CHANAKYA NATIONAL LAW UNIVERSITY

NYAYA NAGAR, MITHAPUR, PATNA- 800001

End Semester Examinations - December, 2020
7th Semester
TAXATION LAWS-I
Total Time: 3 hrs. Maximum Marks: 60
Answer all Questions. Roll No. - _______
Figures in the brackets indicate full marks.

INSTRUCTION: SUPPORT YOUR ANSWERS WITH STATUTORY PROVISIONS AND

JUDICIAL PRECEDENTS.
Group A: Each answer should not exceed 300 words (5x6= 30 Marks)
Write critical notes on the following.
1. Exclusions from the term “Permanent Establishment” under Article 5(3) of the Double Taxation
Avoidance Agreement.
2. Set off of loss from one head against income from another head. (Inter head set off).
3. Deduction u/s 57 (iii) of the Income Tax Act, 1961.
4. Capital Gains Article of the OECD Model.
5. Meaning of the term “Substantial Interest” under Section 64 of the Income Tax Act, 1961.

Group B: Each answer should not exceed 400 words [2x10=20 Marks]
6. The assessee is a partner in the partnership firm, holding ten per cent share in the firm. He created a
trust by a deed of settlement assigning fifty per cent out of his ten per cent right, title and interest, as
a partner in the firm. In the relevant assessment year, he claimed that as fifty per cent of the income
attributable to his share from the firm, stood transferred to the trust resulting in diversion of income
at source, the same could not be included in his total income for the purpose of his assessment.
Decide.
7. Company A Co. is a sourcing entity, for an Indian multinational group, incorporated in a foreign
country, X. Company A is 100% subsidiary of Company B, which is an Indian Company. The assets
of Company A comprise of warehouses and stock in them and are located in country X and 40% of
its total income is passive in nature. Company A has a total of 50 employees. 47 employees,
managing the warehouse, storekeeping and accounts of the company, are located in country X. The
Managing Director (MD), Chief Executive Officer (CEO) and sales head are resident in India. The
total annual payroll expenditure on these 50 employees is of Rs. 5 crore. However the annual payroll
expenditure in respect of MD, CEO and Sales head, who are residents in India is of Rs. 3crore. Decide
whether Company A is engaged in active business outside India clearly explaining the meaning of
expressions “Passive Income”, “Assets of the Company”, “Payroll Expenditure” and “Number of
Employees”.

Group C: Answer should not exceed 600 words [10 Marks]

8. A subsidiary company and its parent company are totally distinct tax payers. The entities subject to
income-tax are taxed on profits derived by them on standalone basis, irrespective of their actual
degree of economic independence and regardless of whether profits are reserved or distributed to the
shareholders. Discuss.