Volume 2 - BB

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CA-FINAL
DIRECT
TAX &
INTERNATIONAL AMENDED BY
TAXATION FINANCE ACT, 2021
MAY &
NOVEMBER AS PER ICAI
2022 SYLLABUS
\lAHle BY CA BHANWAR BORANA
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Direct Tax & International Taxation
COMPACT __________________________ J
Volume -2
For CA Final
May / November, 2022
A l l New Revised Edition A.Y. 2022-23
BY C A B H A N W A R B O R A N A
P u b l i s h e d & Distributed by:
4634/1 P l o t No.19 Ansari Road,

Daryaganj, New D e l h i 1 1 0 0 0 2
Ph.: +91 9958000380
E - M a i l : Contact@makemydelivery.com
Web.: MakeMyDelivery.com
International Taxation (30 Marks)
Content Area
1. Taxation of international transactions and

N o n - resident taxation
(i) Provisions of the Income-tax Act, 1961, including -
(a) Specific provisions relating t o Non-residents
75% - 85% (b) Double Taxation Relief
(c) Transfer Pricing & Other Anti-Avoidance
Measures
(d) Advance Rulings
(ii) Equalisation levy
2. Overview of M o d e l Tax Conventions - OECD & UN
2. 15% » 25% 3. A p p l i c a t i o n a n d interpretation of Tax Treaties
4. F u n d a m e n t a l s of Base Erosion a n d Profit Shifting

INDEX
S No
1. Transfer Pricing 01-32
Section 92 Charging Section 01
- Section 92B International Transactions 01
Section 92A Associated Enterprise 02
- Section 92C Computation of ALP (Methods) 04
- Rule 10CA Range Concept 09
- Section 92CA Reference to TPO 15
- Section 92CB Safe Harbour Rules 16
Section 92CC Advance Pricing Agreement 17
- Section 92CD Effect of APA 18
- Section 92CE Secondary Adjustments 20
Section 92D Documents 25
Section 92E Report of CA 25
- Section 94A Notified Jurisdictional Areas 26
- Section 92BA Specified Domestic Transactions 26
- Section 286 Country by Country Reporting (CbC) 27
Rule 10DA Master File 30
- Section 93 Transfer of Income to NR 31
- Section 94B Limitation of Interest 31
2. Non Resident Taxation 33-85
Section 6(1) Residential Status of Individual 33
- Section 6(1A) Deemed Resident 34
- Section 6(2) Residential Status of HUF/FIRM/AOP/BOI 37
- Residential Status of Company and POEM 37
- Section 115J H Transition Mechanism of Foreign Company 43
- Section 5 Scope of Total income 47
- Section 7 Income Deemed to be Received in India 48
- Section 9 Income Deemed to be accrued or arise in India 49
Business Connections 50
Significant Economic Presence 51
Indirect Transfer 53
- Section 9(1)(v)/(vi)/(vii) Interest, Royalty, FTS 57
- Section 9A Fund Manager of Eligible Fund 61
- Section 10 Exempt Incomes 64
- Chapter Xll-A Taxation of NRI 74
Chapter XII Special Tax Rates 76
- Taxation of GDR 81
- Section 285A Furnishing Info, by Indian Concern 84
- Section 115JG Conversion of foreign branch into Indian Co. 84
3. Double Taxation Relief 86-90
- Section 90/90A Agreement with Foreign Country 86
Section 91Relief in case of NO DTAA 88
Concept of PE 89
- Taxation of BPO units (CBDT Circular) 89 |
4. Advance Ruling 91-96
Section 245N Advance Ruling & Applicant _____ 91
_ Section 245Q Application to AAR/BAR 92
_ Section 245R Procedure 92
Section 245S Applicability of Ruling 93
_ Section 245T Void Ruling 93
_ Section 2450 Composition of AAR 94
_ Section 2450B Board f o r Advance Ruling 95
—
_ Section 245P Vacancies, etc. not t o Invalidate 96
„ Section 245W Appeal t o HC 96
5. Equalisation Levy 97-105
„ Section 163 of FA -16 Applicability of EL 97
_ Section 165 of FA -16 Charge on Specified Service 97
—
_ Section 165A of FA -16 Charge on E -Commerce 98
Section 166/166A of F A -16 Collections & Recovery of EL 99
_ Section 171 of FA-16 Penalty 100
_ Section 167 of FA -16 Filing of Return 101
_ Section 168 of FA -16 Processing of Return 101
. Section 169 of FA -16 Rectification of Mistake 101
_ Section 1 72 of FA-16 Penalty f o r late filing of Return 101
_ Section 174/175 of FA -16 Appeals t o CIT(A)/ITAT 102
_ Section 176 of FA -16 Punishment f o r False Statement 102
_ Section 40(a)(ib) Expenses Not allowed if EL not deducted 103
_ Section 10(50) Income Exempt f r o m Tax 103
6. Model Tax Conventions 106-115
_ Article 1 Person Covered 106
_ Article 2 Taxes Covered 107
_ Article 4 Residence 107
„ Article 5 Permanent Establishment (PE) 108
_ Article 7 Business Profits 109
_ Article 11Interest 110
_ Article 12 Royalty 111
_ Article 12A Fees f o r Technical Service 111
_ Article 13 Capital Gain 111
„ Article 14 Independent Personal Service 112
_ Article 21 Other Income 113
_ Article 23A/23B Elimination of Double Taxation 113
- Article 25 Mutual Agreement Procedure (MAP) 113
- Article 26 Exchange of Information 115
7. Application & Interpretation of Tax Treaties 116-123
- Double Taxation Connecting Factors 116
- Types of Double Taxation 116
- Types of DTAA 117
- Directive Principles by Constitution 117
- Need of Treaty 117
- Basic Principles of Interpretation 118
- Principles of VCLT 120
8. Base Erosion and Profit Shifting 124-142
BEPS & Adverse effect 124
Need of BEPS Action Plan 124
- AP - 1 Digital Economy 125
- AP - 2 Neutralise of HMA 126
- AP-3CFC Rules 128
- AP - 4 Interest Deduction 130
- AP - 5 Counter Harmful Tax Practices 131
- AP - 6 Preventing Treaty Abuse 131
- AP - 7 Avoidance of PE status 133
- AP -8 to 10 Transfer Pricing Related 133
- AP -11Measuring BEPS 134
- AP -12 Disclosure of T ax Planning Arrangement 135
- AP -13 TP Documentation 136
- AP-14 Making dispute resolution effective 138
- AP-15 Multilateral Instrument 138
9. Rule 128 Foreign Tax Credit 143-144
Rate of exchange for conversion into rupees of
10. 145-146
income earn in foreign currency
7 fc
TRANSFER
PRICING
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CA Bhanwar Borana
“Life has got all those twists and turns.
You’ve got to hold on tight and off you go.”
CA Bhanwar Borana
TRANSFER PRICING *
,v
''’
Sec 92 : Any income, expenditure, interest A allocation o f cost in relation of
international transaction or specified domestic transaction shall be computed having
regard to Arm’s length price.
ALP means - Correct market price, fair price.
If due to ALP there is reduction in the income or increasing the losses then transfer
pricing provisions shall not apply.
# Sec 92 B: International Transactions

J It means - (a) Transaction between two or more Associated Enterprises (A.E) A
(b) A t least one must be Non Resident (NR)
Note:
1. Transaction should be in the nature of purchase, sale, lease of property, provision of
service, lending or borrowing of money etc.
2 If both AE’s are NR, then TP shall only apply if income of one of the NR is taxable under
1 IT Act, 1961.
Transaction between enterprise & unrelated person shall be deemed to be international
transaction, if :
a) there exists a prior agreement between AE & unrelated person , or
b) terms of transaction are determined by A.E.
ZZZZZZIIIZZ
YLtd.
Prior agreement between
(A.E.) Y Ltd A A Ltd.
X Ltd.
beemed to be an Unrelated Person
International Transaction A Ltd. (Resident / NR)
In the above example, the transaction between X Ltd. A A Ltd is not an international
transaction but if there is prior agreement between Y Ltd A A Ltd. related to
transaction between X Ltd A A Ltd &. terms are determined by Y Ltd. then t he
transaction between X Ltd. A A Ltd. is treated as deemed to be international
transaction.
CA Bhanwar Borana 01
• TRANSFER PRICING Chanter 1
Sec 92A : Associated Enterprise

Two enterprises shall be treated as AE's if at any time during t h e P.y.:
One enterprise holds at least 26% shares (voting power) of other enterprise.
Any person holds at least 26% shares of each of such enterprise.
Note: Above relationship covered direct as well as indirect control.
Ex’.l Tata Ltd. holds 33% of Voting Power in Tata Motors Ltd. and Tata Motors Ltd.
holds 80% Voting Power in JLR Ltd.
In above situation, Tata Ltd. holds 26% or more voting power in Tata Motors Ltd.,
directly and in JLR Ltd. indirectly (i.e. through Tata Motors Ltd.). Therefore, both
Tata Motors Ltd. & JLR Ltd. are AE's.
Ex: 2 Mr. Tata holds 40% of voting power in both TCS Ltd. and Titan Ltd. where
neither TCS Ltd. has any holding in Titan Ltd. nor Titan Ltd. has any holding in TCS Ltd.
In this situation, since Mr. Tata directly holds 40% of voting power in both TCS Ltd. and
Titan Ltd., TCS Ltd. & Titan Ltd. will be AE's.
One enterprise appoints more than half of the BOD or one or more Executive Director
of other enterprise.
Any person appoints more than half of the BOD or one or more Executive Director of
each of such enterprise.
Ex:l JLR Ltd. has 15 directors on its Board. Out of that, Tata Motors Ltd. has
appointed 8 directors. In such case, JLR Ltd. and Tata Motors Ltd. are AE's.
Ex:2 Mr. Ambani appointed 9 directors out of 15 directors of Jio Ltd. and appointed 2
executive directors on the board of RIL Ltd. In such case, since a common person i.e.
Mr. Ambani appointed more than half of the directors in Jio Ltd. and appointed 2
executive directors in RIL Ltd., both Jio Ltd. and RIL Ltd. are AE's.
A loan given by one enterprise to other enterprise, at least 51% of t he Total assets of
other enterprise.
Ex: Book Value o f total assets of KK Ltd. is 100 crores. BB Ltd. advances loan of 60
crores to KKLtd.
In this case, BB Ltd. advances loan of 60 crores to KK Ltd, which is 60% of the book
value o f total assets o f KKLtd. Hence, BBLtd. & KKLtd. are AE's.
One enterprise guarantees at least 10% of the Total Borrowing of the other enterprise.
Ex: PInc. has total loan of 1 million dollars from XYZ Bank of America. Out of that, A
CA Bhanwar Borana
Chapter 1 TRANSFER PRICING
I
Ltd., an Indian company, guarantees 20% of total borrowings in case of any default
made by P Inc. In such case, since A Ltd. guarantee 20% o f total borrowings of P Inc., P
Inc. and A Ltd. are AE's.
9 The Business o f one enterprise is wholly dependent on knowhow, patent, copy right etc.
o f other enterprise.
Ex: Kia Motors India Ltd. manufactures cars in India using Knowhow of Hyundai
Motors Ltd. south korea.
In this case, Kia Motors India Ltd. business is totally (100%) depends on Knowhow of
Hyundai Motors Ltd. Hence, Kia Motors India Ltd. & Hyundai motors Ltd. are AE's.
h 90% or more of raw material required by one enterprise is supplied by other enterprise,
and t he prices and other conditions relating to t h e supply are influenced by such other
enterprise
Ex : Sam Ltd. USA supplies raw material of 91 Lakhs to BB Ltd. India and Total RM
■ . . .... . .......' ........ ..... ." .. ."... . . .— . -.. .. -.........—..... .....
. .... ■ — ......... ... —. .-.....
used by BB Ltd. is 100 lakhs. In this case Sam Ltd. & BB Ltd. are AE s i f price influenced
by Sam Ltd.
Goods manufactured by one enterprise are sold to other enterprise & price & other
Ex: BB Ltd. of India sells good to Martin Ltd. of Canada.In this case BB Ltd. <& Martin
Ltd. are AE's i f price &. other conditions related to sales is influence by Martin Ltd.
J One enterprise is controlled by individual & other enterprise is controlled by such

individual or his relative or jointly by individual & relative.
Ex : M r . A and Mr. B are relatives. Mr. A has control over X Ltd. and Mr. B has control
over V Ltd. Theref ore, both X Ltd. and Y Ltd. will be deemed associated enterprises.
k
relative of member or jointly by member & relative.
AOP,BOI
m.
CA Bhanwar Borana k 03
i
TRANSFER PRICING Chapter 1
Sec 92C: Computation of Arm length Price

ALP shall be computed as per the most appropriate method out of the following.
xx
(+)/(-) Adj fo r difference between international

Transaction <& comparable uncontrolled transaction xx
ALP xxx
Example-1 : US Ltd., a US company has a subsidiary, IND Ltd. in India. US Ltd. sells
computer monitors to IND Ltd. fo r resale in India. US Ltd. also sells computer monitors
to CAAILtd., another computer reseller. It sells 50,000 computer monitors to INb. Ltd.
at 11,000 per unit. The price fixed for CAAI Ltd. is ?10,000 per unit. The warranty in
case o f sale of monitors by IND Ltd. is handled by INb Ltd. However, for sale of
monitors by CAAI Ltd., US Ltd. is responsible f or the warranty for 3 months. Both US
Ltd. and INb Ltd. offer extended warranty at a standard rate of ?l,000 per annum. On
these facts, how is the assessment of INb Ltd. going to be affected?
Solution: US Ltd., the foreign company and INb Ltd., the Indian company are associated
enterprises since US Ltd. is the holding company of INb Ltd. US Ltd. sells computer
monitors to INb Ltd. fo r resale in India. US Ltd. also sells identical computer monitors
to CAAI Ltd., which is not an associated enterprise. The price charged by US Ltd. for a
similar product transferred in comparable uncontrolled transaction is, therefore,
identifiable. Therefore, Comparable Uncontrolled Price (CUP) method for determining
arm's length price can be applied.
For sale of monitors by CAAILtd., US Ltd. is responsible for warranty for 3 months. The
price charged by US Ltd. to CAAI Ltd. includes the charge for warranty for 3 months.
Hence arm ' s length price for computer monitors being sold by US Ltd. to INb Ltd. would
be:
C o m p a c t \C2
Particular No. Amount

Sale price charged by US Ltd. to CMI Ltd. 10,000
Less: Cost of warranty included in the price 250
charged to CMI Ltd. ( ?l,000 x 3 /12)
Arm's length price 9,750
Actual price paid by INb Ltd. to US Ltd. 11,000
difference per unit 1250
No. of units supplied by US Ltd. to INb Ltd.
A d d i t i o n r e q u i r e d t o b e made i n t h e 50,000
——
computation of total income of INb Ltd.
(?1,2 5 0 * 50,000) 6,25,00,000
2. Resale Price Method (RPM)

Price charged fo r goods sold to unrelated enterprise
(Resale price) XXX
(-) Normal G.P.margin in similar transaction (xxx)

xxx
(-) Purchase related expense (xxx)
ALP xxx
Note: Normally RPM is Applicable when goods purchased from A.E is transferred (sale)
to unrelated person.
Example:
BB Ltd (India) hold 60% equity shares of SAM Inc. (USA). BB Ltd purchased goods
worth ?20,00,000 from SAM Inc. and sold to unrelated person K.K. Ltd in India f or
?30,00,000. BB Ltd. paid ? 3,50,000 as custom duty for import goods from SAM
Inc. Normal GP Margin of BB Ltd in similar uncontrolled transaction is 25%.
Calculate ALP using Resale Price method
CA Bhanwar Borana 05 Compact V-C

< TRANSFER PRICING Chapter 1
' Solution:
Resale Price of goods purchased from SAM Inc 30,00,000
Less- Norma) Gross Profit Margin @ 2 5 % 7,50,000 T

22,50,000
) Less: Expenses connected with purchases 3,50,000
Arm' s Length Price 19,00,000
Increase in income of- BB Ltd. (20,00,000-19,00,000) 1,00,000
3. Cost Plus method (CPM)

Direct cost + Indirec1 cost of production XXX
XXX
XXX
(+)/(-) Adjustment f o r d i f f erence between international

Transaction <& comparable uncontrolled transaction xxx
ALP xxx
Note: Normally CPM is applicable when goods manufactured by one A.E sold A.E. to o t h e r .
4 Prof it split method (PSM)

Normally PSM is applicable where assessee executes an order in j o i n t venture with its
divide that p r o f i t between AEs in t h e ratio o f manpower employed, functions perf ormed
risk taken, etc.
Cost incurred by Assessee xxx

xxx
ALP xxx
Example i.ixc.QTpQn.aijeddJTXJ.IC-Te.cei.Y.ed £y?jdejT.tcTdL y.e.ljap..jaLSxtttWjar.e. fjQLr....lSlci.nja-

Inc. USA and consideration for same is $ 2,00,000. MM Ltd executed such order in
joint venture w i t h BB Ltd & M o d i Ltd India based companies. M o d i ltd holds 30%
equity shares of BB Ltd and 2 7 % equity shares of MM Ltd. Consideration of $
2,00,000 is d i s t r i b u t e d amongst MM L t d , BB Ltd. & M o d i L t d . , $ 1,00,000, $ 50,000 A
$ 50,000 respectively.
' ■• 06 CA Bhanwar Bora

Cost incurred to develop the software is $1,60,000. Relative contributions by MAA

Ltd, BB Ltd <& Modi Ltd. to the earning of such combined net profit on t he basis of
functions performed, risks assumed and assets employed by each enterprise is
r 40:40:20. This evaluation is to be made on the basis of reliable external market data
which can indicate how such contribution would be evaluated by unrelated
enterprises performing comparable functions in similar circumstances. Cost incurred
"r by BB Ltd. is $ 42,000. Calculate ALP for BB Ltd.
Solution : Total Profit from Joint Venture ($ 2,00,000 - $ 1,60,000) = $ 40,000

Distribution o f Profit on relevant contribution ratio:
MM Ltd : $ 40,000 x 40% = $ 16,000
BB Ltd $ 40,000 x 40% = $ 16,000
Modi Ltd : $ 40,000 x 20% = $ 8,000
Calculation of ALP for BB Ltd.
Cost Incurred : $ 42,000
♦Profit $ 16,000
ALP $ 58,000
Profit to be increase, of BB Ltd: $ 58,000 - $50,000 = $ 8,000
Allocation of profits must be made in accordance with one of the following allocation
methods:
(a) Comparable profit split - Under this method, uncontrolled taxpayer's percentage of
the combined operating profit or loss is used to allocate the combined operating
profit or loss of the relevant business activity. (Discussed in above example)
(b) Residual profit split - Following the two-step process:
i. Allocate income to routine contributions
ii. Allocate residual profit
Suppose in the above example, $ 30,000 profit on routine contribution (functional
/assets returns to each party based on market benchmarks) A ratio of routine
contribution is 40:40:20. Balance $10,000 profit based on each party's ownership of
nonroutine intangibles (example network reach, efficiency of sales and marketing
team, etc.) <& ratio of same is equal.
♦ TRANSFER PRICING Chapter 1 ’
distributed in 1:1:1. Total Profit of BB Ltd will be 15,333.33 and ALP shall be (42,000
15,333.33) = 57,333.33.
r
5. Transactional Net margin method (TNMM)
■
Under this method, Profit (Net profit) earned by other players in the same industry |T
under same or similar consideration taken into account for computing ALP. |
# Sec 92C (2): More than one ALP 1

If more than one price is determined as per the most appropriate method t he Average j
(arithmetic mean) of such price shall be ALP (Arm's length price). |
If the difference between Actual Transaction Price & ALP is upto 3% (1% in case of f
— ~ *■ - — — ———~ —.. -----—
wholesale trading) of actual transaction price then such difference shall be ignored & [
actual transaction price shall be treated as ALP. If such difference is more than 3% of |
- - - - - ----- - - - --- -'I....
actual transaction price then entire difference shall be added to the income of assessee. |
"Wholesale trading" means an international transaction or specified domestic |
transaction of trading in goods, which fulfils the following conditions, namely:- |
~~G)" purchase cost of finished goods is 80% or more of the total cost pertaining to such |
tradingactivities; and r
(ii) averagemonthly closing inventory of such goods is 10% or less of sales pertaining to such |
trading activities. : ■.........
■ I...
Example: Actual Transaction Price : 150
ALP as per Most Appropriate Method
1. 145 J
2. 152 J
3. 157
_ .— .....................
. . .. ........... 11—
4. 160
Average of ALP : 153.5 ........ 1.
Allowed difference (Tolerance Band) is 3% of Actual Transaction Price i.e. 150* 3%= 4.5 jl
;j
_ .... . . .—- - -— ' - — -- -
In this case difference between ALP <& Actual Price is up to 3% so Actual Transaction J
■
............. -.. . .-. .
price i.e.150 is treated as ALP. k
-’ ...................................... ■ ci
t
— — ............. .....— Compact V-2 os . CA Bhanwar Borana
a.
......... .......... TRANSFER PRICING
In the following cases ALP shall be computed by A.O.

i) Assessee fails to compute ALP as per most appropriate method.
iv) Assessee fads to furnish info & docs required u/s 9 2 b .

Provided that an opportunity of being heard shall be given by A.O. to the Assessee.
Sec 92C(4): Effect of ALP determined by A.O.

If ALP is computed by A.O. under sub-section (3) then
a. If income of one enterprise is increased by A.O. the income of the other
Associated enterpriseshall not change [unaffected]
b. If jncome of one Associated Enterprise js increased by A.O. then deduction

under chapter VI-A & Sec 10A A shall not be allowed against increased part of its
income.
Rule 10CA : Range concept

a. Arrange th e values in the data set in Ascending order.
b. Arrive at a range starting from " 3 5 t h Percentile’ ’ & ending at "65th Percentile" of
t h e data set.
c. In case the actual transaction price falls within the range (i.e. 35-65 percentiles) then
actual transaction price shall be deemed to be the ALP.
d. In case the actual transaction price does not fall within the computed range, the
Median o f the data set (i.e. 50%) shall be deemed to be the ALP.
e. If 35%, 65%, 50% percentiles computed are not whole numbers then we have to
Example : 7 x 35%tile = 2.45 we have to select 3rd Value in data set.

