursing Home is examined below:
(i) Not Exempt. Exemption available to health care services provided by a clinical
establishment shall not apply to the services provided by a clinical establishment by
way of providing room [other than Intensive Care Unit (ICU)/Critical Care Unit
(CCU)/Intensive Cardiac Care Unit (ICCU)/Neo natal Intensive Care Unit (NICU) ]
having room charges exceeding ` 5000 per day to a person receiving health care
services.
(ii) Exempt. Health care service does not include, inter alia, cosmetic or plastic
surgery, except when undertaken to restore or to reconstruct anatomy or functions
of body affected due to congenital defects, developmental abnormalities, injury or
trauma.
Therefore, plastic surgeries will not be entitled to the said exemption, but the plastic
surgery conducted to repair a cleft lip will be eligible for exemption as it reconstructs
anatomy or functions of body affected due to congenital defects (cleft lip).
(iii) Exempt. Health care service includes services by way of transportation of the
patient to and from a clinical establishment. Thus, air ambulance service t o
transport critically ill patients to Swasthya Nursing Home would be eligible for
exemption under the said notification.
(iv) Exempt. Circular No. 32/06/2018 GST dated 12.02.2018 has clarified that food
supplied by the hospital canteen to the in-patients as advised by the
doctor/nutritionists is a part of composite supply of health care services and is not
separately taxable. Thus, it is exempt from GST.
(v) Exempt. Since Homeopathy is a recognized system of medicine in terms of section
2(h) of Clinical Establishments Act, 2010, the same would be eligible for exemption
under the said notification.
Further, exemption available to services provided by cord blood banks by way of
preservation of stem cells or any other service in relation to such preservation has been
withdrawn and thus, said services are no longer exempt from GST. Therefore, services
provided in relation to preservation of stem cells by the cord blood bank operated by
Swasthya Nursing Home will be liable to GST.

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14. As per section 13(8)(b) of the IGST Act, 2017, the place of supply of the intermediary
services shall be the location of the supplier of services. ‘Intermediary’ has been defined
in of section 2(13) of the IGST Act, as a broker, an agent or any other person, by
whatever name called, who arranges or facilitates the supply of goods or services or
both, or securities, between two or more persons, but does not include a person who
supplies such goods or services or both or securities on his own account.
Further, the concept of intermediary services has been clarified vide Circular No.
159/15/2021 GST dated 21.09.2021 as follows:
(i) Minimum of three parties and two distinct supplies: There must be minimum of
three parties, two principals transacting in the supply of goods or services or
securities (the main supply) and one intermediary arranging or facilitating (the
ancillary supply) the said main supply.
(ii) Intermediary service provider to have the character of an agent, broker or any
other similar person: Intermediary only arranges or facilitates the main supply and
does not himself provide the main supply. Thus, the role of intermediary is only
supportive.
(iii) Does not include a person who supplies such goods or services or both or
securities on his own account: It implies that in cases wherein the person
supplies the main supply, either fully or partly, on principal-to-principal basis, the
said supply cannot be covered under the scope of “intermediary”.
(iv) Sub-contracting for a service is not an intermediary service: Sub-contractor
provides the main supply, either fully or a part thereof, and does not merely arrange
or facilitate the main supply between the principal supplier and his customers, and
therefore, clearly is not an intermediary.
In the backdrop of the above discussion, while Alpha and Beta are the two principals
involved in the main supply of the machinery, Gamma, is facilitating the supply of
machine between Alpha and Beta. In this arrangement, Gamma is providing the ancillary
supply of arranging or facilitating the ‘main supply’ of machine between Alpha and Beta
and therefore, Gamma is an intermediary and is providing intermediary service to Alpha.
Resultantly, in terms of section 13(8)(b) of the IGST Act, 2017, the place of supply of the
intermediary services provided by Gamma shall be the location of the supplier of
services, viz. outside India (USA).
15. (a) All registered persons are required to file an annual return. However, following
persons are not required to file annual return:
(i) Casual taxable persons
(ii) Non-resident taxable person
(iii) Input service distributors

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 16 FINAL EXAMINATION: MAY, 2023

(iv) Persons authorized to deduct/collect tax at source under section 51/52.

The Commissioner may, on the recommendations of the Council, by notification,
exempt any class of registered persons from filing annual return under this section.
The department of the Central/State Government or a local authority, whose books
of account are subject to audit by the Comptroller and Auditor-General of India or an
auditor appointed for auditing the accounts of local authorities under any law for the
time being in force, are exempt from the requirement of furnishing an annual return
including self-certified reconciliation statement.
The annual return for a financial year needs to be filed by 31 st December of the next
financial year.
(b) The annual return is to be filed electronically in Form GSTR-9 through the common
portal.
However, a person paying tax under the composition scheme is required to file the
annual return in Form GSTR-9A.
Further, an ECO required to collect tax at source is required to file an annual
statement referred to in section 52(5) in Form GSTR-9B (yet to be notified). The
statement for a financial year needs to be filed by 31st December of the next
financial year.
(c) All registered persons are required to file furnish a self-certified reconciliation
statement alongwith annual return if their aggregate turnover during a financial year
exceeds ` 5 crores. Such registered persons should furnish, electronically, the
annual return along with a copy of self-certified reconciliation statement, duly
certified, in Form GSTR-9C. A Self-certified reconciliation statement will reconcile
the value of supplies declared in the return furnished for the financial year with the
audited annual financial statement.
However, following persons are not required to file self-certified reconciliation
statement:
(a) Casual taxable persons
(b) Non-resident taxable person
(c) Input service distributors
(d) Persons authorized to deduct/collect tax at source under section 51/52, and
16. Section 107(6) provides that no appeal shall be filed before Appellate Authority (AA),
unless the appellant pays*:-
(a) in full, tax, interest, fine, fee and penalty arising from impugned order, as is
admitted by him; and
(b) 10% of remaining tax in dispute arising from the impugned order subject to a
maximum of ` 25 crore, in relation to which the appeal has been filed.

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However, no appeal shall be filed to AA against an order under section 129(3) [order for
payment of penalty for release of detained/seized goods/conveyances], unless a sum
equal to 25% of the penalty has been paid by the appellant.
*Equivalent amount is required to be deposited with respect to SGST liability.
Thus, in the given case, Nitya Associates has to make a pre-deposit of 10% of
` 6,00,000, which is ` 60,000 (i.e. CGST ` 30,000 and SGST ` 30,000).
However, when Nitya Associates admits the liability of ` 2,00,000 (CGST + SGST) and
disputes only the balance tax demanded of ` 4,00,000, it has to make a pre-deposit of:
(i) ` 2,00,000 + ` 20,000 [proportionate penalty on tax admitted] + interest @ 18% p.a.
payable on the tax admitted for the period of delay, and
(ii) 10% of ` 4,00,000 which is ` 40,000.
17. Section 60(4) stipulates that where the tax liability as per the final assessment is higher
than under provisional assessment i.e. tax becomes due consequent to order of final
assessment, the registered person shall be liable to pay interest on tax payable on
supply of goods but not paid on the due date, at the rate specified under section 50(1)
[18% p.a.], from the first day after the due date of payment of tax in respect of the goods
supplied under provisional assessment till the date of actual payment, whether such
amount is paid before or after the issuance of order for final assessment.
In the given case, due date for payment of tax on goods cleared on 25th January under
provisional assessment is 20th February.
In view of the provisions of section 60(4), in the given case, Robert & Sons is liable to
pay following interest in respect of the consignment of goods supplied:
= ` 1,80,000 × 18% × 48/365
= ` 4,261 (rounded off)
18. Computation of assessable value of the imported machine
US $
(i) Cost of the machine at the factory 10,000.00
(ii) Transport charges up to port 500.00
(iii) Handling charges at the port 50.00
FOB 10,550.00
(iv) Freight charges up to India 1,000.00
(v) Insurance charges @ 1.125% of FOB [Note 1] 118.69
CIF 11,668.69

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 18 FINAL EXAMINATION: MAY, 2023

`
CIF in Indian rupees @ ` 70/ per $ ` 8,16,808.30
Assessable Value ` 8,16,808.30
Assessable Value (rounded off) 8,16,808

Notes:

(1) Insurance charges have been included @ 1.125% of FOB value of goods [Third
proviso to rule 10(2) of the Customs Valuation (Determination of Value of Imported
Goods) Rules, 2007].

(2) Buying commission is not included in the assessable value [Rule 10(1)(a)(i) of the
Customs Valuation (Determination of Value of Imported Goods) Rules, 2007].
19. Yes, Balu Ltd. will succeed. The facts of the given situation are similar to the case of
CCus vs. Biecco Lawrie Ltd. 2008 (223) ELT 3 (SC) wherein the Supreme Court has held
that where duty on the warehoused goods is paid and out of charge order for home
consumption is made by the proper officer in compliance of the provisions of section 68
of the Customs Act, 1962, the goods allowed to be retained for storage in the warehouse
as permitted under section 49 of the Customs Act are not treated as warehoused goods
and importer would not be required to pay anything more.
Section 49 of the Customs Act inter alia provides that imported goods entered for home
consumption if stored in a public warehouse, or in a private warehouse on the application
of the importer and if the same cannot be cleared within a reasonable time, shall not be
deemed to be warehoused goods for the purposes of this Act, and acc ordingly the
provisions of Chapter IX shall not apply to such goods.
20. Duty payable on re-importation of goods which had been exported for repairs abroad is
the duty of customs which would be leviable if the value of re-imported goods after
repairs were made up of the fair cost of repairs carried out including cost of materials
used in repairs (whether such costs are actually incurred or not), insurance and freight
charges, both ways. However, following conditions need to be satisfied for availing this
concession:
(a) goods must be re-imported within 3 years, extendable by further 2 years, after their
exportation;
(b) exported goods and the re-imported goods must be the same;
(c) Ownership of the goods should not change.

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 PAPER – 8: INDIRECT TAX LAWS 19

Since all the conditions specified above are fulfilled in the given case, the customs duty
payable on re-imported goods will be computed as under:
Particulars ` in lakh
Value of goods re-imported after exports [` 90 lakh (including cost of 105.000
materials) + (insurance and freight charges, both ways ` 7.5 × 2) lakh]
Add: Basic customs duty @ 10% (A) 10.500
Add: Social Welfare Surcharge @ 10% on `10.5 (B) 1.050
Value for computing integrated tax 116.550
Integrated tax @ 18% (` 117 lakh × 18%) - (C) 20.979
Customs duty and integrated tax payable [(A) +(B)+ (C)] 32.529

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 PAPER-8: INDIRECT TAX LAWS

QUESTIONS

(1) All questions should be answered on the basis of position of (i) GST law as amended
by the Finance Act, 2021, which have become effective up to 30 th April, 2022,
including significant notifications and circulars issued, up to 30 th April, 2022 and (ii)
customs law as amended by the Finance Act, 2021, including significant
notifications and circulars issued, up to 30 th April, 2022.
(2) Unless otherwise specified, the section numbers and rules referred herein pertain to
the Central Goods and Services Tax Act, 2017 and the Central Goods and Services
Tax Rules, 2017 respectively.
(3) The GST rates for goods and services mentioned in various questions are
hypothetical and may not necessarily be the actual rates leviable on those goods
and services. The rates of customs duty are also hypothetical and may not
necessarily be the actual rates. Further, GST compensation cess should be ignored
in all the questions, wherever applicable.
Trent Limited, a supplier of water purifiers, is a company registered with the jurisdictional GST
authorities at its principal place of business in Mumbai, Maharashtra. Trent Limited has
approached ABC India LLP, a Mumbai based event management company registered under
GST in the State of Maharashtra, to undertake following activities in relation to organization of
an event to be held on July 21 – 22 in Udaipur, Rajasthan for its employees:
a. Arrangement of accommodation services for its employees in a hotel in Udaipur, Rajasthan
b. Arrangement of souvenirs to be distributed to its employees attending the event
Trent Limited has agreed to pay a fixed sum of ` 3,00,00,000 exclusive of GST (Rates of tax
are: CGST - 9%, SGST - 9% and IGST - 18%) for the aforesaid services provided by ABC India
LLP. An amount of ` 50,00,000 is paid to ABC India LLP as advance at the time of agreement
on June 25. Balance amount is payable on July 21 upon issuance of invoice by ABC Indi a LLP
and invoice is duly issued for the full amount in the month of July.
ABC India LLP has entered into an agreement with Dream Hotels, a hotel based in Udaipur, for
the aforesaid event to be organized for employees of Trent Limited. Dream Hotels has a greed
to provide the services to ABC India LLP which includes accommodation and other ancillary
services for the aforesaid event at an agreed amount of ` 1,50,00,000 exclusive of GST (Rates
of tax are: CGST - 14%, SGST - 14% and IGST - 28%). The consideration is payable by ABC
India LLP to Dream Hotels at the time of check in of guests on July 21.
Further, ABC India LLP has also entered into an agreement with Happy Gift House, a well -
known gift shop based in Udaipur, Rajasthan for purchase of souvenirs for the employees of
Trent Limited. It was agreed that souvenirs would be purchased by ABC India LLP from Happy
Gift House at a consideration of ` 20,00,000 exclusive of GST (Rates of tax are: CGST - 9%,

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SGST - 9% and IGST - 18%) and Happy Gift House would deliver them at the event location, i.e.
Dream Hotels, Udaipur. The aforesaid amount includes the cost of packaging the souvenirs
(` 20,000) and cost of delivering the same (` 50,000) at the location. The entire consideration is
payable by ABC India LLP to Happy Gift House at the time of delivery of souvenirs on July 21.
In the month of August, Trent Limited gifts each of its employees (total – 150 employees) a
water purifier in terms of their employment contract. The total open market value of such water
purifiers is ` 52.50 lakh exclusive of GST (Rates of tax are: CGST - 9%, SGST - 9% and IGST
- 18%). All water purifiers bear the same cost.
Trent Limited and ABC India LLP are not registered under GST in the State of Rajasthan. There
is no other taxable supply or taxable procurement apart from Dream Hotels and Happy Gift
House as mentioned above in the month of July for ABC India LLP. The opening balance of
input tax credit of both Trent Limited and ABC India LLP for the relevant tax periods is nil. All
the above amounts are exclusive of GST, wherever applicable.
Based on the facts of the case scenario given above, choose the most appropriate answer to
Q. Nos. 1 to 5 below:-
1. In case of the supply of the souvenirs by Happy Gift House to ABC India LLP, the place
and value of said supply are ______________ and _______________.
(a) Maharashtra; ` 20,00,000
(b) Maharashtra; ` 19,30,000
(c) Rajasthan; ` 20,00,000
(d) Rajasthan; ` 19,30,000
2. The place of supply for the hotel accommodation services provided by Dream Hotels to
ABC India LLP is ___________________ and the nature of supply is
____________________.
(a) Maharashtra, inter-State supply liable to IGST
(b) Rajasthan, inter-State supply liable to IGST
(c) Maharashtra, intra-State supply liable to CGST and SGST
(d) Rajasthan, intra-State supply liable to CGST and SGST
3. The net GST payable in cash by ABC India LLP for the month of July in the State of
Maharashtra would be ____________________. ABC India LLP wishes to keep its CGST
liability at a minimum.
(a) CGST - ` 18,90,000; SGST -` 22,50,000; IGST - Nil
(b) CGST - Nil; SGST -Nil; IGST - ` 54,00,000
(c) CGST - ` 27,00,000; SGST - ` 27,00,000; IGST - Nil
(d) CGST - ` 5,40,000; SGST - ` 13,50,000; IGST - Nil

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 60 FINAL EXAMINATION: NOVEMBER, 2022

4. The finance team is exploring the feasibility of getting ABC India LLP registered as a casual
taxable person in the State of Rajasthan with effect from 20 th June.
In such a scenario, the invoice to Trent Limited will be issued by ABC India LLP as a casual
taxable person registered in Rajasthan. Moreover, the invoice by Dream Hotels and Happy
Gift House will be issued to ABC India LLP at its GST registration number as casual taxable
person in Rajasthan.
The estimated tax liability of ABC India LLP to be paid in advance at the time of submission
of application for registration in the State of Rajasthan in the month of June would be
____________________.
(a) CGST - ` 27,00,000; SGST - ` 27,00,000; IGST - Nil
(b) CGST – Nil; SGST – Nil; IGST - ` 8,40,000
(c) CGST - ` 4,20,000; SGST - ` 4,20,000; IGST - Nil
(d) CGST – Nil; SGST - Nil; IGST - Nil
5. Compute the outward GST payable, if any, on the water purifiers gifted by Trent Limited to
its employees in the month of August.
(a) CGST – ` 7,35,000; SGST - ` 7,35,000; IGST - Nil
(b) CGST – Nil; SGST - Nil; IGST - ` 14,70,000
(c) CGST – Nil; SGST - Nil; IGST - Nil
(d) CGST – Nil; SGST - Nil; IGST - ` 7,35,000
6. Nivedita Foundation, a charitable trust registered under section 12AB of the Income-tax
Act, 1961, owns and manages a newly constructed Dharamshala “GOVINDAM” in the
precincts of a temple in Haridwar. GOVINDAM has 50 rooms, a huge party lawn and other
amenities. Nivedita Foundation has received following receipts during the period from April
to September:
1. Rent of ` 25,00,000 from renting of rooms @ ` 1,000/- per day.
2. Rent of ` 9,00,000 from renting of party lawns for marriage and social functions
@ ` 9,000/- per day.
3. Donations of ` 20,00,000 (including one donation of ` 15,00,000 received with
specific direction to advertise the business activity of the donor).
You are required to determine the value of taxable supply of GOVINDAM during the period
from April to September:
(a) ` 55,00,000
(b) ` 50,00,000

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 PAPER – 8: INDIRECT TAX LAWS 61

(c) ` 25,00,000
(d) ` 40,00,000
7. Which of the following statements is/are not correct for ‘similar’ goods’ for valuation
purposes under the Customs Act, 1962?
(i) Similar goods although not alike in all respects, have like characteristics and like
component materials which enable them to perform the same functions and to be
commercially interchangeable with the goods being valued having regard to the
quality, reputation and the existence of trade mark.
(ii) Similar goods must necessarily be produced in the country in which goods being
valued were produced.
(iii) Similar goods must always be produced by the same person who produced the goods
being valued.
(a) (i) and (ii)
(b) Only (iii)
(c) (i) and (iii)
(d) (ii) and (iii)
8. Which of the following supplies, items or categories are ineligible for the scheme of
Remission of Duties and Taxes on Exported Products (RoDTEP) under Foreign Trade
Policy? Choose the most correct option.
(i) Export of imported goods in same or substantially the same form.
(ii) Export products which are subject to minimum export price or export duty.
(iii) Products which are restricted/prohibited under Foreign Trade Policy.
(iv) Goods which have been taken into use after manufacture.
(a) (i), (ii) and (iii)
(b) (ii) and (iii)
(c) (i) and (iv)
(d) (i), (ii), (iii) and (iv)
9. Motopower Pvt. Ltd., registered under GST, is engaged in the manufacture of 5 -seater
luxury cars at its factories located in the States of Rajasthan, Uttar Pradesh and Gujarat.
The company has obtained registration in each of these States. It also enters into contracts
for providing these cars on rent to corporate clients wherein the cost of fuel is included in
the value of supply.

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The company reports the following details for a tax period pertaining to its factory located
in Gujarat:
Payments (`) Receipts (`)
(in lakh) (in lakh)
Raw material 4.50 Sales 30
Rent paid 1.00 Car rental income 0.50
Consumables 1.50 Income from services 2.50
Security services 0.70 provided to Gujarat
Government administration
General insurance of cars 2.50
manufactured
Works contract services 1.60
Audit fee 0.50
Bank charges 0.10
Membership of Automobile 0.10
Association
All the above amounts are exclusive of all kinds of taxes, wherever applicable. However,
the applicable taxes have also been paid by the company.
Further, following additional details are furnished by the company in respect of the
payments and receipts reported by it:
(i) Raw materials worth ` 0.50 lakh, purchased from a registered supplier located in
Gujarat, were destroyed due to fire in the factory and thus, could not be used in the
manufacturing process. Remaining raw material has been procured from various
vendors located in Maharashtra.
(ii) Rent has been paid for the factory building located in Gujarat to its owner registered
in Gujarat.
(iii) Payment for security services (services provided by way of supply of security
personnel) for the tax period has been made to Safe and Secure Solutions Pvt.
Limited, a company located in Gujarat and not registered under GST.
(iv) General insurance services have been availed from Divided Insurance Company Ltd.
registered in Gujarat.
(v) Works contract services, availed from Chitra Builders, Gujarat, have been used by
the company for construction of a foundation on which machinery to be used in the
production process is to be mounted permanently.

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(vi) Audit fee is paid to a firm of Chartered Accountants - M/s Pandya & Associates
(registered in West Bengal with an aggregate turnover of ` 30 crores in the preceding
financial year) - for conducting the statutory audit of the company in the preceding
financial year. The firm raises an e-invoice without IRN (Invoice Reference Number)
for said services.
(vii) Bank charges are towards various services availed by the company during a month
with regard to its current account maintained with Manimani Bank, registered in
Gujarat. The bank issued a consolidated tax invoice for all such services at the end
of the month containing the details of tax charged, description of services, total value,
GSTIN of the bank and Motopower Pvt. Ltd.
(viii) Automobile Association is registered in the State of Gujarat.
(ix) The breakup of sales is as under:
Sales in Gujarat – ` 14 lakh
Sales in States other than Gujarat – ` 6 lakh
Exports under Letter of Undertaking (LUT) – ` 10 lakh
(x) Car rental income pertains to renting of cars to Jamaze Travels Ltd., registered in Gujarat
and cost of fuel is included in the value of said supply. Further, consumables, procured
from registered suppliers located in Gujarat, include diesel (excise and VAT paid) worth
` 0.75 lakh used for running the cars so rented out to Jamaze Travels Ltd. Assume that
except diesel, no other input/input services is used in providing car renting service.
(xi) Services provided to Gujarat Government administration are under a Health Training
programme. 51% of the total expenditure for said programme is borne by Gujarat
Government.
(xii) The opening balance of ITC with the company for the tax period is:
CGST - ` 0.50 lakh
SGST - ` 0.26 lakh
IGST - ` 0.35 lakh
Compute the total ITC available with Motopower Pvt. Ltd. for the given tax period and net
GST payable [CGST, SGST or IGST, as the case may be] from Electronic Cash Ledger by
Motopower Pvt. Ltd. for the given tax period.

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Notes-
(A) CGST, SGST & IGST rates on all inward and outward supplies are 9%, 9% and 18%
respectively, except on renting of cars wherein CGST, SGST & IGST rates are 2.5%,
2.5% and 5% respectively.
It is important to note that credit of input tax charged on goods and services used in
supplying the service of transport of passengers by any motor vehicle designed to
carry passengers where the cost of fuel is included in the consideration charged from
the service recipient, is not available except the credit of the input service in the same
line of business.
(B) The necessary conditions for availing ITC have been complied with by Motopower
Pvt. Ltd., wherever applicable.
You are required to make suitable assumptions, wherever necessary.
10. Adinath Private Limited, registered under GST in the State of Uttar Pradesh, instructed
Ashok Transporters to deliver certain taxable goods to Mahavir Enterprises in Uttar
Pradesh on 10th January 2022. The value of the goods is ₹ 6,80,000 which are
chargeable to CGST & SGST@ 9% each. While the goods were in transit, proper officer
intercepted the goods and the truck in which goods were being transported, under section
68. However, the driver of the truck failed to tender any document in relation to the goods
in movement. The proper officer, after conducting the physical verification of the goods
and the truck, decided to seize the goods and the truck and issued a notice under section
129(3) specifying the penalty payable by Adinath Private Limited after giving it an
opportunity of being heard.
You are required to determine the amount of penalty payable under CGST Act if Adinath
Private Limited does not come forward for the payment of penalty. Further, discuss the
suitable course of action for Ashok Transporters if it intends to get its truck released.
11. Super Lever Limited is engaged in manufacture of taxable electronic goods. Its two
manufacturing units are located in Mumbai and Nagpur and both the units are registered
under GST in the State of Maharashtra. The company has another manufacturing unit in
Bangalore, registered under GST in the State of Karnataka and a retail showroom located
in Ahmedabad, registered under GST in the State of Gujarat.

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The company has provided the following details of the activities/transactions undertaken
in a tax period:

S. Particulars Mumbai unit Nagpur unit

No. (`) (`)
(i) Sale of taxable goods 12,50,000 13,50,000
(ii) Interest received on fixed deposits with a 1,08,000
nationalised bank
(iii) Sale of securities [Such securities were 4,50,000
purchased for ` 2,75,000]
(iv) Sale of agricultural land in the vicinity of the 1,85,00,000
manufacturing plant
[Stamp duty was paid on ` 1,85,00,000]
(v) Sale of old factory building which was not used 90,00,000
anymore
[Stamp duty was paid on ` 75,00,000]
(vi) Transfer of actionable claims (other than lottery, 2,00,000
betting and gambling)
With the help of above information, you are required to determine the value of exempt
supply under GST law as provided by Nagpur unit and Mumbai unit. Will your answer be
different if the value of exempt supply provided by Nagpur unit and Mumbai unit is to be
determined, for the purpose of apportionment of ITC under section 17(3)?
12. In the above question, all other things remaining the same, compute the value of supply
(most beneficial) made by Bangalore unit as well as the value of supply (most beneficial)
made by Ahmedabad Retail Showroom, with respect to transfer of goods by these units to
M/s. Equilibrium Sales, M/s. Paridhi Sales and M/s. Dhara Enterprises, if Super Lever
Limited furnishes the following additional information for the month of October:
(i) Bangalore unit has appointed M/s. Equilibrium Sales as its sole selling agent.
M/s. Equilibrium Sales sells the electronic goods of Bangalore unit under the invoice
issued in its own name. The Bangalore unit transferred the goods costing ` 7,25,000
to M/s. Equilibrium Sales on 20 th October which were sold by M/s. Equilibrium Sales
on 31st October at ` 7,65,000. On 20 th October, another electronic goods’
manufacturer supplied the goods of like kind and quality to M/s. Equilibrium Sales as
the one supplied by the Bangalore unit at a price of ` 7,75,000.
(ii) The Retail Showroom at Ahmedabad transfers goods costing ` 85,000 to its agent,
M/s. Paridhi Sales on 12 th October. M/s. Paridhi Sales sells such goods on
18th October at ` 5,00,000 under the invoice issued in the name of Retail Showroom

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at Ahmedabad. On 17 th October, M/s Paridhi Sales has sold goods of like kind and
quality as the one supplied by the Retail Showroom at Ahmedabad to an unrelated
customer at ` 4,70,000.
The Retail Showroom at Ahmedabad also transfers goods costing ` 95,000 to its
agent, M/s. Dhara Enterprises on 15 th October. M/s. Dhara Enterprises sells such
goods on 20 th October at ` 1,00,000 under the invoice issued in its own name. On
19th October, M/s Dhara Enterprises has sold goods of like kind and quality as the
one supplied by the Retail Showroom at Ahmedabad to an unrelated customer at
` 98,000.
Note: M/s. Equilibrium Sales, M/s. Paridhi Sales and M/s. Dhara Enterprises are not eligible
for full input tax credit. Further, open market value of the goods is not available in any of
the above cases.
13. Sanmati Industries, registered in the State of Maharashtra, receives a machinery for repair
in its workshop located in Mumbai, Maharashtra from Titsubishi Ltd., an automobile
manufacturing company based in Japan. The repair work was carried out by Sanmati
Industries for which it was to be paid in convertible foreign exchange and goods were
returned to Titsubishi Ltd. after being used for some time in India.
While raising the invoice for the said consideration, the accountant of Sanmati Industries
approaches you as to whether the Dynamic Quick Response (QR) code is mandatorily
required on said invoice? You are required to advise him on the same.
Note - Titsubishi Ltd. is not registered in India. Further, the aggregate turnover of Sanmati
Industries was ` 550 crores in the preceding financial year.
14. Briefly answer the following questions with reference to the provisions of rectification of
mistakes/errors apparent on the face of record by any authority, under section 161?
(a) Which documents are covered under section 161?
(b) Who can rectify the errors apparent on the face of record?
(c) What type of mistakes or errors can be rectified?
(d) What is the time limit for rectification?
15. Elaborate the difference between zero rated supplies and exempt supplies.
16. John Biden, aged 32, is a tourist of US origin. He has come to India on a travel visa and
carries with him the following articles as part of baggage:

Particulars Value in `
Used personal effects 50,000
Travel souvenirs 50,000

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Laptop 1,20,000
200 gms tobacco 1,000
[Valued @ ` 5 per gram]
50 cigars [Valued @ ` 100 each] 5,000
Fire-arms 80,000
80 cartridges of fire-arms 40,000
[Valued @ ` 500 per cartridge]
1.5 litres wine 5,000
Mobile phone 80,000
With reference to the Baggage Rules, 2016, determine customs duty payable. Ignore
agriculture infrastructure and development cess.
17. BCG Ltd. imports goods from Japan and intends to avail the benefit of an exemption
notification issued under section 25(1) of the Customs Act, 1962 with regard to said goods.
However, since it does not have a manufacturing facility at all, it needs to send the goods
so imported for job work to a job worker. Its accountant advised it that as per the Customs
(Import of Goods at Concessional Rate of Duty) Rules, 2017, BCG Ltd. is not permitted to
send such goods for job work. You are required to advise BCG Ltd. on the said issue
elaborating the relevant legal provisions under the customs law.
18. Niryaat Exporters imported some goods on 1 st January. The goods were not meant for
being used in an 100% EOU, STP unit, EHTP unit. The goods were cleared from the
Mumbai port for warehousing on 8 th January by presenting an ‘into Bond’ Bill of Entry. The
assessable value of the goods was US $ 10,000. On 8 th January, the exchange rate was
` 66 per US $ and the rate of basic customs duty was 15%. The order permitting the
deposit of goods in warehouse for 4 months was issued under section 60 of the Customs
Act, 1962 on 15th January. The goods were thereafter deposited in a warehouse at Pune
and were cleared from Pune warehouse on 31 st May. The rate of basic customs duty was
15% and exchange rate was ` 68.75 per 1 US $ on 31st May. IGST @ 10% is applicable
on said goods. Further, the rate of basic customs duty was 12% and exchange rate was
` 67 per 1 US $ on 15 th May. Ignore IGST and agriculture and infrastructure development
cess.
You are required to compute: (a) total customs duty payable and (b) interest, if any,
payable.