If 35%, 65%, 50% percentiles computed are whole numbers then we have to consider
mean of value assign at that number and next number.
Example : 2 0 x 3 5 %t i le = 7 we have to take average of value given at number 7 & 8.
CA Bhanwar Borana 09 -
< TRANSFER PRICING Chapter 1
5r.NO 1 2 3 4 5 6 7
ALP 162 158 136 145 170 152 154
Ans: - First arrange all dataset in ascending order

5r.no 1 2 3 4 5 6 7
ALP 136 145 152 154 158 162 170
Now, 3 5t h <& 65th Percentile of dataset shall be computed as f ollows:-
Total no, of values in data-set 7*(35/100) = 2.45
Total no. of values in data-set 7*(65/100) = 4.55
Since 2.45 <& 4.55 are not whole numbers, we have to take next higher numbers
i.e. 3 & 5.
The arm's length range will be beginning at 152 ( 3r d number) lending at
158 (5th number).
5o if actual transaction price is within the range (152-158) then the actual transaction
price shall be treated as deemed to be ALP, but in our example, Actual Transaction
price (i.e. 150) is not falling within Range so ALP shall be median of data-set.
Total no. of values in dataset 7*(50/100) =3.5 Since, this is not a whole no.& next
Example 2:
1 2 3 4 5 6 7 8 9 10
92 95 100 103 107 111 119 120 121 125
H 12 13 14 15 16 17 18 19 20
127 130 132 135 139 142 144 145 150 152
Total entries in data-set = 20

35th Percentile=20*(35/100) =7
Since this is a whole number, Avg of value at 7 8 shall be the 35 th percentile
= (119+120)/2 = 119,5
65t h Percentile = 20*(65/100) = 13
10 CA Bhanwar Borana
r
This is a whole number, Avg of value at 13 <& 14 shall be the 65th percentile
= (132+135)/2= 133.5
Median =20*50/100 =10.
Since this a whole number, Average of value at 10 & 11 1shall be the Median
= (125+127)/2 = 126.
If Actual Transaction price is between 119.5 to 133.5 then actual transaction price is
considered as ALP otherwise ALP will be 126.
Notes:
1. Range concept is applicable in case of CUP,RPM,CPM& TNMM
2. Sec 92C(2) is applicable only i f number of values in the data set is less than 6. If
number of values in th e data-set is 6 or more than RANGE CONCEPT shall apply i.e.
Rule 10 CA.
3 In Range concept, if 'multiple years 1 data is given, then we have to take weighted average
of multiple year data (current year +Last two years) in case of RPM,CPM, TNMM
Method Weight
RPM Sales Quantum
CPM Cost Incurred
TNMM Costs Incurred or Sales effected or Assets employed
Example:
The data for the current year of the comparable uncontrolled transactions or the
entities undertaking such transactions is available at the time of furnishing return of
income by the assessee and based on the same, seven enterprises have been identified
to have undertaken the comparable uncontrolled transaction in the current year. All the
identified comparable enterprises have also undertaken comparable uncontrolled
Indicator (PLI) used in applying the most appropriate method is operating profit as
compared to operating cost (OP/OC). The weighted average shall be based upon the
weight of OC as computed below:
CA Bhanwar Borana 11 C
JL Ml
---------- -— - ----• TRANSFER PRICING ...........
S.No Name Yearl Year 2 Year 3 Aggregation of Weighted

(Current Year) OC&OP Avg r
1. A OC=100 150 225 475 12%
—........
OP=12 10 35 57 T
2. 8 OC=80 125 100 305 8.2%
OP=10 5 10 25
3. C OC=250 230 250 730 9%
OP=22 26 18 66
4. D OC=180 220 150 550 6%
OP=(-9) 22 20 33
5. E OC=140 100 125 365 2.2%
OP=21 (-8) (-5) 8
6. F OC=160 120 140 420 11.9%
OP=21 14 15 50
7. G OC=150 130 155 435 10.57%
1
OP=21 12 13 46
>
From the above, the dataset will be constructed as follows:

S.No. 1 2 3 4 .. 5 .. 6 ____ 7
12 %
Values 2.2% 6% 8.2% 9% 10.57% _
For construction of the arm's length range the data place of thirty-fifth and
s i x t y - f i f t h percentile shall be computed in t h e following manner, namely:
t
Total no. o f data points in dataset *(35/100)
Total no, of data points in dataset *(65/100)
Thus, the data place of the thirty-fifth percentile = 7x0.35=2.45.
Since this is not a whole number, the next higher data place, i.e. the value at t he t h i r d
j percentile is therefore value at the third place, i.e. 8.2%. The data place of the sixty-
fifth percentile is = 7x0.65=4.55. Since this is not a whole number, the next higher T
data place, i.e. the value at the fifth place would have at least sixty five per cent of t he
I values below i t .
Compact \ • 12 CA Bhanwar Borana

Chapter
8 1
The sixty-fifth percentile is therefore value at fifth place, i.e. 10.57%. The arm's
.................
length range will be beginning at 8.2% and ending at 10.57%. Therefore, if the
transaction price of the international transaction or the specified domestic transaction
. ...
has OP/OC percentage which is equal to or more than 8.2% and less than or equal to
10.57%, i t is within the range. The transaction price in such cases will be deemed to be
the arm's length price and no adjustment shall be required. However, if the transaction
r
..... r i price is outside the arm's length range, say 6.2%, then for the purpose of determining
F the arm's length price the median of the data set shall be first determined in the
r following manner:
The data place of median is calculated by first computing the total number of data point
r""
in the data set *(50/100). In this case i t is 7x0.5=3.5. Since this is not a whole number,
the next higher data place, i.e. the value at the fourth place would have at least fifty per
cent of the values below i t (median).
——J
r~' -
The median is the value at fourth place, i.e., 9%. Therefore, the arm's length price
shall be considered as 9% and adjustment shall accordingly be made.
Example : The data of the current year is available in respect of enterprises A, C, E, F

and G at the time of f urnishing the return of income by the assessee and the data of the
financial year preceding the current year has been used to identify comparable
uncontrolled transactions undertaken by entrprises B and b. Further, if the enterprises
have also undertaken comparable uncontrolled transactions in earlier years as detailed
in t h e table, the weighted average and dataset shall be computed
as below
-■f-
X
Ju
< TRANSFER PRICING k Chapter 1
S.No Name Yearl Year 2 Year 3 Aggregation o f Weighted
(6urrentYear) O6&OP Avg
1. A OC = 100 06=150 06=225 Total 06 = 475 OP/O6=12%

OP =12 OP = 1 0 OP = 3 5 Total OP = 57
2. B OC= 80 06=125 Total 0 6 = 2 0 5 OP/O6 = 7.31%
OP = 10 0P = 5 Total OP = 1 5
3. C OC=250 06=230 06=250 Total 0 6 = 7 3 0 OP/O6 = 9 %

OP = 2 2 OP = 2 6 OP = 18 Total OP = 6 6
4. D 06=220 Total 0 6 = 2 2 0 OP/06=10%
OP =22 Total OP = 2 2
5. E 06=100 Total 06 = 100 OP/O6=(-)5%

OP = (-)5 Total OP=(-)5
6. F 06=160 06 = 120 06 = 140 Total 06 = 4 2 0 0 P / 0 6 = 11.9%

OP=21 OP = 1 4 OP = 1 5 Total 0 P = 50
7. G 06=150 06=130 06=155 Total 06 = 4 3 5 0 P / 0 6 = 10.57%

OP=21 OP = 1 2 OP =13 Total OP = 46
-------- r i
From the above, t h e dataset will be constructed as follows:

S.No. 1 2 3 4 5 6 7
Values -5% 7.31% 9% 10% 10.57% 11.9% 12%
If during t h e course of assessment proceedings, the data of the current year is

available and the use of such data indicates that B has failed to pass any qualitative or
quantitative filter o r f o r any other reason the transaction undertaken is not a
comparable uncontrolled transaction, then, B shall not be considered for inclusion in the
data set. Further, if the data available at t h i s stage indicates a new comparable
uncontrolled transaction undertaken by enterprise H, then, it shall be included.
The weighted average and dataset shall be recomputed as under:
CA Bhanwar Borana
S.No Name Yearl Year 2 Year 3 Aggregation of Weighted

F (CurrentYear) O C A OP Avg
1. 2. 3. 4. 5. 6 7.
1. A O C = 100 O C - 150 OC= 225 Total OC = 475 OP/OC = 1 2 %
OP = 1 2 OP = 1 0 OP = 3 5 Total OP = 57
2. C OC = 2 5 0 OC- 230 OC= 250 Total O C = 7 3 0 OP/OC = 9 %
OP = 2 2 OP = 2 6 OP = 1 8 Total OP = 6 6
3. b OC - 2 2 0 O C = 150 Total O C - 370 OP/OC =11.35%
OP = 2 2 OP = 2 0 Total OP = 4 2
4. E oc =ioo Total O C = 100 OP/OC = ( - ) 5 %
OP = ( - ) 5 Total OP = (-)5
5. . ....F O C = 160 O C - 120 O C - 140 Total O C = 4 2 0 OP/OC = 1 1 . 9 %
OP = 2 1 OP = 1 4 OP = 1 5 Total OP = 50
6. G OC=150 O C = 130 OC = 155 Total O C = 4 3 5 OP/OC = 1 0 . 5 7 %
OP=21 OP = 1 2 OP = 1 3 Total OP = 46
7. H OC=150 .......................... OC=80 Total O C = 2 3 0 OP/OC = 9 . 5 6 %
, OP=12 , , OP = 1 0 , Total OP = 2 2 ,1 1
If A O considers it necessary, he may refer t h e computation o f A L P to TPO, w i t h previous
approval of CIT/PCIT.
TPO s h a l l gather m a t e r i a l f o r c o m p u t a t i o n of ALP A s h a l l r e q u i r e assessee to p r o d u c e
evidence.
iii D u r i n g t h e c o u r s e of p r o c e e d i n g s before T.P.O. i f any other i n t e r n a t i o n a l transaction
( w h i c h was not referred by A . O ) comes to h i s k n o w l e d g e , t h e n T.P.O. s h a l l c o n s i d e r s u c h
o t h e r transaction also.
O n t h e basis of material & e v i d e n c e , T.P.O. s h a l l c o m p u t e t h e A L P A pass an o r d e r
c o m p u t i n g ALP.
1, v. O r d e r o f T.P.O i s b i n d i n g o n A . O .
Vl The T.P.O s h a l l pass t h e o r d e r b e f o r e 6 0 days p r i o r to t h e last date f o r c o m p l e t i o n of
U- -
Assessment a l l o w e d u/s 1 5 3 .
VII. If Assessement p r o c e e d i n g s are stayed by any c o u r t o r reference has been made u/s
90/90A, t h e t i m e a v a i l a b l e to TPO f o r making an o r d e r [after excluding the time for
CA Bhanwar Borana 15 a _______________.________________

B
♦ TRANSFER PRICING
jl which assessment proceedings were stayed or time taken for receipt of information us
90/90A) less than 6 0 days, then remaining period shall be extended to 60 days.
-
!L viii. If any case referred to T.P.O. then time limit allowed u/s 153 shall be increased by
1 year.
-■
ix. Any Joint /beputy/Assistant Commissioner, authorised by CBbT, can be appointed as
TPO.
-
X The CG may make a scheme, by notif ication in the Off icial Gazette, f o r t he purposes of
determination of the ALP, so as to impart greater efficiency, transparency and
accountability by—
(a) eliminating the interf ace between the Transf er Pricing Of ficer and the assessee
or any other person to the extent technologically feasible;
(b) optimising utilisation o f the resources through economies of scale and functional
specialisation;
J '•’
(c) introducing a team-based determination of arm's length price with dynamic
J ’■
jurisdiction.
The CG may, f o r the purpose of giving effect to the scheme, by notif ication in t he Of f icial
■r~ Gazette, direct that any of the provisions of this A ct shall not apply or shall apply with
i ■ ' such exceptions, modif ications and adaptations as may be specified in the notif ication:
2 .
Provided that no direction shall be issued after the 31st day of March, 2022.
Every notif ication issued shall, as soon as may be after the notif ication is issued, be laid
before each House of Parliament.
jr
(Added by The Taxation and Other Laws (Relaxation & Amendment of certain provisions)
Act,2020 w.e.f.01/11/20)
+
# Sec 92CB: Safe Harbour Rules

For determination of income u/s 9(l)(i) or Arm's length price CBbT may notify safe
harbour rules.
"safe harbour" means circumstances in which the income-tax authorities shall accept t he
transf er price declared by the assessee.
For AY 22-23 Safe Harbour rules not notified t i l l Now For Exams if any safe harbour rule
notify then i t will be upload on our website and youtube.
J
.- ............ > Compact V-2 k<
Chapter 1 TRANSFER PRICING <
Sec 92CC: Advance Pr icing c Agreement (APA)

1. The CBDT with th e approval of Central Govt, may enter into APA with any person f or
determination;
(a) ALP or specifying the manner in which the ALP is to be determined, in relation to an
international transaction to be entered into by that person.
(b) income referred to in section 9(l)(i), or specifying the manner in which said income
is to be determined, as is reasonably attributable to the operations carried out in
India by or on behalf o f that person, being a NR.
2. The manner o f determination of the ALP referred to in clause (a) or t he income
referred to in clause (b), may include t h e methods referred to in sec. 92C(1) or th e
methods provided by rules made under this Act, respectively, with such adjustments or
variations, as may be necessary or expedient so to do.
Note: Rules related to determination of Income u/s 9(l)(i) for NR is not yet notified by
CBDT so whatever discussed in this section applicable fo r calculation of ALP.
3. APA is applicable fo r maximum consecutive 5 years.
4. The APA shall be binding on
a) The person who entered into APA b) The IT Authority t i l l level of CIT/PCIT
5. APA shall not binding if there is change in law / facts.
6. W i t h th e approval of CG,CBDT may declare an APA to be void-ab-initio, if it finds that t h e
APA has been obtained by fraud or misrepresentation of facts.
7. APA may apply for any period maximum 4 years preceding the f irst of the P.Y. ref erred in
APA (Roll back provision).
8. If APA apply then provisions of section 92C & 92CA does not apply.
9. Consequences of declaration of an APA as void ab initio:
(a) All the provisions of th e Ac t shall apply to such person as i f such APA had never
been entered into.
(b) The period beginning with the date of such APA and ending on the date of order
declaring t h e APA as void ab initio, shall be excluded f o r t he purpose of
computation of any period of limitation under this A ct (for example period of
any other provision of the Act.

(c ) In case the period of limitation after exclusion of the above-mentioned period is
CA Bhanwar Borana 17 Compact V-2 c ;
i
TRANSFER PRICING Chapter 1
10 If an application is made by a person for entering into an APA, then, the proceeding, in
respect of such person f o r the purpose of the Act, shall be deemed to be pending.
11. Conditions for applying fo r rollback provisions:
The agreement shall contain rollback provision in respect of an international
transaction subject to the following, namely: -
(I) The international transaction is same as the international transaction to which
APA applies;
(ii) The return of income for the relevant rollback year has been or is furnished
by the applicant before the due date as specified in section 139(1)
(iii) The report in respect o f the international transaction had been furnished in
accordance with section 92E;
(iv) The applicability of rollback provision, in respect of an international transaction,
has been requested by the applicant for all the rollback years in which the said
international transaction has been undertaken by the applicant.
(v) The applicant has made an application seeking rollback in Form 3CEDA with fees
5,00,000.
12. Non-applicability of Rollback provision: Rollback provision shall not be provided in
respect o f an international transactionforarollbackyear, if, - [Rule No. 10MA]
has been subject matter of an appeal before t h e ITAT and the ITAT has
passed an order disposing of such appeal at any time before signing of the
agreement; or
(ii) The application of rollback provision has t h e effect of reducing t he total
income or increasing the loss, as the case may be, of the applicant as declared
Sec 92Cb‘. Effect of APA

Where prior to the date of entering APA any return of income has already been
furnished for any P.Y. to which APA applies, then such person shall furnish modified
return as per APA within 3 months from the end of the month in which APA was entered
into.
2. I Where assessment for any P.Y. to which APA applies are pending on th e date of modified
return, th e AO shall complete assessment as per APA, AO will get extra one year for
completion of Assessment.
3 Where assessment for P.Y. to which APA applies already completed before filing of
modified return then A.O. shall pass an order modifying t he total income of that P.Y.
within one year from th e end o f financial year in which time modified return was
furnished
# | CBbT Circular: 10/2015- Some clarification on Rollback

1. | Applicant cannot be selective on the years f or which it wants to apply f or rollback. He has
| to either apply fo r all 4 preceding PY or not apply at all. However, rollback would not apply
..... ~7~ ... --------— — ■ --------- — ..
| to years which does not satisfy basic conditions mentioned above.
2. | Rollback provisions can be applied as long as original return was filed before t he due date
I u/sl39(l), even i f the applicant files a revised return u/s 139(5) later.
3. ! Rollback can be applied only when international transaction undertaken is of same nature,
i with same AE. Also, FAR analysis is materially same with APA entered into fo r future
I years. (Including choice of method, comparability analysis & tested party)
4. Although rollback cannot be applied in case it has the effect of reducing income or
increasing losses as compare to returned income or loss. APA can be applied in case i f its
reducing income or increasing losses as compare to Assessed Income or Loss. For
example, i f the returned income is 100, income adjusted by TPO is 120, and
application o f rollback results in income of 90, roll back f or the year would be
determined in manner that returned income of 100 is treated as final.
Applicant has the option to withdraw rollback application while maintaining the APA
application f o r future years. However, reverse is not true. Rollback cannot be accepted
without accepting APA for future years.
6 Rollback can only be availed only by person who entered into the international transaction.
Hence, in case of merger of companies, amalgamated co. will not be entitled to roll back
f o r transactions carried out by amalgamating co.
Ex. If A merges into B, only B will be entitled to roll back carried out by himself in earlier
years. Further. If A and B merge to form a new company C, nobody would been titled to
rollback.
« TRANSFER PRICING Chciot&F
........ .........
7. Similarly, in case of de-merger, resulting co. will not be eligible f o r rollback as it was not in
existence in rollback years.
Person proposing to enter into APA shall make an application to bGIT (International
Person treated eligible may make an application f or APA before the 1st April of PY
relevant to first AY for which application is made or before undertaking transaction
Value of International Transaction Fees (5)
» Upto 100 Crores 10 lakhs
» >100 Crores upto 200 Crores 15 lakhs

» > 200 Crores 20 lakhs
not be refunded.
CBDT shall enter into the APA after obtaining approval from CG. The APA shall include
international transaction covered, agreed TP methodology or determination of ALP
Person shall file an annual compliance report in quadruplicate (4 copies) for every year
coveredunder APA within 30 days of due date for filing return or 90 days of entering into
p/\ whichever is earlier.
TPO of the person shall carry out compliance audit for every year covered under APA and
furnish the same within 6 months from end of month in which compliance report is
received f rom person.
Sec 92CE’- Secondary Adjustment

"Primary adjustment" to a transfer price means the determination of transfer
price in accordance with th e arm’s length pri’nciple resulting in an increase in the
Compact V-2 20 CA Bhanwar Borana

Chanter 1 TRANSFER PRICING
"Secondary adjustment" means an adjustment in t he books o f accounts of t he

assessee and its associated enterprise to reflect that the actual allocation of
prof its between th e assessee and its associated enterprise are consistent with th e
transfer price determined as a result of primary adjustment, thereby removing the
imbalance between cash account and actual pr of it of t he assessee.
Cases where secondary adjustment has to be made - The assessee shall be required to
carry out secondary adjustment where the primary adjustment to transfer price:
(ii) Made by the Assessing Officer has been accepted by the assessee; or
(iv) Is made as per the safe harbour rules framed u/s 92CB; or
(v) Is arising as a result of resolution of an assessment by way of the mutual agreement
procedure under an agreement entered into u/s 90 or 90A f or avoidance o f double
taxation.
Non-repatriation of excess money by the associated enterprise deemed to be an
advance - Where, as a result of primary adjustment to t he transf er price, there is an
increase in th e total income or reduction in the loss, as the case may be, of the assessee,
the excess money or part there of which is available with its associated enterprise, i f
not repatriated to India within the be prescribed time, shall be deemed to be an advance
made by th e assessee to such associated enterprise and the interest on such advance,
shall be computed as the income of the assessee, in the prescribed manner.
Explanation : For the removal of doubts, it is hereby clarified that t he excess money or
part thereof may be repatriated fr om any of the associated enterprises of the assessee
which is not a resident in India.
"Excess money" means the difference between the arm's length price determined in
primary adjustment and the price at which t he international transaction has actually
taken place.
CA Bhanwar Borana Compact V"2

MCQ Booklet 143
S. No. Explanations
10. As per sec 9(l)(iii) Salary received by Indian Citizen from Govt for service Rendered
outside India is taxable.
However, as per Sec 10(7) perquisite and allowance are exempt.
Based on combined reading of these sections, it can be concluded that Salary received
by Mr. Ganesh is taxable in India but allowances and perquisites are exempt.
11. Every person, being a resident and carrying on business or profession or a non-resident
having a permanent establishment in India shall deduct the equalisation levy on the
amount paid or payable to a non-resident in respect of the specified service at the rate
of 6%, if the aggregate amount of consideration for specified service in a previous year
exceeds one lakh rupees.
Equalisation levy is not applicable where the payment for the specified service by the
person resident in India or the PE in India is not for the purpose of carrying out business
or profession. Hence, in this case equalisation levy not applicable because Mr. Rajesh
does not use such service for Business or profession purpose as he is salaried individual
and does not have any PGBP income
12. Tax on income from lottery will have to pay flat 30 per cent of the winning amount and
there is no basic exemption limit.
Particulars A B
Tax on lottery income 270000 (30% of 900000) 240000 (30% of 800000)

@30%
HEC@4% 10,800 9,600
Total 2,80,800 2,49,600
Less: TDS 2,70,000 2,40,000
Net Tax Payable 10,800 9,600
Advance tax applicable for A because tax amount is more than 10,000.
13. As per 194-IB, A salaried employee must deduct TDS on rent paid if the total rent
payable for a month is more than ? 50,000 per month.
Here rent is 50000 per month hence 194-IB not applicable.
14. The service rendered by a commentator in relation to sports activities has been notified
by the CBDT as a professional service for the purposes of section 194J.
So, if person is resident in India, then TDS will be deducted as per 194J, and if person is
Non-Resident, then TDS will be deducted as per provision of section 195.
CA Bhanwar Borana Explanation of MCQ and Case Scene,io

« TRANSFER PRICING Chapter 1
Example: BB Ltd entered into international transaction of sales w i t h AE A actual
ALP determined is 4,760 lakhs.

So he Excess money is 1,750 lakhs shall be first added to income of BB ltd is
known as Primary adjustment. BB Ltd have to repatriate j? 1,760 lakhs w i t h i n 90 days
otherwise treated as loan and the interest thereon shall b e computed <& added to
the income until its repatriation is known as secondary adjustment
mnnpy o r part thereof should be repatriate within:-
a. Z f Primary Adjustment made by A.O. o r Appellate Authority ' : 90 days from t h e date of
b. If Primary Adjustmentdueto APA:

/s 139(1) i f APA has entered into on o r
°f ROI 9(1) of that PY

month in which APA was entered into after due date o f
ROI for relevant PY. ____
giving effect by AO of MAP.

90 days from t h e due date of ROI u/s
d. If F irnary acfjustment due to any other reas
139(1).
chargefrom:
a. PHi ryTdjustment made by A.O. o r Appellate Authority: from the date of o r d e r of
A O o r Appellate Authority.
b.
139(1) of that RY
relevant PY.
eff ect by AO of MAP.
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d. If Primary adjustment due to any other reason. from t h e due date of ROI u/s 139(1).
-► : Summary: Time Limit for repatriation of money and Interest period

If primary adjustment is T/L f o r Repatriation : Interest period
made by 90 days
» Order of AO or appellate From date of order of AO or Same
authority appellate authority
» APA -
- entered upto due date o f From Actual date of filing ROI Due date of ROI
ROI in that Py
- entered af ter due date of From end o f t h e month in Same
ROI in that PY which APA entered
» Mutual agreement From the date of giving effect Same

procedure by AO to MAP
» Other reasons From Due date of ROI Same
# * If excess money not repatriated within above time limit then interest income shall be
computed as follows.
a.) Where the international transaction is denominated in Indian rupee
i - A t the one year marginal cost of fund lending rate of SBI as on 1st April o f t he
relevant previous year +3.25%
i b.) Where the international transaction is denominated in Foreign currency
- A t six month London Interbank Offered Rate (LIBOR) as on 30th September of
t h e relevant previous year + 3.00%
# s No requirement of secondary adjustment in certain cases -

> The amount o f primary adjustment made in t he case of an assessee in any previous year
• does not exceed 1 crore or the primary adjustment is made in respect of A.Y. 2016-17
or an earlier assessment year
Chapter 1 ’
7~— —— F
Ltd exported goods worth ? 6 ,00, 00 ,000 to Trump Inc. The ALP of such transaction is
? 8 20 00 000 Due date of BB Ltd is 30 th Nov. 2019. Transaction designated in Indian
....... rU p ees ’. SBI one ye marginal cost lending rate, is 11 25% on l - A p - i i 2019. ............. f
““ h rexcess money is 2.20 Crore. BB Ltd should repatriate such money t
90 days from the due date of R O I . i . e . t i l l 28.02.2020 ( 3 0
non y not repatriate in India upto 28.02.2020 then following shall be treated
y
19 20 (A 20-21) _
as income o
st st
2.20 Crore x 14 50% x 122 days/366days (1 Dec. 19 to 31 stMarch 20) - 10,63,333.
. e excess money not repatriated till 31 March 21 then following
»
income shall be added for PV 20-21 (AV 21-22). SBI one-year marginal cost of lending
~f~ i gp tincome is computed for every year t i l l excess money repatriated in India.
Section 93CE(2 A) : Additional income 1OA u ,

1.
the assessee will have the option to pay additional
payment of this additional tax.