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ANSWERS

1. (a)
2. (d)
3. (a)
4. (b)
5. (c)
6. (d)
7. (b)
8. (d)
9. Computation of ITC available with Motopower Pvt. Ltd. for the given tax period
S. Particulars Value of ITC
No. supply CGST* SGST* IGST* Total
` ` ` ` `
1. Opening balance of ITC 50,000 26,000 35,000 1,11,000
2. Raw Materials 4,00,000 -- -- 72,000 72,000
[` 4,50,000 – ` 50,000]
[Refer Note 1]
3. Rent paid for the factory 1,00,000 9,000 9,000 -- 18,000
building [Refer Note 2]
4. Consumables procured 75,000 6,750 6,750 -- 13,500
from suppliers in
Gujarat
[` 1,50,000 – ` 75,000]
[Refer Note 3]
5. Security services [Refer 70,000 Nil Nil Nil Nil
Note 4]
6. General insurance of 2,50,000 22,500 22,500 -- 45,000
cars manufactured
[Refer Note 5]
7. Works contract services 1,60,000 14,400 14,400 -- 28,800
[Refer Note 6]
8. Audit fee [Refer Note 7] 50,000 Nil Nil Nil Nil
9. Bank charges [Refer 10,000 900 900 -- 1,800
Note 8]

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 PAPER – 8: INDIRECT TAX LAWS 69

10. Membership of 10,000 900 900 -- 1,800

Automobile Association
[Refer Note 9]
Total ITC available for the 1,04,450 80,450 1,07,000 2,91,900
tax period

Computation of net GST payable

Particulars Value of CGST* SGST* IGST* Total
supply ` ` ` `
Intra-State sales in Gujarat 14,00,000 1,26,000 1,26,000 -- 2,52,000
Inter-State sales other than 6,00,000 -- --
1,08,000 1,08,000
Gujarat
Exports under LUT 10,00,000 Nil Nil Nil Nil
[Note 10]
Car rental income (Taxable 50,000 1,250 1,250 -- 2,500
@ 2.5% CGST and SGST
each)
[Note 11]
Income from services 2,50,000 22,500 22,500 -- 45,000
provided to Gujarat
Government [Note 12]
Total output tax liability 1,49,750 1,49,750 1,08,000 4,07,500
Less: ITC available for being (1,04,450) (80,450) (1,07,000) (2,91,900)
set off [Note 13, Note 14 and
Note 15]
Net GST payable from 45,300 69,300 1,000 1,15,600
Electronic Cash Ledger
Notes:
1. Credit of input tax paid on raw materials used in the course or furtherance of business
is available in terms of section 16(1). However, ITC is not available on destroyed
inputs in terms of section 17(5)(h).
2. ITC on rent paid is available as the said service is used in the course or furtherance of
business in terms of section 16(1).
3. ITC on consumables, being inputs used in the course or furtherance of business, is
available in terms of section 16(1). However, levy of GST on diesel has been deferred
till such date as may be notified by the Government on recommendations of the GST
Council [Section 9(2)]. Hence, there being no levy of GST on diesel, there cannot be
any ITC since VAT & excise paid are not covered in the definition of input tax under

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section 2(62). Moreover, credit of input tax charged on goods and services used in
supplying the service of transport of passengers by any motor vehicle designed to
carry passengers where the cost of fuel is included in the consideration charged from
the service recipient, is not available except the credit of the input service in the same
line of business. Thus, ITC on diesel will not be available.
4. Tax on security services (services provided by way of supply of security personnel)
provided by a non-body corporate to a registered person is payable under reverse
charge. Since in the given case, security services have been provided by a body
corporate - Safe and Secure Solutions Pvt. Limited to a registered person -
Motopower Pvt. Ltd., GST on the same is payable under forward charge. However,
since Safe and Secure Solutions Pvt. Limited is not registered under GST, it would
not have charged GST on the said services and hence, no ITC is available.
5. ITC on motor vehicles for transportation of persons is allowed in terms of section
17(5)(a) provided such vehicles are further supplied by the supplier. ITC is allowed
on general insurance services relating to motor vehicles, ITC on which is allowed
[Section 17(5)(ab)].
6. Section 17(5)(c) blocks ITC in respect of works contract services when supplied for
construction of an immovable property (other than plant and machinery) except where
it is an input service for further supply of works contract service. Further, the term
“plant and machinery” means, inter alia, machinery fixed to earth by foundation or
structural support that are used for making outward supply and includes such
foundation/structural support. Thus, in view of the above-mentioned provisions, ITC
is available in respect of works contract service availed by Motopower Pvt. Ltd. as
the same is used for construction of plant and machinery which is not blocked under
section 17(5)(c).
7. Audit fee are the services used in the course/ furtherance of business and thus, credit
of input tax paid on such service will be available in terms of section 16(1).
M/s Pandya & Associates is required to issue an e-invoice for audit services as
e-invoicing is mandatory for the registered persons whose aggregate turnover in an y
of the preceding financial years from 2017-18 onwards exceed ` 20 crores. However,
an e-invoice without IRN is not treated as an invoice as per rule 48(5) and hence,
without a valid document, ITC cannot be claimed on such input services.
8. Bank charges are services used in the course/ furtherance of business and thus,
credit of input tax paid on such service will be available in terms of section 16(1).
However, ITC can be claimed only on the basis of valid documents. In case of a
banking company, as per rule 54(2), a consolidated tax invoice issued for supply of
services made during a month at the end of the month containing the details of tax
charged, description of services, total value, GSTIN of the supplier and the recipient
is deemed to be a tax invoice. Thus, ITC pertaining to the banking services received
is allowed.

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9. As per section 17(5)(b)(ii), ITC is blocked on membership of a club, health and fitness
centre. The membership fee paid by a automobile company to Automobile
Association is not covered under said section as it is distinct from membership of a
club. Hence, ITC thereon is available.
10. Export of goods is a zero-rated supply in terms of section 16(1)(a) of the IGST Act.
A zero rated supply under LUT is made without payment of integrated tax [Section
16(3)(a) of the IGST Act].
11. Tax on services provided by way of renting of any motor vehicle designed to carry
passengers where the cost of fuel is included in the consideration charged from the
service recipient is payable under reverse charge only when said service is provided
by a non-body corporate to a body corporate and & an invoice charging GST @ 12%
is not issued to service recipient. Since in the given case, said services are provided
by a body corporate - Motopower Pvt. Ltd. to another body corporate – Jamaze
Travels Ltd., GST is payable under forward charge by Motopower Pvt. Ltd. on the
same.
12. Services provided to the Central Government, State Government, Union territory
administration under any training programme for which 75% or more of the total
expenditure is borne by the Central Government, State Government, Union territory
administration are exempt from GST. However, in the given case, since the total
expenditure borne by the Gujarat Government is less than 75%, services provided to
it by Motopower Pvt. Ltd. are liable to GST.
13. Since export of goods is a zero-rated supply, apportionment of ITC is not required
and instead, full credit will be available [Section 16 of the IGST Act read with section
17(2) of the CGST Act].
14. As per section 49(5) read with rule 88A, ITC of-
(i) IGST is utilised towards payment of IGST first and then CGST and SGST in any
proportion and in any order.
(ii) CGST is utilised towards payment of CGST and IGST in that order. ITC of CGST
shall be utilized only after ITC of IGST has been utilised fully.
(iii) SGST is utilised towards payment of SGST and IGST in that order. ITC of SGST
shall be utilized only after ITC of IGST has been utilised fully.
15. Since the value of taxable supply other than zero-rated supply in the given tax period
(` 14 lakh + ` 6 lakh+ ` 0.50 lakh+ ` 2.50 lakh) does not exceed ` 50 lakh, provisions
of rule 86B are not applicable and Motopower Ltd. can discharge its entire output tax
liability for said period from the electronic credit ledger.
*16. CGST and SGST are chargeable on intra-State inward and outward supplies and
IGST is chargeable on inter-State inward and outward supplies. Rate of CGST, SGST

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 72 FINAL EXAMINATION: NOVEMBER, 2022

and IGST applied is 9%, 9% and 18% except in case of renting of cars wherein the
rate of CGST and SGST applied is 2.5% and 2.5% respectively.
10. As per section 129(1)(b), when owner of goods does not come forward for the payment of
penalty, detained/seized goods and conveyance (used as a means of transport for carrying
said goods) and related documents are released on payment of penalty equal to higher of
the following:
(i) 50% of value of goods or
(ii) 200% of the tax payable on such goods.
In view of the same, the amount of penalty payable under the CGST Act if Adinath Private
Limited does not come forward for the payment of penalty is as follows:
(i) 50% of value of goods [` 3,40,000 (50% of ` 6,80,000)]
or
(ii) 200% of the tax payable on such goods [` 1,22,400 (200% of ₹ 6,80,000 × 9%)]
whichever is higher, i.e. ` 3,40,000.
As per first proviso to section 129(6), conveyance shall be released on payment by the
transporter the penalty as mentioned in the order or ` 1 lakh, whichever is less.
In the given case, since the owner - Adinath Private Limited has failed to come forward to
make payment of penalty, penalty of ₹ 3,40,000 under CGST Act shall be levied. Further,
the transporter of goods can get its truck released upon payment of the lower of the
following under CGST Act:
(i) penalty as mentioned in the order [` 3,40,000]
(ii) ` 1,00,000
Hence, Ashok Transporters can get its truck released upon payment of ` 1,00,000.
11. As per section 2(47), exempt supply means supply of any goods or services or both which
attracts nil rate of GST or which may be wholly exempt from GST and includes non-taxable
supply. An activity or transaction which is not a supply per se is not an exempt supply.
In view of the same, the value of exempt supply by Nagpur unit and Mumbai unit has been
computed as under:
Particulars Mumbai unit Nagpur unit
(`) (`)
Sale of taxable goods -- --
Interest received on fixed deposits -- 1,08,000
[Services by way of extending deposits, loans or
advances in so far as the consideration is

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 PAPER – 8: INDIRECT TAX LAWS 73

represented by way of interest are exempt vide

Notification No. 12/2017 CT (R) dated 28.06.2017]
Sale of securities -- --
[Securities are neither goods nor services in terms of
sections 2(52) and 2(102). Hence, sale of securities
is neither a supply of goods nor a supply of services.
Thus, the same is not an exempt supply.]
Sale of agricultural land -- --
[Sale of land is neither a supply of goods nor a supply
of services in terms of para 5 of Schedule III to the
CGST Act, 2017. Hence, the same is not an exempt
supply.]
Sale of old factory building -- --
[Sale of building is neither a supply of goods nor a
supply of services in terms of para 5 of Schedule III
to the CGST Act, 2017, provided the entire
consideration has been received after issue of
completion certificate by the competent authority or
after its occupation, whichever is earlier. Hence, the
same is not an exempt supply.]
Transfer of actionable claims (other than lottery, -- --
betting and gambling)
[Transfer of actionable claims (other than lottery,
betting and gambling) is neither a supply of goods
nor a supply of services in terms of para 6 of
Schedule III to the CGST Act, 2017. Hence, the same
is not an exempt supply.]
Total value of exempt supply Nil 1,08,000

However, value of exempt supply by Nagpur unit and Mumbai unit for the purpose of
apportionment of ITC under section 17(3) is not same and is determined as follows:
As per section 17(3), value of exempt supply includes supplies on which the recipient is
liable to pay tax on reverse charge basis, transactions in securities, sale of land and,
subject to clause (b) of paragraph 5 of Schedule II, sale of building. As per explanation to
section 17(3), the expression "value of exempt supply" shall not include the value of
activities or transactions specified in Schedule III, except sale of land and, subject to clause
(b) of paragraph 5 of Schedule II, sale of building. Further, as per explanation to
Chapter V (Input Tax Credit) of the CGST Rules, 2017, for determining the value of an
exempt supply as referred in section 17(3), the value of exempt supply in respect of land

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and building is the value adopted for paying stamp duty and for security is 1% of the sale
value of such security.
Further, as per explanation 1 to rule 43, the aggregate value of exempt supplies for the
purpose of rules 42 and 43, inter alia, excludes the value of services by way of accepting
deposits, extending loans or advances in so far as the consideration is represented by way
of interest or discount, except in case of a banking company or a financial institution
including a non-banking financial company, engaged in supplying services by way of
accepting deposits, extending loans or advances.
In view of the aforesaid provisions, value of exempt supply by Nagpur unit and Mumbai
unit for the purpose of apportionment under section 17(3) is as follows:
Particulars Mumbai unit Nagpur unit
(`) (`)
Sale of taxable goods -- --
Interest received on fixed deposits -- --
[Excluded from value of exempt supply by virtue of
explanation 1 to rule 43]
Sale of securities 4,500 --
[1% of ` 4,50,000]
[Includible as per section 17(3). Value of exempt
supply in respect for security is 1% of the sale value
of such security.]
Sale of agricultural land -- 1,85,00,000
[Includible as per section 17(3). Value of exempt
supply in respect of land is the value adopted for
paying stamp duty.]
Sale of old factory building 75,00,000 --
[Includible as per section 17(3). Value of exempt
supply in respect of building is the value adopted for
paying stamp duty.]
Transfer of actionable claims (other than lottery, -- --
betting and gambling)
[Excluded from value of exempt supply by virtue of
explanation to section 17(3).]
Total value of exempt supply 75,04,500 1,85,00,000
12. (i) As per clause (c) of explanation to section 15, persons who are associated in the
business of one another in that one is the sole agent or sole distributor or sole
concessionaire, howsoever described, of the other, shall be deemed to be related.

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Thus, in the given case, since M/s. Equilibrium Sales is a sole selling agent of
Bangalore unit, both are related persons.
Further, an activity/transaction qualifies as supply under GST only if it is undertaken
for a consideration and is in course/furtherance of business. However, supply of
goods between ‘related persons’ made in the course or furtherance of business
qualifies as supply even if made without consideration [Section 7(1)(c) read with
Schedule I].
Furthermore, value of supply of goods between related persons (other than through
an agent) is determined as per rule 28. Accordingly, the value of supply of goods
between related persons will be determined as follows:
(a) the open market value of such supply;
(b) if open market value is not available, the value of supply of goods or services of
like kind and quality;
(c) if value cannot be determined under the above methods, it must be worked out
based on the cost of the supply plus 10% mark-up or by other reasonable
means, in that sequence.
However, where the goods are intended for further supply as such by the recipient,
the value shall, at the option of the supplier, be an amount equivalent to 90% of the
price charged for the supply of goods of like kind and quality by the recipient to his
unrelated customer.
Further, where the recipient is eligible for full input tax credit, the value declared in
the invoice shall be deemed to be the open market value of the goods.
Open market value of the goods in not available in the given case. Further, since
M/s. Equilibrium Sales is not eligible for full input tax credit, value declared in the
invoice cannot be deemed to be the open market value of the goods. Since
M/s. Equilibrium Sales further supplies the goods, value of the goods will be lower of:
(i) value of supply of goods or services of like kind and quality, i.e. ` 7,75,000 or
(ii) 90% of the price charged for the supply of goods of like kind and quality by
M/s. Equilibrium Sales to its unrelated customer, i.e. ` 6,88,500 [` 7,65,000 × 90%].
Thus, the value of supply, in the given case, will be ` 6,88,500.
(ii) An activity/transaction qualifies as supply under GST only if it is undertaken for a
consideration and is in course/furtherance of business. However, supply of goods by
a principal to his agent where the agent undertakes to supply such goods on behalf
of the principal is considered as supply even if made without consideration provided
the invoice for further supply is issued by the agent in his own name [Section 7(1)(c)
read with Schedule I to the CGST Act, 2017]. Where the invoice is issued by the

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agent to the customer in the name of the principal, such agent is not an agent in terms
of Schedule I.
Since M/s. Paridhi Sales sells the goods under the invoice issued in the name of
Retail Showroom at Ahmedabad, it is not an agent in terms of Schedule I. Resultantly,
transfer of goods by Retail Showroom at Ahmedabad to M/s. Paridhi Sales does not
qualify as supply since it is made without consideration.
Further, since M/s. Dhara Enterprises sells the goods under the invoice issued in its
own name, it falls within the purview of an agent in terms of Schedule I. Resultantly,
transfer of goods by Retail Showroom at Ahmedabad to M/s. Dhara Enterprises
qualifies as supply even though it is made without consideration.
Value of supply of goods made through an agent is determined as per rule 29.
Accordingly, the value of supply of goods between the principal and his agent is the
open market value of the goods being supplied, or at the option of the supplier, is
90% of the price charged for the supply of goods of like kind and quality by the
recipient to his unrelated customer, where the goods are intended for further supply
by the said recipient.
In the given case, since open market value is not available, value of the goods
supplied to M/s. Dhara Enterprises will be ` 88,200 [90% of ` 98,000].
Thus, value of supply of Bangalore unit is ` 6,88,500 and of Retail Showroom at
Ahmedabad is ` 88,200.
13. The place of supply for the services provided by Sanmati Industries to Titsubishi Ltd. is as
follows:
As per section 13(3)(a) of the IGST Act, 2017, in case where the services are supplied in
respect of goods which are required to be made physically available by the recipient of
services to the supplier of services, the place of supply of such services shall be the
location where the services are actually performed. In the given case, for carrying out the
repair work, machinery was required to be made physically available by Titsubishi Ltd. to
Sanmati Industries. Thus, the place of supply of services in this case is the location where
the services are actually performed i.e., Maharashtra, India.
Further, sixth proviso to rule 46 read with Notification No. 14/2020 CT dated 21.03.2020
provides that all invoices issued by a registered person whose aggregate turnover in any
preceding financial year from 2017-18 onwards exceeds ` 500 crores, in respect of B2C
supplies (supply of goods or services or both to an unregistered person) will mandatorily
have a Dynamic QR code. Thus, the invoices issued by Sanmati Industries to unregistered
persons are mandatorily required to have a Dynamic QR Code. Accordingly, since
Titsubishi Ltd. is not registered in India, invoice to be raised by Sanmati Industries to it
should mandatorily have a Dynamic Quick Response (QR) code.
However, Circular No. 165/21/2021 GST dated 17.11.2021 has clarified that wherever an
invoice is issued to a recipient located outside India, for supply of services, for which the

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place of supply is in India, as per the provisions of IGST Act 2017, and the payment is
received by the supplier in convertible foreign exchange, such invoice may be issued
without having a Dynamic QR Code, as such dynamic QR code cannot be used by the
recipient located outside India for making payment to the supplier.
Thus, the Dynamic Quick Response (QR) code is NOT mandatorily required on the invoice
to be issued by Sanmati Industries to Titsubishi Ltd.
14. (a) Following documents are covered under section 161:
• Decision
• Order
• Any notice
• Certificate
• Any other document
(b) Any authority who has passed or issued any decision or order or notice or certificate
or any other document may rectify any error which is apparent on the face of record
in such documents.
(c) Errors or mistakes which are apparent on the face of record may be rectified.
Rectification can only be of error apparent from record. It is a settled law that a
decision on a debatable point of law is not a mistake apparent from the record.
(d) No rectification can be made after a period of 6 months from the date of issue of such
decision, order, notice, certificate or any other document.
However, such time limit does not apply in cases where the rectification is purely in
the nature of correction of a clerical or arithmetical error or mistake, arising from any
accidental slip or omission.
15. The difference between zero rated supplies and exempted supplies is as follows:

Exempted Supplies Zero rated supplies

Exempt supply means supply of any goods Zero-rated supply means (i) export of
or services or both which attracts nil rate goods and/or services or (ii) supply of
of tax or which may be wholly exempt from goods and/or services to SEZ
tax and includes non-taxable supply. unit/SEZ developer.
No tax is payable on the outward exempted No tax is payable on the outward
supplies, however, the input supplies used supplies; Input supplies are also to be
for making exempt supplies are to be taxed tax free (by way of refund of ITC)
Credit of input tax needs to be reversed, if Credit of input tax may be availed for
taken. making zero-rated supplies, even if
No ITC is allowed on the exempted such supply is an exempt supply.

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 78 FINAL EXAMINATION: NOVEMBER, 2022

supplies. ITC is allowed on zero rated supplies.

Value of exempt supplies, for Value of zero rated supplies shall be
apportionment of ITC, shall include added along with the taxable supplies
supplies on which the recipient is liable to for apportionment of ITC.
pay tax on reverse charge basis,
transactions in securities, sale of land and,
subject to clause (b) of paragraph 5 of
Schedule II, sale of building.
Any person engaged exclusively in the A person exclusively making zero
business of supplying goods or services or rated supplies needs to register as
both that are not liable to tax or wholly refund of unutilized ITC or IGST paid
exempt from tax under the CGST or IGST shall have to be claimed.
Act shall not be liable to registration.
A registered person supplying exempted Normal tax invoice shall be issued.
goods and/or services shall issue, instead
of a tax invoice, a bill of supply.

16. As per rule 3 of the Baggage Rules, 2016, tourist of foreign origin, excluding infant, is
allowed duty free clearance of:
(i) used personal effects and travel souvenirs; and
(ii) Articles up to the value of ` 15,000 (excluding, inter alia, fire-arms, cartridges of fire
arms exceeding 50, wine in excess of 2 litres, tobacco exceeding 125 gms and cigars
exceeding 25), if carried on in person or in the accompanied baggage of the
passenger.
In view of the said provisions, customs duty shall be computed as follows

Particulars `
Used personal effects Nil
Travel souvenirs Nil
Laptop Nil
[One laptop computer is exempt when imported into India by a passenger
≥ 18 years of age]
Tobacco [` 5 × 125 gm] 625
[125 gms tobacco can be accommodated in General Free Allowance
(GFA)]
Cigars [` 100 × 25] 2,500

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[25 cigars can be accommodated in GFA]

Fire-arms’ cartridges [` 500 × 50] 25,000
[50 fire-arms’ cartridges can be accommodated in GFA]
1.5 litres wine 5,000
[Wine upto 2 litres can be accommodated in GFA]
Mobile phone 80,000
[Can be accommodated in GFA]
Total value 1,13,125
Less: GFA 15,000
Baggage on which duty is payable 98,125
Duty payable on baggage @ 38.50% (including 10% Social welfare 37,778
surcharge) [rounded off]
Note: Firearms, cartridges of firearms exceeding 50, cigars exceeding 25 and tobacco
exceeding 125 gms are not chargeable to rate applicable to baggage [Notification No.
26/2016 Cus. dated 31.03.2016]. These items are charged @ 100% applicable to baggage
under Heading 9803 of the Customs Tariff.
17. As per rule 6A of the Customs (Import of Goods at Concessional Rate of Duty) Rules,
2017, the importer is permitted to send the imported goods for job work. The said rule
stipulates that the importer shall maintain a record of the goods sent for job work during
the month and mention the same in the prescribed monthly statement. The importer shall
send the goods to the premises of the job worker under an invoice or wherever applicable
through an e-way bill, mentioning the description and quantity of the goods. The maximum
period for which the goods can be sent to the job worker shall be 6 months from the date
of the invoice/e-way bill.
In case the importer is not able to establish that the goods sent for job work have been
used as per the particulars mentioned under rule 4 of the said rules, the Jurisdictional
Custom Officer shall take prescribed necessary action against the importer.
The job worker shall -
(i) maintain an account of receipt of goods, manufacturing process undertaken thereon
and the waste generated, if any, during such process;
(ii) produce the account details before the Jurisdictional Custom Officer as and when
required by the said officer; and

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 80 FINAL EXAMINATION: NOVEMBER, 2022

(iii) after completion of the job work, send the processed goods to the importer or to
another job worker as directed by the importer for carrying out the remaining
processes, if any, under the cover of an invoice or an e-way bill.
18. Computation of import duty payable by Niryaat Exporters
Particulars Amount (US $)
Assessable value 10,000
Particulars Amount (`)
Value in Indian currency (US $ 10,000 x ` 66) [Note 1] 6,60,000
Customs duty @ 12% [Note 2] 79,200
Add: Social welfare surcharge @ 10% on ` 79,200 7,920
Total customs duty payable 87,120
Notes:
1. As per third proviso to section 14(1) of the Customs Act, 1962, assessable value has
to be calculated with reference to the rate of exchange prevalent on the date on which
the into bond bill of entry is presented for warehousing under section 46 of the
Customs Act, 1962.
2. Goods which are not removed from warehouse within the permissible period are
deemed to be improperly removed in terms of section 72 of the Customs Act, 1962
on the day they should have been removed [Kesoram Rayon v. CC 1996 (86) ELT
464 (SC)]. The applicable rate of duty in such a case is the rate of duty prevalent on
the last date on which the goods should have been removed.
Computation of interest payable by Niryaat Exporters
As per section 61 of the Customs Act, 1962, if goods (not meant for being used in an 100%
EOU, STP unit, EHTP unit) remain in a warehouse beyond a period of 90 days from the
date on which the order permitting deposit of goods in warehouse under section 60 of the
Customs Act, 1962 is made, interest is payable [@ 15% p.a.], on the amount of duty
payable at the time of clearance of the goods, for the period from the expiry of said 90
days till the date of payment of duty on the warehoused goods.
Therefore, interest payable will be computed as under:
Period of 90 days commencing from the date of order made under 60 16th April
expires on
No. of days for which interest shall be payable [14 days of April + 31 days 45 days
of May]
15 45 ` 1,611
Interest payable = ` 87,120× × (rounded off)
100 365

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 PAPER-8: INDIRECT TAX LAWS

QUESTIONS

Zoom Air is an airline company operating domestic as well as international flights. The head
office of Zoom Air is in Mumbai and the company has also obtained registration under GST in
each of the States from where the flight operations are being conducted.
During the month of January, following transactions were undertaken by it:
(i) Zoom Air sold air tickets worth ` 5,00,000 during the month from its head office and the
breakup of air fare is as follows:
Basic fare excluding GST – ` 4,00,000
Passenger Service Fee (PSF) and User Development Fee (UDF) inclusive of GST –
` 1,00,000
Both PSF and UDF are statutory fees which are required to be collected by the airlines
as per Government directions and authorization given to airlines. The aforesaid amount
of PSF and UDF are inclusive of GST @ 18%. PSF and UDF are remitted by the airlines
to the airport authority. Further, the amount of PSF and UDF is separately disclosed in
the invoice issued to customers by Zoom Air along with applicable GST. The airport
authority pays an amount of 5% of PSF and UDF (inclusive of GST amount) collected as
collection charges to the airlines on which GST is applicable. There is no levy of PSF
and UDF on the tickets booked by Zoom Air for its own crew or other employees.
(ii) Zoom Air (Head Office) has collaborated with Supertrip India, an online travel portal,
providing services to the customers by way of booking air tickets through its electronic
commerce platform and registered under GST in the State of Maharashtra. During the
month, Supertrip India booked tickets for ` 2,00,000 (base fare excluding GST, PSF and
UDF) for the customers of Zoom Air. The amount was remitted by Supertrip India to
Zoom Air after required adjustments as per GST law in terms of tax collection at source
@ 1% as IGST or @ 0.5% of CGST and @ 0.5% of SGST as applicable. In addition to
the aforesaid amount, Supertrip India charged commission from Zoom Air at the rate of
5% of the base fare of air tickets booked.
(iii) Zoom Air (Head Office) charged 100% cancellation fee from the customers for bookings
made in prior months. The amount of cancellation fee charged was ` 1,00,000 inclusive
of GST. Instead of actually collecting the cancellation fee from the customers, such
amount was adjusted against the booking amount and GST discharged at the time of
initial bookings. However, the PSF and UDF amounting to ` 10,000 (inclusive of GST)
charged from the customers against such bookings were refunded.
(iv) Zoom Air provided gifts in the form of air tickets to 10 of its employees based at its head
office for an amount equivalent to ` 60,000 each. No amount was recovered from the
employees for such air tickets.