2.
T 16] aE S0I?T sh± be tf,ef™' pa
respect of the amount of tax so paid.
3 THe
deduction in respect of the amount on which such x hasteerT rX;
allowed under any other provision of this Act; and
4. If
. . f he assessee pays the additional irccrrc-tgx. he „. t n„
secondary adjustment or compute interest f ram the date nf .
:
S upposc " DCVe e mple. BB Ltd not repatriated excess money and wants ‘
to pay additional tax on 1st July 2021. —
... In this c
“« 68 L, = re<) ' : ' red fc
Pn x a dditien tax on 1 - July 21 at ]8% w ,. z
Additional Tax = ? 2,20,00,000 x 20.9664% = ? 46,12,608
2.4 CA Bhanwar Borana

In this case following interest income shall be included in Total Income of PY 21-22.
: SBI one year marginal cost of landing rate is 12% on 1st Apr i 12021.
! 2,20,00,000 x 15.25% x 91 / 365 days (1st April 21 to 30th June 21) = 8,36,452
# Sec 920: Maintenance o f information & Documents

(i) Assessee entering into International transaction or specified domestic transaction
i required to maintain documents as specified by CBDT (TP study report).
(ii) : Constituent entity of an international group, shall keep and maintain such information
! and document in respect of an international group as may be prescribed (master file).
(iii) The AO or th e CIT (A) may, in the course of any proceeding under this Act, require any
; person referred to point (i) to furnish any information or document referred therein,
i within a period of 30 days from the date of receipt of a notice/ It may be extended by
further 30 days)
(iv) Constituent entity shall furnish the information and document referred therein to the
s authority prescribed u/s 286 within the time and manner as may be prescribed.
i Note : 1. Documents are required to be maintained only if value of International
transaction is more than 1 cr.
2. Documents are required to be kept for 8 years from the end of relevant A.Y.
# i Sec 92E: Report of CA

'■ Assessee required to f i l e report of CA in the Form No. 3CEB upto 31st Oct. of A.Y.
# ! Penalties
Section Default Penalty
271 AA i. Failures to keep & maintain info ---------1
& docs as Per Sec 92 D. 2% of transactions
ii. Failsto report transactions. Value
iii. Fails to maintain / furnish
correct info/ document. ---------1
iv. Fails to f urnish info & doc. (Master File)-i ■> ? 5,00,000
2716 Failure to f urnish info & documents 2% of Transactions
as Per Sec 9 2 b . ________________ _ Value
1
TRANSFER PRICING
271B*4 Failure to furnish report of CA as 1,00,000

per Sec 92E.
270A Failure to report any transactions would Penalty of 200% of
constitute 'misreporting of income' Taxes apply
Note'- However, the amount of underreported income represented by any addition

m ade in conformity with the arm's length price determined by the TPO would not be
included within the scope of underreported income under section 270A, where the
assessee had maintained information and documents, as per 9 2 b , declared the
international transactions and disclosed all material facts relating to the transaction.
Sec 94A : Special Provision in respect of transaction with person located in NJA
CG may notify any country or territory outside India to be a notified Jurisdictional area
(11j A). If Assessee enters into transaction with any person located in NJA then :
a. All the parties shall be deemed to be associated enterprises (as per 92A).
The transaction shall be deemed to be an international transaction (as per 928).
b.
The provision of Transf er pricing shall apply to Assessee (except tolerance band of 3%).
Assessee have to submit documents & information required by IT Authority.
d.
e. If any payment made to person located in NJ A then min. TbS rate will be 30%.
f.
I explanation about the source of the fund in t he hands o f that person or in hands
of beneficial owner (if that person is not beneficial owner).
If assessee doesn't offer explanation or explanation is not satisfactory, then such sum
Any of the following transactions where the aggregate value of such transactions in
the P.V- i5 m o r e t h a n ? 2 0 c r -
. i n ter-unit transfer of goods and services referred to in Sec 80A.
II i n ter-unit transfer of goods or services referred to in Sec 80-IA(8).
in gu siness Transacted between assessee and his closely connected person ref erred
l 0 in Sec 80IA(10).
jv Transaction referred to in any other section of Chapter VI- A or 10AA to which
• 26 CA Bhanwar Borana
' Chapter 1 F
TRANSFER PRICING
provisions of sec 80IA(8) or(lO) apply.

I v. Business transacted between assessee and his closely connected persons referred
to in Sec 115BAB(4).
' vi. Any other transaction as may be prescribed.
i Note: The above sections refer to transactions between eligible business/units
(claiming deduction u/s 10AA or Income based deductions u/c VI-A or opting fo r
J concessional tax rates u/s 115BAB) and non-eligible business/units where t h e
i consideration f o r transactions does not correspond to t h e market value resulting in
j higher profits in the eligible business/units.
j Country-by-country Report: Reporting Requirements of AANES

The Country-by-Country (CBC) report has to be submitted by parent entity of an
to be based on consolidated financial statement of the group.

(a) AANEs have to report annually and for each tax jurisdiction in which they do business:
(1) t h e amount of revenue;
(2) profit before income tax; and
(3) income tax paid and accrued.
(b) AANEs have to report their total employment, capital, accumulated earnings and tangible
assets in each tax jurisdiction.
(c) AANEs have to identify each entity within the group doing business in a particular tax
jurisdiction and provide an indication of the business activities each entity engages in
Sec 286: Furnishing of Report in respect of International Group

1.
India shall be required to furnish CbC report ( if the group revenue as per CFS of last
year 6400 crore or more) in respect of the group in Form 3CEAb to JbIT designated by
bGIT/PbGIT (system) within 12 months from the end of the relevant accounting year.
Note: Rate of exchange for the calculation of the value in rupees of such total
consolidated group revenue shall be the telegraphic transfer buying rate (TTBR) of such
currency on the last day of the accounting year preceding the accounting year [Rule
10bB(7)].
Chapter
2. Every resident constituent entity of the international group, whose parent entity is nonr
resident, shall notify in Form 3CEAC, at least 2 months prior to due date fo r furnishing
CbC report stating:
» whether it is the alternate reporting entity of the international group, or
» detailsof parent entity/ alternate reporting entity o f t he international group <&
the country of which the said entities are resident. ;
3. Resident constituent entity (other than parent entity/ alternate reporting entity) shall
< to furnish CbC report in India, if parent entity of the group is resident o f a country or;
territory : I
i » In which it is not obligated to f i l e CbC report within 12 months from I i
» With which India does not have an arrangement end of account year
> for exchange of the CbC report; or I i
> » Which is not exchanging information with India even though there is an agreement
j (systemic failure), and this fact has been intimated to t he entity by JbIT- CbC shall s
i be f i l e within 6 months from the end of the month in which systemic failure has been t
intimated. i
,4. If there are more than one resident constituent entity of the group, then t he group cani
nominate one constituent entity in Form 3CEAE who shall furnish the CbC report on;
! behalf of the group.
5. If the non-resident parent entity had designated an alternate entity f o r filing CbC report!
in the tax jurisdiction of the alternate entity & alternate entity has furnished such!
report on or before date specified by that country or territory, then the resident;
constituent entities would not be obliged to furnish the report if it can be obtained by l
Indian tax authorities under the agreement of exchange with that country. L
:6. JDIT can call fo r documents and information from the entity furnishing the report f o r i
t h e purpose of verifying the accuracy & they shall produce the same within a period of 30 1
days from the date of receipt of a notice (Can be further extended by maximum 30 days), i
Notes: ;
1. "Alternate reporting entity" means an entity which has been designated by t he group to k
< f i l e CbC report in place of the parent entity. }
2. "Accountingyear" means:
_____ ____________________ ..X

-------- --------------- : V ■* 28 i CA Bhanwar Borana
TRANSFER PRICING
nom » If Parent entity is resident in India Previous year i.e. 1st April - 31st march
shing » If Others Accounting period for which parent entity
prepares its FS under laws or accounting
standards of its country or territory.
# Sec 271GB(1) / (3) : Penalty f o r Not f urnishing report u/s 286

shall Period o f Delay Penalty
y or a. upto a month ? 5,000 Per day
b. beyond one month ? 15,000 per day after one month
c. Continuing default even after ? 50,000 per day of continuing
i service of order levying penalty failurebeginningfromthedate
1
either under (a) or under (b) of service of order
all # ! Sec 271GB(2) : Penalty for Not f urnishing inf ormation and documents
sn (discussed in point 6 of 286)
i Period of Delay Penalty
i can. j a. Failure to produce information ? 5,000 Per day after such period
t on before prescribed authority within Expires
t h e period allowed
port . b. Continuing default even after ? 50,000 per day of continuing
>uch service of order levying penalty failure beginning from the date
lent i of service of order
d by i Sec 271GB(4) : Penalty for submission of inaccurate information in t h e CBC report
i If the reporting entity has provided any inaccurate information in the report, the
for § penalty would be ? 5,00,000 if ,-
f 30 ! (a) The entity has knowledge of t he inaccuracy at th e time of furnishing th e report but
tys). does not inf orm the prescribed authority; or
! (b) The entity discovers th e inaccuracy after the report is furnished and fails to inform
p to i t h e prescribed authority and f urnish correct report within a period of fifteen days
! of such discovery; or
i (c) The entity furnishes inaccurate inf ormation or document in response to notice of the
I prescribed authority
CA Bhanwar Borana 29 •.
< TRANSFER PRICING ....... . ■
proves that there was reasonable cause for such failure, Section 271GB has been
included within the scope of section 273 B. Therefore, the entity can offer reasonable
cause defence fo r non-levy o f penalties mentioned above.
r
Maintenance and furnishing of Master file
Persons required to keep and maintain the information and documents: [Rule 10DA]
Every person, being a constituent entity of an international group shall -
(j) i f t he consolidated group revenue of the international group, of which such person
is a constituent entity, as reflected in the consolidated financial statement o f the
international group for the accounting year, exceeds ? 500 crore; and
(a) during t h e accounting year, as per the books of accounts, exceeds ? 50 crore, or «
(b) in respect o f purchase, sale, transfer, lease or use of intangible property during s
the accounting year, as per the books of accounts, exceeds ? 10 crore.
Note - The rate of exchange for the calculation o f the value in rupees of t he consolidated j
group revenue in foreign currency shall be the telegraphic transfer buying rate (TTBR) .
of such currency on the last day of the accounting year. [RulelOD A(8)] i;
The information and document shall be furnished to t h e JDIT designated by i
D&IT/PDGIT (system) in Form 3CEAA on or before the due date for furnishing the
return o f income.
The constituent entity shall mandatorily furnish Part A of Form 3CEAA whether or
the limits specified in (a) above are satisfied —(i.e.
not..— Form 3CEAA
. . . . —File Part A of ----- |
mandatory every year. Fill Part B only if above limits are satisfied) I
Where there are more than one constituent entities of an international group |
4.
resident in India. Form 3CEAA may be furnished by any one constituent entity i f [
ii. the information has been conveyed in Form 3CEAB to the JDIT in this behalf at
Documents should be kept maintained for 8 years from the end of AY.
Master file contains list of all entities of the international group along with their
_____--------------— -----< ' 30 C A B h a n w a r Borana

TRANSFER PRICING
addresses, legal status o f th e constituent entity and ownership structure of the entire
international group, description of t h e business of international group, list and brief
description of important service arrangements etc.
i Section 93 : Transfer o f Income to NR

s Section 93 covers transactions which are designed to avoid tax liability by way o f
J transfer of asset to non-resident persons. This section also covers variety of
; transactions where assets are transferred to non-resident person and the transferor
indirectly derives income under the guise of obtaining loans or repayment of loans.
As per the provisions of section 93(l)(a) income from th e transferred asset would be
deemed as th e income of the transferor, where the following conditions are satisfied: -
a. There is a transfer of assets (whether movable or immovable and whether
tangible o r intangible) t o non-resident person (including R b u t NOR);
b. due to such transfer the income from such assets become payable to non-
resident;
c. transferor acquires power to enjoy the income whether immediately or in future;
I d. transfer is made by any person India or outside irrespective of his residential
| statusorcitizenship;
e. transf er is made either alone or in connection with associated operations;
f . t he assets transferred directly yield income chargeable to tax (i.e. income should
not be exempt from income tax) under this Act,
g. The Assessing Officer is satisfied that avoidance of liability to tax in India is t he
purpose of the transf ers.
Section: 94B - Limitation on Interest Deduction in certain cases

a. Interest expenses or similar nature (like guarantee commission etc) incurred by an
Indian company or a permanent establishment of a foreign company in India in
respect o f any debt issued by a non-resident, being an associated enterprise shall be
disallowed while calculating income under the head PGBP to the extend "Excess interest"
(Excess interest shall be disallowed)
TRANSFER PRICING ......... ..........1
Chanter
b.
amortisation)
(i i) Interest paid to Associate Enterprise

Whichever is Lower
Alternate Views
c. Wh re the debt is issued by a lender which is not associated but an associated enterprise |
pr o V jdes an implicit or explicit guarantee to such lender or deposits a |
dina and matching amount of funds with the lender, such debt shall be deemed |
to have been issued by an associated enterprise. ____ J
d. Above provision is applicable only if interest to associate enterprise is more than 1 crore |
rupees. ..„„„ _________ —_.__— —____„
This Section shall NOT apply to an Indian company or a permanent establishment of a |
e.
foreign company which is engaged in the business of banking or insurance or interest paid J
a lSSuec a
in respect of * by ' e n der which is a PE in India of a non-resident, being a J
person engaged in the business of banking. __________ J
f The amount of interest expenditure disallowed under this provision, shall be carried |
forward to the following assessment years, and it shall be allowed as a deduction |
against ”thePr’° ,"ts anc * ?a i"nS ' an X' ° an X business or profession for that assessment |
:
,, o r within the limit of this section. T
assessment years immediately succeed? excess

interes’ exposure was first computed.
e
L I . 'IteWWrMWfrJW
Total income of an assessee cannot be determined without knowing his residential

status. Scope of Total income is based on Residential status. If any person become
Resident then his whole world income is taxable in India but if person become Non-
Resident then only Indian Income is taxable for that person. Residential status shall
be determined fo r every person for each previous year independently.
A. Residential Status of Individual

Basic Conditions Section 6(1) No. of Days Satisfied
stay in India Not-Satisfied
1. Stay in India for 182 days or more in P.Y.
(Current Previous Year)
OR
2. Stay in India for 60 days or more in P.Y.
and 365 days or more in Last 4 P.Y.’s
# Additional Conditions Section 6(6)
1 Resident f o r 2 P.Y. or more in Last 10 P.Y.’s
AND
2. Stay in India f o r 7 3 0 days or more in Last 7 P.Y.’s
If any individual satisf ies any One Basic condition (at least one) then he is treated as
Resident in India otherwise Non-Resident in India. If any individual become Resident
in India then we have to check that such person in Resident and ordinarily resident (R-
OR) in India or Resident but Not ordinarily (R but NOR) Resident in India. If t h e
assesse satisfy Both the additional conditions then he is treated as R and OR
otherwise R but NOR.
Notes:
1. The day on which he enters India, as well as t he day on which he leaves India, shall be
taken into account as the stay of Individual in India.
2. : In the following cases only Basic condition no. 1 is applicable f or Determination of
residential status (2nd Basic condition should be Ignored).
NON RESIDENT TAXATION
a. ’ Indian Citizen, Leave India during t h e P.y. f o r an employment outside India.

b. I Indian Citizen being a crew member of Indian Ship, leave India during the P.y.
Indian Citizen or Person of Indian origin engaged outside India in any employment or a
Business or Profession, and Visiting India during P.y .<& his total income (excluding income
| from foreign source) is upto ?15 Lakhs in P.y
I Note : Person of Indian Origin means, he or either of his parents or either of his
grandparents were born in undivided India.
# ! In case of Indian citizen or person of Indian origin having total income (other than
foreign source income) of more than ?15 lakhs then 2nd basic condition applicable and
instead o f 60 days in PY,120 days are considered.
(Amended by FA, 20 w.e.f. A y 21-22)
# Indian Citizen or a person of Indian origin, having total income, (other than foreign
source income) exceeding ?15 lakhs during the PY, who has been in India f or a period
or periods amounting in all to 120 days or more but less than 182 days then he will be
treated as resident but not ordinary resident. (In this case no need to check additional
| conditions) (Amended by FA, 20 w.e.f. Ay 21-22)
# How many days an Indian Citizen or a Person of Indian origin visits in India during Py
Less than 120 120 days or more but upto 182 days or more irrespective
days 181 days of Total Income
NR in India If he satisfied both the conditions If he satisfied both the cond-
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t h e n R b u t NOR otherwise NR -itions then R&OR otherwise R

...
(i) Stay in India for 365 days or but NOR
more in last 4 Py , and (i) Resident in India for 2 Py
aaaaAAA-a.-aaaaaa-a.-.a, a„ a.
(ii) His Total Income (other than or more in last 10 PY's, and
-a ••a-aaaa-aaa-.a- '»-.«•«- - -- ■
foreign source income) more (ii) Stay in India for 730 days
..-..A-A ".-A -A AA-.A.aAAAAAAA'A.AAaAA-AA
than ?15 Lakhs. or more in last 7 PY's

#i Section 6(1 A): beemed Resident (Added by FA, 20 w.e.f. Ay 21-22)
Not with standing anything contain in section 6(1), in case of Indian citizen, having
total income (other than foreign source income), exceeding ?15 lakhs during the PV
j shall be deemed to be resident in India in that previous year, i f he is not liable to tax in
any other country or territory by reason of his domicile or residence or any other
criteria of similar nature <& he is always treated as R but NOR.
—— C o r n o a c t V -2 C 2 ■ ga -2 2 ■ 2
MOW RESIOEA , ; VhOM
However, this provision will not apply in case of an individual who is a resident of India in
t h e previous year as per section 6(1).
» Liable to tax means that there is an income-tax liability on such person under t he
law of that country fo r the time being in force. It also includes a person who has
subsequently been exempted from such liability under th e law of that country,
i —— -........ —..... - - .. — — - ----- ...
j Note : Income from foreign sources means income which accrues or arises outside
j India except income derived from a business controlled in or a profession set up in India.
I Example : 1 Mr Ali is a Indian Citizen, working in USA with Facebook Inc. During the PY
r 20-21 and PY 21-22 he visited India for 177 days and 145 days respectively. His stay in
India f or PY17-18,PY18-19,PY19-20 - 120days, 100 days &.155 days respectively.
His income f o r PY 21-22 is as follows:
Income from Salary, Rent & Interest earned in USA 25,00,000
; Income from Business in USA (Controlled from USA) 21,00,000
• Income from Business in USA (Controlled from India) 8,00,000
Interest on Bank FD with YES Bank in Mumbai 11,00,000
LIC Premium Paid in India 2,60,000
Determine his residential status f o r AY 22-23.
Answer
For AY 22-23
Mr. Ali is in India for 145 days <& his Total income (other than foreign source Income) is
? 17,50,000 [11,00,000+8,00,000-1,50,000 (80C)] also his stay in India in last 4 PY's
is more than 365 days [120+100+155+177=552] so he will be treated as R but NOR fo r
AY 22-23.
Example: 2
Would i t make any difference in example 1 is US citizen but his grandfather was born in a
village near Peshawar in 1943 ?
Answer: No, as above provisions are applicable f or Indian citizen as well as person of
Indian origin. In this case Ali is treated as person of Indian origin.
Example: 3
Suppose in example 1 Mr. Ali's Bank Interest is ?8,40,000 instead of ?ll,00,000. What
... __ — - ....
j will be your answer ?
I Answer: For AY 22-23 he will be treated as NR in India as his total income other than
35
-e NON RESIDENT TAXATION
foreign source income is upto 15 lakhs i.e. ? 14,90,000 [8,40,000 + 8,00,000 -

1,50,00(806)]
Example: 4
' l\hr. Kabir is an Indian Citizen. Currently he is in employment with an entity in Dubai.
’ During t h e PY he is visited India f o r 55 days. During t he PY 21-22 Mr Kabir is not taxable
I in Dubai or any other country by reason of his domicile or residence. Determine his
residential status f o r AY 22-23, i f his Total Income other than foreign source income is;
i Case:l - ? 20,00,000
Case:2 - ? 14,00,000
Answer : Case:1
Mr Kabir in India fo r only 55 days in PY 21-22 so he is not satisfying basic condition of
— * - ■ — —— - -— - — —
section 6(1) but he satisfied following conditions of section 6(1A);
(i) Mr. Kabir is a Indian Citizen;
| (ii) His Total Income (other than foreign source income) is more than ?15,00,000; and
(iii) He is not liable to pay tax in any other country by reason of his domicile or residence
So he is treated as deemed to be resident in India but not ordinary resident. (R but NOR)
I Case: 2
j He does not satisfy conditions of section 6(1A) so he is treated as NR for PY 21-22.
; Example: 5
j Suppose in example: 4 (case: 1) Mr Kabir is a Foreign citizen but his grandparents was
born in undivided India. Is your answer change ?
Answer
Yes, as section 6(1 A) apply only to Indian Citizen, since he's not a Indian citizen so NR f o r
PY 21-22.
Period o f stay in India for an Indian citizen, being a member of the crew of a foreign
bound ship leaving India [ CBDT Notification]
For computation of "No. of days stay in India" following time limit shall be excluded: -
"From the date entered into the continuous discharge certificate is respect of joining
the ship ending on the date entered into continuous discharge certificate in respect
of signing of the ship."
Residential Status o f Hindu Undivided Family Sec 6(2)

If Control and Management of its affairs is
__ _,___ 4c .. . ..... „ „ ..... .... _

Wholly or Partly in India Wholly outside India
Resident Non-Resident
Note: If Karta of HUF is satisfying both the additional Conditions as per sec 6(6)
the HUF is treated as R and OR otherwise R but NOR.
Residential Status of FIRM/AOP/BOI/Local Authority/AJP Sec 6(2)

If Control and Management of its affairs is
Wholly or Partly in India Wholly outside India
Resident Non-Resident
Residential status of Company

Indian co. - Always resident
Other Co.— If its "place of effective management" [POEM) is in India in that year then
resident otherwise Non resident.
POEM jmeans a "place where key management <& commercial decisions that are
necessary fo r the conduct of the business of an entity as a whole are in substance
made".
Circular 06/2017 <& Circular No. 8/2017 : Determination of POEM (Applicable only if
Turnover > 50 crore)
Company having Active Business outside India (ABOI)
If Both the conditions satisf ied then POEM is not in India.
i. Active Business outside India (ABOI).
ii. Majority meetings of Board held outside India
CA Bhcinwar Borana C o m p a c t V-C

r
@ /WW RESIDENT TAXATION
A B O I means ’.If all conditions are satisfied.