© The Institute of Chartered Accountants of India

 FINAL EXAMINATION: MAY, 2022

(v) Zoom Air has a corporate tie-up with Welcome Hotel located in Rajasthan for stay of its
crew members. For January, the hotel issued an invoice of ` 5,00,000 in the name of
Zoom Air, Head office, Mumbai.
Haryana office of Zoom Air has provided services by way of sale of online advertisement
space to Amazing Pvt. Ltd. (a company registered in the State of Haryana) for promotion of
Amazing Pvt. Ltd.’s products. The amount charged for such service by Haryana office of
Zoom Air is ` 5,00,000.
All the amounts given above are exclusive of GST unless otherwise provided. The opening
balance of input tax credit of Zoom Air and Supertrip India for the relevant tax period is nil.
Subject to the information given above, assume that all the other conditions necessary for
availing ITC have been fulfilled. Assume that there is no other outward or inward supply
transaction apart from aforesaid transactions, in the month of January.
GST is applicable in the aforesaid case scenario @ 18% ignoring CGST, SGST and IGST
bifurcation for the sake of simplicity.
In case of cancellation of tickets, the airport authority and Zoom Air had an agreement that
PSF and UDF related adjustment shall be finalized at the end of financial year, i.e., during the
month of March. Further, separate GST invoice shall be issued to carry out such adjustment
in books of accounts.
Based on the facts of the case scenario given above, choose the most appropriate answer to
Q. Nos. 1 to 5 below:
1. The gross GST liability of Mumbai Head Office of Zoom Air for the month of January is:
(a) ` 1,08,000
(b) ` 72,000
(c) ` 1,80,000
(d) ` 2,16,900
2. Determine all kinds of credits available to Mumbai Head Office of Zoom Air for setting off
against its GST liability for the month of January is:
(a) ` 3,800
(b) ` 93,800
(c) ` 6,800
(d) ` 96,800
3. Assuming that the customers, in point (i) of the case scenario above, are registered
customers and all other conditions for availment of input tax credit are complied with, the
amount of input tax credit available to such customers would be:

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 PAPER – 8: INDIRECT TAX LAWS 3

(a) ` 90,000
(b) ` 72,000
(c) ` 87,254
(d) ` 76,272
4. Choose the correct answer in relation to the transaction between Haryana office of Zoom
Air and Amazing Pvt. Ltd.:
(a) The service is in the nature of online information and database access or retrieval
services and Amazing Pvt. Ltd. is liable to pay IGST of ` 90,000.
(b) The sale of advertisement space is a deemed sale of services as per Schedule II of
CGST Act, 2017 and liable to CGST of ` 45,000 and SGST of ` 45,000.
(c) Zoom Air is required to pay IGST of ` 90,000 and Amazing Pvt. Ltd. is required to
collect tax at source on consideration paid to Zoom Air.
(d) Zoom Air is required to pay CGST of ` 45,000 and SGST of ` 45,000 and full credit
shall be allowed to Amazing Pvt. Ltd.
5. Supertrip India purchases 1000 air tickets in bulk for an amount of ` 1,000 per ticket from
Zoom Air and provides booking of air ticket facility at its electronic portal to the customers
on its own account. Supertrip India was able to sell only 800 air tickets for which the total
amount collected from customers was ` 15,00,000. As per the agreement, the remaining
200 air tickets purchased by Supertrip India from Zoom Air lapsed, and amount was
forfeited by Zoom Air. Rate of TCS is 1%.
Choose the correct statement.
(a) Supertrip India shall be liable to pay GST of ` 90,000 and deduct TCS of ` 10,000.
(b) Supertrip India is acting as an agent of Zoom Air and shall be liable to pay GST of
` 1,26,000 and no GST will be payable by Zoom Air separately.
(c) Supertrip India shall be liable to pay GST of ` 90,000 and Zoom Air shall be liable to
pay GST of ` 1,80,000.
(d) Supertrip India shall be liable to pay GST of ` 1,57,500 and Zoom Air shall be liable
to pay GST of ` 1,80,000.

© The Institute of Chartered Accountants of India

 FINAL EXAMINATION: MAY, 2022

6. Kwality Bells Private Limited, registered under GST in Chennai, Tamil Nadu, provided
following outward supplies in the current year:
Particulars Amount (`)
Taxable Exempt
Intra-State supplies 40,00,000 15,00,000
Inter-State supplies (zero-rated supplies) 30,00,000 10,00,000
Supply of goods procured from China directly from China to 20,00,000 -
UK without such goods entering into India
Supply of goods imported from UK, in high seas, to a local 5,50,000 6,00,000
vendor by way of endorsement of documents of title to the
goods before clearance for home consumption
Compute the aggregate turnover of Kwality Bells Private Limited under GST law for the
current year.
(a) ` 95,00,000
(b) ` 1,26,50,000
(c) ` 1,20,50,000
(d) ` 1,15,00,000
7. Which of the following statements is correct in respect of warehousing under customs?
(a) Special warehouses are not under physical control of the customs authorities (i.e.
not under lock of customs). Control is record based.
(b) The importer of warehoused goods is required to submit bond for an amount equal
to twice the duty amount involved.
(c) In case of imported goods for use in any 100% EOU, the warehousing period for
capital goods is till their ex-bonding and for goods other than capital goods, it is till
their ex-bonding/consumption.
(d) In case of imported goods for use in any 100% EOU, the warehousing period for
goods other than capital goods is 1 year from the date of order permitting deposit of
goods in warehouse.
8. No drawback of import duty will be allowed in respect of _______________, if they have
been used after their importation in India:
(i) Wearing Apparel
(ii) Tea Chests
(iii) Silver utensils

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 PAPER – 8: INDIRECT TAX LAWS 5

(iv) Exposed cinematograph films passed by Board of Film Censors in India

(a) (i) and (iii)
(b) (i), (ii) and (iii)
(c) (i), (ii) and (iv)
(d) (i), (ii), (iii) and (iv)
9. Adityanath Private Limited is registered under GST in the State of Uttar Pradesh. It is
engaged in supplying three products – Product Alpha, Product Beta and Product
Gamma, from its factory located in Rampur, Uttar Pradesh. Product Alpha and Product
Beta are taxable whereas Product Gamma is exempt from GST. Besides, it also supplies
cigarettes from its factory located in Kanpur and owns a petrol pump in Lucknow. It is
also engaged in supply of certain services.
It has furnished the following information with regard to the supplies made by it in the
month of August:
Particulars (`)*
Supply of Product Alpha 50,00,000
Supply of Product Gamma 1,00,00,000
Supply of management consultancy services 50,00,000
Renting of commercial complex to local traders of electronic goods 50,00,000
Export of Product Beta 1,00,00,000
Export of consultancy services 20,00,000
[including exports made to a Nepal based company of ` 5 lakh
(payment is received in Indian currency in said case)]
Sale of building (excluding stamp duty of ` 2.50 lakh being 2% of 2,50,00,000
value adopted for paying stamp duty)
[Entire consideration is received post issuance of completion
certificate; building was occupied thereafter]
Interest received on investment in fixed deposits with Manimani bank 10,50,000
Sale of shares of a public company (Purchase price of such shares is 2,50,00,000
` 2,40,00,000)
Supply of cigarettes [GST being levied @ 28%.] 1,00,00,000
(including excise duty of ` 12,50,000)
Supply of petrol and diesel 80,00,000
(including VAT of ` 5,00,000 and excise duty of ` 12,50,000)
Amount received from Durga Das Private Limited of Lucknow, Uttar 6,00,000

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 FINAL EXAMINATION: MAY, 2022

Pradesh. It has sponsored the business exhibition organized in Delhi

by Adityanath Private Limited.
*excluding GST
With the help of the above-mentioned information, compute the gross GST liability of
Adityanath Private Limited for the month of August on the outward supplies made by it
during said period.
Note: Assume that rates of GST on outward supply of goods and services are 12% and
18% respectively unless otherwise specified (Ignore CGST, SGST or IGST for the sake
of simplicity). Exports made by Adityanath Private Limited, if any, have been made to
persons other than distinct/related persons and are made by furnishing LUT without
payment of IGST.
10. In the above question, all other things remaining the same, compute the net GST payable
from Electronic Cash Ledger if Adityanath Private Limited furnishes the following
additional information:
Particulars (`)*
Consideration paid for repair of machinery used for manufacturing 5,20,000
Product Alpha by George Inc. of USA
[Said machinery was sent to George Inc. in August for carrying out
repair work on the same.]
Life insurance premium paid by the company for the life insurance of 48,50,000
employees as per the policy of the company. There is no legal
obligation for such insurance for employees.
Audit fees paid 6,50,000
Raw material purchased 10,00,000
[including raw material of ` 1,50,000 imported from China. Basic
customs duty of ` 15,000, social welfare surcharge of ` 1,500 and
integrated tax of ` 29,970 are separately paid on the imported raw
material]
Transportation charges paid for transporting the goods 5,00,000
[` 4,00,000 is paid to Goods Transport Agency (GTA) registered in
Uttar Pradesh and ` 1,00,000 is paid for transport of goods by horse
pulled carts. GST applicable on the services of GTA is 5%.]
Telephone expenses paid 4,25,000
[Such expenses pertain to bills for landline phone installed at the
factory and mobile phones given to employees for official use.]
Bank charges paid towards company’s current account maintained with 2,00,000
Manimani Bank

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 PAPER – 8: INDIRECT TAX LAWS 7

Legal services received from an advocate during the period only in 3,50,000
relation to Product Beta
*excluding GST
Note: Assume that rates of GST on all inward supply of goods and services are 12% and
18% respectively unless otherwise specified (Ignore CGST, SGST or IGST, for the sake
of simplicity). Subject to the information given above, assume that all the other conditions
necessary for availing ITC have been fulfilled. Turnover of Adityanath Private Limited
was ` 40 crores in the preceding financial year. The inputs and input services received
during August are commonly used for making all the outward supplies unless otherwise
specified. The opening balance of Electronic Credit Ledger for the relevant tax period is
Nil.
11. Determine the place of supply in the following independent cases:-
(i) Mr. Sahukaar (New Delhi) boards the New Delhi - Sawai Madhopur train at New
Delhi. Mr. Sahukaar sells the goods taken on board the train by him (at New Delhi),
in the train, at Bharatpur during the journey.
(ii) Vidhyut Pvt. Ltd. imports electric food processors from USA for its Electronic Store
in Varanasi, Uttar Pradesh. Vidhyut Pvt. Ltd. is registered in Uttar Pradesh.
(iii) Mr. Aatmaram (unregistered under GST), a manager in a Bank, is transferred from
Bareilly, Uttar Pradesh to Bhopal, Madhya Pradesh. Mr. Aatmaram’s family is
stationed in Kanpur, Uttar Pradesh. He hires Gokul Carriers of Lucknow, Uttar
Pradesh (registered in Uttar Pradesh), to transport his household goods from
Kanpur to Bhopal.
(iv) Bholunath, a resident of New Delhi, opens his saving account in New Delhi branch
of Best Bank after undergoing the KYC process. He goes to Amritsar for some
official work and withdraws money from Best Bank’s ATM in Amritsar thereby
crossing his limit of free ATM withdrawals. Thus, withdrawal charges were levied by
the Best bank.
12. Chandra is engaged in supplying certain goods in the State of Punjab from his factory
located in Jalandhar, Punjab. He is not yet registered under GST. As his turnover is
moving towards the applicable threshold limit for registration under GST, he approaches
his tax advisor to ascertain the applicability of GST on the supply made by him.
His tax advisor is unable to determine whether supply of goods by Chandra amounts to
supply of goods under GST law and also, the classification of said goods. He advises
Chandra to apply for the advance ruling in respect of said issues. He told Chandra that
the advance ruling would bring him certainty and transparency in respect of the said
issues and would avoid litigation later. Chandra agrees with his view, but has some
apprehensions.

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 FINAL EXAMINATION: MAY, 2022

In view of the information given above, you are required to advise Chandra with respect
to following:
(i) The tax advisor asks Chandra to get registered under GST law before applying for
the advance ruling as only a registered person can apply for the same. Whether
Chandra needs to get registered before applying for advance ruling?
(ii) Can Chandra seek advance ruling to determine whether supply of goods by
Chandra amounts to supply of goods under GST law and if yes, to determine the
classification of said goods?
(iii) Chandra is doubtful whether he can seek advance ruling in relation to an
activity/transaction already being undertaken. Whether Chandra’s doubt is correct?
(iv) Chandra is apprehensive that Authority for Advance Ruling may take years to
pronounce its ruling. Whether his apprehension is correct?
13. Mr. Arihant is engaged in supply of taxable goods and is registered in the State of
Orissa. A demand notice under GST law of ` 50 lakh is served on him on 5 th April. On
10th April, despite having knowledge of said notice, Mr. Arihant transferred his ancestral
property located in Punjab in the name of his wife Soma for a consideration of ` 2 lakh
without taking any permission from the authorities under GST. The value for the purpose
of stamp duty valuation was ` 80 lakh.
Subsequently, he filed a reply to said demand notice on 15th April stating that he would
not be able to pay the amount of tax demanded in the notice due to his distressed
financial situation.
Determine the validity of the act of transferring of property by Mr. Arihant to his wife
Soma, under the provisions of the GST law.
14. State the prosecution, arrest and bail implications, if any, in respect of the following
independent cases pertaining to June:
(i) ‘Ashuram’ fraudulently avails input tax credit of ` 200 lakh without any invoice or
bill. However, he is yet to utilize the same.
(ii) ‘Bahubali’ fraudulently avails the refund of tax of ` 550 lakh. The said tax has been
recovered from the buyer also.
(iii) ‘Chintamani’ knowingly supplies false information sought by the CGST Officer. The
amount of tax involved is ` 250 lakh.
(iv) ‘Deendayal’ collects ` 650 lakh as tax in January from its clients but has deposited
only ` 50 lakh with the Central Government till date.
Note: Assume that in all above cases, offence, if any, has been committed for the first
time.

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 PAPER – 8: INDIRECT TAX LAWS 9

15. Mr. Ajit Basu is the director of Dharma Private Limited of Kolkata for past 5 years. He
resigned from the company on 1st April of the current financial year. He receives a notice
of demand on 5th July for the recovery of tax dues of Dharma Private Limited pertaining
to the preceding financial year as the said dues cannot be recovered from the company
owing to its poor financial condition. Mr. Ajit Basu is of the view that the tax dues of
Dharma Private Limited cannot be recovered from him as he is no more a director in the
company. You are required to advice him on the same taking into count the relevant
provisions of the GST law.
16. Raghuram Pvt. Ltd., Pune, Maharashtra, provides house-keeping services. The company
supplies its services exclusively through an e-commerce website owned and managed by
Technosavvy Pvt. Ltd., Pune. The turnover of Raghuram Pvt. Ltd. in the current financial
year is ` 18 lakh.
Advise Raghuram Pvt. Ltd. as to whether it is required to obtain GST registration. Will
your advice be any different if Raghuram Pvt. Ltd. sells readymade garments exclusively
through the e-commerce website owned and managed by Technosavvy Pvt. Ltd.?
17. Radheysham is engaged in manufacture of goods in Rajasthan. It imported certain
goods for using in the manufacture of the finished goods in the month of May. However,
it did not clear the goods from the port for home consumption. Instead, it presented an
‘ínto bond’ bill of entry on 14th May. Assessable value on that date was US $ 2,35,000.
The order permitting the deposit of goods in warehouse for 4 months was issued on
21st May. Radheysham deposited the goods in warehouse on the same day, but did not
clear the imported goods even after the warehousing period got over on 21 st September.
A notice was issued under section 72 of the Custom Act, 1962, demanding duty and
interest. Radheysham cleared the goods on 14th October. Customs duty paid on removal
of the goods is ` 8,28,000.
You are required to compute interest payable on such removal, explaining the provisions
of the Customs Act, 1962 assuming that the imported goods are not meant for being
used in an 100% EOU, STP unit, EHTP unit.
18. Lunar Technologies Ltd. has imported a machine from its holding company in Japan on
25th February after paying customs duty of ` 38,00,000 for use in its factory and is
re-exported on 10th October.
You are required to advise Lunar Technologies Ltd. regarding duty drawback that will be
available to the company, when it sends back the machinery to its holding company after
completion of the project.
Will your answer be different if, other things remaining the same, instead of machinery,
the company had imported and re-exported the X-ray films after using the same for the
aforementioned period.
19. Dhruvtaara Enterprises imported a machine from Japan in January for ` 48.75 lakh.
However, the machine was exported back in June for repairs. The supplier had agreed to

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 FINAL EXAMINATION: MAY, 2022

carry out the repairs as the machine was still in warranty period. The fair cost of the
repairs would cost ` 8.90 lakh. Since repair process was expected to take a time of 6
months, Dhruvtaara Enterprises requested the supplier to provide it another machine so
that it could carry out its operations without hindrance in the meantime.
Acceding to the request, the supplier provided it with another machine which was
imported in a vessel during October. The value of the new machine (FOB value) was
` 49.50 lakh. Freight charges incurred from load port to port of importation were
` 1.80 lakh. You are required to compute the assessable value and total duty payable on
the replaced machine received by Dhruvtaara Enterprises.
Note – Rates of customs duty is 10% and IGST is 12%. Social Welfare Surcharge to be
taken at 10%. Ignore GST compensation cess and agriculture infrastructure and
development cess.
20. Parsvnath Ltd. is engaged in supply of goods. It imported certain raw material from
Lummus Inc. of US. Lummus Inc. is controlled by Parsvnath Ltd. In the given case, the
transaction value has been rejected since Parsvnath Ltd. and Lummus Inc. are related.
However, since no similar/ identical goods are imported in India, rules 4 and 5 of the Customs
Valuation (Determination of value of Imported goods) Rules, 2007 are found inapplicable.
Parsvnath Ltd. requests Customs Authorities to determine value accordingly as per rule 8 of
the said rules. It furnishes following cost related data of imports to the authorities:
Particulars Amount ($)
Cost incurred by Lummus Inc.
Cost of raw material 2,280
Fabrication charges 1,140
Other chargeable expenses 456
Other indirect costs 285
Normal net profit margin of Lummus Inc. is 20% of FOB
Cost incurred for import of raw material
Freight from Lummus Inc.'s factory to US port 285
Loading charges at US port 114
Air freight from US port to Indian port 1,710
Insurance from US port to Indian port 57
Exchange rate ` 69 per $
The Customs Authorities are of the opinion that since value as per rule 7 can be
determined at ` 5,48,000, there is no need to apply rule 8.
Is the request of Parsvnath Ltd. legally tenable? If so, compute the assessable value
under the Customs Act, 1962.

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 PAPER – 8: INDIRECT TAX LAWS 11

SUGGESTED ANSWERS
1. (d)
2. (a)
3. (c)
4. (d)
5. (c)
6. (a)
7. (c)
8. (c)
9. Computation of gross GST liability on outward supply of Adityanath Private
Limited for the month of August
Particulars Value (`) GST (`)
Supply of Product Alpha 50,00,000 6,00,000
[Liable to GST @ 12%]
Supply of Product Gamma 1,00,00,000 Nil
[Exempt from GST]
Supply of management consultancy services 50,00,000 9,00,000
[Liable to GST @ 18%]
Renting of commercial complex to local traders of 50,00,000 9,00,000
electronic goods
[Services by way of renting of residential dwelling for
use as residence are exempt from GST. Thus, renting
of commercial complex is taxable and GST is payable
on the same @ 18%.]
Export of Product Beta 1,00,00,000 Nil
[Export of goods is a zero-rated supply in terms of
section 16(1)(a) of the IGST Act, 2017. A zero-rated
supply can be made without payment of tax under a
LUT in terms of section 16(3)(a) of that Act.]
Export of consultancy services 20,00,000 Nil
[As per section 2(6) of the IGST Act, 2017, an activity is
treated as export of service if, inter alia, payment for
the service is received in convertible foreign exchange
or in Indian rupees wherever permitted by the RBI.
Since in case of exports to Nepal, RBI regulations allow

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 FINAL EXAMINATION: MAY, 2022

receipt of payment in Indian rupees, exports of services

to Nepal are treated as ‘normal exports’.
Export of services is a zero-rated supply in terms of
section 16(1)(a) of the IGST Act, 2017. A zero-rated
supply can be made without payment of tax under a
LUT in terms of section 16(3)(a) of that Act.]
Sale of building 2,50,00,000 Nil
[Sale of building is neither a supply of goods nor a
supply of services in terms of para 5 of Schedule III to
the CGST Act, 2017, provided the entire consideration
has been received after issue of completion certificate
by the competent authority or after its occupation,
whichever is earlier. Hence, the same is not liable to
GST.]
Interest received on investment in fixed deposits with 10,50,000 Nil
Manimani Bank
[Services by way of extending deposits, loans or
advances in so far as the consideration is represented
by way of interest are exempt vide Notification No.
12/2017 CT (R) dated 28.06.2017]
Sale of shares 2,50,00,000 Nil
[Shares are neither goods nor services in terms of
section 2(52) and 2(102) of the CGST Act, 2017.
Hence, sale of shares is neither a supply of goods nor
a supply of services and hence, is not liable to GST.]
Supply of cigarettes [Liable to GST @ 28%] 1,00,00,000 28,00,000
[Excise duty is included in the value since as per
section 15(2)(a) of the CGST Act, 2017, value of supply
includes all taxes, duties, cesses other than GST.]
Supply of petrol and diesel 80,00,000 Nil
[Supply of petrol and diesel is not leviable to GST as
per section 9 of the CGST Act, 2017.]
Amount received from Durga Das Private Limited for 6,00,000 Nil
sponsorship of the business exhibition
[Tax on services provided by any person by way of
sponsorship to any body-corporate located in taxable
territory is payable by the recipient (Durga Das Private
Limited) under reverse charge. Thus, tax on such
services is not payable by Adityanath Private Limited.]
Total GST liability on outward supply 52,00,000

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10. Computation of net GST payable by Adityanath Private Limited for the month of
August
Particulars (`)
Gross GST liability on outward supply [as computed in Answer 9 52,00,000
above]
Less: Input tax credit (ITC) [Refer Working Note 2] 2,74,417
[Since the value of taxable supply other than exempt supply and
zero-rated supply of Adityanath Private Limited in August exceeds
₹ 50 lakh, amount available in electronic credit ledger which it can use
to discharge its output tax liability of said month cannot exceed 99%
of such tax liability in terms of rule 86B of the CGST Rules, 2017.]
GST payable from Electronic Cash Ledger [A] 49,25,583
Add: GST payable on inward supplies under reverse charge
Legal services [` 3,50,000 × 18%] 63,000
[Tax on legal services provided by an advocate to a business entity, is
payable under reverse charge by the business entity in terms of
Notification No. 13/2017 CT (R) dated 28.06.2017.]
Services received from GTA [` 4,00,000 × 5%] 20,000
[Tax on services provided by a GTA (who has not paid GST @ 12%)
to a body corporate, is payable under reverse charge by the body
corporate in terms of Notification No. 13/2017 CT (R) dated
28.06.2017.]
Tax payable under reverse charge [B] 83,000
Total GST paid from Electronic Cash Ledger [A] + [B] 50,08,583
[As per section 49(4) amount available in the electronic credit ledger
may be used for making payment towards output tax. However, tax
payable under reverse charge is not an output tax in terms of
section 2(82). Therefore, input tax credit cannot be used to pay tax
payable under reverse charge and thus, tax payable under reverse
charge will have to be paid in cash.]
Working Note - 1
Computation of common credit attributable to exempt supplies during August
Particulars Amount (`) ITC (`)
Repair of machinery by George Inc. of USA 5,20,000 Nil
[In case where either supplier or recipient is located
outside India, the place of supply of services supplied in
respect of goods required to be made physically available

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 FINAL EXAMINATION: MAY, 2022

by recipient to supplier is the location where the services

are actually performed in terms of section 13(3)(a) of the
IGST Act, 2017. Hence, place of supply of repair services
received in the given case is outside India.
Since the location of supplier and place of supply are
outside India, said repair services are not liable to GST.]
Life insurance premium paid by the company for the life 48,50,000 Nil
insurance of employees
[ITC on life insurance service is available only when it is
obligatory for an employer to provide said services to its
employees under any law for the time being in force.
Since it is not obligatory for the employer in the instant
case and thus, the ITC thereon is blocked in terms of
second proviso to section 17(5)(b).]
Audit fees [6,50,000 × 18%] 6,50,000 1,17,000
[Credit of tax paid on input services used in the course or
furtherance of business is available in terms of section
16(1) of the CGST Act, 2017]
Raw material [`(10,00,000 - 1,50,000) × 12% + ` 29,970] 10,00,000 1,31,970
[Credit of tax paid on inputs used in the course or
furtherance of business is available in terms of section
16(1) of the CGST Act, 2017. Further, IGST charged on
raw material imported from China is also available
because input tax, inter alia, includes IGST charged on
import of goods (Section 2(62) of the CGST Act).]
Transportation charges for transporting the goods 4,00,000 20,000
[` 4,00,000 × 5%]
[Services by way of transportation of goods by road are
exempt from GST except the services of a GTA. Hence,
GST is not payable on transportation charges paid for
horse pulled carts.]
Telephone expenses [` 4,25,000 × 18%] 4,25,000 76,500
[Credit of tax paid on input services used in the course or
furtherance of business is available in terms of section
16(1) of the CGST Act, 2017.]
Bank charges paid towards company’s current account 2,00,000 36,000
maintained with bank [` 2,00,000 × 18%]
[Credit of tax paid on input services used in the course or
furtherance of business is available in terms of section
16(1) of the CGST Act, 2017.]

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 PAPER – 8: INDIRECT TAX LAWS 15

Common credit on inputs and input services 3,81,470

Common credit attributable to exempt supplies 1,70,053
(rounded off)
= Common credit on inputs and input services x (Exempt
turnover during the period / Total turnover in State during
the period)
= ` 3,81,470 x ` 29,60,00,000/ ` 66,40,00,000
Exempt turnover = ` 29,60,00,000 and total turnover in
State = ` 66,40,00,000 [Refer note below]
Legal services received from advocate [`3,50,000 × 18%] 3,50,000 63,000
[Legal services are not eligible for exemption provided
under Notification No. 12/2017 CT (R) dated 28.06.2017
as the turnover of the business entity (Adityanath Private
Limited) in the preceding financial year exceeds ` 20 lakh.
Further, credit of tax paid on input services used in the
course or furtherance of business is available in terms of
section 16(1) of the CGST Act, 2017. Full credit is
available as these services are exclusively used for
effecting taxable supply.]
Note:
As per section 17(3) of the CGST Act, 2017, value of exempt supply includes supplies on
which the recipient is liable to pay tax on reverse charge basis, transactions in securities,
sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. As
per explanation to Chapter V (Input Tax Credit) of the CGST Rules, 2017, the value of
exempt supply in respect of land and building is the value adopted for paying stamp duty
and for security is 1% of the sale value of such security.
Further, as per explanation to rule 42 of the CGST Rules, 2017, the aggregate value of
exempt supplies, inter alia, excludes the value of services by way of accepting deposits,
extending loans or advances in so far as the consideration is represented by way of
interest or discount, except in case of a banking company or a financial institution
including a non-banking financial company, engaged in supplying services by way of
accepting deposits, extending loans or advances. Aggregate value of exempt supplies
and total turnover excludes the central excise duty, State excise duty, central sales tax
and VAT.
Therefore, value of exempt supply in the given case will be the sum of value of output
supply on which tax is payable under reverse charge (` 6,00,000), value of sale of
building (` 2,50,000 / 2 x 100 = ` 1,25,00,000), value of sale of shares (1% of
` 2,50,00,000 = ` 2,50,000), supply of Product Gamma (`1,00,00,000) and supply of

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 FINAL EXAMINATION: MAY, 2022

petrol and diesel (` 80,00,000 -` 5,00,000 -` 12,50,000 = ` 62,50,000), which comes out
to be ` 29,60,00,000.
Total turnover in State = ` 66,40,00,000 [` 50,00,000 + ` 1,00,00,000 + ` 50,00,000+
` 50,00,000 + ` 1,00,00,000 + ` 20,00,000 + (` 2,50,000 / 2 x 100 = ` 1,25,00,000) +
` 10,50,000 + (1% of ` 2,50,00,000 = ` 2,50,000) + (` 1,00,00,000 – 12,50,000
= ` 87,50,000) + (` 80,00,000 -` 5,00,000 -` 12,50,000= ` 62,50,000) + ` 6,00,000]

Working Note 2
Computation of ITC available in the Electronic Credit Ledger of Adityanath Private
Limited for the month of August
Particulars (`)
Common credit on inputs and input services [Refer working note-1] 3,81,470
Legal services used in the manufacture of taxable Product ‘Beta’ 63,000
[Refer Working Note-1]
ITC available in the Electronic Credit Ledger 4,44,470
Less: Common credit attributable to exempt supplies during August 1,70,053
[Refer Working Note 1]
Net ITC available 2,74,417

11. (i) Section 10(1)(e) of the IGST Act, 2017 lays down that place of supply of goods
supplied on board a conveyance like aircraft, train, vessel, or a motor vehicle, is the
location where such goods have been taken on board. Thus, in the given case, the
place of supply of the goods sold by Mr. Sahukaar is the location at which the goods
are taken on board, i.e. New Delhi and not Bharatpur where they have been sold.
(ii) As per section 11(a) of the IGST Act 2017, if the goods have been imported in India,
the place of supply of goods is the place where the importer is located. Thus, in the
present case, the place of supply of the goods imported by Vidhyut Pvt. Ltd. is
Varanasi, Uttar Pradesh.
(iii) As per section 12(8) of the IGST Act, 2017, the place of supply of services by way
of transportation of goods, including by mail or courier provided to an unregistered
person, is the location at which such goods are handed over for their transportation.
Since in the given case, the recipient – Aatmaram – is an unregistered person, the
place of supply is the location where goods are handed over to Gokul Carriers for
their transportation, i.e. Kanpur.
(iv) As per section 12(12) of the IGST Act, 2017, the place of supply of banking and
other financial services, including stock broking services to any person is the

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 PAPER – 8: INDIRECT TAX LAWS 17

location of the recipient of services in the records of the supplier of services. Thus,
in the given case, the place of supply is the location of the recipient of services in
the records of the supplier bank, i.e. New Delhi.
12. (i) Advance ruling under GST can be sought by a registered person or a person
desirous of obtaining registration under GST law [Section 95(c) of the CGST Act,
2017]. Therefore, it is not mandatory for a person seeking advance ruling to be
registered.
(ii) Section 97(2) of the CGST Act, 2017 stipulates the questions/matters on which
advance ruling can be sought. It provides that advance ruling can be sought for,
inter alia, determining whether any particular thing done by the applicant with
respect to any goods or services or both amounts to or results in a supply of goods
or services or both, within the meaning of that term as well as the classification of
any goods or services or both. Therefore, Chandra can seek the advance ruling for
determining whether supply of goods by him amounts to supply of goods under GST
law as well as for determining the classification of said goods.
(iii) As per the definition of advance ruling under section 95(a) of the CGST Act, 2017,
advance ruling decision can be provided by the Authority to an applicant on
matters/questions specified in section 97(2) of the said Act, in relation to the supply
of goods or services or both being undertaken or proposed to be undertaken by the
applicant. Thus, advance ruling can be sought not only for activities/transactions
proposed to be undertaken but also for activities/transactions already undertaken by
the applicant.
Hence, in the given case, Chandra can seek the advance ruling in relation to the
supply of goods being already undertaken by him.
(iv) No, Chandra’s view is not correct. As per section 98(6) of CGST Act, 2017, the
Authority for Advance Ruling shall pronounce its ruling in writing within 90 days from
the date of receipt of application.
13. Section 81 of the CGST Act, 2017 stipulates that where a person, after any amount has
become due from him, creates a charge on or parts with the property belonging to him or
in his possession by way of sale, mortgage, exchange, or any other mode of transfer
whatsoever of any of his properties in favour of any other person with the intention of
defrauding the Government revenue, such charge or transfer shall be void as against any
claim in respect of any tax or any other sum payable by the said person.

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 FINAL EXAMINATION: MAY, 2022

However, such charge or transfer shall not be void if it is made for adequate
consideration, in good faith and without notice of the pendency of such proceedings
under this Act or without notice of such tax or other sum payable by the said person, or
with the previous permission of the proper officer.
In view of the above provisions, in the given case, transfer of property by Mr. Arihant to
his wife Soma is void and the property will still be considered in the hands of Mr. Arihant
under GST law for the purpose of recovery of dues under GST from him.
14.
Person Offence Prosecution Arrest Bail
‘Ashuram’ Non-cognizable Upto 1 year No arrest Bailable
offence [Section [Section [Section 69(1)] Offence
132(1)(c) read 132(1)(c)(iii)] [Section
with section 132(4)]
132(4)]
‘Bahubali’ Non-cognizable Upto 5 years No arrest Bailable
offence [Section [Section [Section 69(1)] Offence
132(1)(e) read 132(1)(e)(i)] [Section
with section 132(4)]
132(4)]
‘Chintamani’ Non-cognizable Upto 3 years No arrest Bailable
offence [Section [Section [Section 69(1)] Offence
132(1)(f) read 132(1)(f)(ii)] [Section
with section 132(4)]
132(4)]
‘Deendayal’ Cognizable Upto 5 year Arrest can be Non-Bailable
offence [Section [Section ordered by [Section
132(1)(d) read 132(1)(d)(i)] Commissioner 132(5)]
with section without arrest
132(5)] warrant
[Section 69(1)]
15. Section 89 of the CGST Act, 2017 stipulates that notwithstanding anything contained in
the Companies Act, 2013, where any tax, interest or penalty due from a private company
in respect of any supply of goods or services or both for any period cannot be recovered,
then, every person who was a director of the private company during such period shall,
jointly and severally, be liable for the payment of such tax, interest or penalty unless he
proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or
breach of duty on his part in relation to the affairs of the company.

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 PAPER – 8: INDIRECT TAX LAWS 19

Thus, in the given case, since Mr. Ajit Basu was the director of Dharma Private Limited
during the preceding financial year for which the demand is raised, he shall, jointly and
severally, be liable for the payment of the tax dues unless he proves that the non-
recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his
part in relation to the affairs of the company.
16. As per section 22 of the CGST Act, 2017, every supplier of goods or services or both is
required to obtain registration in the State/ Union territory from where he makes the
taxable supply if his aggregate turnover exceeds threshold limit in a financial year.
However, section 24 of the CGST Act, 2017 enlists certain categories of persons who are
mandatorily required to obtain registration, irrespective of their turnover. Persons who
supply goods or services or both through such electronic commerce operator (ECO), who
is required to collect tax at source under section 52 of the CGST Act, 2017, is one such
person specified under clause (ix) of section 24. However, where the ECO is liable to pay
tax on behalf of the suppliers of services under a notification issued under section 9(5),
the suppliers of such services are entitled for threshold exemption.
Section 2(45) of the CGST Act, 2017 defines ECO as any person who owns, operates or
manages digital or electronic facility or platform for electronic commerce. Electronic
commerce is defined under section 2(44) of the CGST Act, 2017 to mean the supply of
goods or services or both, including digital products over digital or electronic network.
Since Technosavvy Pvt. Ltd. owns and manages a website for e commerce where both
goods and services are supplied, it will be classified as an ECO under section 2(45).
Notification No. 17/2017 CT (R) dated 28.06.2017 issued under section 9(5) of the CGST
Act, 2017 specifies services by way of house-keeping, except where the person
supplying such service through ECO is liable for registration under section 22(1), as one
such service where the ECO is liable to pay tax on behalf of the suppliers.
In the given case, Raghuram Pvt. Ltd. provides house-keeping services through an ECO.
It is presumed that Technosavvy Pvt. Ltd. is an ECO which is required to collect tax at
source under section 52 of the CGST Act, 2017. However, house-keeping services
provided by Raghuram Pvt. Ltd., which is not liable for registration under section 22(1) of
the CGST Act, 2017 as its turnover is less than ` 20 lakh, is a service notified under
section 9(5) of the CGST Act, 2017. Thus, Raghuram Pvt. Ltd. will be entitled for
threshold exemption for registration and will not be required to obtain registration even
though it supplies services through ECO.
In the second case, Raghuram Pvt. Ltd. sells readymade garments through ECO. Such
supply cannot be notified under section 9(5) as only supplies of services are notified
under that section. Therefore, in the second case, Raghuram Pvt. Ltd. will not be entitled
for threshold exemption and will have to compulsorily obtain registration in terms of
section 24(ix).

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 FINAL EXAMINATION: MAY, 2022

17. As per section 61(2) of the Customs Act, 1962, if goods (not meant for being used in an
100% EOU, STP unit, EHTP unit) remain in a warehouse beyond a period of 90 days
from the date on which the order permitting deposit in a warehouse is made, interest is
payable @ 15% p.a., on the amount of duty payable at the time of clearance of the
goods, for the period from the expiry of the said 90 days till the date of payment of duty
on the warehoused goods.
Therefore, in the given case, interest payable will be computed as under:
(i) Period of 90 days commencing from the date of order permitting deposit in a
warehouse expires on – 19 th August.
(ii) No. of days for which interest shall be payable= 56 days [12 days of August + 30
days of September + 14 days of October]
15 56
(iii) Interest payable = ` 8, 28,000 × × = ` 19,055 (rounded off)
100 365
18. Since in the given case, the imported goods have been used for more than 6 months but
not more than 9 months before re-exportation, 75% of the import duty paid shall be
allowed as duty drawback to Lunar Technologies Ltd. Thus, amount of duty drawback
available to Lunar Technologies Ltd. is:
= ` 38,00,000 × 75%
= ` 28,50,000
However, no drawback of import duty is allowed in respect of X-ray films, if they are used
after their importation in India. Hence, if, other things remaining the same, instead of
machinery, Lunar Technologies Ltd had imported and re-exported the X-ray films after
using the same, no duty drawback will not be allowed to it.
19. As per Notification No. 45/2017 Cus. dated 30.06.2017, duty payable on re-importation of
goods which had been exported for repairs abroad is the duty of customs which would be
leviable if the value of re-imported goods after repairs were made up of the fair cost of
repairs carried out including cost of materials used in repairs (whether such costs are
actually incurred or not), insurance and freight charges, both ways. However, following
conditions need to be satisfied for availing this concession:
(a) goods must be re-imported within 3 years, extendable by further 2 years, after their
exportation;
(b) exported goods and the re-imported goods must be the same;
(c) ownership of the goods should not change.
However, above special provisions relating to payment of concessional duty in case of
re-importation of goods exported for repairs are not applicable in the given case as the

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 PAPER – 8: INDIRECT TAX LAWS 21

goods exported for repairs and the re-imported goods are not the same. Therefore, full
customs duty will be payable on the machine received as replacement.
Computation of assessable value and total duty payable
Particulars Amount (`)
Value of new machine (FOB) 49,50,000.00
Add: Freight charges 1,80,000.00
Insurance charges @ 1.125% of FOB [` 49,50,000 × 1.125%] 55,687.50
[Insurance charges have been included @ 1.125% of FOB
value since actual charges are not ascertainable]
Assessable Value 51,85,687.50
Add: Basic customs duty @ 10% of ` 51,85,687.50 (rounded off) (A) 5,18,569
Social welfare surcharge @ 10% of ` 5,18,569 (rounded off) (B) 51,857
Total 57,56,113.50
Add: Integrated tax @ 12% of ` 57,56,113.50 (rounded off) (C) 6,90,734
Total duty payable [(A) +(B) + (C)] (rounded off) 12,61,160
20. The value of the imported goods is determined under rule 8 of the Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007 (hereinafter referred to as
Import Valuation Rules) if the same cannot be determined under the earlier rules.
However, the order of application of rules 7 and 8 can be reversed at the request of the
importer and with the approval of the proper officer.
Thus, request of Parsvnath Ltd. for determination of value under rule 8 is legally tenable,
if the same is also approved by the proper officer.
Assuming that the request of Parsvnath Ltd. has been approved by the proper officer, the
assessable value of the imported goods under rule 8 will be the sum of-
(a) the cost of materials and fabrication or other processing;
(b) an amount for profit and general expenses
(c) the cost or value of all other expenses under rule 10(2) of the said rules.
Computation of assessable value
Particulars Amount ($)
Cost of materials 2,280
Add: Fabrication charges 1,140
Other chargeable expenses 456
Other indirect costs 285

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 FINAL EXAMINATION: MAY, 2022

Cost of the goods at Lummus Inc.’s factory 4,161

Add: Net profit margin @ 20% of FOB, i.e. 25% of total cost 1,140
Total cost till US port = Cost of the goods at factory + Freight from
factory to US port and loading charges at US port = $ 4,560 [$
4,161+ $ 285 + $ 114]
FOB value = Total cost till US port + profit = $ 5,700 ($ 4560 + $
1,140)
Add: Freight & loading/unloading charges 1,140
[In case of import by air, the cost of transport, loading, unloading and
handling charges associated with the delivery of the imported goods
to the place of importation are restricted to 20% of FOB value]
Insurance charges (actual) 57
Assessable value 6,498
Assessable value in Indian Rupees (Exchange rate - ` 69 per $) 4,48,362

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 PAPER-8: INDIRECT TAX LAWS

QUESTIONS

(1) All questions should be answered on the basis of position of (i) GST law as amended
by the provisions of the Finance Act, 2020 and the Finance (No. 2) Act, 2019, which
have become effective up to 30th April, 2021, including significant notifications and
circulars issued and other legislative amendments made, up to 30th April, 2021and
(ii) customs law as amended by the Finance Act, 2020, including significant
notifications and circulars issued and other legislative amendments made, up to
30th April, 2021.
(2) The GST rates for goods and services mentioned in various questions are
hypothetical and may not necessarily be the actual rates leviable on those goods
and services. The rates of customs duty are also hypothetical and may not
necessarily be the actual rates. Further, GST compensation cess should be ignored
in all the questions, wherever applicable.
SR Associates is a partnership firm registered under GST in the State of Rajasthan. In the
month of July, following transactions were made by SR Associates:
1. Purchase of commodity X on 1 st July for an amount of ` 5,00,000 at the rate of ` 1000 per
tonne from the open market. The said commodity was deposited in the warehouse of
NCDEX Ltd. (an agricultural commodity exchange) in Rajasthan as a security against
transactions entered by SR Associates on the same day.
2. In order to hedge the aforesaid transaction, on 1st July, SR Associates undertook a
derivative sale transaction in futures contract for the month of August at NCDEX at the rate
of ` 1,100 per tonne.
3. SR Associates took subscription for an AI (Artificial Intelligence) based platform from an
unrelated party, ABC Inc (a company based in US) to get real time updates on the pricing
of commodity X in the international market. ABC Inc charged ` 50,000 for such
subscription. The invoice was issued to SR Associates on 1 st July, but the payment was
made to ABC Inc on 20 th August.
4. NCDEX charges rent from SR Associates at the rate of ` 10,000 per month and service
charges at the rate of ` 20,000 per month.
5. On the date of expiry of future contract of the month of August, i.e. 31 st August for
commodity X, the rate of commodity X was ` 900 per tonne. SR Associates squared off
the contract for the month of August at the same rate.

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 56 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

6. NCDEX charged brokerage on the transactions (both purchase and sale of derivative
contract separately) at the rate of ` 5,000 per contract from SR Associates in the month
when such transaction was entered and when such transaction was squared off.
7. On the purchase of commodity X, additional levy in form of Mandi Tax was applicable at
the rate of ` 10 per tonne which is not included in the rate per tonne under point 1 above.
All the amounts given above are exclusive of GST unless otherwise provided. The opening
balance of input tax credit for the relevant tax period of SR Associates is Nil. Subject to the
information given above, assume that all the other conditions necessary for availing ITC have
been fulfilled.
Assume that there is no other outward or inward supply transaction apart from aforesaid
transactions, in the months of July and August.
GST is applicable in the aforesaid case scenario at the following rates unless otherwise
specified:
I. Intra-State supply – 9% CGST and 9% SGST
II. Inter-State supply – 18% IGST
Based on the facts of the case scenario given above, choose the most appropriate answer to
Q. Nos. 1 to 5 as follows:-
1. Compute the taxable value of supply of commodity X procured by SR Associates in the
month of July.
(a) 5,00,000
(b) 5,50,000
(c) 5,55,000
(d) 5,05,000
2. Compute the value of outward supply made by SR Associates in the month of August.
(a) Nil
(b) 5,55,000
(c) 5,60,000
(d) 5,00,000
3. What is the time of supply for subscription of AI based platform by SR Associates?
(a) July 1

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 PAPER – 8: INDIRECT TAX LAWS 57

(b) August 31
(c) August 20
(d) July 31
4. Compute the net GST payable in cash by SR Associates for the month of August.
(a) Nil
(b) 2,700
(c) 81,000
(d) 9,000
5. Compute the input tax credit balance available with SR Associates for the month of July.
(a) 9,000
(b) 16,200
(c) 97,200
(d) Nil
Mr. Ashok, proprietor of M/s Office-Linc Enterprises, is engaged in trading of office stationery
items in its stationery store located at Salt Lake City, Kolkata. The said store is taken on lease
from Kolkata Municipal Corporation (KMC).
During the financial year 2019-20, the turnover of M/s Office-Linc Enterprises was ` 14 lakh.
Mr. Ashok supplies goods within the State of West Bengal only, but purchases stationery items
mostly from Delhi & Mumbai. He owns a duplex house in New Town, Kolkata. He stays on the
ground floor & has let out the first floor to an employee of IDICI Bank, Delhi for residential
purposes. The rent for the same is paid by IDICI Bank to Mr. Ashok.
He applied for GST registration on voluntary basis on 2nd April, 2020 and the registration was
granted to him on 9th April, 2020.
The details of his stock position is as under:
Particulars 2nd April, 2020 8th April,
2020
Office stationery items purchased from a registered ` 1 lakh ` 1 lakh
dealer
Books, periodicals, journals, newspaper, maps etc. ` 0.20 lakh ` 0.30 lakh

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 58 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

The details of transactions carried out by Mr. Ashok during the financial year 2020-21 is
furnished hereunder:
Particulars 1st April, 2020 to 9th April, 2020 to
8th April, 2020 31st March, 2021
(` in lakh) (` in lakh)
Sale of office stationery items 3 84
(Intra-State supply to registered person)
Sale of office stationery items 2 14
(Intra-State supply to unregistered person)
Legal fee paid to advocate - 0.10
Purchase of stationery items 3 74
(Intra-State supply received from registered
person)
Purchase of furniture for use in own office - 1
(from an unregistered dealer of Kolkata)
Purchase of stationery items from a registered 1 18
dealer of Delhi
Lease rent of the stationery store paid to Kolkata - 1.20
Municipal Corporation (KMC)
Transportation charges paid to M/s Gati 0.10 1.50
Transporters, a GTA
(tax is not payable @ 12%)
Interest paid on borrowings from BBI Bank 0.20 1.80
Accrued interest on Fixed deposit with BBI Bank - 0.16
Rent received from IDICI Bank for its employee - 2.40

Mr. Ashok went to Mumbai, Maharashtra for a business meeting in February, 2020 and stayed
in Hotel Blue Pines for a week. Hotel charged ` 1,00,000 (taxable value) for the stay.
All the amounts given above are exclusive of GST, wherever applicable, unless otherwise
provided. Assume that there is no other outward or inward supply transaction apart from
aforesaid transactions in the financial year 2020-21.
GST is applicable on all inward and outward supplies, except on services of transportation of
goods, at the following rates:
I. Intra-State supply – 6% CGST and 6% SGST
II. Inter-State supply – 12% IGST

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 PAPER – 8: INDIRECT TAX LAWS 59

Based on the facts of the case scenario given above, choose the most appropriate answer to
Q. Nos. 6 to 10 below:-
6. The value of outward supply which shall be subject to GST for the financial year 2020-21
is _______.
(a) ` 98 lakh
(b) ` 100 lakh
(c) ` 102.40 lakh
(d) ` 108 lakh
7. Which of the following statements is correct in terms of the facts of the case scenario given
above?
(a) Mr. Ashok cannot opt to pay tax in the financial year 2021-22 under composition
scheme under section 10(1) and 10(2) of the CGST Act, 2017.
(b) Mr. Ashok is entitled to take the ITC of inputs held in stock on 1st April, 2020.
(c) Mr. Ashok shall be liable to pay GST under reverse charge under section 9(4) of the
CGST Act during the financial year 2020-21 in respect of purchases made from
unregistered persons.
(d) Mr. Ashok is entitled to take the ITC of inputs held in stock on 8 th April, 2020.
8. The value of supply on which Mr. Ashok is liable to pay GST under reverse charge for the
financial year 2020-21 is _______________.
(a) ` 1,60,000
(b) ` 2,80,000
(c) ` 1,30,000
(d) ` 2,70,000
9. Which of the following inward supply is not subject to payment of tax under reverse charge
mechanism?
(i) Shop rent paid to KMC
(ii) Legal fee paid to advocate
(iii) Purchase of stationery items from unregistered person
(iv) Transportation charges paid to M/s Gati Enterprises
(a) (i) and (ii)

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(b) (iii)
(c) (ii) and (iii)
(d) (i) and (iii)
10. Whether input tax credit is available on the GST paid by Mr. Ashok on the taxable value of
` 1,00,000 charged by Hotel Blue Pines located in Mumbai, Maharashtra, for his stay? If
yes, please specify the amount of input tax credit available.
(a) Yes, ` 3,000 - CGST and ` 3,000 - SGST
(b) Yes, ` 12,000 - IGST
(c) Yes, ` 6,000 - CGST and ` 6,000 - SGST
(d) No input tax credit is available.
11. Pyarelal Singh, registered under GST in Lucknow, Uttar Pradesh, is appointed as a del-
credre agent by Sunnykart Co. (P) Ltd. He sells eye opticals to his customers locally within
the same State. Sunnykart Co. (P) Ltd. is also registered under GST in the State of Uttar
Pradesh.
During the current financial year, Sunnykart Co. (P) Ltd. supplied taxable goods worth
` 10 crore whose open market value is ` 10.05 crore, from its Allahabad unit to Pyarelal
Singh. Pyarelal Singh has further sold these goods for ` 10.10 crore by raising invoices
using his own GSTIN. Pyarelal Singh has received a commission of ` 75 lakh from
Sunnykart Co. (P) Ltd. during the year and has guaranteed the payment of the value of
such goods from the customers to Sunnykart Co. (P) Ltd.
Pyarelal Singh has also provided financial assistance in the form of larger credit period to
his customers, on which he has also earned interest of ` 15 lakh.
Compute the value of supply of Sunnykart Co. (P) Ltd. and Pyarelal Singh for the current
financial year assuming that both of them wish to adopt minimum value of supply to the
extent possible.
(a) Sunnykart Co. (P) Ltd.: ` 9.09 crore and Pyarelal Singh: ` 11.00 crore
(b) Sunnykart Co. (P) Ltd.: ` 10.05 crore and Pyarelal Singh: ` 10.85 crore
(c) Sunnykart Co. (P) Ltd.: ` 10.15 crore and Pyarelal Singh: ` 10.85 crore
(d) Sunnykart Co. (P) Ltd.: ` 10.15 crore and Pyarelal Singh: ` 75.00 lakh
12. Which of the following statements is false?
(a) No duty drawback shall be allowed under customs in respect of the goods the market
price of which is less than the amount of drawback thereon.

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(b) Duty drawback shall not be allowed under customs where the amount of drawback in
respect of any goods is ` 100 or less.
(c) Where the claim of duty drawback is not paid to claimant within 1 month from the date
of filing such claim, interest @ 6% p.a. is payable to the claimant.
(d) Interest is payable by the claimant of duty drawback on erroneous refund of duty
drawback @ 15% p.a.
13. Sapphire Enterprises imported some goods through vessel from USA in the month of April.
The value of goods imported was ` 6,50,000.
The date of entry inwards was 21 st April (basic customs duty on said date was 10%).
Further, Sapphire Enterprises filed bill of entry for home consumption on 25 th April (basic
customs duty on said date was 20%). Applicable rate of integrated tax was 12% and social
welfare surcharge was 10%. Ignore GST compensation cess.
However, before inspection and clearance for home consumption, Sapphire Enterprises
found that the goods had been damaged owing to negligence on part of proper officer of
customs. The proper officer accepted that due to said damage, the value of the goods has
come down to ` 4,00,000.
Compute the total customs duty payable in the given case.
(a) ` 97,280
(b) ` 2,38,160
(c) ` 1,58,080
(d) ` 1,46,560
14. Kaushal Manufacturers Ltd., registered in Delhi, is a manufacturer and supplier of
electronic home appliances. It is paying tax under regular scheme. It supplies the
electronic home appliances in the domestic as well as overseas market. For supplies in
other States of India, the company has appointed consignment agents in each such State ,
except Gurgaon, Haryana and Noida, Uttar Pradesh, where the goods are supplied directly
from its Delhi warehouse.
In the month of January, consignments of electronic home appliances were sent to Cardinal
Electricals Pvt. Ltd. and Rochester Technos – agents of Kaushal Manufacturers Ltd. in
Punjab and Madhya Pradesh respectively. Cardinal Electricals Pvt. Ltd. and Rochester
Technos supplied these electronic home appliances under their invoices to the stores
located in their respective States for ` 40,00,000 and ` 70,00,000 respectively. Open
market value of such appliances is not available.

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Further, in January, electronic home appliances have been supplied to Ronn Technomart
- a wholesale dealer of electronic home appliances in Noida, Uttar Pradesh for
consideration of ` 23,00,000, from its Delhi warehouse. Kaushal Manufacturers Ltd. owns
75% shares of Ronn Technomart. Open market value of the electronic home appliances
supplied to Ronn Technomart is ` 30,00,000. Further, Ronn Technomart is not eligible for
full input tax credit.
Kaushal Manufacturers Ltd. also provides repair and maintenance services to electronic
appliance manufacturers located in India.
The company has also furnished the following information for the month of January:
Particulars `
Supply of electronic home appliances to wholesale dealers of such 84,00,000
appliances in Delhi
Electronic home appliances supplied to Anchor Electricals Inc., USA 1,26,00,000
under LUT [Consideration received in convertible foreign exchange]
Repair and maintenance services provided to Unitech Ltd., an 8,40,000
electronic appliance manufacturer, located in Delhi
Advance received towards repair and maintenance services to be 7,00,000
provided to Orelec Ltd., an electronic appliance manufacturer, located
in Delhi
[Repair and maintenance services have been provided in February and
invoice is issued on 28 th February]
Advance received for electronic home appliances to be supplied to 8,40,000
Novick Electricals, a wholesale dealer of such appliances in Gurgaon,
Haryana
[Invoice for the goods is issued at the time of delivery of the electronic
appliances in March]
You are required to determine the gross GST liability [CGST & SGST and/or IGST] of
Kaushal Manufacturers Ltd. for the month of January.
Note:
(i) All the given amounts are exclusive of GST, wherever applicable.
(ii) Assume the rates of GST to be as under:
Goods/services supplied CGST SGST IGST
Electronic home appliances 2.5% 2.5% 5%
Repair and maintenance services 9% 9% 18%
You are required to make suitable assumptions, wherever necessary.