! 1. If passive income is upto 50% of its total income, and
2. Less than 50% of its total asset are situated in India; and
3. Less than 50% o f total number of employees are situated in India or are resident
India; and
4. The payroll expenses incurred on such employees is less than 50% of its total f
payroll expenditure. t
1. Meaningof CertainTerms : i
! PassiveIncome means : t
! a. Income from Transaction where both Purchase <& sales of goods is from/to its !
! Associated Enterprise. i
i b. Income by way of Royalty, Dividend, Capital Gain, Interest (except f o r Banking :
! Company or PFI) or Rental income. i
2. > Income: Income as per Tax Law of country of incorporation. If Tax Law does not f
required computation of Income then Income as per Books of Accounts. i
3. ! Value o f Assets: i-
i a. Depreciable asset: Average of opening and closing WDV of such asset or block of t
i asset as per Tax Law of that country. r
: b. Other Asset: Value as per Books of Account. i
4. i Number o f Employees: average of the no. of employees as at t he beginning and at i

t h e end o f the year and shall include persons, who though not employed directly by f
the Company (contract employees), perform tasks similar to those performed by i
the employees.
5. ; Pay roll: cost of salaries, wages, bonus and all other employee compensation including i
related pension and social costs borne by the employer. i
A
:hanwar Borana
IWJW c
"► In case the Board is not exercising its powers of management and such powers are
being exercised by either the holding company or any other person, resident in India,
then POEM shall be considered to be in India.
Notes:
1. Merely BOO follows general objective principles of global policy of the group in
relation to pay roll, Accounting, HR, IT inf restructure and network platforms, Supply
chain, Routine banking operational procedures etc. it would not constitute that BOD as
standing aside & not exercising its powers. Provisions of GAAR can be triggered in
! cases where i t is found to be used abusive/ aggressive tax planning.
2. For the A B O I test average of the data of PY and last 2 PY shall be considered. If
company has not been in existence for that long then data of period that the company
has been in existence shall be considered. If accounting year f or tax purposes, in
accordance with laws of country of incorporation of the company, is different from
t h e PY, then, data of the accounting year that ends during the relevant PY and two
accounting years preceding i t shall be considered.
■ Example: Suppose company incorporated in USA & they follow calendar year f or tax
purpose. For determination of residential status f o r PY 2021-22 data of calendar year
2021, 2020 <& 2019 shall be considered.
B. OtherCompany
Determination of POEM would be Two Stage Process
1. Identification or ascertaining the persons who actually make t he key management
and commercial decision for conduct of the companies business as a whole.
2. Determine of place where decision are inf ect being made
The place where decisions are taken would be more important than the place where
such decision are implemented. For the purpose of determining POEM it is the
substance would be conclusive rather than the form.
39
1
MOM RESIDENT TAXATION Chapter 2
Situation Poem
S. No.
1. \/\/hen the BOD exercise authority & Place where key decisions are
takes key commercial decisions in taken
substance.
powers are delegated by the Board Place where such persons make
2.
decision
to Senior management o r o t h e r
persons.
Powers are delegated by the Board Location where executive based,
3
committee and make decisions
to Executive committee __________
' ~ ~case of Circular resolution Location of th e person who has the
4.
round robin voting. _______________ Authority to take decisions.
Decisions made by shareholder on Location where such decisions are
5.
patters which are reserved f o r Taken not relevant for
shareholder decisions. ___________ determination of Poem
"senior persons located in Principal Such Principal place of business
6.
placeof business
" Decentralised Company (Multiple Location where senior managers
7.
locations) are primarily based, return to
travel to other location or meet
when f ormulating or deciding key
strategies and policies for the
company as a whole.
5 nior management may operate The location where highest level of

8.
" Trom d i f f e r e n t l o c a t i o n s and management (for example, the
participate in various meetings via Managing Director and Financial
telephone or video conf erencing Director) and their direct support
staff are located.
rBDT v i d e girCLllqr no
- 8/2017 dQtgd
23.02.2017 also clarified that POEM
guidelines shall not apply to a company having turnover or gross receipts of 50
crores or less in a financial year. — —— —
40 CA Ehanwar Borana
Chapter 2 NON RESIDENT TAXATION
Example 1: Company A Co. is a sourcing entity, for an Indian multinational group,

incorporated in country X and is 100% subsidiary of Indian company (B Co.). The
warehouses and stock in them are the only assets of the company and are located
in country X. All the employees of the company are also in country X. The average
income wise breakup o f t h e company's t o t a l income f o r t h r e e years is, -
(i) 30% of income is from transaction where purchases are made from parties
which are non-associated enterprises and sold to associated enterprises;
(ii) 30% of income is from transaction where purchases are made from associated
enterprises and sold to associated enterprises;
(iii) 30% of income is from transaction where purchases are made from associated
enterprises and sold to non-associated enterprises; and
(iv) 10% of the income is by way of interest.
Interpretation: In this case, passive income is 40% of the total income of the
company. The passive income consists o f , -
(i) 30% income from the transaction where both purchase and sale is from/to
associated enterprises; and
(ii) 10%> income from interest.
The A Co. satisfies the first requirement of the test of active business outside
India. Since no assets or employees of A Co. are in India the other requirements of
the test is also satisf ied. Therefore, company is engaged in active business outside
India.
Example 2: The other facts remain same as that in Example 1 with the variation that
A Co. has a total of 50 employees. 47 employees, managing th e warehouse, store
keeping and accounts of the company, are located in country X. The Managing
Director (Mb), Chief Executive Officer (CEO) and sales head are resident in India.
The total annual payroll expenditure on these 50 employees is of ? 5 crore. The
annual payroll expenditure in respect of Mb, CEO and sales head is of ? 3 crore.
Interpretation: Although the first limb of active business test is satisfied by A Co.
as only 40% of its total income is passive in nature. Further, more than 50% of the
employees are also situated outside India. All the assets are situated outside India.
C o m p a c t \C 2 .
NON SESIXNT TAXATION I
pi ovve ver, th e payroll expenditure in respect of the M b , the CEO and the sales head
being employees resident in India exceeds 50% of the total payroll expenditure.
Therefore, C°’ i s n o + e n 9a 9 e< i n active business outside India.
Example 3: The basic facts are same as in Example 1. Further facts are that all t he
directors of the A Co. are Indian residents. During the relevant previous year 5
meetings of the Board of Directors is held of which two were held in India and 3
outside India with two in country X and one in country V.
interpretation: The A Co. is engaged in active business outside India as the facts
indicated in Example 1 establish. The majority of board meetings have been held
outside India. Therefore, th e POEM of A Co. shall be presumed to be outside India.
! g xa mple 4: The facts are same as in Example 3 but it is established by the

/jessing Officer that although A Company's senior management team signs all the
c o n tracts, fo r all the contracts above ? 10 lakh the A Company must submit its
J commendation to B Company and B Company makes the decision whether or not t he
■ contrflC ’*’ May accepted. It is also seen that during the previous year more than
99% of the contracts are above ? 10 lakh and over past years also the same trend
jn respect o f value contribution o f contracts above ? 10 lakh is seen.
Interpretation: " ese facts suggest that the effective management of the A Co.
v have been usurped by the parent company B Co. Therefore, Poem of A Co. may
in such cases be not presumed to be outside India even though A Co. is engaged in
) aC tive business outside India and majority of board meeting are held outside India.
Example 5: An Indian multinational group has a local holding company A Co. in

country X. The A Co. also has 100% downstream subsidiaries B Co. and C Co. in
j country X and D Co. in country V. The A Co. has income only by way of dividend and
'1 interest from investments made in its subsidiaries.
n Yhe Place Effective Management of A Co. is in India and is exercised by ultimate
parent company o f the group. The subsidiaries B, C and D are engaged in active
business outside India. The meetings of Board of Director of B Co., C Co. and D Co.
i a re held in country X and V respectively.
Chapter 2
... ■
\ Interpretation: Merely because the POEM of an intermediate holding company is in

j India, the Poem of its subsidiaries shall not be taken to be in India. Each subsidiary
i has to be examined separately.
I As indicated in the facts since B Co., C Co., and b Co. are independently engaged in
I active business outside India and majority of Board meetings of these companies
— —— — • - — • .— ...—- —— — — —
I are also held outside India. The POEM of B Co., C Co., and b Co. shall be presumed to
I be outside India.
•• : • ............................... • ................ ••• ............................................................................................................. .............. ■ • ■ •............................. .............................................
# Sec 115JH: Transition Mechanism for Foreign company

I If any foreign company which has not been assessed to tax in India earlier and has
j become resident in India for 1st time due to POEM then transition mechanism shall
apply. Central Govt, is empowered to notify exceptions, modification & adaptation
subject to which the provisions of Income Tax Act relating to computation of Income,
treatment of unabsorbed losses, setoff and c/f of losses etc. shall apply in case where
the company become resident in India.
: The CG may impose certain conditions to avail benefit of transition provisions. If

assessee has not satisfied such conditions then benefits provided due to transition
I provision shall be withdrawn and A.O. shall recompute the Income as per normal
provision. For computation of rectification time limit AO will get 4 years f r om the
end of FY in which conditions violated.
# Central Govt. Notification No. 29/2018, dated 22 June, 2018

L e t ' s understand the notification with the help of an example. Say, a foreign company
! (FCO) is incorporated in Singapore and is a tax resident of that country.
' FCO becomes a POEM resident in India for FY 2021-22
1. i This notification shall be deemed to have come into force from the 1st April, 2017.
2. i Determination of opening W b V :
NON RESIDENT TAXATION Chapter 2
y es No
5ingQPore _____ _ jT"

Yes No Not
f o r taxability in Singapore Applicable
Then, opening WbV of FCO for W b V as on 1st W b V as on 1st W b V as on 1st

py 2021-22 shall be April 2021 as April 2021 April 2021 as per
per Singapore assuming that FCO's books
tax records depreciation of account
is actually maintained as per
allowed Singaporean laws
Brought forward loss and unabsorbed depreciation

3.
Whether FCO is assessed to tax in Yes No
Singapore ______
~Them L&b of FCO as on 1st April L&b of FCO as on 1st L&b of FCO as on 1st
2021 shall be April 2021 as per April 2021 as per
......
Singapore tax FCO's books of
records. account maintained as
per Singaporean laws
Notes
1 Losses shall be allowed to be carried forward under Income Tax Act only for the
remaining period.
2. Losses and Unabsorbed depreciation of foreign company shall be allowed to setoff
only against incomes which has become taxable in India due to it becoming resident
due to POEM.
3. In case of different accounting period followed by company,Losses and depreciation
shall be allocated on proportionate basis.
Period of profit and loss account and balance sheet in cases where accounting year of
4.
foreign company does not end on 31st March
The foreign company is required to prepare profit and loss account and balance sheet
HON RESIDENT TAXATION
for t he period starting from the date on which the accounting year immediately
following said accounting year begins, upto 31st March of the year immediately
preceding the period beginning with 1st April and ending on 31st March during which
t h e foreign company has become resident.
The foreign company is also required to prepare profit and loss account and balance
sheet for succeeding periods of twelve months, beginning from 1st April and ending on
31stMarch, t i l l the year the foreign company remains resident in India on account of its
POEM.
For the purpose of carry forward of loss and unabsorbed depreciation in cases where
the accounting year followed by the foreign company does not end on 31st March and
the period starting f rom the date on which immediately following year begins upto 31st
March of the year, immediately preceding the period beginning with 1st April and
ending on 31st March during which it has become resident, is,—
(a) less than six months, i t shall be included in that accounting year;
(b) equal to or more than six months, that period shall be treated as a separate
accounting year.
Example 1 : If the accounting year of the foreign company is a calendar year and the
company become resident in India during P.Y. 2021-22 for the first time due to its
POEM being in India, then, the company is required to prepare profit and loss account
and balance sheet for the period 1st January, 2021 to 31st March, 2021. It is also
required to prepare profit and loss account and balance sheet f or the period 1st April,
2021 to 31st March, 2022.
For the purpose o f carry forward of loss and unabsorbed depreciation in this case,
since the period 1st January, 2021 to 31st March, 2021 is less than 6 months, it is
to be included in the accounting year immediately preceding the accounting year in
which the foreign company is held to be resident in India for the first time.
Accordingly, the profit and loss and balance sheet of the 15 months period from 1
January, 2020 to 31st March, 2021 is to be prepared.
Example 2: If the accounting year of the foreign company is fr o m 1st July to 30th June
ersipEwr r/mrm
and t h e company becomes resident in India during P.V. 2021-22 f o r t he first time due to its
POEM being in India, then, the company is required to prepare profit and loss account and
balance sheet f o r t h e period 1st July, 2020 to 31stMarch, 2021. It is also required to prepare
profit and loss account and balance sheet for the period 1st April, 2021 to 31stMarch, 2022
For t h e purpose o f carry forward of loss and unabsorbed depreciation in this case, since
t h e period is 6 months or more, it is to be treated as a separate accounting year.
The loss and unabsorbed depreciation as per tax record or books of account, as th e case
may be, of the foreign company shall, be allocated on proportionate basis.
5. Applicability of provisions of Chapter XVII-B (TDS provisions)

Where more than one provision of TDS Chapter applies to the foreign company as resident
; as well as foreign company, the provision applicable to t he foreign company alone shall apply.
Compliance to those provisions of TDS Chapter of t he Act as are applicable to t he foreign
company prior to it becoming Indian resident shall be considered sufficient compliance to
t h e provisions of said Chapter.
The provisions of section 195(2) relating to application to Assessing Officer to determine
; t h e appropriate proportion of sum chargeable to tax shall apply in such manner so as to
include payment to th e foreign company.
6. Availability of deduction under section 90 or 91 (Foreign tax credit)

: Foreign Co. is eligible for the relief /deduction of foreign taxes paid as per Sec 90 or 91 of
;
the Act.
7. Non-applicability of th e notification
This notification does not apply to income of the foreign co. which was taxable in India even
i f f oreign co had not become a resident.
8. s No effect on other transactions

Any transaction of t h e foreign company with any other person or entity under the Act
shall not be altered only on the ground that t he foreign company has become Indian
wow siaj&rr taxawm
9. Applicability of other Provisions relating to Foreign company

Subject to the above exceptions, modifications and adaptions specifically provided vide
this notification, the foreign company shall continue to be treated as a foreign company
even i f it is said to be resident in India and all the provisions of the Act shall Apply
accordingly. Consequently, the provisions specifically applicable to,—
(i) a foreign company, shall continue to apply to it ;
(ii) non-resident persons, shall not apply to it; and
(iii) th e provisions specifically applicable to resident, shall apply to i t .
10 Applicability of tax rate on Foreign company

In case of conflict between the provision applicable to the foreign company as resident
i and t he provision applicable to i t as foreign company, t he later shall generally prevail.
Therefore, the rate of tax in case of foreign company i.e., 40% shall remain t h e same,
; i.e., rate o f income-tax applicable to t h e foreign company even though residency status
of the foreign company changes from non-resident to resident on t he basis of POEM.
11 ; Meaning of Foreign jurisdiction

The place of incorporation o f the foreign company.
Scope o f Total Income
Total Income
I I
Indian Income Foreign Income
I
Income Received or deemed to be Income other than Indian Income
received in India
OR
Income accruing or arising or
deemed to be accrue or arise in India
NON RESIDENT TAXATION Chapters
Taxability of Income for Individual & HUF

S. No. Income R&OR R but NOR NR
1. Taxable Taxable Taxable

Indian Income ____ ______
2. Foreign Income
Taxable Taxable Not Taxable
. Income from Business or
Profession Controlled/ ......
setup from India- ________

.... Taxable Not Taxable Not Taxable
- nthorforeign Income.
lily of Income fo r other Assessee

S. No. Income Resident NR
1. Indian Income Taxable Taxable
.... 2. " ForeignIncome Taxable Not Taxable
Notes:
Income received means, received for the f irst time. After receiving income outside
15
India subsequently ’I remitted into India, i t cannot be treated as Receipt of
Income. — — — —
Income may be in Cash or in Kind.
Any income already taxed on accrual basis, consequently remitted to India. is not
chargeable to tax at the time of remittance irrespective of the residential status.
Income accrual in India means, income generated in India or source of Income
situated in India. -
Sec 7: Income deemed to be recei ved in India „

(i) Contribution in excess of 12% of salary to Recognised provident fund or interest
credited in excess of 9.5% p.a (Annual accretion to the credit of RPF).
(ii) Contribution by the Central Government or other employer under a pension scheme
referred u/s 80CCD.
(iii) Amount transferred from unrecognised provident fund to recognised provident
fund (being the employer's contribution and interest thereon).
48 Bhanwar Borana
■
Sec 9: Income deemed to accrue or arise in India.

Income deemed to accrue or arise in India
[Clause (i), (ii), (iii) <& (iv) Section 9(1) ]
o
Salary payable Dividend paid
Income accruing or
by Government by Indian
arising outside
to Indian Citizen Company
India, directly or
f o r services I Outside India
indirectly through
rendered
outside India
Income deemed to accrue or arise in India

[Clause (v), (vi) <&(vii) of Section 9(1)]
Interest, Royalty, Fees f o r technical

i f payable by i f Payable by service, if payble by
Exception If money is borrowed If technical

and used for the purpose services or royalty
o f business or profession
carried in India services are utilised
f o r the purpose
of business or
If th e money borrowed If t h e money borrowed profession carried
and used or technical and used or technical on in
services or royalty services or royalty
services are utilised for India or making
services are utilised for
th e purpose o f business making income from any income from
or profession carried source outside India any source in India
on outside India
NOW RESIDED I s A K A i ION Chapter 2
trough or f r o m any businessconnectioninlndia[5ec9(l)(i)]

business Connections means a person acting on behalf of NR : -
y U 5t have an authority, which is habitually exercised in India, to conclude contracts
a.
on behalf of the non-resident or habitually concludes contracts or plays the principal
r 0 |c leading to conclusion of contracts by that non-resident and such contracts are
the name of the non-resident; or
oW/ned by that non-resident or that non-resident has th e right to use; or
habitual ly maintain a stock from which he regularly delivers on behalf of NR

b.
Habitual ly secure order in India mainly or wholly f or NR.
c.
Further in following case Business connection also establish
a || t h e three situations, business connection is established, where a person

habitually secures orders in India, mainly or wholly f or such non-residents.
t,./ Mr A acting on behalf of M r . X non-resident
Secures
non-resident M r . y non-resident
onnec-
5®
50
F NON RESIDENT 6 NATION
I Agents having independent status are not included in Business Connection:

Business connection, however, shall not be established, where t he non-resident carries
j on business through a broker, general commission agent or any other agent having an
I independent status, if such a person is acting in the ordinary course of his business.
A broker, general commission agent or any other agent shall be deemed to have an
: ' .. .' . ..... .. '...................... ... . ' . ...........
...... ".......*..................'. .........
j independent status where he does not work mainly or wholly f o r the non-resident.
He will, however, not be considered to have an independent status in the three situations
I explained above, where he is employed by such a non-resident.
...... ■— .................................................... - ........................................................................................................ ......... ........ ..................................... .......................................................... ........................ ' * ' ................................. .
Where a business is carried on in India through a person referred to in (a), (b) or (c) of (i)
I above, (other than SIP) only so much of income as is attributable to the operations
; ............. ... . ... . —...-. ...—-. — . . .-. .. . .. — -. . —....-....—... - -- —...-...-. . •' -
I carried out in India shall be deemed to accrue or arise in India [Expl. 3 to section 9(l)(i)].
Significant economic presence [Explanation 2 A to section 9(l)(i)]

Significant economic presence of a non-resident in India shall also constitute business
connection in India
Significant economic presence means- __________________ _____________________
No. Nature of Transaction Condition
1. Transaction in respect of any goods, services Aggregate of payments arising from
or property carried out by a non-resident such transaction or transactions
with any person in India including provision of during the previous year exceeds
download of data or software in India, Zcrores.
2. Systematic and continuous soliciting of The users should be 3 Lakhs.
business activities or engaging in interaction
with users in India
Further, the above transactions or activities shall constitute significant economic
presence in India, whether or not-
(ii) The non-resident has a residence or place of business in India; or

(iii) The non-resident renders services in India:
presence in India, only so much of income as is attributable to the transactions or

J activities referred to in (a) or (b) above shall be deemed to accrue or arise in India.
B Compact PC
RSSHMSNT taxation
Explanation 3 A added by FA 2 0 w.e.f . AY 21-22
(i) such advertisement which targets a customer who resides in India o r a customer
who accesses t h e advertisement through internet protocol address located i n India;
( i i ) sale of data collected f r o m a person who resides in India o r f r o m a person who uses
internet protocol address located in India; and
( i i i ) sale of goods or services using data collected f r o m a person who resides in India or
f r o m a person who uses internet protocol address located in India.
Provided that the provisions contained in t h i s Explanation shall also apply to t h e income
’ attributable to the transactions or activities referred to in Explanation 2 A (SEP)
Following shal | not be treated as Business Connection in India

a. Purchase of goods in India for export.
b. Collection o f news and views in India f o r transmission out of India.
Shooting of cinematograph films in India i f such NR is Individual, who is not a
c i t i z e n of India or a firm which does not have any partner who i s a c i t i z e n of India
o r who is resident in India or a company which does not have any shareholder who is
a citizen of India or tf ho « resident in India.
d In case of a foreign company engaged in the business of mining of diamonds, f rom
t h e activities which are confined to display o f uncut and unassorted diamonds in any
■ special zone notified by the CG.
2. Income f r o m property, Asset o r source o f Income is situated in India, then it is

treated as deemed to beaccrued o r arise in India
3. Income through transfer of Capital asset situated in India

„ . . . , +r,nnsfer of capital asset situated in India shall be treated as
; Capital gain f rom Transit' . -------—
. 7 , nccrued or arise in India. Whether registration of documents
i deemed to be income ............
f transf er in India or outside India o r consideration received in India o r outside India.
Compact V C jm 52-
I
It is hereby clarif ied that an capital asset being any share or interest in a company
or entity registered or incorporated outside India shall be deemed to be and shall
always be deemed to have been situated in India, if th e share or interest derives,
directly or indirectly, its value substantially from the assets located in India. [Expln.
5 of Sec 9 ]
So shares of foreign company deemed to be located in India if such shares derived
i t ' s value from assets located in India. Capital gains applicable on transfer of such
shares of foreign company.
The shares of foreign entity derived its value substantially from Indian assets i f on
specified date (valuation date) ;
» FAAV of Indian assets held by foreign company is more than 10 Crores; and
» It represent atleast 50% of value of all assets owned by foreign company.
.........................
.... .
Exception: Income shall not be deemed to accrue or arise to a non-resident from
transfer interest in an foreign entity if the transferor along with its associated
enterprises does not hold, the right of management or control in foreign entity or
voting power/share capital more than 5% of the total voting power/share capital in
the foreign entity at any time during the 12 months preceding the date o f transfer.
Notes:
1. Valuation date: last day of accounting year (last b/s date) preceding the date of
transfer. However, book value of assets on date of transfer is higher by 15% or more
of the book value of assets as on last day of last accounting year then valuation date
shall be date of transfer.
2 FMV of assets : FAAV of assets on valuation date without reduction of liabilities.
3 Accounting year : Each 12 months periods end on 31st AAarch.If company follow any
other period as accounting year (like calendar year) as per law of foreign country
then that period shall be accounting year.
4. Where all the assets owned by the foreign entity are not located in India, only so
.Ti
much of income as is proportionate to the assets located in India shall be deemed to
accrue or arise in India.
S3
1 I
NON RESIDENT 1 AXA NON ■
Chapter 2
held by a non-resident directly o r i n d i r e c t l y in Category I foreign portfolio
tor shall not be deemed to b e situated in India even i f deriving its value substantially
5
I ZX m located in Mia.
Example
O Ltd a U S A based company hold 100% shares of Grapes L t d , a Singapore based
acquired f o r 1000 crores. Grapes Ltd has a subsidiary in India i.e. Mango Ltd.
company -
& [j-j also has subsidiaries in S r i Lanka, Taiwan and China. Grapes Ltd hold 90%
shared Mango Ltd.

O Ltd. transf erred its entire stake in Grapes Ltd to UK based company Kiwi Ltd. on
Oir /09/2 lfor

' 2100cr0reS '
II • I.
v,e
c ial year f ° H ° ' d by each o f the above companies
(1) Fi nan£j_j -------—— --------------
-- ------- Company Financial Year
— 'orange Lt d . , U S A 1st July to 30th June

----------- opes Ltd, Singapore 1st January to 31st December
1st A p r i l to 31st March
------ AAango L t d , India
o f Grap®5 Ltd as on the date of transfer and as on previous accounting year end date:
(2)
31/12/20 01/09/21 Assets 31/12/20 01/09/21
Amount in crores Amount i n crores
2500 2000 Investment in Mango Ltd 1000 1000
Capital
Investment in China, S r i Lanka 500 500
reserves
and Taiwan
Other assets 1000 500
2500 2000 Total 2500 2000
Total
s r l argo Ltd as on the date of transfer and as on previous accounting year end date:
!
( 3 ) | B/~> ,— — i i i----------— t— - - - -
31/03/21 01/09/21 Assets 31/03/21 01/09/21
Amount in crores Amount in crores
500 800 Investments 300 300
Capital
500 400 Immovable property 200 200
Liability
Other assets 500 700
1000 1200 Total 1000 1200
—H C o m p a c t V -9 ; 54 B h a n w a r Borana
Chapter 2 WOW SSgDRV/g J
(4) ) Fair Market Value of assets Income-tax Rules, 1962:
Grapes Ltd. Mango Ltd.

Date
Amount in crores
31st Dec 2020 5000 3000
31st March 2021 5300 3300
1st Sep 2021 6000 4000
I Answer
1. ! Determination of Valuation bate
i BV o f assets of Grapes Ltd as on last B/S date i.e. on 31/12/20 = 2500 crores
. .. . r~ ..... ... .....
....... . . . . .. . . . . . . .. . ... . . .. ..... ........ ■ ------ - - - -~ - - -------- - - -- - - -- - - -.
* .... . . *.... . . ......
.. .... ..
j BV of assets of Grapes Ltd as on the date of transf er i.e. on 31/09/21 = 2000 crores
j Is there an increase in book value of asset by 15% = No. In fact, there is decrease in BV
of asset Valuation date = 31/12/2020
2. ! Determining whether 50% threshold is met on the Valuation date

FMV of all assets of Grapes Ltd as on valuation date = 5000 crores
FMV of Indian assets held by Grapes Ltd (3,000 Cr. X 90%) = 2700 crores
Percentage of India asset as compared to all assets of Grapes Ltd = 54%
Since, the value of Indian assets more than 10 crores; and represents 54% of the value
o f all assets owned by Grapes Ltd., the shares of Grapes Ltd. shall be deemed to derive
| its value substantially from the assets located in India.
3. | In this case capital gain applicable in hands of orange Ltd. on transfer o f shares o f grapes
ltd.
Computation of Capital Gain
Full Value of Consideration 2100 crores
' Less : Cost o f Acquisition 1000 crores
I Capital Gain 1100 crores
i Out of 1100 crores of capital gain only proportionate capital gain taxable in India. As per
I Rule No. 11UC = 1100 FMV of Indian assets held by foreign company
... -x-......................... —............................................ ..
i.e. 1100 x 2700 crores / 5000 crores = 594 crores capital gain taxable in India
55
< . MOMRESWr ' X ’ .'fOW Chapter 2
Amendment made by Taxation Law Amendments Act, 2021

Departmentwillnotmakeanyassessmentu/s 143, 144, 147, 153 A , 153Cor r e c t i f (cation
u/s 154 or order u/s 201(1) in respect of income f r o m transfer o f f oreign entity shares
i f transfer made before 28/05/2012.
If department already made assessment u/s 143, 144, 147, 153A, 1 5 3 0 o r r e c t i f ication
u/s 154 or order u/s 201(1) o r penalty order u / c XXI o r u/s 2 2 1 in respect o f income
f r o m transfer of shares of f o r e i g n entity, transfer made before 2 8 / 0 5 / 2 0 1 2 t h e n
subject to such conditions, i t is deemed t h a t ’ s such assessment o r o r d e r relates to
that income shall be deemed never made/passed.
interest u/s 244A.

Conditions f o r applicability of above provisions;
» If assessee already filed appeal before any authority o r w r i t before HC/SC, h e

shall either withdraw or submit a undertaking to withdraw such appeal.
» If assessee initiated any proceeding f o r a r b i t r a t i o n o r mediation o r has given
notice thereof under any agreement entered by India w i t h f o r e i g n country, h e
shall either withdraw or submit a undertaking to withdraw such claim.
» Assessee should waive-of f his r i g h t to seek o r pursue any remedy o r claim under
any law or agreement.
BB’s Note : Above amendments are made to give prospective effect o f explanation 5 of
section 9 In 2012, Pranab Mukherjee, then finance m i n i s t e r , had amended t h e law
retrospectively to levy capital gains tax on transfer of shares of f o r e i g n companies.
The amendment came after govt lost case in SC against Vodafone.
Sec 9(l)(ii): Salary Income f o r service rendered in India, whether such Income
before o r after service rendered like Gratuity, Pension, P r o f i t in lieu of Salary.
Sec 9(l)(iii): Salary received by Indian Citizen f r o m Govt, f o r service rendered

outside India.
As per section 10(7) perquisite & allowances are Exempt.
Sec 9(l)(iv): Dividend paid by Indian Company O u t s i d e India

C o m p a c t vo ItW- t-ttfM CA B h a n w a i Borana
r Ch P.t.........
. .... ...... ........ 2 NON RESIDENT TAXATION
Sec 9(l)(v): If interest is payable by: -

a. Government
b. Resident person [Exception: where money borrowed and used, for the purposes
of a business or prof ession carried on by him outside India or for the purposes
of earning any income from any source outside India]
c. A NR when money borrowed used for the purpose of business or profession
carried on in India by him
► then such interest is treated as deemed to be accrued or arise in India.
Example : If a non-resident ' A 1 borrows money from a non-resident ’ B ' and invests the
same inshares of an Indian company, interest payable by ' A ' to ' B' will not be deemed
to accrue or arise in India.
Note:
Interest payable by PE of NR engaged in Banking Business, to head off ice or any PE
or any other part of such non-resident outside India, shall be deemed to accrue or
arise in India.
HCBC Bank Hongkong ◄----------------------------------- HSBC Branch in India
Interest received by HCBC Hongkong from HCBC Branch in India Shall be deemed
to be Accrue or arise in India.
Sec 9(l)(vi): If royalty payable by:

a. Government
b. Resident person [Exception : Where it is payable for the transfer of any right or
the use of any property or inf ormation or for the utilization of services for the
purposes of a business or prof ession carried on by such person outside India or
for the purposes of earning any income from any source outside India]
c. A NR in respect of transfer of any right, use of any property or information
or utilization of service for purpose of business or profession carried in
India or earning any Income from any source in India
► then such Royalty is treated as deemed to be accrued or arise in India.
57 ' ■ ■■ ''! '

— •< MOM RESIDENT' WWi ‘A WOW
o+eS ' . .
u r pp5um Royalty by resident to NR f or supply of computer software along with
computer hardware under the scheme approved by CG shall not be treated as
j giYied to be accrued or arise in India.
transfer of property is already taxable under the head Capital gain then it
. not covered under the definition of Royalty.
o n sjderation for use or right to use of computer software is covered under Royalty.
explanation 2 : "royalty" means consideration (including any lump sum consideration but
excluding any consideration which would be t he income of t he recipient chargeable under
+he head "Capital gains") for—
transfer of all or any rights (including the granting of a licence) in respect of a
patent, invention, model, design, secret formula or process or trade mark or similar
property;
e, imparting of any information concerning the working o f , or the use o f , a patent,
invention, model, design, secret formula or process or trade mark or similar property ;
the use of any patent, invention, model, design, secret formula or process or trade mark
similar property;
imparting of any information concerning technical, industrial, commercial or
scientific knowledge, experience or skill ;
lhe use or right to use any industrial, commercial or scientific equipment but not
including t he amounts referred to in section 44BB;
the transfer of all or any rights (including the granting of a licence) in respect of any
copyright, literary, artistic or scientific work including films or video tapes f or use in
c 0 nnection with television or tapes f o r use in connection with radio broadcasting , but not
neltfd+ng-eensideration f o r the sale, distribution or exhibition of- cinematographic films;
(omitted by FA.-20)
■fre rendering of any services in connection with the activities referred to in sub-clauses
* (i)to(<v),(iva)and(v)
Explanation 4 provides that the consideration for use or right to use of computer
software is royalty by clarifying that, transfer of all or any rights in respect of any right,
z hanwar
T
MOM RESfBEM*/ ? /A
property or information includes and has always included transfer of all or any right
! f o r use or r i g h t to use a computer sof tware (including granting of a licence) irrespective
| of the medium through which such right is transf erred.
! Consequently, th e provisions of tax deduction at source u/s 194 J and 195 would be
| attracted in respect of consideration f o r use or right to use computer software since
I the same falls within th e definition of royalty.
..... I'. .... ' '................. ............... . . ....... ............................. .....'............... ' ............ ' ................... '.............. .................. ............................................. ................ . . . .................. “
Note - The Central Government has, vide Notification No. 21/2012 dated 13.6.2012 to
| be effective from 1st July, 2012, exempted certain software payments from the
) applicability of tax deduction under section 194J. Accordingly, where payment is made
by t h e transferee fo r acquisition of software from a resident-transferor, the
provisions of section 194 J would not be attracted if -
1. t h e sof tware is acquired in a subsequent transf er without any modification by t he
transferor;
2. tax has been deducted either under section 194J or under section 195 on
payment any previous transfer of such sof tware; and
3. the transferee obtains a declaration from the transferor that tax has been so
deducted along with the PAN of the transf eror.
.1”— ...... i — -— — - - — — — — — — — — — .....— .— _ — ...— _— ...—
#1 Sec 9(l)(vii): If fees fo r technical service (FTS) payable by: -
;
a. Government
r— .■ — .............
b. Resident person [Exception : Where the fees is payable in respect of technical

services utilised in a business or profession carried on by such person outside
India or for the purpose of earning any income from any source outside India.]
c. A NR in respect of Technical service utilised in business or profession
carried on by such person in India or such service utilise for earning any
- ' .......... i~. ......................................*— ■
............... ............ . - ....... . . .. . . "— — ■— — -------— — — — .— ._
income from any source in Indian,

► then such FTS is treated as deemed to be accrued or arise in India.
FTS means: any consideration (including any lumpsum consideration) f o r t he

rendering of any managerial, technical or consultancy services (including providing
the services of technical or other personnel). However, it does not include
59 I Compact V 2
consideration tor any consTrucuon, assembly, mining or ime projeci unaer iuKeri uy
th e recip i e nt or consideration which would be income of t he recipient chargeable

under the head ’Salaries'.
Exampl® : __ . — . .—. . .— ..... .....—.......... — ....—. .— ............- .....

,v
M’S V itha paid a sum of 5000 USD to Mr. Kulasekhara, a management consultant
T-i» ina
pr act i r 'y in—
Colombo,
—— —specializing
... — in project
........financing. The payment was made
— .— .— ------- in
------
r u as
C l mb° ' l ®l<liara ,s a
non-resident. The consultancy is related to a project
Indin wi+h possible Ceylonese collaboration. Is this payment chargeable to tax in
India m +he
Tr,K hands o f Mr. Kulasekhara?
' .. ------ - ...— — —
Solution;
A non-resident i s chargeable to tax in respect of income received outside India

ly if such income accrues or arises or is deemed to accrue or arise to him in India.
The income <-leernec * to accrue or
arise in India under section 9 comprises, inter alia,
wa or
• om® by Y ®es technical services, which includes any consideration for
°f an Y managerial, technical or consultancy services. Theref ore, payment to
management consultant relating to project financing is covered within t he scope of
’’ fees fon technical services" .The Explanation below section 9(2) clarif ies that income
by way , n er a ' ' a ' eeS f° r technical services, from services utilized in India would
be deemed to accrue or arise in India in case of a non-resident and be included in his
I laf income, whether or not such services were rendered in India or whether or not
ll g non-resident has a residence or place of business or business connection in India.
In the instant case, since the services were utilized in India, the payment received by
Mr Kulasekhara, a non-resident, in Colombo is chargeable to tax in his hands in India,
5ec1'i°n P X V111 : beemed accrual of g i f t made to a person outside India

jft of any m o n e X made by resident to NR or foreign company on or after 5th July
2019 shall b® c 'ecrnec ' to accrued or arise in India.
60 j CA Bhanwar Borana
NONRESIXNt > 'UAMN
Section 9A: Presence of Eligible Fund Manager in India not to constitute Business
F Connection
1
out through an eligible fund manager acting on behalf of such fund shall not
constitute business connection in India of the said fund.
2 An eligible investment fund shall not be said to be resident in India merely because
the eligible fund manager undertaking fund management activities on its behalf is
located in India.
3. i The eligible investment fund means a fund established o r incorporated o r
! registered outside India, which collects funds from its members for investing i t
j for their benefit. Further, it should fulfil the following conditions:
— S■' — ----------------- ----- - -- - - - -- -------- - - - — — - — - ------- - - ----------- - - - -— ------------------...»
(a) j The fund should not be a person resident in India;

(b) | The fund should be a resident of a country or a specified territory with which India
I entered into bTA A as per sec 90 or 90A;
( c) | The aggregate participation or investment in the fund, directly or indirectly,
| by persons being resident in India should not exceed 5% of the corpus of t he fund;
| Provided that for the purposes of calculation of the said aggregate participation or
I investment in the fund, any contribution made by the eligible fund manager during
j the first three years of operation of the fund, not exceeding ?25 crore rupees,
I shall not be taken into account.
(d) I The fund and its activities should be subject to applicable investor protection
I regulations in th e country o r specified territory where it is established or
j incorporated or is a resident;
(e) j The fund should have a minimum of 25 members who are, directly or indirectly,
not connected persons
(f) ; Any member o f t h e fund along w i t h connected persons shall not have any
j participation interest, directly or indirectly, in the fund exceeding 10%;
(g) j The aggregate participation interest, directly o r indirectly, of ten or less
* members along with their connected persons in the fund, shall be less than 50%;
(h) I The investment by the fund in any entity shall not exceed 20% of the corpus of
.. I the fund; .. .. ... . . . .. . ., ...

(i) i No investment shall be made by the fund in its associate entity;
61
O NON RESIDENT TAXATION
The monthly average of t h e corpus of the fund shall not be less than ? 100 crore.
If the fund has been established or incorporated in the previous year, t h e corpus
of fund shall not be less than ? 100 crore rupees at the end of a period of 12 months
f rorn the last day o f th e month of its establishment or incorporation,
However, this condition shall not be applicable to a fund which has been wound up in
the previous year.
The fund shall not carry on or control and manage, directly or indirectly, any
business in India;
The fund should neither be engaged in any activity which constitutes a business
connection in India nor should have any person acting on its behalf whose activities
constitute a business connection in India other than t he activities undertaken by
The eligible fund manager on its behalf.

The remuneration paid by the fund to an eligible fund manager in respect of fund
management activity undertaken on its behalf should not be less than the amount
calculated in such manner as may be prescribed.
Note.1 Conditions mentioned in point (e), (f) & (g) shall not apply in case of an investment
fund set UP by the Government or the Central Bank of a foreign State or a sovereign fund
<iich other fund notified by the Central Government (i.e., an investment fund set up by a
Category-! or Category-II Foreign Portfolio Investor registered under the SEBI
(ForeignPortfolio Investors) Regulations, 2014, made under t he SEBI Act, 1992
The eligible fund manager, in respect of an eligible investment fund, means any
person who is engaged in the activity of fund management and fulfills the following
conditions:
(a) the person should not be an employee of the eligible investment fund or a
connected person of the fund;
(b) the person should be registered as a fund manager or investment advisor in

accordance with the specified regulations;
the person should be acting in the ordinary course of his business as a fund
manager;
(d) the person along with his connected persons shall not be entitled, directly or
indirectly, to more than 20% of the profits accruing or arising to the eligible
investment fund f r o m the transactions carried out by the fund through such
r f u n d manager.
r"
5 Every eligible investment f u n d shall, in respect o f its activities in a financial year,

I f u r n i s h w i t h i n 90 days f r o m the end of t h e financial year, a statement i n the
!
prescribed f o r m to t h e prescribed income-tax authority.
The statement should contain information relating to -
(a) t h e f u l f i l l m e n t of t h e above conditions; and
( b ) such o t h e r r e l e v a n t i n f o r m a t i o n o r d o c u m e n t w h i c h may be prescribed.
If any eligible investment f u n d f a i l s to f u r n i s h such statement o r information o r
document w i t h i n 90 days from the end of the financial year, the income-tax
authority prescribed under the said sub-section may direct that such f u n d shall
pay, by way of penalty, a sum of ? 5,00,000. [ S e c t i o n 271FAB]
6. This special taxation regime would not have any impact on taxability of any income
o f t h e e l i g i b l e i n v e s t m e n t f u n d w h i c h w o u l d have b e e n c h a r g e a b l e t o tax
irrespective of whether t h e activity of the eligible f u n d manager constituted
business connection in India of such f u n d o r not. Further, the said regime shall not
have any effect on the scope of total income o r determination of total income in
t h e case of t h e eligible f u n d manager.
Meaning of certain terms:

Associate: A n entity in which a director o r a trustee o r a partner o r a member or a
' f u n d manager o f the investment f u n d o r a director o r a trustee o r a partner o r a
member o f the fund manager of such f u n d , holds, e i t h e r individually o r collectively,
| share o r interest, being more than 15% of its share capital o r interest, as the case .
may be.
1
(ii) Corpus: The total amount of funds raised for t h e purpose of investment by the eligible
I investment f u n d as on a particular date.
Connected Person" same as Specified person as per sec. 4 0 A ( 2 )
63
|\)ote ; C6 may, by notification, specify that any one or more of t h e conditions specified
;n clauses (a) to (m) o f point (3) or clauses (a) to (d) of point (4) shall not apply or shall
apply with such modifications, as may be specified in such notification, in case of an
eligible investment fund and its eligible fund manager, if such fund manager is located
in an IFSC, and has commenced its operations on or before the 31st March, 2024.
(Added by FA 21 w.e.f. AY 22-23)
Some Exempt Income

"Section Income Eligible Assessee
~10(4)(ii) Interest on money standing to the Person resident outside India
credit in a Non-resident (External) (under FEMA Act) or a person
account in India who has been permitted to
maintain said a/c by RBI
1Q(4C) Interest payable by Indian company or

business t r u s t in respect of monies
borrowed from a source outside India by
way of issue of rupee denominated bond,
as referred in Sec 194LC, during the
period beginning from the 17/09/18 and
ending on the 31/03/19
1. Capital Gains on transfer of assets Specified fund (Note)
referred u / s 4 7 ( v i i a b ) on a
recognised stock exchange located Such income exempt to the
in IFSC and consideration paid or extent it is attributable to
payable in foreign currency; units held by NR (not being
the PE of a NR in India) or is
2. C a p i t a l Gains on t r a n s f e r of attributable to the investment
security (other than shares of division of offshore banking
company resident in India); unit (OBU added by FA 21,
w.e.f. AY 22-23).
3. Any income from security issued by
NR (not being a PE of NR in India); 11 nn 1 1
' '" "
64 C A R
''-ZA h IPdi n
Lot 11w
Wnerl l R
DnOrl ac n
i lal d
Chapters NON RESIDENT TAXATION
4. I n c o m e f r o m s e c u r i t i s a t i o n t r u s t
.. .. . . ... . . . . . ..
chargeable under PGBP.
10(23 Any Income by Unit holders from specified Unit Holder o f

FBC) fund or on transfer of Units of specified Specified Fund
fund.
“Investment division of offshore banking unit (OBU)" means an investment division of a

banking unit of a NR located in an IFSC, as referred in sec 8OLA(1A) and which has
commenced its operations on or before the 31st March, 2024.
I
"Specified fund" means,—
(I) Fund established or incorporated in India in the form of a trust or a company or
a LLP or a body corporate,—
(a) which has been granted a certificate of registration as a Category III
.................
Alternative Investment Fund and is regulated under the SEBI (AIF) Regulations,
2012, made under the SEBI Act, 1992 or IFSC Authority Act, 2019;
(b) which is located in any International Financial Services Centre; and
(c) of which all the units other than unit held by a sponsor or manager are held by
NR; or
GO Investment division of an OBU, which has been—
(a) granted a certificate of registration as a Category-I foreign portfolio investor
...........
under th e SEBI (FPI) Regulations, 2019 made under t h e SEBI Act, 1992 and
...................... VX.-.-...,..., .....,,........................A-V ......................................................... . ..........
which has commenced its operations on or before t he 31st day of March, 2024; and
(b) fulfils such conditions including maintenance of separate accounts fo r its
investment division, as may be prescribed.
MU
10(4E) Any income on transfer of npn-deliverable forward contracts Non Resident

■
entered into with an OBU of an IFSC, which fulfils such
conditions as may be prescribed
10(40 Any income by way of royalty or interest, on account of lease Non Resident
of an aircraft in a PY, paid by a unit of an IFSC, i f the unit has
commenced its operations on or before the 31st March, 2024.
Ly\
. "aircraft" means an aircraft or a helicopter, or an engine of an

aircraft or a helicopter, or any part there of.
iiilB
■■■■■ ■ ■■■■ ............... :
— •••
■SMMI ~
Income Eligible Assessee
Any income by way of interest payable Non Resident
monies borrowed by it on or after the

01/09/ 2019 _______________________
Remuneration received by Foreign Individual (not being a
Diplomats/ Consulate and their staff citizen of India)
Conditions
(a) The remuneration received by our
corresponding Government official’s
resident in such f o r e i g n countries
should be exempt.
( b ) T h e above-mentioned o f f i c e r s
should be the subjects of the
engaged i n any o t h e r business o r

profession o r employment in I n d i a .
VI
Remuneration received as employee of a Individual - SqlqHedJEmpIpyee
foreign enterprise for services (not being a citizen of India)
rendered by him during his stay in
India, i f :
a) Foreign enterprise is not engaged
in any trade or business in India;
b) His stay in India does not exceed
the aggregate a period of 90 days
in such PY; and
c) Such remuneration is not liable to
d e d u c t e d f r o m t h e income o f
employer chargeable under this Act
Salary received by or due for services Individual (Non-resident who
rendered i n connection w i t h h i s is not a citizen of India)-
employment on a foreign ship i f his Salaried Employee
66
Chapters H
Section Income Eligible Assessee
total stay in India does not exceed 90

■ — -.
days in the PY.
10(6)(xi) Remuneration received as an employee Ind i vidual - Salaried Employee
of the Government of a foreign state (not being a citizen of India)
during his stay in India in connection
with his training in any Government
Office/ Statutory Undertaking/
corporation/ registered society etc
10(688) Tax paid by Indian company, engaged in Government of foreign State
the business of operation of aircraft, or foreign enterprise (i.e., a
which has acquired an aircraft or an person who is a non-resident)
aircraft engine on lease, under an
approved (by CG) agreement entered
after 31-3-2007, on lease rental /
income derived (other than payment
for providing spares or services in
connection w i t h t h e operation o f
leased aircraft) by the Government of
a Foreign State or foreign enterprise.
1O(6C) Income derived by way of royalty or Foreign company

fees for technical services under an (notified by CG)
agreement with that Government for
providing services in or outside India in
projects connected with security of
India
10(6b) Income arising by way of royalty NRj& Foreign Company
from or fees from technical services
rendered in or outside India to, the
National Technical, Research
Organisation (NTRO)
67
NOW RESIDEWT TAXATION
10(48) Income received in India in Indian Foreign company on account of

currency on account of sale of Crude oil sale of crude oil, any other r
or any other goods or rendering of goods or rendering of services.
It should not be engaged in any
t h i s b e h a l f . Foreign company and other activity in India.
agreement should be notified by the CG
in national interest. _________________
10(48A) Income accruing or arsing on account of Foreign company on
account of storage of crude oil
and sale of crude oil therefrom to any in a facility in India and sale of
person r e s i d e n t i n I n d i a . Foreign crude oil there from.
company and agreement should be
notified by the CG in national interest.
10(488) Income from sale of leftover stock of Foreign company from sale of
crude oil from facility in India after the leftover stock of crude oil
expiry of agreement or arrangement from the facility in India.
referred to in section 10(48A) or on
termination of the said agreement or
arrangement, in accordance with the
terms mentioned therein, as the case
may be, subject to such conditions, as
may be notified by the CG.
10(486) I n c o m e f r o m a r r a n g e m e n t f o r I n d i a n S t r a t e g i c Petroleum
replenishment of crude oil stored in its Reserves L i m i t e d , being a
storage facility i n pursuance o f wholly owned subsidiary of t he
directions of the CG in this behalf. O i l I n d u s t r y Development
Provided that nothing contained in this Board under the Ministry of
clause shall apply to an arrange-ment, if Petroleum and Natural Gas.
the crude oil is not replenished in the
the end of the financial year in which the

. . '. . . .. “ -----L
_____ S8
NON RESIDENV NATION
crude oil was removed from t he storage

facility f o r the first time
io(48D) Any income accruing or arising f o r a Institution setup under law for
period of 10 consecutive AY's beginning financing the infrastructure
from th e AY relevant to t h e PY in which and development, notified by
such institution is set up. the CG
10(48E) Any income accruing or arising for a Developmental financing
period of five consecutive AY 's beginning institution, licensed by the RBI
from the AY relevant to the PY in which under law
t h e developmental financing institution is
setup.
N o t e : CG may e x t e n t t h e p e r i o d
exemption fo r max 5 more A.Y.
Sec 1O(23FE) : Exemption of Income of specified person fr om Investment in India