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15. Dobriyal Technocrats Ltd., registered in Gurgaon, Haryana, is engaged in manufacturing

heavy steel machinery. It enters into an agreement with Mindsharp Associates, registered
in Delhi, for imparting motivational training to the top management of Dobriyal Technocrats
Ltd. in a 5-day residential motivational training programme at an agreed consideration of
` 20,00,000.
Mindsharp Associates books the conference hall alongwith the rooms of Hotel Chumchum,
Neemrana (registered in Rajasthan) for the training programme, for a lump sum
consideration of ` 12,00,000.
You are required to determine the place of supply in respect of the supply(ies) involved in
the given scenario.
16. Answer the following questions:
(i) Nirmal Private Limited, registered in Vasai, Maharashtra, is engaged in supply of
taxable goods and services. In the month of April, it sold goods worth ` 5,00,000
(excluding GST) to Suraksha Enterprises and collected tax @ 28% on said goods
from the buyer. However, the actual rate of tax appliable in the given case was 18%.
Nirmal Private Limited deposited the tax @ 18% on these goods to the Government
on the due date and retained the remaining tax collected. Determine the amount of
penalty, if any, that may be imposed on Nirmal Private Limited in the month of October
in the given case ignoring interest payable, if any.
(ii) Bindusar, Chief Executive Officer of Ashoka Solutions Ltd., is issued a summon to
appear before the central tax officer to produce the books of accounts of Ashoka
Solutions Ltd. in an inquiry conducted on said company. Determine the amount of
penalty, if any, that may be imposed on Bindusar, if he fails to appear before the
central tax officer.
17. Answer the following questions:
(i) Prithviraj Ltd., registered under GST in Uttar Pradesh, is served a notice for audit by
the tax authority under GST law on 10 th July. The records and other documents as
sought by the tax authority have been made available by Prithviraj Ltd. on 25 th July.
The tax authority visits the office of Prithviraj Ltd. located in Noida, Uttar Pradesh on
8th August for conducting audit.
Determine the time-limit within which the audit under section 65 of the CGST Act,
2017 is required to be completed assuming that no extension is permitted in the given
case.
(ii) Dhruv & Co. sends certain textile products for dyeing to Bhanushali Manufacturers on
job work basis on 16th August. On 18th August, Dhruv & Co. credited 100% of the job
work charges to the bank account of Bhanushali Manufacturers in advance and

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recorded it in its books of accounts on the same date. Bhanushali Manufacturers

issues the invoice for the same in first week of September.
Assuming that inputs are received back by Dhruv & Co. after job work in the month
of October (i.e. within time limit prescribed under section 143 of the CGST Act, 2017),
determine the time of supply for such job work done by Bhanushali Manufacturers.
(iii) Mr. Vijay, a registered supplier, receives 100 invoices (for inward supply of goods/
services) involving GST of ` 10 lakh, from various suppliers during the month of
October.
Compute the ITC that can be claimed by Mr. Vijay in his GSTR-3B for the month of
October to be filed by 20 th November in the following independent cases assuming
that GST of ` 10 lakh is otherwise eligible for ITC:
Case I: Out of 100 invoices, 80 invoices involving GST of ` 6 lakh have been uploaded
by the suppliers in their respective GSTR-1s filed on the prescribed due date therefor.
Case II: Out of 100 invoices, 95 invoices involving GST of ` 9.8 lakh have been
uploaded by the suppliers in their respective GSTR-1s filed on the prescribed due
date therefor.
18. Padmavati Traders, registered in Karnataka, is engaged in supply of taxable goods. Its
turnover in the preceding financial year was ` 230 lakh and was furnishing its GST return
on monthly basis.
In the beginning of April month in the current financial year, it sought advice from its tax
consultant, Dua Consultants, whether it can furnish its GST returns on quarterly basis from
now onwards. Dua Consultants advised Padmavati Traders that it cannot furnish its return
on quarterly basis as the GST law does not provide for quarterly return under nay
circulstances. Discuss the technical veracity of the advice given by Dua Consultants.
19. Rishabh Traders is engaged in trading of cast iron moulds. It imported a total of 600 units
of cast iron moulds in two consignments of 200 and 400 units which has been valued at
` 1,500 per unit. The customs duty on the imported moulds has been assessed at ` 250
per unit. Rishabh Traders sells the moulds for ` 2,030 per unit after adding its profit margin
of ` 280 per unit.
After one month of selling the entire consignment of cast iron moulds, Rishabh Traders
found that there had been an error in payment of amount of duty, in which duty for the
consignment of 200 units was paid as if it was 400 units, resulting in excess payment of
duty. Rishabh Traders files an application for refund for ` 50,000 (200 X 250). You are
required to determine whether the unjust enrichment is attracted in the given case?
20. Sambhav Industries imported a machine for manufacturing steel equipment from George
Inc., USA through vessel. The cost of the said machine at the factory of George Inc. is US
$ 10,000. George Inc. incurred the cost of US $ 500 for transporting the said machine

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from its factory to the port of New York and New Jersey from which the machinery was
shipped for export to Mumbai port, India. It further paid US $ 50 as handling charges for
loading the machine in the ship.
You are required to determine the assessable value of the machine imported by Sambhav
Industries under the Customs Act, 1962 taking into account the following additional
information:
(i) Buying commission paid by Sambhav Industries US $ 50
(ii) Freight charges from port of New York and New Jersey
to Mumbai port US $ 1,000
(iii) Exchange rate to be considered: 1$ = ` 70
(iv) Actual insurance charges paid are not ascertainable
(v) Lighterage charges paid by Sambhav Industries at Mumbai port ` 12,000
(vi) Unloading and handling charges paid at Mumbai port ` 24,000

SUGGESTED ANSWERS

1. (d)
2. (a)
3. (c)
4. (d)
5. (c)
6. (a)
7. (d)
8. (d)
9. (c)
10. (d)
11. (a)
12. (b)
13. (d)

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14. Computation of gross GST Liability of Kaushal Manufacturers Ltd. for the month of
January
Particulars CGST (`) SGST (`) IGST (`)
Supply of electronic home appliances to 4,95,000
consignment agents - Cardinal Electricals [99,00,000
Pvt. Ltd. and Rochester Technos of Punjab × 5%]
and Madhya Pradesh [Note - 1]
Supply of electronic home appliances to 1,50,000
Ronn Technomart of Noida, Uttar Pradesh [30,00,000
[Note - 2] × 5%]
Supply of electronic home appliances to 2,10,000 2,10,000
wholesale dealers of such appliances in [84,00,000 × [84,00,000
Delhi [Note - 3] 2.5%] × 2.5%]
Electronic home appliances supplied to Nil
Anchor Electricals Inc., USA under LUT
[Note - 4]
Supply of repair and maintenance services 75,600 75,600
to Unitech Ltd., an electronic appliance [8,40,000 × [8,40,000
manufacturer, located in Delhi [Note - 5] 9%] × 9%]
Advance received for repair and 63,000 63,000
maintenance services supplied to Orelec [7,00,000 × [5,00,000
Ltd., a electronic appliances manufacturer, 9%] × 9%]
located in Delhi [Note - 6]
Advance received for electronic home Nil
appliances to be supplied to Novick
Electricals, a wholesale dealer of electronic
appliances in Gurgaon, Haryana [Note - 7]
Total GST liability 3,48,600 3,48,600 6,45,000
Notes:
1. Value of supply of goods made through an agent is determined as per rule 29 of the
CGST Rules, 2017. Accordingly, the value of supply of goods between the principal
and his agent is the open market value of the goods being supplied, or at the option
of the supplier, is 90% of the price charged for the supply of goods of like kind and
quality by the recipient to his unrelated customer, where the goods are intended for
further supply by the said recipient.
In the given case, since open market value is not available, value of electronic home
appliances supplied to consignment agents - Cardinal Electricals Pvt. Ltd. and

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Rochester Technos – will be ` 99,00,000 [90% of (40,00,000 + 70,00,000)]. Further,

being an inter-State supply of goods, supply of electronic home appliances to the
consignment agents is subject to IGST @ 5%.
2. If any person directly or indirectly controls another person, such persons are deemed
as related persons. [Clause (a)(v) of explanation to section 15 of the CGST Act]. In
the given case, since Kaushal Manufacturers Ltd. owns 75% shares of Ronn
Technomart, both are related persons.
Value of supply of goods between related persons (other than through an agent) is
determined as per rule 28 of the CGST Rules, 2017. Accordingly, the value of supply
of goods between related persons is the open market value of such goods and not
the invoice value. Furthermore, since Ronn Technomart is not eligible for full input
tax credit, value declared in the invoice cannot be deemed to be the open market
value of the goods.
Thus, open market value of the electronic home appliances supplied to Ronn
Technomart, i.e. ` 30,00,000 is the value of supply of such goods. Further, being an
inter-State supply of goods, supply of electronic home appliances to Ronn
Technomart is subject to IGST @ 5%.
3. Being an intra-State supply of goods, supply of electronic home appliances to
wholesale dealers of said appliances in Delhi is subject to CGST and SGST @ 2.5 %
each.
4. Section 2(5) of the IGST Act defines export of goods as taking goods out of India to
a place outside India. In view of the said definition, supply of the electronic home
appliances to Anchor Electricals Inc. of USA under LUT is export of goods.
Export of goods is a zero-rated supply [Section 16(1) of the IGST Act]. A zero-rated
supply under LUT is made without payment of integrated tax [Section 16(3)(a) of IGST
Act].
5. Being an intra-State supply of services, supply of repair and maintenance services to
Unitech Ltd. of Delhi is subject to CGST and SGST @ 9% each.
6. Being an intra-State supply of services, supply of repair and maintenance services to
Orelec Ltd. of Delhi is subject to CGST and SGST @ 9% each. Further, in terms of
section 13(2) of the CGST Act, the time of supply of services is the earlier of the date
of invoice or date of receipt of payment, if the invoice is issued within 30 days of the
supply of service. In the given case, invoice is issued within 30 days of the supply of
service. Therefore, time of supply of services will be date of receipt of advance and
hence, GST is payable on the advance received in January.

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7. Being an inter-State supply of goods, supply of electronic home appliances to Novick

Electricals of Gurgaon, Haryana is subject to IGST @ 5%. Further, in terms of section
12(2) of the CGST Act, the time of supply of goods is the earlier of the date of issue
of invoice/last date on which the invoice is required to be issued or date of receipt of
payment.
However, Notification No. 66/2017 CT dated 15.11.2017 specifies that time of supply
of goods for the purpose of payment of tax is the date of issue of invoice/last date
when the invoice ought to have been issued under section 31.
Thus, GST is not payable at the time of receipt of advance against supply of goods.
The time of supply of the advance received for electronic home appliances to be
supplied to Novick Electricals is the time of issue of invoice, which is in March. Thus,
said advance will be taxed in March and not in January.
15. In the given situation, two supplies are involved:
(i) Services provided by Mindsharp Associates to Dobriyal Technocrats Ltd. by way of
providing motivational training to its top management.
(ii) Services provided by Hotel Chumchum to Mindsharp Associates by way of
accommodation in said hotel for organizing the training programme.
The place of supply in respect of each of the above supplies is determined as under:
(i) As per the provisions of section 12(5)(a) of the IGST Act, 2017, the place of supply
of services provided in relation to training and performance appraisal to a registered
person, shall be the location of such person.
Therefore, the place of supply of services supplied by Mindsharp Associates to the
registered recipient - Dobriyal Technocrats Ltd. by way of providing motivational
training to its top management is the location of Dobriyal Technocrats Ltd., i.e.
Gurgaon, Haryana.
(ii) As per the provisions of section 12(3)(c) of the IGST Act, 2017, the place of supply
of services, by way of accommodation in any immovable property for organizing,
inter alia, any official/ business function including services provided in relation to such
function at such property, shall be the location at which the immovable property is
located.
Therefore, the place of supply of services supplied by Hotel Chumchum to Mindsharp
Associates by way of accommodation of conference hall alongwith the rooms of Hotel
Chumchum for the training programme shall be the location of the Hotel Chumchum,
i.e. Neemrana, Rajasthan.

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16. (i) Section 122(1)(iv) of the CGST Act, 2017 stipulates that a taxable person who collects
any tax in contravention of the provisions of the CGST Act, but fails to pay the same
to the Government beyond a period of 3 months from the date on which such payment
becomes due shall be liable to pay a penalty of:
(a) ` 10,000
or
(b) an amount equivalent to the tax evaded
whichever is higher.
In the given case, since Nirmal Private Limited has collected tax at a wrong rate (i.e.
28%), but fails to deposit the full tax collected to the Government i.e. it deposits only
tax @ 18% thereby retaining the remaining tax collected, the amount of penalty that
can be imposed on Nirmal Private Limited is as follows:
(a) ` 10,000
or
(b) an amount equivalent to the tax evaded [` 50,000 (` 5,00,000× 28%) -
(` 5,00,000× 18%)],
whichever is higher, i.e. ` 50,000.
(ii) Section 122(3)(d) of the CGST Act, 2017 stipulates that any person who fails to
appear before the officer of central tax, when issued with a summon for appearance
to give evidence or produce a document in an inquiry is liable to a penalty which may
extend to ` 25,000. Therefore, penalty upto ` 25,000 can be imposed on Bindusar,
in the given case.
17. (i) As per section 65(4) of the CGST Act, 2017, audit shall be completed within a period
of 3 months from the date of commencement of the audit. Further, commencement
of audit means the later of the following:
(a) the date on which the records and other documents, called for by the tax
authorities, are made available by the registered person, or
(b) the actual institution of audit at the place of business of the taxpayer.
Accordingly, in the given case, date of commencement of audit is later of:
(a) the date on which the records and other documents, are made available by
Prithviraj Ltd., i.e. 25 th July, or
(b) the actual institution of audit at the place of business of Prithviraj Ltd., i.e.
8th August.
Thus, date of commencement of audit is 8 th August.

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Hence, audit shall be completed within 3 months from the date of commencement of
the audit (8 th August).
(ii) As per Schedule II of the CGST Act, 2017, the activity by way of any treatment or
process which is applied to another person's goods is a supply of services. Hence,
job work is squarely covered within the purview of supply of services. Accordingly,
the time of supply shall be determined as per section 13 of the CGST Act, 2017.
As per section 13, time of supply of services where invoice has been issued within
30 days of provision of services is:
(a) date of issuance of invoice, or
(b) date of recording the payment in the books of accounts of the supplier, or
(c) date on which payment is credited in the bank account of the supplier,
whichever is earlier.
In the present case, the service charges for job work are paid as advance at the time
of sending inputs to job worker. Hence the time of supply of job work services shall
be triggered at the time of payment of advance by Dhruv & Co., i.e. 18 th August.
(iii) Section 16(2) of the CGST Act, 2017 provides certain conditions for availing ITC
wherein one of the conditions is that the taxpayer must be in possession of the tax
invoice or other tax paying document in respect of which he is claiming the ITC. Rule
36 of the CGST Rules, 2017 lays down the documents and other conditions basis
which the registered person can claim ITC. Sub-rule (4) of rule 36 of the CGST Rules,
2017 stipulates that ITC to be availed by a registered person in respect of invoices or
debit notes, the details of which have not been uploaded by the suppliers in GSTR -
1, cannot exceed 5% of the eligible credit available in respect of invoices or debit
notes the details of which have been uploaded by the suppliers in GSTR-1.
In accordance with the aforesaid provisions, given two cases have been analysed as
under:
Case I
ITC to be claimed by Mr. Vijay in his GSTR-3B for the month of October to be filed by
20th November will be computed as under-
Invoices Amount of ITC involved Amount of ITC that can
in the invoices (`) be availed (`)
In respect of 80 invoices 6 lakh 6 lakh
uploaded in GSTR-1 [Refer Note 1 below]
In respect of 20 invoices 4 lakh 0.3 lakh
not uploaded in GSTR-1 [Refer Note 2 below]
Total 10 lakh 6.3 lakh

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Notes:
(1) In respect of invoices uploaded by the suppliers in their GSTR-1, full ITC can be
availed.
(2) The ITC in respect of invoices not uploaded has to be restricted to 5% of eligible
ITC in respect of invoices uploaded in GSTR-1. Thus, in respect of 20 invoices
not uploaded in GSTR-1s, the ITC has been restricted to ` 0.3 lakh [5% of ` 6
lakh].
Case II
ITC to be claimed by Mr. Vijay in his GSTR-3B for the month of October to be filed by
20th November will be computed as under-
Invoices Amount of ITC involved Amount of ITC that can
in the invoices (`) be availed (`)
In respect of 95 invoices 9.8 lakh 9.8 lakh
uploaded in GSTR-1 [Refer Note 1 below]
In respect of 5 invoices 0.2 lakh 0.2 lakh
not uploaded in GSTR-1 [Refer Note 2 below]
Total 10 lakh 10 lakh

Notes:
(1) In respect of invoices uploaded by the suppliers in their GSTR-1, full ITC can be
availed.
(2) The ITC in respect of invoices not uploaded has to be restricted to 5% of eligible
ITC in respect of invoices uploaded in GSTR-1. However, since in this case, the
actual ITC [` 0.2 lakh] in respect of 5 invoices not uploaded in GSTR-1 does not
exceed 5% of the eligible ITC in respect of invoices uploaded in GSTR-1s
[` 0.49 lakh (5% of ` 9.8 lakh)], actual amount of ITC can be availed.
18. No, the advice given by Dua Consultants is not valid in law. With effect from 01.01.2021,
a quarterly return has been introduced under GST law where the payment of tax is to be
made on monthly basis. The scheme is known as Quarterly Return Monthly Paymen t
(QRMP) Scheme.
The scheme has been introduced as a trade facilitation measure and in order to further
ease the process of doing business. It is an optional return filing scheme, introduced for
small taxpayers having aggregate annual turnover (PAN based) of upto ` 5 crore in the
current and preceding financial year to furnish their Form GSTR-1 and Form GSTR-3B on
a quarterly basis while paying their tax on a monthly basis through a simple challan. Thus,
the taxpayers need to file only 4 GSTR-3B returns instead of 12 GSTR-3B returns in a
year. Similarly, they would be required to file only 4 GSTR-1 returns since Invoice Filing
Facility (IFF) is provided under this scheme.

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Opting of QRMP scheme is GSTIN wise. Distinct persons can avail QRMP scheme opti on
for one or more GSTINs. It implies that some GSTINs for a PAN can opt for the QRMP
scheme and remaining GSTINs may not opt for the said scheme.
Since the aggregate turnover of Padmavati Traders does not exceed ` 5 crores in the
preceding financial year, it is eligible for furnishing the return on quarterly basis till the time
its turnover in the current financial year does not exceed ` 5 crore. In case its aggregate
turnover crosses ` 5 crore during a quarter in the current financial year, it shall no longer
be eligible for furnishing of return on quarterly basis from the first month of the succeeding
quarter and needs to opt for furnishing of return on a monthly basis, electronically, on the
common portal, from the first month of the quarter, succeeding the quarter during which its
aggregate turnover exceeds ` 5 crore.
19. As per section 27 of the Customs Act, 1962, the importer or his agent, or the buyer who
has been charged the duty by the importer, has to establish that h e has not passed the
burden of duty to another person, in order to be given refund of duty. Otherwise, the refund
amount is credited to the Consumer Welfare Fund.
First proviso to section 27(2) of the Customs Act, 1962, inter alia, provides that the amount
of refund shall be paid to the applicant instead of being credited to the fund in case where
such amount is relatable to the duty paid by the importer/exporter, if he had not passed on
the incidence of such duty and interest to any other person and in case where such amount
is relatable to the duty paid in excess by the importer before an order permitting clearance
of goods for home consumption is made where such excess payment of duty is evident
from the bill of entry in the case of self-assessed bill of entry.
Rishabh Traders’ invoices establish that it collected ` 250 per unit (duty amount) on 600
moulds from the buyer(s). However, it paid the extra import duty on 200 moulds. This
payment, in the normal course, was made before the order permitting the clearance of the
goods and excess payment of duty on 200 units would be evident from the bill of entry.
Thus, Rishabh Traders’ case falls within the exceptions to unjust enrichment as discussed
above. Hence, it will be able to refute the charge of unjust enrichment.
20. Computation of assessable value of the imported machine
US $
(i) Cost of the machine at the factory 10,000.00
(ii) Transport charges up to port 500.00
(iii) Handling charges at the port 50.00
FOB value in US $ 10,550.00
`
FOB value in Indian rupees @ ` 70 per $ 7,38,500.00
(iv) Freight charges up to India [US $ 1,000 × ` 70] 70,000.00

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(v) Insurance charges @ 1.125% of FOB [Note 1] 8308.13

(vi) Lighterage charges paid by the importer [Note 2] 12,000
(vi) Unloading and handling charges paid at Mumbai port [Note-3] Nil
CIF/Assessable value 8,28,808.13
Assessable value (rounded off) 8,28,808
Notes:
(1) Insurance charges have been included @ 1.125% of FOB value of goods [Third
proviso to rule 10(2) of the Customs Valuation (Determination of Value of Imported
Goods) Rules, 2007].
(2) Cost of transport of the imported goods includes lighterage charges [Explanation to
rule 10(2) of Customs Valuation (Determination of Value of Imported Goods) Rules,
2007].
(3) As per rule 10(2) of the Customs Valuation (Determination of Value of Imported
Goods) Rules, 2007, only charges incurred for delivery of goods “to” the place of
importation are includible in the transaction value. Thus, loading, unloading and
handling charges associated with the delivery of the imported goods at the place of
importation are not to be added to the assessable value of the goods.
(4) Buying commission is not included in the assessable value [Rule 10(1)(a)(i) of the
Customs Valuation (Determination of Value of Imported Goods) Rules, 2007].

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 PAPER-8: INDIRECT TAX LAWS

QUESTIONS

(1) All questions should be answered on the basis of position of (i) GST law as amended
by the provisions of the Finance Act, 2020 and the Finance (No. 2) Act, 2019, which
have become effective up to 31st October, 2020, including significant notifications
and circulars issued and other legislative amendments made, up to 31 st October,
2020 and (ii) customs law as amended by the Finance Act, 2020, including significant
notifications and circulars issued and other legislative amendments made, up to
31st October, 2020.
(2) The GST rates for goods and services mentioned in various questions are
hypothetical and may not necessarily be the actual rates leviable on those goods
and services. The rates of customs duty are also hypothetical and may not
necessarily be the actual rates. Further, GST compensation cess should be ignored
in all the questions, wherever applicable.
Disha Enterprise Pvt Ltd. is a financial service company having its offices in Kolkata, West
Bengal and Mumbai, Maharashtra. The company is registered under GST in both the States.
The company operates through two segments (a) banking & insurance services and (b) advisory
& consulting services. The aggregate turnover of the company during the previous year was
(i) ` 80 lakh in West Bengal & (ii) ` 60 lakh in Maharashtra.
The bouquet of services provided under each of the two segments are as follows:
Banking & insurance services Advisory & consulting services
Insurance agent services Company/LLP/Society formation
Recovery agent services Return filing
Direct Selling Agent (DSA) Detailed Project Report (DPR) preparation
services (sale of banking products)
Business promotion/ product marketing/ exhibition etc.
The company has carried out following transactions during the month of September:
(Amount in ` excluding GST)
Particulars Kolkata office Mumbai office
Sale and purchase of foreign currency Refer Note 3 Refer Note 3
Commission received from Nautiyal Insurance 90,000 70,000
Company/ ADFC Life Insurance Company
Commission received as DSA from ICIDI Bank for 48,000 50,000
opening bank account/credit card & loan products

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 PAPER – 8: INDIRECT TAX LAWS 59

Commission received from private banks for acting 1,20,000 1,50,000

as recovery agent
Professional fee received for the formation of a 80,000 40,000
company/LLP/society [Refer Note 2]
Professional fee received for GST/ TDS return filing 65,000 75,000
Participation fee received from customers for the 50,00,000 4,00,000
business exhibition organised by the company (held in Russia) (held at
[Refer Note 1] Chennai)
[Refer Note 1]
Legal fee paid to Mr. Sundaram - an advocate 10,000 15,000
Payment made for security services (by way of 25,000 25,000
supply of security personnel) received (Globe Security (M/s X & Co, a
Pvt Ltd.) partnership firm,
registered under
GST)
Notes:
1. The participation fee of ` 50,00,000 received by the company is in respect of a business
exhibition organized at St. Petersburg, Russia under the theme “Indian Traditional Fair” in
which 10 Indian companies (all registered under GST) had participated. A participation
fee of ` 5 lakh from each Indian company was collected for providing them a stall, furniture
& other amenities at St. Petersburg, Russia.
The participation fee of ` 4,00,000 is in respect of a business exhibition organized by the
company at Chennai, in which 100 Indian companies had participated.
2. Out of the professional fee of ` 80,000 received by Kolkata office for the formation of a
company/LLP/society, ` 15,000 was towards reimbursement claimed from client. It was
separately mentioned in the invoice indicating that it was deposited with registrar of
companies (ROC).
3. Following purchase & sale of foreign currency was made by the company during the month
of September:
(a) Kolkata office had purchased USD 10,000 from M/s Moneywise (a FOREX dealer) @
` 74 per USD on 10th September. The RBI reference rate on that day was ` 73 per
USD.
(b) Mumbai office had sold USD 5,000 to M/s Money Matters (a FOREX dealer) on
15th September @ ` 73.20 per USD. RBI reference rate for USD on that day is not
available.
4. In an order dated 14 th September issued to Disha Enterprise Pvt Ltd., the Joint
Commissioner of CGST, Mumbai has raised a demand of ` 600 crore on Mumbai office in

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 60 FINAL (NEW) EXAMINATION: MAY, 2021

respect of an inter-State transaction. The company is disputing the entire demand & wants
to file an appeal before the Appellate Authority against the order of Joint Commissioner.
5. The Kolkata office of the company had received ` 1 lakh on 22 nd April as an advance from
Ganesh Flour Mill Pvt Ltd., a client, for preparation of DPR. However, tax colle cted on the
same from the client has not yet been deposited with the Central Government .
All the amounts given above are exclusive of GST wherever applicable (unless otherwise
specified). There is no other outward or inward supply transaction apart from the aforesaid
transactions in the relevant period.
Based on the facts of the case scenario given above, choose the most appropriate answer to
Q. Nos. 1. to 5. below:-
1. Determine the value of taxable supply in respect of sale and purchase of foreign currency
by Kolkata office and Mumbai office of the company as per rule 32(2)(a) of the CGST
Rules, 2017.
(a) Kolkata office ` 7200, Mumbai office ` 3,660
(b) Kolkata office ` 10,000, Mumbai office ` 3,660
(c) Kolkata office ` 7,20,000, Mumbai office ` 3,66,000
(d) Kolkata office ` 7,30,000, Mumbai office ` 3,66,000
2. The value of taxable supply received by Mumbai office in the month of September on which
tax is payable under reverse charge is _____________.
(a) ` 15,000
(b) ` 25,000
(c) ` 40,000
(d) ` 2,70,000
3. The value of taxable outward supply made by Kolkata office in the month of September on
which Disha Enterprise Pvt Ltd. is liable to pay tax under forward charge is
________________.
(a) `1,78,000
(b) ` 2,78,000
(c) ` 2,65,000
(d) ` 1,13,000
4. The maximum amount of pre-deposit that Disha Enterprise Pvt. Ltd. can be asked to
deposit under the IGST Act, 2017 for filing of an appeal before the Appellate Authority is
_____________.