(Amended by FA 21)
0 Incomes : dividend, interest or L.TCG from an investment made in India, in the form of
debt/share capital/unit, i f the investment—
(i) is made between 1st April, 2020 to 31st March, 2024 A,
(ii) is held for at least three years.
0
(a) Business Trust (Invit); or
(b) Entity carrying on the business of developing, or operating and maintaining, or
developing, operating and maintaining any infrastructure facility; or
(c) Category-! & II AIF regulated under the SEBI (AIF) Regulations, 2012, having
minimum 50% investment in one or more of the entity referred to in item (b) or item
(d) or item (e) or in an Business Trust (only Invit); or
(d) a domestic company, set up and registered on or after t he 1st April, 2021, having
minimum 75% investments in one or more of t h e entities referred to in item (b); or
a NBFC registered as an Inf rastructure Finance Company as per RBI notification or in
an Infrastructure Debt Fund, a NBFC, as referred to in t h e Infrastructure Debt Fund
- NBFC (Reserve Bank) Directions, 2011, issued by the RBI, having minimum 90%
■■■■/ ■ ■■■■ ■■■■■■■■■■ """ ■ . —-
CA Bhanwar Borana 69 . . .,,.,.; „. . . . ..
„ ..
,,.. . .-
NON RSSSDEN Y T/W AYSON
I lending to one or more of the entities referred to in item (b)
j Taxability on failure to satisfy the conditions: Where any income has not been included
j in the total income of the specified person due to the aforesaid provisions, and
) subsequenty during any PY the assessee fails to satisfy any of the conditions, such
...... .. ............. .... . .......... . -................... ,.......... .......... ........... .......... — V. ........ V.................... .1„ . ..... ..... ....... .................... . . . . .. . „„
j income shall be chargeable to income-tax as t he income of the person of that PY.
Meaning of Specified Person

Wholly owned subsidiary of Sovereign wealth fund Pension fund
t h e Abu Dhabi Investment
Authority
( i ) It should be a ( i ) It should be wholly ( i ) It should be created
resident of the owned and controlled, or established under
United Arab Emirates by the foreign Govt. the law of a foreign
(ii) It makes investment, (ii) It should be set up and country including the
directly or indirectly, regulated under foreign laws made by any of its
out o f the fund owned country law. political constituents
by th e Govt, of th e Abu (iii) The earnings of the being a province, State
Dhabi fund are credited or local body, by
either to the account of whatever name called
the Foreign Govt, or to (ii) It should not be liable
any other account to tax in such foreign
designated by that country or i f liable to
Govt, so that no portion tax, exemption from
of the earnings inures taxation for all its
any benefit to any income has been
private person provided by such
(iv) The asset of the said foreign country
fund vests in the (iii) It does not participate
.. .. ............ . . . .. . .- . ..V..... . . ...... Foreign Govt, upon in the day to day
......... , ___ . _ — ■••• --- ---------- ---- .. ------------ . .

dissolution. operations of investee
(v) It does participate in but the monitoring
70
t h e day-to-day operations of mechanism to protect

investee b u t t h e monitoring the investment with
mechanism t o p r o t e c t t h e the investee including
investment with t h e investee the right to appoint
including the right to appoint directors or executive
directors or executive director director shall not be
shall n o t b e considered as considered as
participation in the day-to-day participation in day to
operations of the investee. day operations of the
(vi) It is specified by the CG, by investee
notification, f o r t h i s purpose (iv) It is specified by the
and fulfils prescribed conditions. CG, by notification, for
this purpose and fulfils
Note: provisions of (iii) and (iv) shall conditions specified in
not apply to any payment made to such notification.
-....................-............
creditors or depositors f o r loan
taken or borrowing for th e purposes
other than f or making investment in
India.
Note : loan and borrowing" means —

any loan taken or borrowing by a sovereign wealth fund from, or any deposit or
investment made in a sovereign wealth fund by, any person other than t he Govt, of t he
country in which the sovereign wealth fund is set up;
any loan taken or borrowing by a pension fund from or any deposit or investment made
in a pension fund by, any person but shall not include the deposit or investment which
represents statutory obligations and defined contributions of one or more funds or
I plans established for providing retirement, social security, employment, disability,
I death benefits or any similar compensation to the participants or beneficiaries of such
; funds or plans, as the case may be.
71
MOM RESIDENT TAXATION Chapter 2
Sec. 1O(23FF): Exemption of Capital Gain for NR or Specified Fund (Added by FA 21

w.e.f. AY 22-23)
Capital gains arising or received by a NR or a specified fund, on transfer of share of a
company resident in India, by the resultant fund or a specified fund to the extent
attributable to units held by NR (not being a PE of a NR in India) in such manner as
may be prescribed, and such shares were transferred from the original fund, or from
its wholly owned special purpose vehicle, to the resultant fund in relocation, and where
capital gains on such shares were not chargeable to tax if that relocation had not
taken place.
Explanation— For the purposes of this clause,—
(a) t h e expressions "original fund", "relocation" and "resultant fund" shall have t h e
meanings respectively assigned to them in t he Explanation to clause (viiac)/ (viiad)
o f section 47;
(b) t h e expression "specified fund" as per 10(4b).
(Added by FA 21 w.e.f. AY 22-23)

47(viiac): any transfer, in a relocation, of a capital asset by the original fund to the
resulting fund.
47(viiad): any transfer by a shareholder or unit holder or interest holder, in a
relocation, of a capital asset being a share or unit or interest held by him in t he
original fund in consideration f o r th e share or unit or interest in t h e resultant fund.
“► "Original fund" means a fund established or incorporated or registered outside India,

which collects funds from its members for investing it f or their benefit and fulfils the
following conditions, namely:—
(i) the fund is not a person resident in India;
(ii) the fund is a resident of a country or a specified territory with which India has bTAA ,
u/s 90(l)/90A(l); or is established or incorporated or registered in a country or a ..
specified territory as may be notified by the CG in this behalf;
the fund and its activities are subject to applicable investor protection regulations in the
;
'■ ' 72 j CA Bhan w a r B o r a n s
jB
I
M&M aBSMWr WmOM
(iv) fulfils such other conditions as may be prescribed;

■> "Relocation" means transfer of assets of the original fund, or of its wholly owned SPV,
to a resultant fund upto 31st March, 2023, where consideration for such transfer is
discharged in the form of share or unit or interest in the resulting fund to —
(i) shareholder or unit holder or interest holder of the original fund, in the same
proportion in which the share or unit or interest was held by such shareholder or
unit holder or interest holder in such original fund, in lieu of their shares or units
or interests in the original fund; or
(ii) the original fund, in the same proportion as referred to in sub-clause (I), in
respect of which the share or unit or interest is not issued by resultant fund to
its shareholder or unit holder or interest holder;
"Resultant fund" means a fund established or incorporated in India in the form of a
trust or a company or a limited liability partnership, which—
(i) has been granted a certificate of registration as a Category I or II or III AIF,
and is regulated under the SEBI (AIF) Regulations, 2012 or IFSC Authority Act,
2019; and
(ii) is located in any IFSC.
Sec 4 9 Cost o f Acquisition

(i) t h e COA of a capital asset for the resulting fund would be the CO A of the original fund,
t h e COA of a share or unit or interest in resulting fund would be the COA of t he share
or unit or interest in the original fund.
f
73 Oiiipact V - 2
MISSION CA
FINAL
Mission CA Final
M I S S I O N CA
FINAL
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Description
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NONRESIDENT TAXATION
Taxation o f NRI (Chapter XII-A)

Thi5 provision is optional to NRI
# section H5C
a) NRI fneans NR + Indian citizen/Person of Indian origin.
person of Indian Origin means if he, or either of his parents or any of his grand-
, was born in undivided India
"Foreign Exchange Assets" means

/\ny of th e following assets acquired / purchased in foreign exchange (FOREX).
i shares of Indian company (Public/ Private)
ii Debenture of Indian public company
jii. Deposits with an Indian Public company
iv. Securitiesof Central Govt.
v. Any other asset as may be notified by CG
c) LTCG= LTCG from foreign exchange assets.

Investment Income (II) = Any income derived from f oreign exchange assets.
# i 5ec U5D: Method of computation

1 ; Investment Income: Sec 28to 44C, Sec 57<&chapter VI-A are not available.
2 > LTCG: Chapter VI-A not available.
2 First proviso to Sec 48: Available.
4 SecondProviso to Sec 48(Indexation): Not available.
5 Other incomes = Normal Provisions.
# Section115E:Tax Rates
I
LTCG Investment Income Other income
I
10% Tax 20% Tax Normal tax rate
Chapter 2 • NON RESIDENT TAXATION
Section 115F: Exemption on LTCG

LTC(9 on FOREX asset shall be exempt if net consideration is utilized f or acquiring
other FOREX assets or Saving Certificate u/s 10(4B) with 6 Months f rom the date of
transfer.
Exempt amount : LTCG v Cost of New Asset 11 1
....................................... Zx .................................................................... — ■
Net Consideration
New asset should not be transf erred or converted into money within 3 years from the
date of acquisition, if it is transferred then exempted LTCG earlier shall now be
taxable as LTC(9 in the year in which new asset transf erred or converted into money.
Section 115(9: Exemption from the Filing of Return of Income

ROI not required to be filed if :
a) Total Income include only investment income <& LTC(9.
b) TbS already deducted.
Section U5H: Above provision apply aven i f NRI becomes Resident:

NRI becomes Resident, can f i l e declaration with ROI of AY in which he becomes
Resident that he wants to be governed by prov of this chapter. It means investment
income continue to be taxed @ 20%. This chapter will apply t i l l transfer or converted
into money of such forex assets.
Section 115-1:
The above provisions are optional means Assessee can pay Normal tax on LTCG <&
investment income instead of 10% A 20%.
1 H
MOM RESfOEMT TOATIOi ■ Chapter 2
Special Rates of Tax f o r NR

Sec 115A: Interest, Royalty, Fees f o r Technical Service received by NR/Foreign
ComPa n y
Interest
prom Inf restructure Interest payable to Interest from Govt,
Debt Fund u/s 10(47) F.I.I. or Q.F.I. for or Indian Concern on

| [TbS 194LB] j Investment made in i Foreign currency Loan
I RbB of Indian Company ] (other than A,B,C,b)
IfiiiiBilMiiiiiiiiffMiiMiiiifi
; or Govt. Security upto
Foreign Currency Loan by j 30/6/23 <& or in
Indian Company or Business i respect of the
i Trust under loan agreement investment made by
the payee in municipal Interest & Dividend
i. j.„- . ... ~ - i
i j Qp by way of Long-term Bonds! debt securities Received by NR Unit Holder
I ! issued till 30/6/23 or Rupee ; between 01/04/20 from Business trust which
i ! Denominated Bonds (RbB) | upto 3 0 / 6 / 2 3 . was received by Business
! | d pto 30/6/23 [TbS 194LC] j | [ T b S 194LD] Trust from SPV
i L | [ except 10(4C)] | Tax rate @5% | [TbS 194LBA]
Tax rate @ 5% / 10%
[refer business trust
topic]
f Notes:
t Dividend received by NR/FC: 20% Taxable.
1.
2. I Income received from UTI/MF: 20% taxable.
3. I F.I.I/Q-FT.: Foreign Institutional Investor or Qualified Foreign Investor.
4.
source outside India by way of issue of any long-term bond or RbB on or after the
01/04/20 upto 30/06/23, which is listed only on a recognised stock exchange located
inanyInternational Financial Services Centre.
.. ... ... .... ....

2 lllill C A Bhdnwcir Bor.-inn
Royalty & FTS received by NR/FC
Received fro m Govt, in pursuance of Received from Indian Concern as

an agreement with Govt. per agreement made by NR/FC
V with Indian Concern <& agreement

Tax Rate: 10% [If as per bTAA rate is lower approved by C.G. or it relates to
then as per that rate] Industrial policy of Govt.
Notes :
Sec 44b A : Royalty / FTS received by NR/Foreign company shall be taxable at normal
rate, i f following conditions are satisf ied:
a) NR/ FC should have permanent Establishment (P.E.) in India
b) Such royalty / FTS should be connected with such P.E.
Summary Royalty / FTS received by NR / FC
P.E. in India No 'P.E.1 in India
Sec 44b A - Normal tax rate Sec 115A -10% Taxable rate
It shall not be necessary f o r the assessee to furnish a return of income if the
following conditions are satisfied:
(a) The Total income consists of only the interest or dividend or royalty & FTS income
referred above
(b) TbS has been deducted from such income.
Sec 115AB : Income & LTCG to "Overseas financial Organization" on units of UTI/MF
acquired in foreign currency -10% Taxable.
Notes
“Overseas Financial Organisation" means any fund, institution, association or body,
whether incorporated or not, established under the laws of a country outside India,
which has entered into an arrangement for investment in India with any public
sector bank or public financial institution or a mutual fund specified under section
10(23b). Such arrangement should be approved by the Securities and Exchange
Board of India.
MOM RESIDENT TAXATION
2. It may b e noted that long term capital gains upto ? 1,00,000 on units of equity oriented
fund would be exempt and long term capital gains exceeding ? 1,00,000
shall be taxable @10% under section 112A provided securities transaction tax has
been paid on t h e sale of such units.
It may be noted that short term capital gains on units of equity oriented fund are
taxable @15% under section 111A provided securities transaction tax has been paid
on the sale of such units
Sec 115 AC : LTCG Interest / Dividend f r o m Bonds <& GDR

Income received by Non Residents on Bonds of Indian co, o r GDR acquired in foreign
currency.
LTCG : 10% Tax
Interest/Dividend : 10% Tax
Notes:
1. Where the assessee acquired GDR o r bonds in an amalgamated o r resulting company by
v i r t u e of his holding GDR o r bonds in the amalgamating o r demerged company, t h e
concessional tax treatment would apply to such GDR o r bonds.
2 It shall not be necessary f o r t h e assessee to f u r n i s h a return of income i f t h e
following conditions are satisfied:
(a) The Total income consists of only the interest or dividend income referred above
(b) TDS has been deducted f r o m such income.
Sec 115ACA: Tax on income/CG from GbRs purchased in foreign currency

Income received by resident employees of an Indian company o r its subsidiary
engaged in specified industry <& GDR issued as per ESOP' 5
LTCG : 10% Tax
Dividend: 10% Tax
Notes:
Specified industry means IT software/service, entertainment service,
pharmaceutical industry, bio-technology industry & any other may be notified.
78
2. ) "GbR" means any instrument in t h e for m of a depository receipt or certificate created

I by the Overseas Depository Bank outside India or in an IFSC and issued to investors
i against the issue of ,—
(i) j ordinary shares of company listed on a recognised stock exchange in India; or
(ii) ! foreign currency convertible bonds of issuing company;
(iii) i ordinary shares of issuing company, being a company incorporated outside India, i f
such depository receipt or certificate is listed and traded on any IFSC.
3. This section is applicable to Resident person. We have included in this topic is only to
maintain sequencing of sections.
Sec 115 Ab: Capital Gain <& Interest /dividend on Security of FII /Specified fund
Income received by Foreign Institutional Investors (FII) or specified fund on
secur i t i es (other than units of UTI/MF).
LTCG STCG Interest/dividend STCG 111A
10% 30% 15%

FII Specified fund
20% 10%
Notes :
1. In case of income arising from the transfer of a long term capital gains referred
to in section 112A, income tax @10% on income exceeding ? 1 lakh
2. Higher Surcharge @ 25% and 37% not applicable in case of above dividend <& Capital Gain
(STCG <& LTCG). It means maximum surcharge rate on dividend & above capital gain is
15% in case of AOP/BOI.
3. In case of specified fund, the provision of this section shall apply only to the extent of
income that is attributable to units held by NR (not being a PE of a NR in India)
calculated in th e prescribed manner.
4. Specified Fund means same as assign in sec. 10(4b).
5. j In case of specified fund is investment division of an OBU, the provisions of this section
I shall apply only to th e extent of income that is attributable to the investment division
\ Bhanwar Borana
MOM BfiSIDB'? «’ u \ \ SON
of such OBU ref erred to in section 10(40), as a Category-I portfolio investor under t h e
SEBI (FPI) Regulati° nS ' 2 0 1 9 , ca,culated

in such manner as may be prescribed.
Sec 115BBA; Income of NR Sports Person, Sports Association <& Entertainer
I me received by Non Resident sports man, NR Sports Association , NR Entertainer
- Tax Rate @ 20% ........... —
an
A tsman (including athlete), who is not a citizen of India and is a non-resident
A income received or receivable by way of-
(•) rticipation in India in any game (other than a game the winnings wherefrom are
„ t xable under
ho r se section 115BB,
races, card being
games and winning from of
other games crossword
any sort puzzles, races
of gambling or
betting) or sport; °r - ...............
(ii) advertisement; - -
("■) contHbution of articles relating to any game or sport in India in newspapers,
magazines or ™ ~-------—
A non-resident sports association or institution _. . ......
An amount guaranteed to be paid or payable to such association or institution in
9a m e (°ther than a game the winnings wherefrom are taxable under
section 115BB) or sport played in India
An entertainer >A/ho is not a citizen of India and is a non-resident
Any income received or receivaNe from his performance in India.

The assesses is not required to f urnish under section 139(1) a return of his income if—
(a) his total income in respect of which he is assessable under this Act during the
previous y ear , cOnsisted only of income referred to in (a) or (b) or (c) above; and
(b) the tax deductible at source under the provisions of Chapter XVII-B has been
deducted from such income.
Note The Calcutta High Court held that although the payments made to non-resident
umpires and the match referees are "income" which has accrued and arisen in India,
the same are not taxable under the provisions of section 115BBA and thus, t he
income has accrued and arisen in India to the non-resident
umpires ana ■.
and tax would be deductible at the rates in force.
SO
TAXATION
< Notes f o r all above sections :

1. i Deduction u/s 28 to 44C or Sec 57 not allowed against above income.
2. ( Deduction under chapter VI-A (except 80LA) not available (except Royalty & FTS
referred u/s 115A).
3. : Indexation benefits & First Proviso to sec 48 not available on capital gain taxable as
! per above rates.
4. Above provisions are mandatory.
5. ! Basic Exemption Benefit NOT Available against above income.
6. i Deduction u/c VI-A available against Royalty and FTS referred in section 115A.
Taxation of SDR
# ; Sec 115AC- Tax on income from Bonds or GDR Purchased in foreign currency or capital
i Gain to NR.
i Where Income o f anassesse being NR (includes foreign co.) Tax Rate
i includes:
! a) Incomeby way of Interest/Dividendonbonds/GDR of an Indian issued
I Co. in accordance with scheme of CG or Bonds of public sector 10% income
company sold by Govt & purchased by NR in foreign currency.
b) Income by way of LTCG on transf er of bonds referred to in
case (a) or GDR purchased by NR in foreign currency. 10% o f LTCG
# i Sec 47(vi iia) : Any transfer of Bonds / GDR referred in sec 115AC made outside India
< by one NR to another NR shall not be treated as transf er <& capital Gain not applied.
ABC D E F
NR -------* NR -------► NR
------► NR -------► R -------* R
TRF X X X Yes Yes
CG X X X Yes Yes
# \ Sec 47(viiab) : Any transfer of Bonds/ GDR referred in section 115AC made by NR on
? a recognised stock exchange located in any International Financial Services Centre
(IFSC) shall not be regarded as transfer, where the consideration f o r such
transaction is paid or payable in foreign currency.
C A B l uin w a r B o i a n a 81
NON RESIDENT ‘HALATION Chapters
Conversion of GDR into shares

GDR cannot be traded in Indian Stock exchange. If a NR: wants to s e l l GDR on Indian
............................. . . ................................... ....... " ... ... ........... . . '...................................
stock exchange then he shall have to convert these GDR into shares by making a
request to t h e C.G. for redemption of GDR & converting it into equity shares.
mli. On the conversion, Capital Gain applicable in hands of NR FAAV o f shares on the date of
which request for redemption is made is treated as sale price of GDR.
■ ) CO A o f shares.
As per Sec 49(2ABB), where shares of Co. is acquired by NR on redemption of GDR,
t h e CO A of shares shall be t h e p r i c e o f such shares prevailing on any recognized stock
exchange in India on the date on which request f o r redemption was made.
' POH o f shares
| shall be reckoned f r o m the date on which request for such redemption was made.
Example ■ Mrs, Sunny (NR) acquired 5000 GDR's of Reliance on 5 / 2 / 1 9 @ ? 1200 per
GDR. On 17/7/21 she made a request f o r conversion of GDR into shares (request for
redemption) on that date the shares of reliance was l i s t e d at BSE @ ? 1600 per share.
Assessee received shares on 1 5 / 9 / 2 1 when i t is listed at BSE @ ? 1725 per share,
Assessee sold all the shares on 1 4 / 2 / 2 2 @ ? 2000 per share & STT paid on sale.
# Computation of capital Gain P.Y2021-22 AY 2 0 2 2 - 2 3

a) : On conversion of GDR into shares
FVOC ( 5 0 0 0 x 1 6 0 0 ) 80,00,000
(-)COA (5000x1200) 60,00,000
[POH - 5 / 2 / 1 9 to 1 6 / 7 / 2 1 ] STCG 20,00,000
[ST-GDR not l i s t e d ] . . . y ....
Normal tax rate
b) J On sales of shares ..............?.... .......

FVOC (5000x2000) 1,00,00,000
(-)COA(5000xl600) 80,00,000
STCG 20,00,000
[POH-17/7/21 to 1 4 / 2 / 2 2 ) ......t ....
Taxable @ 15% u/s 111A
82 laa anwa
Taxability of Specified Fund

(AIF-III i n IFSC o r Investment division of O B U i n IFSC )
U n i t s of A I F h e l d by Units held by NR
Resident Manager/ sponsor
o r PE of NR i n India Capital Gain on Income from PGBP Income from
transfer S e c u r i t y Security Securitization
(Dividend/Interest) Trust
Income Taxable at
Normal Tax Rates
Exempt u/s 10(4D)
Security referred Shares of Indian Other

u/s 47(viiab) Resident Company Securities
Security Security
Issued by Issued by
NR Resident o r
Exempt u/s Taxable u/s Exempt u/s
PE of NR
10(40) 115AD 10(4D)
Exempt u/s
10(4D) Taxable u/s
STCG 111A @ 15% 115AD
LTCG @ 10% STCG @ 3 0 %
Rule 21AT/ 21A J: Calculation of Proportionate shares of NR f o r the purpose of

Sec 10(4D) and 115AD
! Capital Gain
Aggregate of Daily "AUAA" held by NR unit holders from the date of
Capital Gain * acquisition t i l l the date of transfer of capital assets
Aggregate of Daily "AUAA" of Specified Fund from the date of acquisition
j t i l l the date of transfer of capital assets
Income from security (Dividend/Interest) / PGBP from securitization Trust

Income w "AUAA" held by NR unit holders as on the date of receipt of Income
"AUAA" of Specified Fund as on the date of receipt of Income
CA Bhanwar Bot ana 83 ®
Sec 285A: Furnishing o f Information or documents by Indian Concern
Where shares o f Foreign entity derives its value substantially from assets located in
India & such entity holds such assets in India in Indian concern then the Indian concern
shall within 90 days from end of the FY in which transfer of shares of foreign entity took
place furnish Form 49 b to th e prescribed income tax authority providing information
> necessary fo r determination o f income accruing or arising in India as per Sec 9(1)(I).
: Failure to furnish the same will attract penalty u/s 271GA o f :

2% of value of transaction, i f such transaction had t he effect of transferring right of
management control of Indian concern;
5,00,000 in any other case.
Sec 115JG: Conversion of Indian Branch of Foreign Company into Subsidiary Indian
i Company
Where a foreign Company (foreign bank) engaged in t he business of banking converts its
Indian branch into Subsidiary company, capital gains on conversion would not be taxable
if:
s Indian branch amalgamates with Indian subsidiary as per t he scheme of amalgamation
!
approved by shareholders of the foreign company and the Indian subsidiary and
f
sanctionedby the RBI.
All assets and Liabilities of branch transf er to Indian subsidiary company.
; Assets and liabilities are transf erred at book values.
s Note - Any Revaluation would not be considered while determining the value of the assets
Foreign bank & nominees should holds 100% of share capital of Indian subsidiary t i l l the
!
end o f t h e year o f conversion <& at least 51% of the voting power of Indian subsidiary for a
‘ period o f next 5 PY's.
Foreign company does not receive any consideration or benefit other than by way of
allotment of shares in the Indian subsidiary.
The provisions relating to Unabsorbed depreciation, set off or carry forward of losses,
M A T Credit and th e computation of income in case of foreign company and Indian
; subsidiary shall apply with Following modifications, exceptions and adaptation
Chapter 2
4
4
I
\
,
Provisions Modification/exception/adaptation
4
i
I
\
Current year depreciation In the year of amalgamation, Depreciation between

1 4 ■!
! J 4 4 4
I 4 4 4 <
i \ \ \ \
' ,
Indian Branch and Indian subsidiary shall be apportioned

i ! i J
based No. of days asset was use by each of them.