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(a) ` 30 crores
(b) ` 60 crores
(c) ` 25 crores
(d) ` 50 crores
5. The maximum penalty prescribed under section 122 of the CGST Act, 2017 for failure of
Kolkata Office to deposit the tax collected on the advance received from Ganesh Flour Mill
Pvt Ltd. is ____________.
(a) ` 18,000
(b) ` 25,000
(c) ` 10,000
(d) ` 10,000 or tax evaded, whichever is higher.
ABC Ltd. is a Public Sector Undertaking (PSU) engaged in the business of generation of
electricity from conventional & non-conventional sources. The Government of India holds 75%
equity in the said company & balance equity is held by institutional and domestic investors. The
company has taken separate registration under GST in each State where it has business
operations. The company has its head office (HO) in Delhi & its power plants are located in the
States of Bihar, Odisha & Chhattisgarh.
Following transactions were carried out by the company during the month of February:
(Amount in `)
Particulars Delhi Bihar plant Odisha Chhattisgarh
H.O plant plant
Sale of electrical energy to DISCOM --- 2,50,00,000 3,50,00,000 4,50,00,000
Bank interest received on saving 18,00,000 3,00,000 5,00,000 8,00,000
bank account & fixed deposit
House rent recovered from the 55,000 30,000 25,000 40,000
employees for residential
accommodation provided to them
Rent collected from bank, ATM, post 48,000 15,000 12,000 16,000
office & shops located in office
premises
Sale of iron/ metal scrap (excluding - 85,000 45,000 65,000
TCS @ 1% as per the Income-tax
Act, 1961
Other Income 2,50,000 - - 45,000

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 62 FINAL (NEW) EXAMINATION: MAY, 2021

Note:
(a) Other income of Delhi H.O. amounting to ` 2,50,000 is in respect of bond money recovered
from an ex-employee who had resigned from the service of ABC Ltd. prior to completion
of the period specified in the bond, viz., 2 years.
(b) Other income of ` 45,000 of Chhattisgarh plant is in respect of penalty recovered from a
contractor for delay in supply of material.
In addition to above information, following transactions were also carried out during the month
of February:
(1) A supply order for stationery items was awarded by Delhi H.O. to M/s Stationery Mart, New
Delhi for ` 3,36,000 (including GST @ 12%) in January.
The vendor supplied stationery items worth ` 44,800 (including GST@ 12%) & issued the
tax invoice in February. Delhi H.O. had made the payment of the said bill in February. The
remaining amount was paid in April on supply of balance items.
(2) Odisha plant purchased office furniture for ` 2,80,000 during February from an
unregistered dealer. Rate of GST on said furniture item is 18%.
(3) A Board meeting for raising term loan for project expansion was held in February. The
Delhi H.O. paid ` 20,000 each as sitting fee to 4 independent directors who attended the
meeting.
(4) For safety & security of its H.O. & power plants, the company has engaged private security
as well as CISF. Following payments were made in February, in respect of bills issued in
the month of January:
Particulars Delhi H.O. Bihar plant Odisha plant Chhattisgarh
plant
CISF --- 10,00,000 8,00,000 14,00,000
(paid on 07 th (paid on 15 (paid on 05 th
th

February) February) February)

ABS Security 5,00,000 - - -
Services Pvt Ltd. (paid on 11 th
February)
(5) The Bihar plant purchased a machinery in February from M/s Sahoo Enterprises, Patna
(not registered under GST) for ` 86,000. Full payment was made in February. Rate of
GST on the said machinery is 18%.
All the amounts mentioned above are excluding GST, wherever applicable (unless otherwise
specified).
Based on the facts of the case scenario given above, choose the most appropriate answer to
Q. Nos. 6. to 10. below:

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6. The value of taxable supply on which GST is payable by Delhi H.O. under forward charge,
for the month of February is ___________.
(a) ` 21,78,000
(b) ` 2,98,000
(c) ` 22,33,000
(d) ` 3,78,000
7. The value of taxable inward supply on which GST shall be payable under reverse charge
by Bihar power plant is __________.
(a) ` 11,80,000
(b) ` 10,00,000
(c) ` 10,86,000
(d) ` 10,30,000
8. The value of supply on which TDS under section 51 of the CGST Act, 2017 shall be
deducted by Delhi H.O. while making payment to M/s Stationery Mart in February is
___________.
(a) ` 40,000
(b) ` 44,800
(c) ` 3,00,000
(d) TDS is not applicable since payment made in February is less than ` 2,50,000.
9. Which of the following statements is true with regard to the penalty of ` 45,000 recovered
by Chhattisgarh plant from the contractor for delay in supply of material?
(a) Fine/ penalty levied by a PSU is an exempt supply under section 11 of the CGST Act,
2017.
(b) It is a supply of services as stipulated in Schedule II of the CGST Act, 2017.
(c) It is neither a supply of service nor supply of goods as it is covered under
Schedule III of the CGST Act, 2017.
(d) It is not a supply at all under section 7 of the CGST Act, 2017.
10. What is the value of supply on which GST is payable by Odisha plant on sale of scrap?
(a) ` 45,000
(b) ` 45,450

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 64 FINAL (NEW) EXAMINATION: MAY, 2021

(c) Sale of scrap is an exempt supply under GST. It is subject to TCS under the
Income-tax Act, 1961.
(d) Sale of scrap is neither a supply of service nor supply of goods as it is covered under
Schedule III of the CGST Act, 2017.
11. The Resident Welfare Association (RWA) of Kutumb Housing Society is registered under
GST in the State of Mahrashtra. There are 100 three BHK flats and 100 four BHK flats in
the society. It received/paid the following amounts (excluding GST, wherever applicable)
in the months of January and February:
Particulars January February
(`) (`)
Maintenance charges per flat received from all 3 BHK flat 7,000 7,000
owners
Maintenance charges per flat received from all 4 BHK flat 10,000 10,000
owners
Interest received on the fixed deposit with Dhansukh 5,00,000 5,00,000
Bank
Generator purchased for the power back-up of 4 BHK flats 1,00,000
Taps, pipes, other sanitary fittings purchased for 3 BHK 50,000
flats
Determine the net GST liability to be paid for the months of January and February,
assuming that the GST rate is 18% on all inward and outward supplies.
(a) January - ` 1,71,000; February - ` 1,62,000
(b) January - ` 1,80,000; February - ` 1,62,000
(b) January - ` 1,80,000; February - ` 1,80,000
(d) January - ` 1,71,000; February - ` 1,80,000
12. Suhasini Oberoi, an Indian resident who was on a visit to USA, returned after 6 months for
contesting in assembly elections of her State. She was carrying with her the following
items:
(i) Personal effects ` 59,000
(ii) Laptop computer ` 37,000
(iii) Jewellery - 25 grams (purchased in USA) ` 67,000
(iv) Music system ` 58,000
Compute the customs duty payable by Suhasini Oberoi with reference to the Baggage
Rules, 2016.

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(a) ` 28,875
(b) ` 62,370
(c) ` 85,085
(d) ` 48,125
13. M/s Sohan Enterprises Ltd. had imported goods after paying the customs duty of
` 25,00,000 at the time of import. These goods were used and later re-exported after
19 months of import. The amount of duty drawback that M/s Sohan Enterprises Ltd. is
eligible to claim on such re-export made is ___________.
(a) nil
(b) 23,75,000
(c) 20,00,000
(d) 24,00,000
14. Sunshine Pvt. Ltd. manufactures taxable goods. The company is registered under GST in
the State of West Bengal. The company has provided following information in relation to
inward supplies received by it in the month of October:

S. No. Invoices received for inward supplies IGST (`)

1. Raw material - X 2,00,000
2. Rent of the factory building 1,50,000
3. Raw material - Y 1,30,000
4. Car purchased for the use of the director 1,20,000
5. Consumables 80,000
6. Machinery for being used in the manufacturing process 1,50,000
7. Raw material - Z 1,10,000
8. Technical consultancy for improvement in the manufacturing 60,000
process
9. Raw material – W (imported from China) 50,000
Total 10,50,000

S. Particulars IGST (`)

No.
(i) Balance in Form GSTR-2A on 28 th October 4,80,000

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 66 FINAL (NEW) EXAMINATION: MAY, 2021

(Invoices at S. Nos. 1, 2 and 3 uploaded by the respective

suppliers in their Form GSTR-1s)
(ii) Balance in Form GSTR-2A on 11 th November 6,00,000
(Invoices at S. Nos. 1, 2, 3 and 4 uploaded by the respective
suppliers in their Form GSTR-1s)
(iii) Balance in Form GSTR-2A on 20 th November 6,80,000
(Invoices at S. Nos. 1, 2, 3, 4 and 5 uploaded by the respective
suppliers in their Form GSTR-1s)

Compute the ITC that can be claimed by Sunshine Pvt. Ltd. in its Form GSTR-3B for the
month of October to be filed by 20 th November.
Note: The due date of filing of Form GSTR-1 and Form GSTR-3B for the month of October
are 11th November and 20th November respectively. Subject to the information given
above, all the other conditions for availing ITC have been complied with.
15. Parikshit Ltd., engaged in providing a bouquet of services, is registered under GST law. It
furnishes the following information for the month of March in relation to various services
provided by it:
Particulars `
Fees from prospective employers for campus interview in its college 5,20,000
Five buses each with seating capacity of 40 passengers given on hire to
State Transport Undertaking 6,50,000
Receipts of 'Shiny', a commercial coaching institute providing coaching
in the field of commerce (a certificate was awarded to each trainee after
completion of the training) 1,82,000
Interest received on fixed deposits of the company with Dhanvarsha Bank 6,50,000
Receipts from running a Boarding School (including receipts for
providing residential dwelling service of ` 18,20,000) 39,00,000
Receipts of 'Sikshit Samudai' - an Industrial Training Institute (ITI)
affiliated to the National Council for Vocational Training (NCVT).
Courses run by said ITI are in designated trades 2,60,000
Receipts of 'Pratibha Institute', an institute registered with Directorate
General of Employment and Training (DGET), Union Ministry of Labour
and Employment, running a Modular Employable Skill Course (MESC)
approved by the National Council for Vocational Training (NCVT) 1,30,000
Professional services provided to foreign diplomatic mission located in
India 1,04,000

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Compute the GST payable by Parikshit Ltd. assuming that all the above receipts are
exclusive of GST wherever applicable and the rate of GST applicable on all the
supplies is 18%.
16. Briefly examine whether the appeal/review application filed in the following independent
cases is within the time limit prescribed under the GST law:-
(i) The adjudicating authority issued the adjudication order on 23 rd April and the same is
communicated to the taxpayer - Mr. X - on 28th April. Mr. X, aggrieved by the order
of the adjudicating authority filed an appeal to the Appellate Authority on 26th July.
(ii) The adjudicating authority passed the order on 3 rd March (communicated same day
to the Commissioner). The Commissioner directs his subordinate officer to file a
review application with the Appellate Authority. The subordinate officer filed the
review application on 23rd September.
17. Determine the place of supply in the following independent cases:-
(i) Mr. Sahukaar (New Delhi) boards the New Delhi-Kota train at New Delhi. Mr.
Sahukaar sells the goods taken on board by him (at New Delhi), in the train, at Jaipur
during the journey.
(ii) Vidhyut Pvt. Ltd. imports electric food processors from China for its Kitchen Store in
Noida, Uttar Pradesh. Vidhyut Pvt. Ltd. is registered in Uttar Pradesh.
(iii) Mr. Aatmaram, a manager in a Bank, is transferred from Bareilly, Uttar Pradesh to
Bhopal, Madhya Pradesh. Mr. Aatmaram’s family is stationed in Kanpur, Uttar
Pradesh. He hires Gokul Carriers of Lucknow, Uttar Pradesh (registered in Uttar
Pradesh), to transport his household goods from Kanpur to Bhopal.
(iv) Bholunath, a resident of New Delhi, opens his saving account in New Delhi branch
of Best Bank after undergoing the KYC process. He goes to Amritsar for some
official work and withdraws money from Best Bank’s ATM in Amritsar thereby
crossing his limit of free ATM withdrawals.
(v) Mr. Chakmak, an architect (New Delhi), enters into a contract with Mr. Zeeshaan
of New York to provide professional services in respect of immovable properties of
Mr. Zeeshaan located in Pune and New York.
18. Paridhi Ltd. is a registered manufacturer engaged in taxable supply of goods. Paridhi Ltd.
purchased the following goods during the month of January and provided the following
information:

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 68 FINAL (NEW) EXAMINATION: MAY, 2021

S. Particulars GST paid

No. (`)
1. Capital goods purchased on which depreciation has been taken 15,000
on full value including input tax thereon
2. Goods purchased from Rupesh Enterprises 20,000
(Rupesh Enterprises sent the invoice in the month of January, but
goods were received in month of April)
3. Car purchased for making further supply of such car. Such car is 30,000
destroyed in accident while being used for test drive by potential
customers
4. Goods used for setting up telecommunication towers being 50,000
immovable property
5. Goods purchased from Sumo Ltd. 10,000
(Full payment has been made by Paridhi Ltd. to Sumo Ltd. against
such supply, but tax has been deposited by Sumo Ltd. in April)
6. Truck purchased for delivery of output goods 80,000
Determine the amount of input tax credit (ITC) available to Paridhi Ltd. while filing
GSTR-3B for the month of January by giving necessary explanations for treatment of
various items as per the provisions of the CGST Act, 2017. You may assume that all the
necessary conditions for availing the ITC have been complied with by Paridhi Ltd.
19. SGNA Industries Ltd. of Surat imported one machine through vessel from Japan, in the
month of September and has furnished the following details:-
S. No. Particulars Amount in Japanese
Yen (¥)
(i) Cost upto port of exportation incurred by exporter 5,00,000
(ii) Loading charges at port of exportation 1,25,000
(iii) Freight charges from port of export to port of import 50,000
in India.
Following additional amounts paid by SGNA Industries Ltd.:-
(i) Designing charges, necessary for such machine, paid to
consultancy firm in Mumbai ` 9,50,000
(ii) Commission paid (not the buying commission) to
local agent of exporter ` 50,000
(iii) Actual landing charges paid at the place of importation ` 20,000

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(iv) Actual insurance charges paid to the place of importation are not ascertainable .
(v) Lighterage charges paid at the port of importation ` 30,000
The rate of basic customs duty is 10% and rate of social welfare surcharge is 10%.
Integrated tax leviable under section 3(7) of Customs Tariff Act, 1975 is 12%. The rate of
exchange to be taken is 1 Japanese Yen (¥) = ` 0.68. Ignore GST compensation cess.
You are required to compute the total customs duty, including integrated tax payable under
section 3(7) of the Customs Tariff Act, 1975 with appropriate working notes.
20. KTU Limited has imported certain goods for sale in India from Country Z, which are liable
for anti-dumping duty. Country Z sell the like goods in its domestic market in the ordinary
course of trade at USD 300 per piece. The imported goods are sold in domestic Indian
industry @ USD 275 per piece. KTU Limited has imported the goods at USD 180 per
piece. Landed value of the imported goods is USD 190 per piece.
Compute the anti-dumping duty payable by KTU Limited for 800 pieces of these goods it
has imported during the year assuming conversion rate @ ` 72 per USD.

SUGGESTED ANSWERS

1. (b)
2. (c)
3. (a)
4. (d)
5. (d)
6. (b)
7. (b)
8. (a)
9. (b)
10. (a)
11. (b)
12. (a)
13. (a)

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 70 FINAL (NEW) EXAMINATION: MAY, 2021

14. ITC to be claimed by Sunshine Pvt. Ltd. in its GSTR-3B for the month of October to be filed
by 20th November will be computed as under-

Invoices Amount of input Amount of ITC

tax involved in that can be
the invoices (`) availed (`)
Balance in GSTR-2A on 11 th November 6,00,000 4,80,000
[Note 1] [Note 2]
(Invoices at S. Nos. 1, 2, 3 and 4 uploaded
by the respective suppliers in their
GSTR-1s)
Invoices at S. Nos. 5, 6 7 and 8 not 4,00,000 48,000
uploaded in GSTR-1 [Note 3]
Invoice at S. No. 9 50,000 50,000
[Note 4]
Total 10,50,000 5,78,000
Notes:
(1) ITC in respect of the invoices whose details have not been uploaded by the suppliers
shall not exceed 10% of the eligible input tax credit available to the recipient in respect
of invoices or debit notes the details of which have been uploaded by the suppl iers
under section 37(1) of the CGST Act, 2017 as on the due date of filing of the returns
in Form GSTR-1 of the suppliers for the said tax period. The taxpayer can ascertain
the same from his auto populated Form GSTR 2A as available on the due date of
filing of Form GSTR-1 under section 37(1) [Rule 36(4) of the CGST Rules, 2017 read
with Circular No. 123/42/2019 GST dated 11.11.2019].
(2) 100% ITC can be availed on invoices uploaded by the suppliers in their
Form GSTR-1. However, section 17(5) of the CGST Act, 2017 blocks ITC on motor
vehicles for transportation of persons having approved seating capacity of not more
than 13 persons if they are not used for making the following taxable supplies,
namely:—
(A) further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles
Since Sunshine Pvt. Ltd. is not using the car for any of the aforesaid mentioned
purpose, ITC thereon will not be available.

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Thus, 100% ITC will be available in respect of invoices at S.Nos. 1, 2 & 3.

(3) In respect of invoices at S.Nos. 5, 6 7 and 8 not uploaded in Form GSTR-1s, the ITC
has been restricted to 10% of eligible ITC in respect of invoices uploaded in Form
GSTR-1s, i.e. 10% of ` 4,80,000 in terms of rule 36(4) of the CGST Rules, 2017.
(4) The restriction of availment of ITC is imposed only in respect of those invoices, details
of which are required to be uploaded by the suppliers under section 37(1) of the CGST
Act, 2017 and which have not been uploaded. Therefore, full ITC can be availed in
respect of IGST paid on imports which are outside the ambit of section 37(1) [Circular
No. 123/42/2019 GST dated 11.11.2019].
15. Computation of GST payable by Parikshit Ltd. for the month of March
Particulars Value GST @ 18%
(`) (`)
Fees from prospective employers for campus interview
in its college 5,20,000 93,600
[Taxable since such services are not specifically exempt]
Five buses each with seating capacity of 40 passengers
given on hire to State Transport Undertaking
[Services by way of giving on hire to a State transport
undertaking (STU), a motor vehicle meant to carry more Nil Nil
than 12 passengers, are exempt vide Notification No.
12/2017 CT(R) dated 28.06.2017 (hereinafter referred to
as exemption notification).]
Receipts of Shiny– a coaching institute
[Services provided by an educational institution to its
students, faculty and staff are exempt vide exemption 1,82,000 32,760
notification. However, coaching institute is not an
educational institution.]
Interest received on fixed deposits of the company with
Dhanvarsha Bank
[Services by way of extending deposits, loans or
advances in so far as the consideration is represented Nil Nil
by way of interest or discount (other than interest
involved in credit card services) are exempt vide
exemption notification.]
Receipts from Boarding School including receipts for
residential dwelling service
Nil Nil
[Services provided by an educational institution to its
students, faculty and staff are exempt vide exemption

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 72 FINAL (NEW) EXAMINATION: MAY, 2021

notification. Boarding School providing education up to

higher secondary school or equivalent is an educational
institution since it provides composite supply of
education service coupled with other services like
providing dwelling units for residence and food wherein
the principal supply is supply of education service.]
Receipts of Sikshit Samudai
[Services provided by an educational institution to its
students, faculty and staff are exempt vide exemption Nil Nil
notification. Sikshit Samudai is an educational institution
running approved vocational education course.]
Receipts of 'Pratibha Institute' running Modular
Employable Skill Course
[Services provided by an educational institution to its
students, faculty and staff are exempt vide exemption Nil Nil
notification. Pratibha Institute is an educational
institution running approved vocational education
course.]
Professional services provided to foreign diplomatic
mission located in India
[While services provided by a foreign diplomatic mission 1,04,000 18,720
located in India are exempt from GST vide exemption
notification, no such exemption is available to the
services provided to such mission.]
GST payable 8,06,000 1,45,080
16. (i) A person aggrieved by any decision/order of an adjudicating authority can file an
appeal to the Appellate Authority within 3 months from the date of communication of
such decision/order. The Appellate Authority can condone the delay in filing of appeal
by 1 month if it is satisfied that there was a sufficient cause for such delay [Section
107 of the CGST Act, 2017].
In view of the aforesaid provisions, in the given case, the relevant date for computing
the period of 3 months (for filing the appeal to Appellate Authority) is 28th April (date
of communication of order) and not 23rd April. Accordingly, an appeal can be filed by
Mr. X to Appellate Authority within 3 months from the date of communication of order
(28th April), i.e. 28 th July.
Thus, Mr. X has filed the appeal within the time limit prescribed under the GST law.
(ii) The Commissioner may, by order, direct any officer subordinate to him to apply to the
Appellate Authority within 6 months from the date of communication of the decision/

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 PAPER – 8: INDIRECT TAX LAWS 73

order for the determination of such points arising out of the said decision/ order as
may be specified by him.
The Appellate Authority can condone the delay in filing of appeal by 1 month if it is
satisfied that there was sufficient cause for such delay [Section 107 of the CGST Act,
2017].
In the present case, the Commissioner directs his subordinate officer to file a review
application with the Appellate Authority. The subordinate officer should have filed the said
application till 3rd September (i.e. within 6 months from the date of communication of
order). However, the subordinate officer filed the application on 23rd September, i.e. after
the expiry of period of 6 months from the date of communication of order. Thus, in the
given case, appeal has not been filed within the time limit prescribed under the GST law.
However, Appellate Authority can condone delay in filing of appeal upto 3 rd October
(up to 1 month) if it is satisfied that there was sufficient cause for such delay.
17. (i) Section 10(1)(e) of the IGST Act, 2017 lays down that place of supply of goods
supplied on board a conveyance like aircraft, train, vessel, or a motor vehicle, is
the location where such goods have been taken on board. Thus, in the given case,
the place of supply of the goods sold by Mr. Sahukaar is the location at which the
goods are taken on board, i.e. New Delhi and not Jaipur where they have been sold.
(ii) As per section 11(a) of the IGST Act 2017, if the goods have been imported in India,
the place of supply of goods is the place where the importer is located. Thus, in
the present case, the pla ce of supply of the goods imported by Vidhyut Pvt. Ltd. is
Noida, Uttar Pradesh.
(iii) As per section 12(8) of the IGST Act, 2017, the place of supply of s ervices by way
of transportation of goods, including by mail or courier provided to an unregistered
person, is the location at which such goods are handed over for their transportation.
Since in the given case, the recipient – Aatmaram – is an unregistered person, the
place of supply is the location where goods are handed to Gokul Carriers over for
their transportation, i.e. Kanpur.
(iv) As per section 12(12) of the IGST Act, 2017, the place of supply of banking and
other financial services, including stock broking services to any person is the
location of the recipient of services in the records of the supplier of services. Thus,
in the given case, the place of supply is the location of the recipient of services in
the records of the supplier bank, i.e. New Delhi.
(v) As per section 13(4) read with section 13(6) of the IGST Act, 2017, where services
supplied directly in relation to an immovable property are supplied at more than
one location, including a location in the taxable territory, the place of supply is the
location in the taxable territory. Since in the given case, the immovable pro perties

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 74 FINAL (NEW) EXAMINATION: MAY, 2021

are located in more than one location including a location in the taxable territory,
the place of supply of architect service is the location in the taxable territory, i.e.
Pune.
18. Computation of ITC available with Paridhi Ltd. in January

S. Particulars Amount
No. (`)
1. Capital goods Nil
[Since depreciation has been claimed on the tax component of
the value of the capital goods, ITC of such tax cannot be availed
in terms of section 16 of the CGST Act, 2017.]
2. Goods purchased from Rupesh Enterprises Nil
[ITC in respect of goods not received cannot be availed (Section
16 of the CGST Act, 2017). Since the goods have been received
in the month of April, ITC thereon can be availed in April and not
January even though the invoice for the same has been received
in January.]
3. Cars purchased for making further supply Nil
[Though ITC on motor vehicles used for further supply of such
vehicles is not blocked, ITC on goods destroyed for whichever
reason is blocked (Section 17(5) of the CGST Act, 2017).]
4. Goods used for setting telecommunication towers Nil
[ITC on goods used by a taxable person for construction of
immovable property on his own account is blocked even when
such goods are used in the course or furtherance of business
(Section 17 of the CGST Act, 2017).]
5. Goods purchased from Sumo Ltd. 10,000
[ITC can be claimed provisionally in January since all the
conditions necessary for availing the same have been complied
with (Section 16 of the CGST Act, 2017). However, the claim
will get confirmed only when the tax charged in respect of such
supply has been actually paid to the Government.]
6. Trucks purchased for delivery of output goods 80,000
[ITC on motor vehicles used for transportation of goods is not
blocked (Section 17(5) of the CGST Act, 2017).]
Total ITC available with Paridhi Ltd. 90,000

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19. Computation of assessable value of the imported goods

Japanese Yen
Cost upto port of exportation 5,00,000
Add: Loading charges at the port of exportation [Note-1] 1,25,000
Total in Japanese Yen 6,25,000
`
Total in Indian rupees @ ` 0.68 per Japanese Yen 4,25,000.00
Add: Commission paid to local agent of exporter [Note-3] 50,000.00
FOB value as per customs 4,75,000.00
Add: Freight charges from port of export to port of import in India 34,000.00
[Note-1]
[50,000 Japanese Yen × 0.68 = ` 34,000]
Add: Lighterage charges paid by the importer at port of importation 30,000.00
[Note-1]
Add: Insurance charges @ 1.125% of FOB [` 4,75,000 × 1.125%] 5,343.75
[Note-4]
CIF value 5,44,343.75
Assessable Value (rounded off) 5,44,344
Add: Basic customs duty @ 10% of ` 5,44,344 (rounded off) (A) 54,434
Add: Social welfare surcharge @ 10% of ` 54,434 (rounded off) (B) 5,443
Total 6,04,221
Add: Integrated tax @ 12% of ` 6,04,221 (rounded off) (C) 72,507
Total custom duty and integrated tax payable [(A) +(B) + (C)] 1,32,384
(rounded off)
Notes:
(1) The cost of transport, loading, unloading and handling charges associated with the
delivery of the imported goods to the place of importation are includible in the
assessable value [Rule 10(2) of the Customs Valuation (Determination of Value of
Imported Goods) Rules, 2007 (hereinafter referred to as CVR)]. Further, explanation
to rule 10(2), inter alia, clarifies that cost of transport of the imported goods includes
lighterage charges.
(2) Design and engineering work is includible in the assessable value only when the
same is undertaken elsewhere than in India and necessary for the production of the
imported goods [Rule 10(1) of the CVR].

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 76 FINAL (NEW) EXAMINATION: MAY, 2021

(3) Buying commission is not included in the assessable value [Rule 10(1) of the CVR].
Commission paid to local agent of exporter is includible in the assessable value since
it is not buying commission.
(4) Since the insurance cost is not ascertainable, the same shall be added @ 1.125% of
FOB value of the goods [Rule 10(2) of the CVR].
20. The quantum of anti-dumping duty is:
(i) margin of dumping
or
(ii) injury margin
whichever is lower.
Margin of dumping is the difference between export price and normal value of the imported article.
Injury margin is the difference between the fair selling price [non-injurious price (NIP)] due
to the domestic industry and the landed value of the dumped imports.
Export price in relation to an article, means the price of an article exported from the
exporting country or territory. KTU Limited has imported the goods at USD 180 per piece.
Thus, export price is USD 180 per piece.
Normal value in relation to an article, means comparable price, in the ordinary course of
trade, for the like article when destined for consumption in the exporting country or territory
as determined in accordance with the rules. Since Country Z sell the like goods in its
domestic market in the ordinary course of trade at USD 300 per piece, thus normal value
in the given case is USD 300 per piece.
Fair Selling Price (FSP) [Non-Injurious Price] is that level of price, which the industry is,
expected to have charged under normal circumstances in the Indian market during the
period defined. Since the imported goods are sold in domestic Indian Industry @ USD 275
per piece, thus Fair selling price in the present case is USD 275 per piece.
Landed Value is taken as the assessable value under the Customs Act and the applicable
basic customs duties except CVD, SAD and special duties. Landed value in the given
case is USD 190 per piece.
In the given case, anti-dumping duty per piece is:
(i) Margin of dumping is USD 120 [USD 300- USD 180]
or
(ii) Injury margin is USD 85 [USD 275 – USD 190]
whichever is lower i.e. USD 85
Anti-dumping duty for 800 pieces (in rupees) = USD 85 × 800 pieces × ` 72
= ` 48,96,000.

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 PAPER – 6
INTEGRATED BUSINESS
SOLUTIONS

QUESTIONS

Case Study-1

About Case Study

Airlines
Industry
Financial Reporting, Corporate Law, Indirect Tax, Auditing,
Subjects Strategic Cost Management
Ind AS 115, GST on airport levies, Risk in a Statutory
Topics Audit, SA 240, Kano’s Model, Porter’s Five Forces, Section
161 of the Companies Act 2013, Regulation 17A of the
SEBI (LODR) Regulations 2015, Balanced Scorecard

Civil Aviation Industry and Company Outlook

Aviation industry has the power to change the economic landscape of a
country. Connectivity is important for generation of economic growth, trade,
and tourism. Millions depend on this industry for their employment, either
directly or indirectly. In the recent past, the entire industry worldwide was
cripped by the COVID-19 pandemic. The years 2020 and 2021 proved to be
the most trying and difficult period for all companies within this industry.
“When everything seems to be going against you, remember that the airplane
takes off against the wind, not with it”. Who should know better than Krishna
Gupta who is the Managing Director of KG Airlines, one of India’s leading
airlines? The quote hangs on the wall at the entrance to KG Airlines’
headquarters in Gurugram.