■ , >
Set-off and carry Accumulated PGBP losses (Other than speculative loss) and
1 (
forward of losses unabsorbed of Indian Branch will be treated as losses and

dep of subsidiary company f o r the year in which conversion
i
i
l
?
4
took place.
■
4
1
4
Note: Losses can be carried f orward for f resh 8 years.

i f t
! I 4
4
!
\ J !
"TW'
W b V of assets Cost of block of assets of Indian subsidiary in the year

of conversion shall be WbV of Indian Branch as per
i
4
V
Income Tax Ac t on the date of conversion.

.
i
i
4
!
!
COA of capital assets COA of assets acquired by Indian subsidiary in

i
4
1
1
4
amalgamation = COA of Indian Branch.

1
i
4
4
POH of capital assets POH of assets acquired by Indian subsidiary in

4 j
4 4
! 4
! !
amalgamation shall include POH of Indian Branch

~
M AT credit M A T credit of Indian Branch can be carried forward and

i
f
1
1
!
set-off by Indian subsidiary for a fresh period of 15

4
4 4 ! s ! ! 4
.1. .! 1 ! f ! !
i I 4 4 ! ? !
4 \ 4 i 4 1 !
................
years.
VRS Expenditure VRS allowed to Indian subsidiary for remaining period as
! 4 i
amortisation per Sec 35bbA.

Provision fo r Credit balance of Provision of bad and doubtful debts in
Bad and doubtful debts books of Indian Branch as per Sec 36(l)(viia) will be
deemed to be credit balance of Indian subsidiary.
!
Non-applicability of Sec 56(2)(x) shall not apply on the receipt shares by

.!. .1
j
* 1
i
!
Sec 56(2)(x) foreign bank f r o m Indian subsidiary on conversion.
Note : Where any benef it/exemption/relief has been granted and thereafter there is
empowered to re-compute the total income o f t h e assessee f o r by way of rectif ication
RY in which conditions violated.
85
E j
DOUBLE
TAXATION
RELIEF
“Success is not Final, Failure is not Fatal :

it is the Courage to continue that Counts.”
CA Bhanwar Borana
DOUBLE TAXATION RELIEF
I Double taxation means the same income getting taxed twice in hands of same assessee.
Any country taxes income on basis of two rules i.e. Residence Rule A Source Rule.
Double taxation is possible when assessee is Resident of one country A derives income
from another country.
I Suppose Mr. BB is Resident of India <& deriving income from UK, then India will tax such
I income on the basis Resident rule and UK will tax such income on the basis of source rule.
— ◄ ------------------------------1------------------------------►
Unilateral relief Bilateral Relief —
— ► NO DTAA DTAA
------► Sec 91 Sec 90<&90 A <- -----
[Tax exemption method <& tax credit method]

] Under Tax Exemption method, income is taxed in only source country and exempted in
the residence country. Under Tax Credit Method Income is taxable in both countries in
I accordance with their respective tax laws read with double taxation avoidance agreement.
| The country of residence of the tax payer, however, allows him credit for the tax charged
Sec 90: Agreement with Foreign countries (DTAA)

i Central Govt, may enter into agreement with Govt o f foreign country or specif ied
territory outside India.
a) For granting relief for Doubly taxed income, without creating opportunities for non-
taxation or reduced taxation through tax evasion or avoidance (including through
treaty-shopping arrangements aimed at obtaining reliefs provided in the said agreement
f o r the indirect benefit to residents of any other country or territory.
b) Exchange of inf ormation with each other for prevention of tax evasion transaction,
Note:
•...... . ..........— .....................*............................... *.................. ................ ............................................... . ......... *..... • ..... .......................... . . ....................................................... —
1. Provision o f DTA A or Income Tax Act whichever is more beneficial to the assessee shall
' apply [sec 90(2)] However provision of GAAR shall apply even if such provisions are not
I beneficial to assessee.
2. ! The charge of tax in respect of a foreign company at a rate higher than t he rate at
which a domestic company is chargeable, shall not be regarded as less favourable
charge or levy of tax in respect of such foreign company.
CA Bhanwar Borana 8b
♦ DOUBLE TAXATION RELIEF
~ ...... . . . .. . ............. ...................... "" . . . . . .. . ......... . ........... . ....

- .. — ... ......
3. Non resident to whom bTAA applies, shall not be entitled to claim any relief under
bTAA unless TRC (Tax Residence Certificate) of his being resident in any Foreign f
country is obtained by him from foreign Govt. [Sec 90(4)]
The TRC produced by a resident of a contracting state will be accepted as evidence
that he is a resident of that contracting state and the Income Tax Authorities in
. . . .r..... . ............ . . .*
........ . . ..........
. ■
.....
.... .* . . .~ ~ . . ...
. . .. . .. .. . . . . .. ■
. . ........ ■ . . . . ■. . . ...
. .. ■ —
! India will not go behind the TRC and question his residential status.
...~ ' — - -----------' "— “ "'V -........... - — '......... — ■ - __________
In addition to TRC the assessee would be required to provide such other documents &
inf ormation as may be prescribed for claiming the treaty benefit :
— — — — — — _ — - _ — ,— — — _____ —
Status of assessee
PAN of assessee (if allotted)
Nationality (In case of Individual)
Country or Specified territory for Incorporation or registration (In case of
others)
Assessee's Tax identification number in the country or specified territory of
> residence <& in case there is no such number the unique number on t he basis of
which the person is identified by the Govt, or specif ied territory of which the
; assessee claim to be resident
| - Period for which the residential status, as mentioned in the certificate
I - Address of the assessee in the country or specified territory outside India.
However, the assessee may not be required to provide the information or any part
thereof, if the information or the part thereof, as the case may be, is already
contained in the TRC.
4. I As per Sec 90A "specified Association" of India can enter into an agreement with
j "Specified Association" of foreign country. CG may adopt or implement such
agreement.
Meaning of Term Used in bTAA

a. Term used in bTAA define in bTAA itself: It shall have meaning assigned in
bTAA itself
b. Term used in bTAA define in the Act: It shall have meaning assigned in the Act.
c. Term used in bTAA & not defined in bTAA or the Act but assign a meaning on
the notification issued by CG in Official Gazette, which is still in f orce:
.... "J t .3.
Ch .... DOUBLE TAXATION RELIEF
Term shall have meaning in the notification &. shall have deemed to have effect from
the date on which bTAA come into force.
I Sec 91: Double taxation relief i f there is NO bTAA.
■ a. Assessee is Resident in India
j b. Income derived from Foreign Country
J c. Tax should have been deducted or paid in foreign country.
( d. There should be NO bTA A.
i Amount of Relief
■ ■ .... .......................— - ...... — ........................ — ...... ..... ......... .......... ......... . ...... ■ ............. ■ — ; ................ _ .... —
] Step 1 : Compute NTI (Indian + foreign income)

2 : Find out Gross Tax ( before claiming TbS/TCS, MAT/AMT credit, SA Tax
i Advance tax but after adding surcharge <& HEC )
3 : Find out "Average rate of Tax" on NTI
ART= (Gross Tax X 100)
NTI
I 4 : Find out Rate at which tax paid/deducted in foreign country
5 : Find out lower rate from step 3 & 4
6 : Relief us 91=f oreign income x Rate in Step 5.
| Taxability of foreign income
Resident Non - Resident
bTAA No. Not Taxable

j Sec 90 / 9 0 A applies Sec 91 applies
1
f
i ..........
. .... ;
. .......
Not taxable Taxable Compute NTI & Gross Tax
in India in India [Indian + Foreign Income]
a) bTAA rate From total tax payable reduce lower of -

| b) IT Act rate a) Avg tax in India on foreign income
whichever is less I b) Tax in foreign country
Final Tax payable Final Tax payable
DOUBLE TAXATION RELIEF Chapter 3 '
■ Concept of Permanent Establishment (PE)

i Permanent establishment means a fixed place of business through which the business
o f an enterprises is wholly or partly carried on. Every bTAA has a specific clause, which
will deal with an explanation of permanent establishment for t he purpose of such
'".i .. ....................*.... ...... . ..................... '7'........ 7........... .........
bTAA. Business Income o f a non-resident will not be taxed in India, unless such Non-
resident has a permanent establishment in India.
PE includes:
( (i) A place of management
A branch
An office ,
A factory
(v) A workshop
A sales outlet
(vii) A warehouse
A mine, an oil or gas well, a quarry, or any other place of extraction of natural
resources (not exploration)
As per bTAA business income of NR is taxable in India only if such NR has PE in
i India but as per Income Tax Act Business income of NR taxable in India if NR
having Business Connection (Sec 9) in India.
j CBbT Circular No.5/2004

a) A NR entity may outsource certain services to a resident Indian entity. If there is
no business connection between the two, the resident entity may not be a PE of t he
non-resident entity, and the resident entity would have to be assessed to income-
I tax as a separate entity. In such a case, the NR entity will not be liable under t h e
IT Act, 1961.
b) I However, i t is possible that the NR entity may have a business connection with th e
resident Indian entity. In such a case, the resident Indian entity could be treated
as t h e PE of the NR entity.
c) ] The NR entity or the foreign company wilI be liable to tax in India only if the IT enabled
; ' ............... ..... . ........... ............................. . . ' .... ......- ...... — ----------------------------- - - - - -- - ------------- - - ~ ---------------- ----------------— ................
BPO unit in India constitutes its PE.
Chapter 3 DOUBLE TAXATION RELIEF
d) A NR o r a foreign company is treated as having a PE in India i f the said NR or

foreign company carries on business in India through a branch, sales office etc. or
.............. ......... .... .. . .............. . ........
’ .- .......... — ....... ... . ..*.... ....... .. ....... ....... ........ .
through an agent (other than an independent agent) who habitually exercises an
authority to conclude contracts or regularly delivers goods or merchandise or
habitually secures orders on behalf of the NR principal. In such a case, the profits
of the NR or foreign company attributable to the business activities carried out in
India by the PE becomes taxable in India.
e) ! If BPO units becomes PE in India then profit attributed to such PE shall be Taxable
in India. Profit of PE shall be computed as if it were a distinct and separate entity.
Transactions between PE and HO shall be computed on the basis of arm’s length
D VANCE
Hi
MHM
“You Define your own Life.

don’t let other people write your Script.”
CA Bhanwar Borana
AOVANCS ISUUN&
Advance Ruling (AAR) / The Board for Advance Ruling (BAR) then AAR /BAR will give its
ruling (Judgment) in relation to a transaction which has been already undertaken or is
proposed to be undertaken by Assessee & such judgment may be related to any question
of law / fact.
Sec 245N : Application to AAR/BAR. <& Advance Ruling.
S. No. Applicant u/s 245N(b) Advance.Ruling u/s 245N(a) means determination
by the AAR/BAR in relation to
(i) .... NR A transn. which has been undertaken (u/t) or is

proposed to be u/t by him.
(ii). . .„ Resident The tax liability of a NR arising out of a transn

which has been u/t or is proposed to be u/t by
him w i t h such NR and such determination
(detmn) shall incl the detmn of any question of
law or of fact specified in the application.
(Hi) Resident of class or The tax liability of a resident applicant, arising

category of persons notified out of a transn which has been u/t or is proposed
by CG to be u/t by such applicant and such detmn shall
incl the detmn of any question of law or of fact
specified in the application.
Note: CG has notified a resident, in relation to his tax liability arising out of one or
more transns. valuing > ? 100 crore in total.
Resident of class or category

of persons notified by CG pending before any IT Authority or t he ITAT
and such detmn or decision shall incl the detmn or
decision of any question of law or fact w.r.t. such
computation of TI specified in t he application.
Note: A Public sector undertaking has been notified by the CG
i1
i
/ 7,
Resident or NR whether an arrangement, which is proposed to

f| 1
(v)
be u/t by such applicant, is an impermissible
/I
avoidance arrangement as r e f e r r e d to in
!r >
Chapter X-A or not.

?
C A B h a n w a r Borana
ADVANCE RULING Chapter 4
!
# Sec 2 4 5 Q : Application to AAR/BAR
1. Make an application is prescribed form & manner stating, question on which ruling is
sought.
2. Application can be withdrawn within 30 days from date of application.
3. Application shall be Quadruplicate.
4. Fees : Assessees Fees
a) Public sector Company (Psu's) or person referred
in point (v) of Sec 245N 10,000
b) Other Assessee:
Amount of transaction is upto? 100 cr. 2,00,000
Amount of transaction > ? 100 cr upto ? 300 cr 5,00,000
Amountof transaction >? 300 cr 10,00,000
5. Where an application f or advance ruling is made before 01/09/2021 and in respect of
which no order fo r rejection application or no advance ruling has been pronounced before
01/09/2021, such application along with all the relevant records, documents or material,
and shall be deemed to be the records before the BAR fo r all purposes.
# Sec 245R : Procedure

1. AAR shall forward a copy of application to CIT/PCIT to ascertain whether th e case is
pending or not <& if necessary call for the records.
2. AAR may allow or reject application but in fallowing cases AAR shall reject the
application.
a. In case of public sector co. (PSU) when question is already pending before H.C. or 5.C.
j b. In case o f other assessee. If question already pending before IT Authority /
ITAT/HC/SC.
c. Question involves determination of FMV of any Property.
; d. Question in the application related to a transaction which is designed prima facie f o r
avoidance of tax (except application made by PSU or application in relation to
transaction is an impermissible avoidance arrangement or Not.)
3. ; If the application is allowed then AAR shall pronounce its ruling within 6 months from
the date of receipt of application of assessee.
92 nwar Borana
Chapter 4 ADVANCE RULING
4. Copy of ruling shall be f orwarded to assessee A CIT/PCIT

Note: If application is made by PSU, then IT Authority, ITAT shall not proceed f urther
5. From 01/09/2021 the provisions of this section shall have effect as i f f or t h e word
"Authority", the words "Board f o r Advance Rulings" had been substituted and the
provisions of this section shall apply mutatis mutandis to the BAR as they apply to th e
AAR.
6 The CG may, by notification, make a scheme f o r the purposes of giving advance rulings
under this Chapter by the BAR, so as to impart greater efficiency, transparency and
accountability by—
(a) eliminating th e interface between the BAR and t h e applicant in t he course of
proceedings to th e extent technologically feasible;
(b) optimising utilisation of the resources through economies of scale and functional
specialisation;
The CG may, f o r the purposes of giving effect to t he scheme, by notification, direct that
any of the provisions of this Act shall not apply or shall apply with such exceptions,
modifications and adaptations as may be specif ied in the said notification :
Provided that no such direction shall be issued after the 31/03/2023.
Sec 245S : Applicability of Ruling.

Judgment (Ruling) shall be binding on:
a) To the applicant only. b) to the transactions for which ruling taken.
1. Ruling not binding if there is change in law or facts.

2.
Where the AAR finds, on a representation made to it by the CIT/PCIT or otherwise,

that an advance ruling has been obtained by the applicant by fraud or misrepresentation
provisions o f this Act shall apply.
CA Bhanwar Borana . liiii

• ADWANCERUUNG Chapter 4 ’
■ ..
..... . .. *..... . ....... .... . .* .. .. . . ....
j W i t h effect from 01/09/2021 t h e provisions of this section shall have effect as if f or
t h e word "AAR", t h e words "BAR" had been substituted.
\ : / ■.......: . : :
i Sec 2 4 5 - 0 : Composition of AAR:
1 J I I ■ ” —I “ - ■■
| Chairman vice-chairman Revenue Member Law Member
■ Max Age 70 years 6 7 Years 6 7 Years 67Years
Max Tenure 5 Years 5 Years 5 Years 5 Years
| Note : Provided further that t h e Authority(AAR) so constituted shall cease to operate

on and from 01/09/2021.
Qualifications
: Chairman: Who has been a judge of the Supreme Court or the Chief Justice of a
s High Court or for at least seven years a judge of a High Court;
Vice Chairman: who has been a Judge of a High Court;
Revenue Member: who is, or is qualified to be, a Member of the CBDT or CBEC on
t h e date of occurrence of vacancy.
Law Member: who is, or is qualified to be, an Additional Secretary to the Government of
| India ( GOT ) on the date of occurrence of vacancy.
j Note - The above qualifications are relevant f or appointments made before
! 26.5.2017. Appointments made on or after 26.5.2017 shall be governed by section
184 of t he Finance Act, 2017
Location of AAR: National Capital Territory of Delhi
Composition of Benches: A Bench shall consist of the Chairman or the Vice-Chairman
and one revenue and one law Member.
If any case related to Income Tax then revenue member always from CBDT
Any vacancy in th e o f f i c e of the Chairman by reason of his death, resignation or

I otherwise : The senior-most Vice Chairman shall act as the Chairman until t he date on
which a new Chairman appointed.
R
Chanter 4 ADVANCE RULING
j In case th e Chairman is unable to discharge his functions owing to absence, illness

| or other cause: The senior-most Vice Chairman shall discharge the functions o f t h e
j Chairman until the date on which the Chairman resumes his duties.
-► j As per Tribunal, Appellant Tribunal <& Other Authority Rules, 2020 [Qualification]
(Appointed on or af ter 26.05.2017)
(a) j Chairman
] - a person who
- is or has been or is qualified to be a judge of th e Supreme Court or
j - i s or has been a Chief Justice of a High Court or
(b) s Vice Chairman
c - a person who is, or has been, or is qualified to be, a Judge of a High Court;
(c) } Revenue Member
| - f r o m t h e I n d i a n Revenue S e r v i c e is q u a l i f i e d t o b e a Member o f t h e
I Central Board of Direct Taxes Board and - an o ff ic er of the Indian Customs and Central
Excise Service, who is qualified to be a Member of the Central Board of Excise and
Customs & has performed Functions f o r 3 years
(d) A law Member who has, for a combined period of 10 years been a District Judge and
Additional District Judge.
Tenure
The Chairman or Vice-Chairman or Member shall hold office f o r a term of 4 years from
the date on which he enters upon his office but shall be eligible for re-appointment fo r
j another term of 4 years. Provided that no Chairman or Vice-Chairman or Member shall
I hold o ffi ce as such after he has attained-
(a) | in the case of any Chairman, the age of 70years;
(b) j in case of any Vice-Chairman,theageof 65 years; and
(c) j in the case of any Member, th e age of 6 5 years.
# 245-OB: Board f o r Advance Rulings (Added by FA 2021 w.e.f. 01/09/21)

(1) j The CG shall constitute one or more Boards f o r Advance Rulings, as may be necessary, f o r
I giving advance rulings under this Chapter on or after 01/09/2021.
(2) I The BAR shall consist of 2 members, each being an officer not below the rank of CCIT, as
j may be nominated by the Board.
CA Bhanwar Borana Compact V-2

ADVANCE RULING Chanter
VlIWfyiGI a
-T
# Sec 245P: Vacancies, etc., not to invalidate proceedings

No proceeding before, or pronouncement of advance ruli
I questioned or shall be invalid on the ground merely of th
i defect in the constitution of the AAR.
f o r t h e word "AAR", the words "BAR" had been substituted.
Sec 245W: Appeal to HC

or order passed by the BAR
(1)
or t h e AO on the direcTiun u i inc. x > / ■ , muy -
such ruling or order of the BAR within 60 days from t h e date of the
that ruling or order, in such form and manner, as may be prescribed.
filing such appeal.

(2) The CG may make a scheme, by notif ication, f o r the purposes of f iling appeal to th e
] accountability by—
(a) optimising utilisation o f the resources through economies of scale and
functional specialisation;
(b) introducing a team-based mechanism with dynamic jurisdiction.
(3) The CG may f o r the purposes of giving effect to the scheme, by notif ication, direct
that any of the provisions of this Act shall not apply or shall apply with such exceptions,
:
modif ications and adaptations as may be specified in the said notif ication.
Provided that no such direction shall be issued after the 31st day of March, 2023.
CA Bhanwar Borana
05 EQUALISATION LEWY
Many online Advertisement portals (e.g. Facebook, Google, Twitter) are NR <& do not
have permanent establishment in India. Many resident assessees make payment to
Facebook / Google fo r Advertisement & claim as a business expenditure u/s 37.
Suppose, BB Virtuals (Resident) made payment to Facebook since they don't have any
P.E. in India & BB Virtuals will take deductions f o r such payment. Now India is losing its
revenue since payer gets the deduction & amount recd by payee is not taxable, So
Finance Ac t 2016 w.e.f. 1/6/16 introduced new concept of equalisation levy.
# Sec 163 o f FA 2016 : This Chapter extends to the whole of India except the State o f
Jammu and Kashmir.
Note: Provided that t h e consideration received or receivable for specified services
and f o r e-commerce supply or services shall not include the consideration, which are
taxable as royalty or FTS in India under t h e Income-tax Act, read with the agreement
notified by the CG u/s 90/90A. (Added by FA, 21)
# Sec. 165 of FA 2016 : Charge of Equalisation levy on Spevified service

Equilisation Levy @ 6% applicable i f payment f or specified service (ads) received /
receivable by Non-resident from
a) A person resident in India <& carrying Business or Prof ession
OR
b) Non-resident having P.E. in India.
Notes:
1. Equilisation levy not applicable i f :
-NR having P.E. in India & service connected with such PE (service provider)
OR
-Aggregate amount recd. by NR from payer is up to ? 1,00,000 in P.Y.
2. Where th e payment for th e specified service by the person resident in India, or th e
PE in India is not fo r the purposes o f carrying out business or profession.
3. Specified service means:-
a) Online Advertisement
b) Any provision of digital advertisement space or any other facility or service f o r t he
purpose o f online Advt.
EQUALISATION LEVY Chapters
# ; Sec. 165A o f FA 2016: Charge of equalisation levy on e-commerce supply o f services

(Added by FA 2020 w.e.f. AY 1/4/20)
On or after 01/04/20 Equalisation levy @ 2% applicable of the consideration received or
receivable by an e-commerce operator from e-commerce supply or services made or
provided or facilitated by it—
(i) to a person resident in India; or
(ii) to a NR in th e specified circumstances; or
(iii) to a person who buys such goods or services or both using internet protocol address
located in India.
Equalisation levy not applicable:
(i) Where the e-commerce operator making or providing or facilitating e-commerce
supply or services has a PE in India and such e-commerce supply or services is
.. .. . . ...... . . . . . . ...
I effectively connected with such PE;
j (ii) Where the equalisation levy is leviable under section 165; or
(iii) Sales, turnover or gross receipts, as the case may be, of the e-commerce operator
from th e e-commerce supply or services made or provided or facilitated is less than
2 crore during the PY.
# i For t h e purposes of this section, "specified circumstances" mean—
i (i) Sale of advertisement, which targets a customer, who is resident in India or a
customer who accesses the advertisement though IP address located in India; and
(ii) Sale of data, collected from a person who is resident in India or from a person who
uses IP address located in India.
#
(i) Consideration f o r sale of goods irrespective of whether the e-commerce operator
owns t h e goods, so, however, that i t shall not include consideration f or sale of such
goods which are owned by a person resident in India or by a PE in India of NR,
if sale o f such goods is effectively connected with such PE.
(ii) Consideration f o r provision of services irrespective of whether service is provided
or facilitated by th e e-commerce operator, so, however, that it shall not include
consideration f o r provision of services which are provided by a person resident in
India or by PE in India of NR, i f provision of such services is effectively connected
with such PE.
Chapter 5 EQUALISATION LEVY
r # ; "E-commerce operator" means a non-resident who owns, operates or manages digital or

i electronic facility or platform f o r online sale of goods or online provision of services or
t > both
r # "E-commerce supply or services" means—
f i (i) online sale o f goods owned by the e-commerce operator; or
r s (ii) online provision of services provided by the e-commerce operator; or
F ( (iii) online sale o f goods or provision of services or both, facilitated by the e-commerce
F ! operator; or
F f (iv) any combination of activities listed in clause (i),(ii) or clause (iii)
! Explanation —For the purposes of this clause, "online sale of goods" and "online provision
s of services" shall include one or more of the following online activities, namely:—
s (a) acceptanceof offer f o r sale; or
: (b) placingof purchaseorder; or
: (c) acceptanceof t h e purchase order; or
s (d) paymentof consideration; or
i (e) supply of goods or provision of services, partly or wholly
| # Sec 166 of FA 2016 : Collection & recovery of equalisation levy