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It has taken few years to rebound back to normal scale of business operations.
With the impact of COVID-19 subsiding and the easing of travel restrictions,
there has been a rebound passenger traffic.
Indian economy is being considered as one of the fastest growing economies,
with projections for a GDP growth of 7% year on year. Private consumption,
growing economic activity in both manufacturing and service sectors has
spurred growth since 2022. Post pandemic, with the easing of restrictions on
civil aviation that appetite of consumers to travel has increased manifold.
In India, the passenger traffic has increased since 2022. With rise in disposable
incomes, rapid urbanisation and increase in working class population, the
growth in the demand for air travel is expected to persist. Tier 2 and Tier 3
cities are also expected to play a pivotal role due to greater spread of
economic activity and increasing population in these cities. The government is
focussed on building and expanding modern infrastructure facilities across the
country in order to support the domestic civil aviation industry. Almost 100
more new airports will be operational by 2028 giving scope for development
of new regional route that can provide excellent connectivity within India. It is
expected that domestic aviation requires at least 4,000 fleets within the next
two decades in order to meet the anticipated growth in demand.
KG Airlines
Founded in 1996 by Krishna Gupta of KG Partners and D Gupta, KG Airlines
has evolved into a significant player in the aviation industry. KG Partners holds
a 59% stake in KG Airlines, while D Gupta's Singapore company, DG Assets,
owns 41%. In August 1999, KG Airlines placed a firm order for fifty A320-200
aircraft, with plans to commence operations in mid-2000. The airline received
its inaugural aircraft on 10 August 2000, nearly a year after the initial order.
The maiden flights connected New Delhi to Mumbai. By the close of 2022, KG
Airlines boasted a fleet of 270 aircraft, and an additional 40 were acquired in
December 2023, solidifying its presence in the aviation market. Presently, KG
Airlines serves approximately 49 cities across 25 states, carrying a total of 90
million passengers. Traded under the symbol "KGA" on NSE, KG's Board of
Directors operates from its Gurugram office. A concise overview of the Board
of Directors' profiles is provided in Annexure A.

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Selection of Business Model

The growth trajectory of the industry holds significant potential. Several Board
meetings have taken place in the past three months to discuss the optimal
strategies for expanding KG Airlines’ business. During the meeting,
enthusiastically, Managing Director exclaimed, "The future abounds with
enticing opportunities, catering to both full-service airlines, boasting premium
offerings and employing a product differentiation strategy, and low-cost
airlines, capitalizing on a cost advantage strategy." Many business propositions
for both these models were prepared, analysed, and discussed in depth.
After thorough study and deliberation, it was decided that KG Airlines had
better prospects by developing as a low-cost airline. The focus for the next
few years will be on the domestic civil aviation sector.
Transitioning to a new business model, KG Airlines has redefined its mission,
vision, and purpose as under–
The Mission − “KG Airlines is on a mission to provide connectivity with speed
and reliability, making travel hassle free and affordable for our guests.”
The Vision − “To be a leader in aviation by offering unmatched connectivity in
and with India. Speed in and out of India with ease.”
The Purpose − “Be our Guest, we connect you to your world.”
The airline aims to build a loyal customer base by (1) providing affordable
rates, (2) on-time performance and (3) courteous and hassle-free service.
These are reassurances that KG Airlines wishes to provide its customers
(guests/ passengers).
Moreover, KG Airlines also envisions growth in size and scale. With 100 more
airports coming up within India, KG Airlines aims to increase its fleet size by
leasing aircrafts, develop more routes and provide unmatched connectivity to
its customers. The expansion project is expected to be substantial, with an
initial investment of at least a few hundred crore of Indian Rupees.
Operational Challenges in the Airline Industry
The management at KG Airlines soon realizes that there are multiple
roadblocks to this expansion project. Increase in fleet size, development of
more routes and providing unmatched connectivity all require one key
element – more aircrafts. Unfortunately, in the current global scenario due to

3 MAY 2024 EXAMINATION

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disruptions in the supply chain, aircrafts are in short supply. Moreover, the
compounding effect of rising operational costs is exerting substantial pressure
on margins, and the availability of spare parts poses a significant challenge for
KG Airlines.
Aircraft and spare parts availability: One of the key impacts of the
pandemic has been the disruption in supply chain in aircraft manufacturing
and subsequent shortage of engines worldwide. Manufacturers have been
unable to keep pace with growing global demand from airline companies.
Market expansion plans by operating new routes have been delayed due to
unavailability of additional aircrafts. Therefore, many airlines are extending the
existing leases of their current fleet in order to keep up with the operations.
Over and above this, many of the existing aircrafts have had to be grounded
due to unavailability of spare parts. Therefore, there has been a shortfall in the
deployment of capacity to meet customer demand on many routes.
Due to lop-sided demand-supply of aircrafts, aircraft lessors, who supply the
aircrafts on lease, have been increasing the lease rental. This has increased the
cost of operations substantially.
Increase in the cost of operations: Jet fuel prices have been very volatile and
has been on an upward trend in the recent years. Consequently, KG Airlines
regularly monitors the fuel prices and assesses their impact on profitability.
But it has not taken use of financial instruments to hedge the exposure.
Another critical cost component for KG Airlines is the cost of leasing and
operating aircrafts, which includes lease rental, maintenance and depreciation
/ amortization. As mentioned earlier, these costs are also on the rise.
In addition to fuel and aircraft-related costs, there is a high demand for pilots,
as well as flight and cabin crew members. Consequently, flight crew salaries
and expenses have been on the rise.
The cumulative effect of increasing operational costs, including high fuel
costs, lease rentals, and personnel costs, has exerted immense pressure on
operating margins.
Margins under pressure: The senior management has emphasized the
necessity to pass on the increased costs to the customer. However, operating
in an intensely competitive market presents a challenge, as there is a limit to
how much ticket fares can be raised without losing competitiveness. This is

4 MAY 2024 EXAMINATION

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INTEGRATED BUSINESS SOLUTIONS

particularly crucial for KG Airlines, which, as a low-cost carrier, has engaged in

code-sharing arrangements with partner airlines on specific routes to meet
the rising demand and generate profits.
Maintaining profitability in the market-driven passenger ticket fare
environment requires KG Airlines to focus on driving cost efficiency.
Consequently, the airline has observed a gradual depletion of its cash reserves
due to these factors.
Operational Highlights of KG Airlines

Particulars FY 2023 FY 2022

Available Seat Kilometers (ASK) (in million) 1,14,000 70,400
Revenue Passenger Kilometers (in million) 94,000 52,000
Passenger Load Factor (%) 82.45% 73.86%
Cost per Available Seat Kilometer (CASK) 4.85 4.65
Revenue per Available Seat Kilometer (RASK) 4.80 3.70
Passenger traffic 90 million 75 million
Average % of scheduled flights cancelled * 1.00% 0.45%
On Time Performance (OTP)** in % 88% 80%
Number of unresolved customer complaints 10 4
*Reasons for increase in fight cancellation were primarily on account of
mechanical faults and software glitches that need to be fixed along with
unavailability of spare parts. In addition to technical and commercial reasons
for cancellations, flights were also cancelled due to non-availability of
requisite staff, particularly pilots and cabin crew. The staff attrition rate at KG
Airlines has increased from 10% in 2022 to almost 15% this year. HR exit
interviews have indicated that low pay scales as compared to market rates,
combined with long work hours, are the primary reason for employee attrition.
Whenever a flight is cancelled, the airline has to arrange for an alternate flight
or provide a refund to the passenger. In exceptional cases, compensation may
have to be paid to the passenger.
** On Time Performance (OTP) is compiled at four metro airports Mumbai,
Delhi, Hyderabad, and Bangalore. For delays beyond 2 hours, airlines have to
pay compensation ranging from ` 5,000 to ` 20,000 for domestic flight.

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Turnaround time is the time between aircraft landing and take-off. The
turnaround process is a joint effort of both the ground team and the flight
crew. Besides loading and unloading of passengers, aircrafts are cleaned,
inspection and maintenance work is carried out. Aircrafts are also refuelled
during this time. The average turnaround time is approximately 1 hour for
each aircraft. A fast turnaround time ensures that the aircraft is available for
the next travel leg quickly, thereby improving asset utilization. Hence,
efficiency in these operations will impact revenue generation. Faster the
turnaround time of planes on the ground better the prospects for revenue
generation.
At the same time, in the pursuit of fast turnaround time, it is critical not to
compromise on aircraft safety. Incidents related to safety issues are taken
seriously not just by the company but also by the Director General of Civil
Aviation (DGCA), the regulatory authority in India. Hence, safety record is also
paramount to business operations.
An analysis at KG Airlines of the recent reports for delays in turnaround time
and safety incident records has indicated a shortage of technical staff to
inspect, detect and report faults in aircraft. The existing staff is overworked.
Hence, KG Airlines plans to hire additional 100 engineers across India who can
be trained at their internal training department.
As mentioned above, the number of passengers flown by KG Airlines have
grown from 75 million in 2022 to 90 million in 2023. Until now there have
been only few airlines within the civil aviation industry in India. KG Airlines has
managed to capture majority of the traffic in certain routes. However, with the
expected potential for growth within the industry, there may be more airlines
that may be able to operate in these routes. Therefore, it is very important for
KG Airlines to perform efficiently and manage its routes effectively.
Fare Structure in Airline Operations
A ticket worth ` 10,000 is sold at 5% discount per passenger. GST rate @5% is
collected on this sale. Aviation security fee is charged at ` 500 per passenger
and user development fee is charged at ` 250 per passenger. Airlines collect
the aviation security fee from passengers when they book their tickets. This is
passed to the government. This fee is used to fund the security arrangements
at airports around the country. User development fee or Passenger service fee
are levied by the airline when passengers book the ticket. They are then

6 MAY 2024 EXAMINATION

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INTEGRATED BUSINESS SOLUTIONS

passed onto the airport operator like the government owned Airport Authority
of India (AAI) or to other private operators who have the license to operate
the airport. In return for this collection service the airline is compensated at
the rate of ` 5 per passenger from whom these fees are recovered.
The financial statements of KG Airlines are prepared in accordance with the
Indian Accounting Standards (Ind AS). This commitment to compliance is
evident in the extracts extracted from 'Management's Responsibility for
Financial Statements,' which are provided in Annexure-B.
Strategy
To operate as a low cost, high efficiency airline, KG Airlines has the following
strategy in place:
Fleet management: The fleet will be of single type of aircraft to reduce
maintenance and operational costs. Planes will be leased rather than bought
outright. Economy seat will be the only seat class offered.
Building digital capabilities: Digitalize processes to make them efficient,
error free and cost effective. KG Airlines already has an online booking and
check in system in places. It plans to encourage passengers to utilize these
tools to plan their travel. These measures will reduce reliance on human
intervention and can help rationalize cost. Human resources freed up from
digitalization can be used for other value adding activities. Also, commission
paid to travel agents can be saved by introducing online booking services.
Digitalizing processes can also aid the company’s capabilities to scale up its
operations in future. While the digitalization of processes brings significant
benefits, scheduled maintenance activities remain crucial for ensuring the
efficiency and safety of airline operations.
Ancillary services: Inflight entertainment, food and beverage will be charged
extra and not included in the ticket cost. KG Airlines aims to generate
additional revenue through an attractive choice of in-flight entertainment,
food and beverage based on popular demand. For this, it can partner with
renowned in-flight service providers as well as food and beverage suppliers
who can cater to wide range of customer preferences. By charging premium
rates for these ancillary services, KG Airlines can improve its revenue yield.
Managing customer loyalty: KG Airlines’ management is keen on getting
recognition by winning high profile awards for its various services as well as

7 MAY 2024 EXAMINATION

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by getting above average ratings from various rating agencies. On time

performance, customer satisfaction, value for money are criteria which are
considered for awards and ratings.
The management has realized that value for money is partly driven by the
redemption choices that customer loyalty programs offer. If passengers are
allowed to redeem reward points towards another flight ticket, it takes away
the opportunity to earn regular revenue. This is because, a seat in a flight has
to be offered at a discounted rate while outside this program it would have
earned the regular full ticket revenue. On routes that have a high passenger
traffic, this would be a source of loss of regular revenue to the airline.
At the same time attractive loyalty reward programs are the best way to build
and retain customer bases. While reward points are being granted, it was
found that passengers were not completely satisfied with the range of choices
offered for redemption. There has been huge number of unredeemed reward
points. To bring a quick churn in redemption of reward points, thereby
increasing customer satisfaction, KG Airlines plans to partner with stores in the
airport which can accept passenger loyalty points. The passenger can redeem
points from the program at these stores and get good value for money. At the
same time, KG Airlines does not compromise on avenues to earn entire ticket
fare of a seat.
Workforce management: High attrition rate of 15% is impacting operations.
HR exit interviews indicate long work hours, low pay scale and lesser
opportunities for career growth as primary reasons for high attrition. KG
Airlines plans to have tie ups with training colleges and other technical
institutes where technical staff and crew members can be trained in the latest
developments in aviation. This will allow for personnel growth and improve
staff morale. Attractive pay package, reward and recognition programs based
on performance track record is being worked out to curb attrition. Improve
amenities like staff mess, transportation from work to home, recreation rooms,
off-site team building events are being planned out.
Performance Measurement System
The management has recognised that, with an increase in size and scale, the
need arises to develop and align resources (people, technology, and
processes) to deliver on the three reassurances provided to customers, which
are stated above. In the highly competitive airline industry, the top

8 MAY 2024 EXAMINATION

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INTEGRATED BUSINESS SOLUTIONS

management of KG Airlines desires a comprehensive view of its business

regularly. Hence, they have adopted the Balanced Scorecard to access to
information in a crisp and concise manner.
Given the challenges of rising costs, decreased profit margins and other
business uncertainties, the airline aims to adopt “operational efficiency and
performance” as its strategic theme for the coming years. A Balanced
Scorecard is being prepared to understand the current performance across the
four perspectives: financial, customer, internal business processes, and
learning & growth.
Annexure-A: Board of Directors
Jai Kumar, Chairman and A business leader, technocrat and academic,
Non-Executive Independent having worked in Australia, Europe, and Asia
Director through a career spanning over 30 years.
Ana Maria, Non-Executive With more than 25 years of extensive experience,
Independent Director Ana holds the position of Managing Partner at a
renowned law firm. Her broad and varied
representation of public and private
corporations, alongside other entities, before
various National Courts, Tribunals, and Legal
Institutions has earned her acclaim on both
national and international fronts.
K. Srinath, Non-Executive Srinath, who founded a technology company
Independent Director during his early twenties, has a track record of
developing numerous successful businesses. In
2021, he sold his business interests and was later
invited to serve as a non-executive board
member for KG in 2022.
Krishna Gupta, Promoter Krishna is also the Group Managing Director of
and Managing Director KG Partners. He holds a degree in electrical
engineering from the MIT.
M. Sridharan, Non-Executive Sridharan, currently serving as a Governance
Director Consultant, brings extensive experience
collaborating with government, regulatory
bodies, investment institutions, and banks.
Harsh Mittal, Non-Executive Harsh, is a fellow member of the Institute of
Director Chartered Accountants of India and is a graduate
in Economics from Delhi University.

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Markus J., Non-Executive Markus, an aviation industry veteran, with an

Director illustrious career spanning over 36 years.
K.B. Chakraborty, K.B. had a successful career as a marketing
Independent Director* executive, serving as Marketing Director of a
major quoted engineering company until he
retired in 2015. K.B. is fellow of CSEP. He is also
an Independent Director on the Boards of
several companies.
Ravi Kishan (Retd.) Ravi trained as a commercial pilot. He flew long-
haul flights with a major airline for much of his
career, before being promoted to chief pilot. He
retired from flying in 2022. He was then invited
to join KG’s Board.

*K.B. was appointed as a casual vacancy director on 3 rd September 2023. His

appointment was subsequently approved by the members in the immediate next
general meeting.
Annexure-B: Extracts from Management’s Responsibility for Financial
Statements
The Company’s Board of Directors is responsible for the matters stated in section 134(5)
of the Act with respect to the preparation of these individual financial statements that
give a true and fair view of the financial position, financial performance, ----- in
accordance with the Ind AS and other accounting principles generally accepted in India.
This responsibility also includes maintenance of adequate accounting records in
accordance with the provisions of the Act for safeguarding of the assets of the company
and for preventing and detecting frauds and other irregularities---- relevant to the
preparation and presentation of the financial statements that give a true and fair view and
are free from material misstatement, whether due to fraud or error.

Multiple Choice Questions

(Provide the correct option to the following questions)
1.1 Aircrafts operated by KG Airlines, whether owned or leased require
periodic maintenance. These are high value costs. As of the reporting
date, provisions need to be made for these expenses based on number
of variable factors and assumptions, likely utilization of the aircraft,
expected cost of these high value maintenance on a future date,
condition of the aircraft engine etc. Due to the complexity and
subjectivity of these conditions, auditors rely on management

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judgement in order to quantify the amount of provision to be made.

This would be an example of which type of risk in a statutory audit:
(a) Inherent risk
(b) Control risk
(c) Detection risk
(d) Contract risk
1.2 The Cashier committed fraud and absconded with the proceeds. The
Chief Accountant was unaware of when the fraud occurred. During the
audit, the auditor failed to discover the fraud. However, after completion
of the audit, the Chief Accountant discovered the fraud, and an
investigation indicated that the auditor did not exercise proper skill and
care, performing the work in a desultory and haphazard manner.
Which of the following statements accurately characterize the situation
and the subsequent action:
(i) The auditor exhibited due diligence and careful conduct
(ii) Clause (7) of Part I of Second Schedule to Chartered Accountants
Act, 1949 and SA 240 are relevant in this situation
(iii) The auditor failed to plan and perform the audit with an attitude of
professional skepticism
(iv) A Chartered Accountant in practice will be deemed guilty of
professional misconduct based on clause (7) of Part II of the
second schedule to Chartered Accountants Act, 1949
Options
(a) Only (iv)
(b) Both (ii) & (iv)
(c) Both (ii) & (iii)
(d) Both (i) & (iii)
1.3 KG Airlines has decided to remove of expiration date on the frequent
flyer miles. It has done this to improve customer satisfaction of its flyers.
Using the Kano Model, which of the following attributes of the Kano
Model does this pertain to:

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(a) Threshold attribute

(b) Performance attribute
(c) Reverse quality
(d) Delight attribute
1.4 Assuming that Mr. Stephen is eligible to be appointed as a director. In
line with requirements, KG Airlines aimed to fill up the vacancy caused
by resignation of Mr. K.B. Chakraborty by nominating Mr. Stephen as an
Independent Director. However, Mr. Ravi Kishan, a Board Director
objected, contending that Mr. Stephen lacks eligibility for the Board
position due to already occupancy of a position of independent director
in 3 listed entities. Evaluate Mr. Ravi's claim regarding Mr. Stephen's
suitability for the position of Independent Director on the Board.
(a) Yes, contention of Mr. Ravi Kishan is correct regarding Mr. Stephen
that he is ineligible to be appointed being Independent Director in
already 3 listed entities. Mr. Stephen cannot be appointed in
KG Airlines.
(b) No, contention of Mr. Ravi Kishan is incorrect regarding
Mr. Stephen’s appointment as he eligible to be appointed in
maximum twenty companies. Mr. Stephen can be appointed in
KG Airlines.
(c) No, contention of Mr. Ravi Kishan is not correct regarding
Mr. Stephen’s appointment as he eligible to be appointed in
maximum ten public companies. Mr. Stephen can be appointed in
KG Airlines.
(d) No, contention of Mr. Ravi Kishan is incorrect regarding
Mr. Stephen’s appointment, as he eligible to be appointed in
maximum seven listed entities. Mr. Stephen he can be appointed in
KG Airlines.
1.5 Given are few parameters that need to be considered while using
Porter’s Five Forces Model. Match the parameter to the appropriate
category of the model:

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Parameter Porter’s Five Forces

a. Congestion in airports due to non- i. Threat of substitutes
availability of parking space.
b. Reduced need to travel due to ii. High supplier power
remote working capabilities
c. Low switching costs to choose iii. Threat of new entrants
between airlines
d. Favourable government policies iv. High customer power
towards investments in aviation
sector

Options
(a) a- ii, b- i, c- iv and d- iii
(b) a- ii, b- iv, c- i and d- iii
(c) a- iii, b- iv, c- i and d- ii
(d) a- iii, b- iv, c- ii and d- i
Descriptive Questions
1.6 CONSTRUCT a Balanced Scorecard table for KG Airlines, identifying two
goals along with corresponding performance measures for each
perspective. EVALUATE the relevance of these goals and performance
measures to KG Airlines.
1.7 On 19th October 2023 Mr. K.B. resigned after working about 45 days as a
director. The Board wishes to fill up the said vacancy by appointing
Mr. Stephen in the capacity of independent director in the forthcoming
meeting of the Board. The Board Meeting is scheduled on 31 st December
2023.
(a) ADVISE the Board, keeping in view the provisions of the
Companies Act, 2013, with respect to appointment of Mr. Stephen.
(b) FIND the maximum time period within which the proposed
appointment of Mr. Stephen can be made in the company.

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1.8 To recognize ticket sales from the flights KG Airlines operates, you are
required to answer the following questions:
(a) DETERMINE the transaction price of KG Airlines in the given case,
as per Ind AS 115. How should it recognize revenue of tickets
related to scheduled future flights?
(b) Does KG Airlines have to pay GST on airport levies like user
development fee, passenger service fee, etc. collected from the
passengers? Briefly DISCUSS.
(c) Does KG Airlines have to pay GST on the collection charges of ` 5
charged for the collection service provided by the airline to the
airport operators? Briefly DISCUSS.
Case Study-2

About Case Study

Steel
Industry
Financial Reporting, Direct Tax, Corporate and Economic
Subjects Laws, Indirect Tax, Advanced Auditing, Assurance and
Professional Ethics
Section 92CE of the Income-tax Act,1961, Section 188 of
Topics the Companies Act, 2013 along with Rule 15 of the
Companies (Meetings of Board and its Powers) Rules,
2014, Provisions of the FCRA Act, 2010, SA 540, SA 320,
Ind AS 20.

Para 1
Yantra Pedasu Ltd. (YPL) is an unlisted public company, incorporated since
2005, engaged in the steel business, with nine directors on its board. There is
a company in Singapore named, SYD Pte Ltd. (SPL) in which it acquired 54%
stake during financial year 2022-23 and thereby it became its first subsidiary
company. Mr. Sunil Verma has been appointed for the second consecutive
term of five years as the managing director of YPL. He has a daughter named,
Mrs. Sunita, who is residing in Singapore since last 6 years and she was
appointed as the director in SPL, during financial year 2023-24, at a monthly
remuneration of SGD 60,000 equivalent to ` 3 lakhs.

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Para 2
For financial year 2023-24, YPL appointed Chappan & Co. as its statutory
auditors in place of its previous auditors. All the formalities as prescribed by
section 139 & 140 of the Companies Act, 2013, were complied with by YPL in
relation to such appointment. Also, Chappan & Co. made a written
communication vide a registered post acknowledgment due to the previous
auditor before accepting such appointment.
CA. Kailash Chappan, one of the senior partners of the firm was appointed as
the engagement partner by Chappan & Co. on such audit assignment of YPL.
While conducting the audit of YPL, CA. Kailash observed that there were
certain accounting estimates made in relation to certain items of financial
statements that might give rise to significant risks and thereby he performed
substantive procedures in accordance with the requirements of SA 330, “The
Auditor’s Reponses to Assessed Risks”.
Further, CA. Kailash determined that there were certain factors that indicated
the existence of certain transactions entered into by YPL for which
misstatements of lesser amounts than materiality for the financial statements
as a whole could reasonably be expected to influence the economic decisions
of users taken on the basis of the financial statements and accordingly, CA.
Kailash lowered his materiality level determined for such transactions.
Apart from conducting the audit assignment, Mr. Kailash also used to solve
the concerns raised by the accountant of YPL with respect to GST and Income
tax matters. One such concern raised by the accountant to him was with
respect to ITC availment under GST, which is briefed as under:
‘The balance of ITC with YPL after discharging the GST liability for April month
was ` 60,00,000. The eligible ITC reflected in GSTR-2B with respect to May
month of YPL was ` 56,00,000 whereas the input tax paid by it on invoices
received during the May month was ` 75,00,000 and the output tax liability for
the month of May was for ` 110 lakhs. So, he was not sure about the amount
of ITC to be availed for the month of May for which he consulted CA. Kailash
and after following his advise, the GST liability for the month of May was
discharged by YPL fully through its balance in electronic credit ledger only.

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Para 3
YPL provides donation every year as a part of its CSR activities to a charitable
trust named Shiksha Kalyan Trust (SKT) engaged in activities of providing
education to poor children. The average net profit of YPL for the past three
years was ` 88 crore. Accordingly, during current financial year i.e. during F.Y.
2023-24, it made a donation of ` 2 crore to SKT as its CSR spend. SPL, its
subsidiary company also proposed to make donation to such trust in India
during the same financial year. However, SKT’s certificate of registration under
the Foreign Contribution (Regulation) Act, 2010, would expire on
20th December, 2023 and it had not applied for renewal of certificate before
that as the Head accountant believed that they could apply for renewal of
registration within one year from the expiry date as per the law and hence
pending but the trustees decided to make an application for renewal for
certificate sooner so that the trust can accept donation from SPL and the same
was done as per the relevant legal provisions.
Para 4
YPL bought a machinery from Dusham Ltd. for its business for which YPL
received a government grant of ` 6 lakhs, the details of machinery are as
follows:

Particulars (`)
List price of machinery (exclusive of taxes and discount) 30,00,000
Corrugated Boxes used for packing the equipment (not 60,000
included in price above)
Discount @ 2% is offered on the list price of the machine -
(recorded in the invoice of the machine)

As a part of its policy, YPL depreciates all its plant and machinery at 20% per
annum on straight-line basis and also it does not claim depreciation on GST
component included in the price of plant and machinery.
Para 5
On 24 th January, 2024, YPL supplied 2000 MT steel pipes to SPL @ ` 1 lakh/
MT on CIF basis. Insurance and Freight of ` 11,000/ MT were included in it.
Also, on 5 th February, 2024, it made a supply of 3000 MT steel pipes to
another Singapore based company, Unno Pte Ltd. (UPL) @ ` 95,000 / MT on

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FOB basis for which payment was to be made of SGD 5,70,00,000 in 3 months
and so in order to protect itself from exchange rate fluctuations., YPL hedged
receipt of such foreign currency in the forward market.
Multiple Choice Questions
(Provide the correct option to the following questions)
2.1 With reference to the information given under Para 5, what amount of
additional tax needs to be paid by YPL if it does not want to repatriate
the excess money with respect to supply of steel pipes to SPL?
(a) ` 22,46,400
(b) ` 25,15,970
(c) ` 31,20,000
(d) No need to pay additional tax as the amount of primary
adjustment does not exceed the prescribed limit.
2.2 With reference to the information given under Para 1, whether any
formalities would have been complied by YPL with respect to
appointment of Mrs. Sunita as a director in SPL?
(a) No, as such appointment did not amount to appointment of Mrs.
Sunita to an office or place of profit in SPL.
(b) Yes, as Mrs. Sunita was a related party to YPL and she would be
drawing a monthly remuneration exceeding ` 2.5 lakhs in its
subsidiary company.
(c) No, as even though Mrs. Sunita was a related party to YPL but she
would be drawing remuneration from SPL, its subsidiary company
and not YPL, itself.
(d) No, as such provisions with respect to related party are not
applicable in relation to a foreign subsidiary company.
2.3 With reference to the information given under Para 2, how much
balance in electronic credit ledger would have been available with YPL
after discharging its GST liability for May month for which Mr. Kailash
was consulted?
(a) ` 11,60,000

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(b) ` 7,10,000
(c) ` 8,80,000
(d) ` 28,75,000
2.4 With reference to the information given under Para 3, till what time
period, SKT had to make an application for renewal of its certificate so
that it might be accepted and the application should have been
accompanied with what amount of fees?
(a) Such application needs to be made within 3 months before date of
expiry and the total fees payable with such application shall be
` 5,000.
(b) Such application needs to be made within 6 months before date of
expiry and the total fees payable with such application shall be
` 5,000.
(c) Such application needs to be made by 31st March, 2023 and the
total fees payable with such application shall be ` 1,500.
(d) Such application needs to be made by 20 th December, 2024 and
the total fees payable with such application shall be ` 6,500.
2.5 With reference to the information given under Para 4, what shall be the
value of supply for the machinery supplied by Dusham Limited to YPL?
(a) ` 30,60,000
(b) ` 25,00,000
(c) ` 35,00,000
(d) ` 30,00,000
Descriptive Questions
2.6 With reference to the accounting estimates (given under Para 2) that
might give rise to significant risks, what Mr. Kailash should have
evaluated in addition to performing procedures as per SA 330?
2.7 With reference to the information given under Para 2, what kind of
factors might be there that would have indicated existence of certain
transactions entered into by YPL for which Mr. Kailash was required to
lower his materiality?

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2.8 With reference to the information given under Para 4, show the
statement of profit and loss and balance sheet extracts in respect of the
grant received by YPL for first year under both the methods as per Ind
AS 20?

SUGGESTED ANSWERS/HINTS

1.1 The correct answer is − (a) Inherent risk.

Reason: Inherent risk is the susceptibility of an assertion to a
misstatement that could be material, either individually or when
aggregated with other misstatements. Provision for high value
maintenance cost is dependent on complex and subjective conditions.
The provision is based on the management’s judgement. If any
assumption or judgement is incorrect, the risk of material misstatement
is high. This is an inherent risk.
1.2 The correct answer is − (c) Both (ii) & (iii).
Reason: In the given case, in the course of audit, auditor failed to
discover the fraud. It is clearly given that investigation indicated that the
auditor did not exercise reasonable skill and care and performed his
work in a casual and unmethodical manner.
According to Clause (7) of Part I of Second Schedule of Chartered
Accountants Act, 1949, a Chartered Accountant in practice is deemed to
be guilty of professional misconduct if he “does not exercise due
diligence or is grossly negligent in the conduct of his professional
duties”.
As per SA 240, "The auditor's responsibilities relating to fraud in an audit
of financial statements", it can be concluded that the auditor did not
plan and perform the audit with an attitude of professional skepticism.
Thus, having regard to this and a fraud has actually taken place during
the year, committed by the absconding cashier, it is reasonable to think
that prima facie there is a case against the auditor for gross negligence.
From the facts given in the case and by applying Clause (7) of Part I of
Second Schedule to Chartered Accountants Act, 1949 and SA 240, it is
clear that the auditor is guilty of professional misconduct.

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1.3 The correct answer is − (d) delight attribute of the Kano Model.
Reason: In general, frequent flyer miles have expiration dates, before
which they can be redeemed. Removal of this expiration date is
something that customers/ flyers would not be expecting.
1.4 The correct answer is − (d) No, contention of Mr. Ravi Kishan is
incorrect regarding Mr. Stephen’s appointment, as he eligible to be
appointed in maximum seven listed entities. Mr. Stephen can be
appointed in KG Airlines.
Reason: As per Regulation 17A of the SEBI (LODR) Regulations 2015, the
directors of listed entities shall with respect to the maximum number of
holding of directorships, can be at any point of time, be not more than
seven listed entities. Provided that a person shall not serve as an
independent director in more than seven listed entities.
Notwithstanding the above, any person who is serving as a whole time
director/managing director in any listed entity shall serve as an
independent director in not more than three listed entities.
1.5 The correct answer is (a) a- ii, b- i, c- iv and d- iii
Reason: Congestion in airports due to non-availability of parking
space→ High supplier power.
Reduced need to travel due to remote working capabilities→ Threat of
substitutes.
Low switching costs to choose between airlines→ High customer power.
Favourable government policies towards investments in aviation sector→
Threat of new entrants.
1.6 Balanced Scorecard Table for KG Airlines, a low-cost high efficiency
airline−
Perspective Strategic Measure Relevance to KG Airlines
Objective
Financial Goal-1 ▪ Lease Cost Input Costs like cost of fuel,
Perspective To lower per annum leasing and labour form a major
costs, improve ▪ Maintenance portion of operating expenses.
cost structure, Cost per To navigate the volatility of
and increase annum fuel prices, the airline must

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asset ▪ Cost per vigilantly monitor and

utilization Available proactively secure competitive
Seat rates for procurement, utilizing
Kilometer financial instruments to hedge
(CASK) against exposure.
In pursuit of its expansion
▪ Cost per project, KG Airlines has chosen
Available to lease planes, deeming it a
Seat more viable option given the
Kilometer - airline’s low cash reserves.
Ex Fuel Nevertheless, opting for an
(CASK-Ex) outright purchase, although
more cost-effective in the long
run, involves a significant
upfront expenditure or
necessitates debt servicing for
acquisition.
CASK is currently ` 4.83 and
likely to increase unless KG
Airlines manages its cost
structure efficiently. To achieve
this efficiency, the airline is
focusing on eliminating non-
value-adding costs. This
includes standardizing seats,
exploring e-commerce channels,
and charging customers
separately for extra amenities
like in-flight entertainment.
Furthermore, KG Airlines has
standardized planes that it
operates in order to reduce
operational costs like
maintenance costs.
KG Airlines’ strategy is to win
market through cost leadership.
Hence, maintaining a lower cost
structure is paramount
importance to the airline.

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Goal-2: To ▪ Revenue per KG Airlines wishes to build a

boost revenue average seat loyal customer base by offering
and broaden kilometre affordable ticket rates priced
revenue (RASK) attractively in this competitive
streams ▪ % revenue market. This will be possible
generated only if costs can be managed
from efficiently. The RASK is currently
ancillary at ` 4.80, which is lower than
activities CASK ` 4.85. This implies that
▪ % revenue the airline is not making
generated sufficiently money to cover its
from new costs. Therefore, the airline
routes should pass on some of the
increase in costs to the
passenger without impacting
demand.
Simultaneously, it should
monitor and enhance the
profitability of its current
customer base. Route planning
should be done to optimize
revenue generation. This will
require KG Airlines to explore
opportunities to improve
revenue streams (eliminate
unprofitable routes, determine
new routes, markets and code
sharing partners, refer internal
perspective).
Moreover, KG Airlines can
improve the value provided to
customers by enhancing
ancillary services, including
inflight entertainment, food and
beverage offerings, and the sale
of mementos, among others.
This would make the overall
bundle more appealing and
potentially increase ancillary
income.

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Customer Goal-1: ▪ Number of Implementing a robust

Perspective Customer repeat Customer Relationship
retention, new customers Management (CRM) system is
customer ▪ Number of crucial for managing the
acquisition high-profile number of repeat customers.
awards won/ Attractive customer loyalty
Latest programs with different
rankings redemption options play a key
▪ Number of role in retaining the customer
new base. Customers will be
customers motivated to travel again with
KG Airlines to earn enough
points for redemption.
Moreover, KG Airlines’s plan to
bring higher churn in
redemption of reward points by
partnering with airport stores is
a win-win strategy to ensure
customer satisfaction while
maintaining profitability.
In addition, enhancing the
brand image through winning
high-profile awards for
various services and securing
above-average ratings from
rating agencies contributes to
both retaining and expanding
the customer base.
Besides, offering better
connectivity through route
planning at attractive prices will
help to grow market share and
acquire newer customers.
Goal-2: ▪ Number of Average % of scheduled flight
Customer flights cancelled increased from 0.45%
Satisfaction cancelled in 2022 to 1% in 2023. This
▪ ‘On time impacts customer satisfaction.
performance Despite this challenge, OTP
” (OTP) statistics has shown
statistics improvement in 2023 compared

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▪ Compensati to the previous year. Improving

on for flight On-Time Performance is
delays and essential to enhance customer
cancellations experience and satisfaction.
▪ Unresolved However, it is necessary to keep
customer compensation for flight delays
complaints and cancellations at minimum.
Building robust capabilities in
operations will reduce instances
of cancellation and delays.
Moreover, unresolved customer
complaints have become
important concerns that
demand attention from higher
management. The volume of
these unresolved complaints has
seen an increase in 2023.
Integrating these initiatives into
a holistic approach is crucial for
ensuring a positive overall
customer experience and
satisfaction.
Internal Goal-1: Flight ▪ ‘On the Fast and efficient turnaround
perspective Operations ground’ times are critical for asset
(Cycle time (turnaround) utilization to generate revenue.
optimization) time At the same time, flight safety is
▪ No. of paramount to running airline
instances of operations. KG Airlines has a
serious responsibility towards the
lapses in society to ensure that safety
flight safety standards are met. Given that
▪ Maintenance the number of flights is likely to
frequency increase from the current
rate number of 310 and passenger
traffic is expected to rise, any
incidents of flight safety
concerns must be given high
priority and resolved effectively.
To address this, increasing
capacity of on- ground technical

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staff by KG Airlines, such as

hiring additional 100 engineers,
will help to improve flight
operations.
Goal-2: ▪ Ratio of Online booking and check-in
Digitalisation online capability will improve business
(to develop booking vs. operations efficiencies.
the online booking To ensure effectiveness, digital
booking & through capabilities must be able
check-in travel agents available at all times to the
system) ▪ Percentage customers. Therefore, downtime
downtime of has to be reduced.
website Given that KG Airlines expects
passenger traffic to grow in the
coming years, digitalizing can
help it scale up operations.
Furthermore, Digitalizing can
also help rationalize
operational costs. This is
because it frees up personnel for
value additive tasks and saves
commission that need to be
paid to travel agents (financial
perspective).
Goal-3: Route ▪ Passenger To foster additional growth, the
Network Load Factor airline can redesign its network
Redesign ▪ Number of and may also explore potential
Routes regional routes and engage in
expected to code-sharing partnerships with
be withdrawn other airlines.
(loss making) Shortage of aircrafts, high
▪ Number of lease rental and other
New Routes operational costs need to be
▪ % of Load for considered while determining
New Route route network.
▪ Time period
to break-even
Learning & Goal-1: Staff ▪ Staff KG Airlines should allow for
Growth Motivation attrition rate personal growth of employees
to combat staff attrition and

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and Loyalty ▪ Staff staff absenteeism. Staff attrition

absentee rate increased from 10% to 15%
rate this year.
▪ The number To mitigate concerns related to
of days dissatisfaction arising from
absent per prolonged work hours and a
employee perceived low pay scale,
▪ Employee implementing a diverse
Feedback approach can be important.
Score Firstly, adopting a
performance-based attractive
pay package can serve as a
powerful motivation, aligning
financial rewards with individual
and team accomplishments.
Secondly, creating a workplace
environment with ample
amenities, favourable to
employee well-being, further
contributes to job satisfaction by
addressing the physical and
mental aspects of the work
experience.
Thirdly, incorporating team-
building exercises can enhance
collaboration, and overall
workplace synergy, helping
mitigate the challenges
associated with extended work
hours.
Goal-2: ▪ Strategic KG Airlines should improve
Functional Skill Ratio and maintain its strategic skill
excellence and ▪ Number of ratio (a metric that quantifies
Leadership days’ the proportion of strategic skills
skills training per possessed by a workforce in
ground crew comparison to the entire skill
member set) through training and
▪ Number of development programs.
training If ground crew are better
programs trained or multiskilled, they

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can reduce the number of

minutes that the plane stays on
the ground, which will result in
fewer planes being required and
therefore lower costs.
Tie up with institutes for
training on latest
developments in aviation and
other programs will allow for
personal growth and career
development. This will retain
skilled high performing staff.

 Two goals, each with two corresponding performance

measures, are sufficient. Additional performance measures have
been included to ensure comprehensive coverage across various
scenarios.
1.7 Section 161(4) of the Companies Act, 2013 provides that if the office of
any director appointed by the company in general meeting is vacated
before his term of office expires in the normal course, the resulting
casual vacancy may, in default of and subject to any regulations in the
articles of the company, be filled by the Board of Directors at a meeting
of the Board which shall be subsequently approved by members in the
immediate next general meeting.
Further, any person so appointed shall hold office only up to the date up
to which the director in whose place he is appointed would have held
office if it had not been vacated.
In view of the above provisions, in the given case, the appointment of
Mr. K.B. Chakraborty in place of the deceased director Mr. Rai was in
order. In normal course, Mr. Mr. K.B. Chakraborty could have held his
office as director up to the date to which Mr. Rai would have held the
same.
However, Mr. K.B. Chakraborty resigned on 19th October 2023 and again
a vacancy has arisen in the office of director owing to resign of Mr. K.B.
Chakraborty who was appointed by the board and approved by

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members to fill up the casual vacancy resulting from Mr. Rai’s demise.
Vacancy arising on the Board due to vacation of office by the director
appointed to fill a casual vacancy in the first place, does not create
another casual vacancy as section 161 (4) clearly mentions that such
vacancy is created by the vacation of office by any director appointed by
the company in general meeting. Hence, the Board cannot fill the
vacancy arising from the resignation of Mr. K.B. Chakraborty who was
appointed to fill as a casual vacancy.
In fact, here the vacancy caused by the resignation of Mr. K.B.
Chakraborty will result in an intermittent vacancy. This vacancy can be
filled as per Rule 4 of the Companies (Appointment and Qualification of
Directors) Rules, 2014 read with Section 149(4) of the Companies Act,
2013.
Following are the answers:
(a) Accordingly, in the light of the said provisions, the Board may
however appoint Mr. Stephen as a director in any capacity either
independent or non-independent, as an additional director under
section 161 (1) of the Companies Act, 2013 provided the articles of
association authorise the Board to do so, in which case Mr.
Stephen will hold the office up to the date of the next annual
general meeting or the last date on which the annual general
meeting should have been held, whichever is earlier. His
appointment, if required, can be regularised in the subsequent
general meeting of the Company pursuant to Section 149 and
other related provisions of the Act.
(b) Whereof, there is an intermittent vacancy of an independent
director, it shall be filled-up by the Board at the earliest but not
later than immediate next Board meeting or three months from
the date of such vacancy, whichever is later.
Here, Board may fill up the vacancy caused by the resignation of
Mr. K.B. Chakraborty by appointing Mr. Stephen in the capacity of
an independent director within 3 months from date of vacancy
(i.e., by 18th of January 2024) or immediate next Board meeting
(i.e. 31st December 2023), whichever is later. Hence the maximum

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time period within which the proposed appointment of Mr.

Stephen can be made is, latest by 18th January 2024.
1.8 (a) Revenue recognition for KG Airlines will be based on Ind AS 115
“Revenue from Contracts with Customers”. Paragraph 47 of Ind AS
115, inter alia states that an entity shall consider the terms of the
contract and its customary business practices to determine the
transaction price. The transaction price is the amount of
consideration which an entity expects to be entitled in exchange for
transferring promised goods or services to a customer, excluding
amounts collected on behalf of third parties. Amounts collected on
behalf of third parties are not economic benefits which flow to the
entity. Therefore, they are excluded from revenue.
As per Ind AS 115, each booking is a contract that the passenger
enters into with KG Airlines. Passenger revenue should be recognized
on flown basis i.e., when KG Airlines provides the transportation to
the passenger. This is when service is rendered to the passenger.
Revenue should be recognized on net of discounts given to the
passengers, amount collected on behalf of third parties, applicable
taxes, and airport levies such as passenger service fee, user
development fee, etc., if any. Fees charged for cancellation of flight
tickets are recognised as revenue on rendering of the said service.
Here, the revenue from sale of ticket that should be reflected in the
Statement of profit and loss of KG Airlines would be ` 9,500 which
would be the airfare charges of ` 10,000 per passenger less 5%
discount given to the passenger which is ` 500.

Particulars Amount (` )
Airfare charges 10,000
Less: Discount @5% 500
Net ticket fare (revenue) 9,500
Add: GST @5% on net ticket fare 475
Add: Aviation security fee 500
Add: User development fee 250
Total amount collected from passenger 10,725

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Note: Since, Goods and Service Tax (GST) @5% is payable to the
government, it does not form part of revenue. Similarly, aviation
security fee and user development fee are payable to the
government and airport operator respectively. Here, the airline
acts only as an agent to collect the money from the passenger and
pass it on to the government or the airport operator. No service is
rendered by the airline to the passenger on this behalf. Therefore,
no revenue should be recognized for aviation security fee or user
development fee by KG Airlines.
However, since the airport operator on whose behalf the user
development fee is collected, compensates KG Airlines for ` 5 per
passenger flown, it would be recognised as revenue in the books
of KG Airlines. Hence, the total revenue of ` 9,505 would be
reflected in the Statement of profit and loss separately as ‘revenue
from sale of tickets’ and ‘other operating revenue’.
Revenue from sale of tickets that relate to scheduled future flights
will be recognised as “unearned revenue”, forming part of current
liabilities. Depending on the facts and circumstances relating to
the contract, the liability recognised represents the entity’s
obligation to either transfer goods or services in the future or
refund the consideration received. In either case, the liability shall
be measured at the amount of consideration received from the
customer.
(b) Services provided by an airport operator to passengers against
consideration in the form of UDF and PSF are liable to GST. PSF
and UDF are levied by the airport operators but are collected by
the airlines. These charges are collected by the airline as an agent
of passengers and is not a consideration for any service provided
by the airlines.
Thus, the amount so recovered by airlines will be excluded from
the value of supplies made by the airline to its passengers. In
other words, the airline shall not be liable to pay GST on the PSF
and UDF (for airport services provided by airport operator),
provided the airline satisfies the conditions prescribed for a pure

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agent under Rule 33 of the CGST Rules, 2017. It is the airport

operator which is liable to pay GST on UDF and PSF.
The airline should separately indicate actual amount of PSF and
UDF and GST payable on such PSF and UDF by the airport
operator, in the invoice issued by airlines to its passengers.
Thus, KG Airlines is not liable to pay GST on airport levies like user
development fee, passenger service fee, etc. collected from the
passengers.
(c) Yes, KG Airlines is liable to pay GST on the collection charges of ` 5
charged for the collection service provided by the airline to the
airport operators. The collection charges paid by airport operator
to airlines are a consideration for the services provided by the
airlines to the airport operator and KG Airlines shall be liable to
pay GST on the same.
2.1 The correct answer is (b) ` 25,15,970.
Reason: As per section 92CE of the Income-tax Act, 1961, the assessee is
required to carry out secondary adjustment where the primary
adjustment to transfer price exceeds Rs. 1 crore and primary adjustment
is made in respect of A.Y. 2017-18 and onwards. Where, as a result of
primary adjustment to the transfer price, there is an increase in the total
income of the assessee, the excess money or part thereof which is
available with the AE needs to be repatriated.
In a case where the excess money or part thereof has not been
repatriated within the prescribed time, the assessee has the option to
pay additional income-tax @ 20.9664% (i.e., tax @ 18% plus surcharge
@ 12% plus cess @ 4%) on such excess money or part thereof, as the
case may be.
YPL and SPL are associated enterprise since YPL is the holding company
of SPL. As the similar goods were sold by YPL to UPL, an unrelated party,
CUP method can be applied for determining the ALP. While applying the
Comparable Uncontrolled Price (CUP) method, the price in comparable
uncontrolled transaction needs to be adjusted to account for difference,
if any, between the international transaction and uncontrolled
transaction and the price so adjusted shall be the ALP.

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Hence, the ALP of steel pipes would be:

(` )
Price per MT of steel pipes to UPL 95,000
Add: Cost of insurance and freight per M.T. 11,000
Arm’s length Price per M.T. 1,06,000

Primary adjustment needs to be made to the total income of YPL for

P.Y. 2023-24, which shall be 2000 MT × (` 1,06,000 - ` 1,00,000) =
` 1,20,00,000.
Here, the amount of primary adjustment is ` 120 lakhs (as calculated
above). Accordingly, the amount of additional tax that needs to be paid
by YPL would be ` 120 lakhs x 20.9664% = ` 25,15,970 (rounded off) if it
does not want to repatriate the excess money with respect to supply of
steel pipes to SPL.
2.2 The correct answer is (b) - Yes, as Mrs. Sunita was a related party to
YPL and she would be drawing a monthly remuneration exceeding ` 2.5
lakhs in its subsidiary company.
Reason: Section 188 of the Companies Act, 2013, along with Rule 15 of
the Companies (Meetings of Board and its Powers) Rules, 2014 contain
provisions which regulate ‘related party transactions’. Further, Section
2(76) of the Act defines who is a ‘related party.
As per Section 2(76), ‘related party’, with reference to a company, means
a director or his relative;
Where the transaction or transactions to be entered into as contract or
arrangement is for appointment to any office or place of profit in the
company, its subsidiary company or associate company at a monthly
remuneration exceeding ` 2.5 lakh as mentioned in clause (f) of sub-
section (1) of Section 188, approval by an ordinary resolution is
required.
The expression “office or place of profit” means any office or place −
(1) where such office or place is held by a director - if the director
holding it receives from the company anything by way of
remuneration over and above the remuneration to which he is

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entitled as director, by way of salary, fee, commission, perquisites,

any rent-free accommodation, or otherwise;
(2) where such office or place is held by an individual other than a
director or by any firm, private company or other body
corporate - if the individual, firm, private company or body
corporate holding it receives from the company anything by way
of remuneration, salary, fee, commission, perquisites, any rent-free
accommodation, or otherwise.
Mrs. Sunita, was the relative of a director of YPL and she was
appointed as the director in its subsidiary company, SPL, at a
monthly remuneration of ` 3 lakhs during F.Y. 2023-24, the
remuneration of which she was entitled to as a related party to the
director of YPL holding a place of profit in SPL as its director and
no information is given that anything over and above such
remuneration was paid or to be paid her. Accordingly, such
appointment of her would amount to appointment to an office or
place of profit in SPL w.r.t. YPL and accordingly, the required
formalities would need to be compiled with by YPL with respect to
such appointment of Mrs. Sunita as a director in SPL, i.e. this
contract shall be entered into with the prior approval of the
company (YPL) by passing an ordinary resolution.
2.3 The correct answer is (b) - ` 7,10,000.
Reason: ITC on all invoices/debit notes which are uploaded by the
suppliers in their GSTR-1s can be availed in full. The recipient gets
details of tax invoices and debit notes uploaded by the suppliers in their
GSTR-1s, in his (recipient’s) GSTR-2B.
However, in respect of invoices/debit notes the details of which are not
uploaded by the suppliers in their GSTR-1s (and hence cannot be seen in
GSTR-2B of the recipient), ITC cannot be availed in terms of Rule 36(4) of
CGST Rules, 2017.
The balance of ITC with YPL after discharging the GST liability for April
month was ` 60,00,000.

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The eligible ITC reflected in GSTR-2B with respect to May month of YPL
was ` 56,00,000 whereas the input tax paid by it on invoices received
during the May month was ` 75,00,000.
Thus, total ITC available for discharging liability for May month =
` 60,00,000 + ` 56,00,000 = ` 1,16,00,000 and the output tax liability for
May month for ` 110 lakhs. So, the balance in electronic credit ledger
that would have been available with YPL after discharging its GST
liability for May month would be ` 1,16,00,000 - ` 1,08,90,000 =
` 7,10,000
As per rule 86B, where the value of taxable supply (other than exempt
supply and zero-rated supply) in a month exceeds ` 50 lakh, amount
available in electronic credit ledger can be utilized only to the extent of
99% of the output tax liability while discharging such tax liability.
Balance 1% of the output tax liability needs to be discharged from
electronic cash ledger.
2.4 The correct answer is (b) - Such application needs to be made within 6
months before date of expiry and the total fees payable with such
application shall be ` 5,000.
Reason: As per the provisions of the FCRA Act, 2010, if the validity of
the certificate of registration of a person has ceased in accordance with
the provisions of Rule 12, a fresh request for the grant of a certificate of
registration may be made by the person to the Central Government as
per the provisions of rule 9.
(1) Period for applying for renewal of certificate: Every person who
has been granted a certificate, shall have such certificate renewed
within six months before the expiry of the period of the certificate.
(2) Filing of an application to CG: An application for renewal of the
certificate of registration shall be made to the Central Government
in electronic form in Form FC-3C accompanied with an affidavit
executed by each office bearer, key functionary and member in
Proforma 'AA' appended to these rules within six months before
the date of expiry of the certificate of registration.

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Every person seeking renewal of the certificate of registration under

section 16 of the Act shall open an FCRA Account and mention details of
the account in his application for renewal of registration.
An application made for renewal of the certificate of registration shall be
accompanied by a fee of rupees five thousand only, which shall be paid
through payment gateway specified by the Central Government.
No person whose certificate of registration has ceased to exist shall
either receive or utilise the foreign contribution until the certificate is
renewed.
If no application for renewal of registration is received or the application
is not accompanied by requisite fee before the expiry of the validity of
the certificate of registration, the validity of the certificate of registration
shall be deemed to have ceased from the date of completion of the
period of five years from the date of the grant of certificate of
registration.
SKT’s certificate of registration under the FCRA Act, 2010, was expiring
on 20th December, 2023 and they had to apply for renewal of certificate
as against what the Head accountant believed. Accordingly, it had to
make an application for renewal of its certificate by 20 th December, 2023
so that it might be accepted and the application shall be accompanied
with fees of ` 5,000.
2.5 The correct answer is (d) - ` 30,00,000.
Reason:
Computation of value of taxable supply for Dusham Ltd.

Particulars (`)
List price of equipment (exclusive of taxes and discount) 30,00,000
Add: Corrugated Boxes used for packing the equipment 60,000
(refer section 15(2)(c) of the CGST Act, 2017)
Total 30,60,000
Less: Discount @ 2% is offered on the list price of the (60,000)
machine (recorded in the invoice of the machine) (refer
section 15(3)(a) of the CGST Act, 2017)
Value of taxable supply 30,00,000

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Note: The government grant has been received by YPL, so there will be
no impact on value of taxable supply due to it for Dusham Ltd.
2.6 As per SA 540, ‘Auditing Accounting Estimates, Including Fair Value
Accounting Estimates, and Related Disclosures’, for accounting
estimates that give rise to significant risks, in addition to other
substantive procedures performed to meet the requirements of SA 330,
the auditor shall evaluate the following:
(a) How management has considered alternative assumptions or
outcomes, and why it has rejected them, or how management has
otherwise addressed estimation uncertainty in making the
accounting estimate.
(b) Whether the significant assumptions used by management are
reasonable.
(c) Where relevant to the reasonableness of the significant
assumptions used by management or the appropriate application
of the applicable financial reporting framework, management’s
intent to carry out specific courses of action and its ability to do
so.
In the given instance, Mr. Kailash should have evaluated the aforesaid
points, in addition to performing procedures as per SA 330.
2.7 As per SA 320, ‘Materiality in Planning and Performing an Audit’,
factors that may indicate the existence of one or more particular classes
of transactions, account balances or disclosures for which misstatements
of lesser amounts than materiality for the financial statements as a
whole could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements include
the following:
• Whether law, regulations or the applicable financial reporting
framework affect users’ expectations regarding the measurement
or disclosure of certain items (for example, related party
transactions, and the remuneration of management and those
charged with governance).

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• The key disclosures in relation to the industry in which the entity

operates (for example, research and development costs for a
pharmaceutical company).
• Whether attention is focused on a particular aspect of the entity’s
business that is separately disclosed in the financial statements
(for example, a newly acquired business).
In the given instance, factors, as aforesaid, might be there that would
have indicated existence of certain transactions entered into by YPL for
which Mr. Kailash was required to lower his materiality as for such
transactions, misstatements of lesser amounts than materiality for the
financial statements as a whole could also reasonably be expected to
influence the economic decisions of users taken on the basis of the
financial statements.
2.8 (a) When grant is treated as deferred income
Statement of profit and loss – An extract

(` )
Depreciation (` 30,00,000 x 20%) 6,00,000
Government grant credit (W.N.1) 1,20,000
Balance Sheet - An extract

(` ) (` )
Non-current assets
Property, plant and equipment 30,00,000
Less: Accumulated depreciation (6,00,000) 24,00,000
????
Non-current liabilities
Government grant (4,80,000 - 3,60,000
1,20,000)
Current liabilities
Government grant 1,20,000
????

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Working Note:
Government grant deferred income account

(` ) (` )
To Profit or loss 1,20,000 By Grant cash 6,00,000
(6,00,000 × 20%) received
To Balance c/f 4,80,000
6,00,000 6,00,000

(b) When grant is deducted from cost of the asset

Statement of profit and loss – An extract

(` )
Depreciation {(` 30,00,000 - ` 6,00,000) × 20%} 4,80,000

Balance Sheet - An extract

(` ) (` )
Non-current assets
Property, plant and equipment 24,00,000
(30,00,000 – 6,00,000)
Less: Accumulated depreciation (4,80,000) 19,20,000

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