[ i Every resident person carrying on Business or prof ession or a non-resident having P.E. in
j. ! India shall deduct the equalisation levy referred in see 165 from the amount paid/
; payable to NR @ 6%. If aggregate amount of consideration f o r specified service is more
i than 1,00,000 in P.Y.
i Note:
1. s EqualisationlevydeductedshallbedepositedtoC.G. up to 7th of next month.
2. > If any person fails to deduct equalisation levy then also he's liable to pay levy to Govt.
3. . Interest @ 1% per month or part of the month shall be applicable on late deposit o f levy
S u/s 165 or 165A [Sec 170],
CA Bhanwar Borana *
EQUALISATION LEVY L
Chapter 5
Sec. 166A of FA 2016: Collection and recovery of equalisation levy on e-commerce

supply or services
The equalisation levy referred to in section 165A, shall be paid by every e-commerce
operator to the credit of the CG for t he quarter of the FY year ending within following
timelimit:
Date of ending of the quarter of financial year Due date

30th June 7th July
30th September 7th October
31st December 7th J anuary
31st March 31st March
See171 of FA 2016: Penalty for Failure to deduct or pay equalisation levy

Any assessee or e-commerce operator who—
(a) fails to deduct the whole or any part of the equalisation levy as required under
section 166; or
(aa) fails to pay the whole or any part of the equalisation levy as required under section
166A; or
(b) having deducted the equalisation levy referred in section 165, fails to pay such levy
to the credit of th e Central Government in accordance with the provisions,
shall be liable to pay,—
(i) in the case ref erred to in clause (a), in addition to paying the levy, or interest, if any,
in accordance with the provisions of section 170, a penalty equal to the amount of
equalisation levy that he failed to deduct;
(ia) in the case referred to in clause (aa), in addition to the levy, or interest, if any, in
accordance with t h e provisions of section 170, a penalty equal to the amount of
equalisation levy that he failed to pay; and
(ii) in the case referred to in clause (b), in addition to paying the levy and interest in
accordance with the provisions of section 170, a penalty of one thousand rupees f or
every day during which the failure continues, so, however, that the penalty under
this clause shall not exceed the amount of equalisation levy that he failed to pay
CA Bhanwar Borana
Chapter 5 EQUALISATION LEVY
Sec 167 of FA 2016 : Furnishing of Statement (Return Filing)

Every assessee or e-commerce operator has to file return in FORM NO. 1 on or before
3 0th June of immediately following financial year.
Belated/ Revised Return: If or e - Commerce operator assessee has not furnished the
return within time limit or furnished return within time, noticed any mistake, may
furnished revised return. Such belated return or revised return has to be furnished
within 2 years from the end of FY in which specified service was provided, or
E-commerce supply or service was made or provided or facilitated.
If assessee or e-commerce operator fails to furnish the statement within the
prescribed time, the AO may serve a notice upon such assessee requiring him to furnish
the statement. If AO issue notice then assessee has to file return within 30 days from
the date of serving of such notice
Sec 168 of FA 2016: Processing of Return (Intimation)

Where a statement has been made under section 167 by the assessee or e-commerce
operator such statement shall be Processed u/s 168. In processing if there is an
arithmetical error then it has to be rectified. After Processing AO will issue Intimation
specifying sum payable or refunded to assessee or e-commerce operator. Intimation
has to be sent within 1 years from the end of the FY in which the return was filed.
If any interest, Levy, Penalty is payable then notice of demand in Form No.-2 has to be
served upon assessee or e-commerce operator. If any demand arises due to processing
of return then intimation itself is treated as deemed to be demand notice.
Sec 169 of FA 2016: Rectification of Mistake

If there is any mistake apparent on record then AO may amend such intimation on Suo-
moto or mistake brought to notice by assessee or e-commerce operator. Intimation can
be amended within one years from the end of FY in which intimation sought to be
amended was issued.
Sec 172 of FA 2016 : Penalty for late filing of Return
If assessee or e-commerce operator, fails to file return upto 3 0th June or within 30
days from the date of service of Notice by AO then penalty of ? 100 per day during
which failure continue.
CA Bhanwar Borana
EQUALISATION LEVY Chapter 5
Note : No penalty u/s 171 & 172 if there is reasonable clause of such failure.
Sec. 174 of FA 2016: Appeal to Commissioner of Income-tax (Appeals)

An assessee or e-commerce operator aggrieved by an order imposing penalty under this
Chapter, may appeal to the Commissioner of Income-tax (Appeals) in Form No. 3 along
with fees of ? 1,000 within a period of 30 days from the date of receipt o f t he order of
the Assessing Of ficer.
Where an appeal has been filed, the provisions of sections 249 to 251 of t he Income-
tax Act, 1961 would, as far as may be, apply to such appeal. Section 250 specifies the
procedure in appeal and section 251 enlists t he powers of t he CIT(A).
Sec. 175 of FA 2016; Appeal to ITAT

An assessee or e-commerce operator aggrieved by an order made by t he CIT(Appeals)
under section 174 may appeal to the ITAT in for no. 4 along with fees of ? 1,000 against
such order. The CIT of Income-tax may, if he objects to any order passed by the
CIT(Appeals) u/s 174, direct the AO to appeal to t he ITAT against such order.
An appeal shall be filed within 60 days from t he date on which the order sought to be
appealed against is received by t he assessee or by t he CIT, as t he case may be.
Sec. 176 of FA 2016: Punishment f o r false statement

If a person -
(a) makes a false statement in any verification under this Chapter or any rule made
thereunder; or
(b) delivers an account or statement, which is false, and which he either knows or
believes to be false, or does not believe to be true,
he shall be punishable with imprisonment for a term which may extend to three
years and with fine.
An offence so punishable shall be deemed to be non-cognizable within t he meaning of
the Code of Criminal Procedure. This is irrespective o f anything contained in t he
Code of Criminal Procedure, 1973.
Prior sanction o f the CCIT is required f o r instituting prosecution against any person
for any offence under section 176.
Chapter 5 EQUALISATION LEVY e
Sec 40(a) (ib) : Non compliance of t he provision of equalisation levy

Any consideration paid /payable to NR f or which equalisation levy is deductible and i f .
a) Such levy has not been deducted, OR
b) Levy deducted but not paid to govt up to due date of return filing.
then such Advt exps, shall not be allowed as deduction in current P.Y.
Note: If equalisation levy deducted in subsequent year or deducted in P.Y. but paid after
due date o f return filing then such sum shall be allowed as deduction in t h e P.Y. in which
levy has been paid to govt.
# Sec 10(50): Income exempt from tax

Any income arising from any specified service provided on or after t he date on which t h e
provisions of Chapter VIII of the Finance Act, 2016 comes into force or arising from any
!
e-commerce supply or services made or provided or facilitated on or after t he 1st day of
April, 2020 and chargeable to equalisation levy under that Chapter shall be exempt.
Example: 1
BB Virtuals paid ?4,00,000 to Facebook then BB Virtuals required to deduct equalisation
levy @ 6% & remit ? 3,76,000 to Facebook ? 4,00,000 shall be allowed to BB Virtuals if it
- deduct levy & paid to Govt up to due date of ROI, AS per Sec 10(50) amount of ?
4,00,000 shall be exempt in hands of Facebook,
Example - 2
Lets Buy web is an online portal own by US based company. It provides online market
place fo r goods and services and mainly target Indian and Asian customers. Generally
sale proceeds are collected by Lets Buy and after deduction of commission remitted to
suppliers. Following details for PY 21-22
Goods sold/service provided to person resident in India or the person using IP address in
India 20 crores
Service provided to BB Virtuals resident in India by way of Online Advt : 10 lakhs
s Goods sold/service provided to NR (Not covered by Sec 165/165A) : 70 crores.
; biscuss the tax implication in hands of Lets Buy in India in relation to above transactions.
Case : 1 LetsBuy has a PE in India and above activities are connected with such PE
;
Sol.: In this case equalisation levy is not applicable and company require to pay tax as per
s normal provision of IT Act.

EQUALISATION LEVY Chapter 5
| Case: ILetsBuy does not have a PE in India

Sol.: In this case equalisation levy is applicable.
LetsBuy require to pay equalisation levy u/s 165A @2% of 20 crore to govt i.e. 40 lakhs.
(a)
(b) For online advertisement BB Virtuals required to deduct equalisation levy @6% of 10
Lakhs i.e. 60,000.
Equalisation Levy (EL) on

Specified Services
6% of amount of consideration
received or receivable
For Specified Meaning of Specified Services:

Services
(i) Online advertisement
By a NR not having (ii) Prov. for digital advertisement space
PE in India or or any other facility or service for
providing services online advertisement
not effectively (iii) Any other service notified by the
connected with his Government
PE in India
From a resident in India

carrying on business or From a NR having
(or) PE in India
profession
Does the aggregate amount of such consideration received or receivable for

specified services by a NR exceed 1 lakh in the relevant PY?
Yes No
I
Deduction of EL The person liable to deduct EL has t o , in any
EL@6% is deductible f r o m consideration case, pay t h e EL to the credit of the Central
/
paid or payable for specified services by a - Government by t h e 7th of the next month.
- resident carrying on business or profession;
or Simple interest@17 o p.m. or part of amonth is
- NR having PE in India attracted f o r t h e period ofdelay in remittance.
j
Remittance of EL : EL deducted during any Penalty = the amount of EL deductible.

month to be paid to the credit of the Central For delayed remittance, penalty @
Government by the 7th of the next month 1,000 per day of failure attracted, not
1
exceeding the amount of EL not paid.
Consequences of failure to deduct EL 'x

.... . .
CA Bhanwar Borana
Chapters EQUALISATION LEVY
Equalisation Levy (EL) on e-commerce supply or services
2% of amount o f consideration received or receivable
By an E-Commerce Operator i.e., a Meaning of E-Commerce Supply or Services:

non-resident who owns, operates or (i) Online sale of goods owned by the
manages digital or electronic ecommerce operator
facility or platform for online sale (ii) Online provision of services provided
of goods or online provision of by the E-Commerce Operator
services or both (iii) Online sale of goods or provision of
services or both facilitated by the
ECommerce Operator
From E-Commerce Supply or (iv) Any combination of activities listed in
Services made or provided or (i), (ii) or (iii) above
facilitated by it
To a NR in the foil specified To a person who

circumstances: buys such goods
(i) sale of advt. targeting a customer resident in India or services or
(or) (or)
resident in India or who accesses the both using IPA
advt. thro IPA located in India; and located in India
(ii) sale of data collected f r o m a person
resident in India or who uses IPA
located in India.
V
Does the E-commerce operator have a PE in India ? EL is not attracted
Yes
Yes
Is the E-Commerce supply or services effectively Consequences of failure to pay EL
connected with such PE ?
No
No.......
Equalisation Levy u/s 166A
EL is attracted if sales, turnover or gross receipts of
the E-Commerc Operator from the e-commerce
supply or services made/provided/ facilitated is
2 crore or more during the PY Simple interest @1% p.m. o r part of a
month is attracted for the period of
delay in remittance u/s 170
Payment of EL : EL to be paid by every e-commerce
operator to the credit of Central Govt f o r the quarter
of F.Y. ending 30,h June, 30,h Sep, 31st Dec and 31st
March by 7 th July, 7’ h Oct, 7th Janand 31st March, Penalty = the amount of EL that he
respectively. has failed to pay
CA Bhanwar Borana 105 1 ('ori)pac

MISSION CA
FINAL
Mission CA Final
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FINAL
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MODEL TAX
CONVENTIONS
Spread love everywhere you go.”
CA Bhanwar Borana
i
06 1 MODEL TAX CONVENTIONS
■ The significant model conventions have been briefly discussed hereunder

1. I OECD Mode : OECD Model is essentially a model treaty between two developed
I nations. This model advocates the residence principle, i.e., it lays emphasis on t h e right
i o f state o f residence to tax the income.
2. I UN Model : The UN Model is a compromise between the source principle and th e
I residence principle. However, it gives more weight to t he source principle as against t he
j residence principle of the OECD Model. UN Model is designed to encourage flow of
j investments fr om the developed countries to developing countries. It takes into
i account sharing of tax-revenue with t h e country providing capital.
3. US Model : This Model Convention is used by t he United States while entering into
tax treaties with various countries.
OECD Model contains VII chapters comprise of 32 articles and UN Model also
contains VII chapters but comprise of 31 articles and US Model comprises of 30
articles.
; Significant Article from Conventions:
Article 1 : Persons Covered

The OECD and UN Model Convention would apply to persons who are residents of one
I or both of the Contracting States.
Fiscally transparent entity - Income derived by or through a fiscally transparent
entity under the tax law of either contracting states (CS) to be considered to be
income of a resident of a CS, to the extent such income is treated, f o r purposes of
■ taxation by that State, as the income of a resident of that State.
— — — .....------ — ....
Example : - State A and State B have concluded a treaty identical to the MTC. State
A considers that an entity established in State B is a company (opaque), and taxes
that entity on interest that it receives from a debtor resident in State A. Under the
domestic law of State B, however, t he entity is treated as a FIRM (transparent
entity), and the two members in that entity, who share equally all its income, are
each taxed on half of th e interest. One of t h e members is a resident of State B and
t h e other one is a resident of a country with which States A and B do not have a
treaty. In this case only half of t he interest shall be considered, fo r the purposes o f
treaty benefit, to be income of a resident o f State B.

MODEL TAX CONVENTIONS l Chapter 6
Article 2 : Taxes Covered

Taxes on income and capital - The MTC apply to taxes on income and on capital
imposed on behalf of a CS or of its political subdivisions or local authorities,
elements of income or capital including
» total amounts of wages or salaries paid by enterprises

» capital appreciation.
convention.
A r t i c l e 4 : Residence _____ _
Residential status of any person shall be determine as per domestic tax law of that
For Individual __________________________________ ___________

(a) He shall be deemed to be a resident only of the State in which he has a
both States, he shall be deemed to be a resident only of the State with which
(b) If the State in which he has his centre of vital interests cannot be determined,
or if he has not a permanent home available to him in either State, he shall be
(c) If he has an habitual abode in both States or in neither of them, he shall be
the Contracting States shall settle the question by mutual agreement (MAP).

Chapter 6
# Article 5 : Permanent Establishment

Article 5 (1) states the "basic rule" for a PE and expresses t he primary meaning of PE.
The definition of PE in Article 5 does not use the qualifying words "unless the context
otherwise requires". As such, the definition needs to be followed in all cases unless
specifically excluded.
Paraphrasing Article 5(1), a PE exists i f the following conditions are satisfied

cumulatively:
jV ! y j * j ¥ I
There is an "enterprise"
Such enterprise is carrying on a "business";
There is a "place o f business";
Such place of business is at the disposal of the enterprise (may be owned / rented but
must be one which the enterprise has the effective power to use);
» The place of business is "fixed", that is, it must be established at a distinct place with a
certain degree of permanence
» The business of the enterprise is carried on wholly or partially through this fixed place
of business. A PE does not exist unless all the af oresaid conditions are satisfied.
■ > As per Article 5(2), the term "permanent establishment" includes especially:
J„LLUJ L
"o'
a place of management;
!s_Q ij 57 \j "u ij'o' Is <+?!} 1\ i
a branch;
an office;
a factory;
a workshop, and
a mine, an oil or gas well, a quarry or any other place of extraction of natural resources
As per OECD Model Convention, a building site or construction or installation project

constitutes a PE i f it lasts more than twelve months. The UN Model
Convention is wider as it covers "assembly and installation project" and "supervisory"
activities in connection thereto and requires t he activity in question to continue only f or
six months.
108
MODEL TAX CONVENTIONS Chapter 6
UN M o d e l makes a specific reference to Service PE which is absent in t h e OECD Model.

UN Model reads as follows - " T h e f urnishing o f services, including consultancy services,
by an e n t e r p r i s e t h r o u g h employees o r o t h e r personnel engaged by t h e e n t e r p r i s e f o r
such purpose, but only if activities of that nature continue w i t h i n a CS f o r a period o r
periods aggregating more than 183 days in any 12 month period commencing o r ending in
t h e fiscal year concerned".
In the absence o f a Service PE reference in OECD Model, t h e presence has to be

ascertained t h r o u g h general principles under A r t i c l e 5(1).
Agency PE under OECD and UN Models targets activities done by a dependent agent o f
the enterprise in t h e Source State. The recent update expands the definition of
dependent agent PE to include instances when an agent habitually concludes contracts,
or habitually plays t h e principal r o l e leading to t h e conclusion of contracts routinely

concluded w i t h o u t material modification by t h e enterprise.
The UN Model Convention has an additional A r t i c l e 5(6) relating to insurance which is

absent in OECD Model.
As per t h i s A r t i c l e , an insurance enterprise o f a Contracting State shall, except in

regard to reinsurance, be deemed to have a permanent establishment in the o t h e r
Contracting State i f i t collects premiums in t h e territory o f that other State o r insures
risks situated t h e r e i n through a person.
In t h e absence of similar A r t i c l e in t h e OECD Model, a PE o f an insurance Enterprise has

to be determined in accordance with provisions of A r t i c l e 5(1) o r 5(2) of the OECD
model.
Article 7 : Business Profits

Business profits o f an enterprise can only b e taxed by t h e Residence State. Right of
Source State to tax business profits of an enterprise only exists i f a PE exists in its
jurisdiction.

Chapter 6 MODEL TAX CONVENTIONS
As per the approach under the OECD Model Convention, once a PE is proven, t he Source
: State can tax only such profits as are attributable to the PE. The UN Model Convention
amplifies this attribution principle by a limited Force o f Attraction rule (FOA).
The FOA rule implies that when a foreign enterprise sets up a PE in State of Source, i t
’ brings itself within the fiscal jurisdiction of that State (State of Source) to such a
degree that profits that the enterprise derives from Source State of Source, whether
through th e PE or not, can be taxed by it (State of Source State).
i As per Article 7 o f the UN Model Convention, i f the enterprise carries on business in t h e

other Contracting State through a PE, the profits of the enterprise may be taxed in the
other State but only so much of them as is attributable to:
(a) that PE;
(b) ; sales in that other State of goods or merchandise of t h e same or similar kind as those
> sold through that PE; or
(c) other business activities carried on in that other State of t h e same or similar kind as
s those effected through that PE.
# \ Article 11: Interest

; Paragraph 1 of this Article provides the right to Residence State to tax interest.
i Paragraph 2, however, also confers right to the Source State to tax interest. Generally,
i t h e interest is taxed in th e Source State at a given rate on gross basis. However, i f t he
i beneficial owner of th e interest is a resident of t he other Contracting State, t he tax so
; charged cannot exceed a specified percentage of the gross amount of th e interest. The
! OECD Model specifies the percentage as 10%, but th e UN Model leaves this percentage
to be established through bilateral negotiations.
It may be noted that t h e definition of interest in both the models viz. OECD and UN
Model is similar in that i t essentially means income from debt claims of every kind,
whether or not secured by mortgage and whether or not carrying a right to participate
; in t h e debtor ' s profits, and in particular, income from government securities and income
§ from bonds or debentures, including premiums and prizes attaching to such securities,
: bonds or debentures. Penalty charges f o r late payment are not regarded as interest f o r
; thepurposeof this Article.

MODEL TAX CONVENTIONS L Chapter 6 ’
Article 12 Royalties
i T h i s Article provides the right of Contracting States to tax income from royalty
Key differences between the two Models are as follows
As per the OECD Model, royalties arising in Source State and beneficially owned by
resident of the Residence State are taxable only in Residence State. However, the UN
in the OECD Model. Thus, under the UN Model, the Source State may also tax royalties.
; pi0W/eVer, i f the beneficial owner is a resident of the Residence State, the tax charged
by the Source State cannot exceed the specified percentage of the gross amount of
royalties. This specified percentage is to be established through bilateral negotiations.
The definition of 'royalties' under the OECD Model does not include the following: (a)
rentals for films or tapes used for radio or television broadcasting and (b) equipment
rentals like rentals fo r industrial, commercial or scientific equipment.
Article 12A : Fees fo r Technical Services

In its 2017 update, th e UN Model has inserted a specific article pertaining to Fees f o r
Technical Services (FTS). There is no specific reference to FTS in th e OECD Model.
t Paragraph 1 of Article 12A provides that the FTS may be taxed in the Residence
State but does not provide that the FTS is exclusively taxable in the Residence State.
Paragraph 2 establishes the right of the country in which FTS arises to tax in
accordance with its domestic law, subject to th e limitation on the maximum rate of tax,
if the beneficial owner is a resident of the other Contracting State. The maximum rate
of tax is to be established through bilateral negotiations
Article 13: Capital Oains
This is the most commonly used Article and it provides for t he taxation of income arising
from transfer of a capital asset, including transf er of shares. The right to tax income
?
from capital gains may be exclusively with the Residence State, or shared between t he
; Residence and Source States.
CA Bhanwar Borana
: The Article does not specify what is a capital gain and how is to be computed, this being
! left to the applicable domestic law.
. The Article contains rules f o r taxation of gains made from alienation of different
s assets such as immovable property, immovable property forming part of a PE, ships and
aircrafts, etc. In respect of shares, both Models have been updated and are identical.
; Rights are conf erred to the Source State i f more than 50 percent of the value of shares
during the preceding 365 days is derived from immovable property in such Source
i State.
Article 14 : Independent Personal Services

; Article 14 is only present now in t h e UN Model. It was deleted from the OECD Model.
The Effect o f deletion of Article 14 is that income derived f r o m Professional Services
' etc., is now dealt with as 1Business Profits' (Article 7) under the OECD MC.
s This Article deals with the taxation of income derived by a person for professional or
specified services which are offered in t h e Source State through some presence. This
■ article on Independent personal services in the UN Model states as under :
i Income derived by a resident of a Contracting State in respect of prof essional services

i or other activities o f an independent character shall be taxable only in that State
! except in the following circumstances, when such income may also be taxed in t he other
s Contracting State:
i a) If he has a fixed base regularly available to him in t he other Contracting State f o r
t he purpose of perf orming his activities; in that case, only so much of the income as is
attributable to that fixed base may be taxed in that other Contracting State; or
> b) If his stay in the other Contracting State is for a period or periods amounting to
or exceeding in th e aggregate 183 days in any twelve-month period commencing or
ending in th e fiscal year concerned; in that case, only so much o f the income as is
i derived from his activities perf ormed in that other State may be taxed in that other
State

2. The term "professional services" includes especially independent scientific, literary,

I artistic, educational or teaching activities as well as the independent activities of
physicians, lawyers, engineers, architects, dentists and accountants.
Article 21 : Other Income

This Article deals with taxation of items of income which are not specifically taxable
under any other specific Article.
J Key d i f f erences are as under: OECb approach envisages that the exclusive right to tax
| is with t he Residence State.
I UN Model contains an additional paragraph, Article 21(3), which provides that Source
I State may also tax other income.
Article 21(2) of both OECb and UN Model provides that for income effectively
connected with a PE maintained in a Contracting State by a resident of the other
Contracting State, taxation is governed by the provisions of Article 7 (Business Profits).
Additionally, UN Model provides that i f the aforesaid income is effectively connected
with a fixed base situated in a Contracting State by a resident of the other Contracting
State, taxation would be governed by the provisions of Article 14 (Independent
I personal services).
i Articles 23A&23B : Elimination of Double Taxation

This article provide tax exemption and tax credit method fo r elimination of double
taxation.
I Article 25 : Mutual Agreement Procedure

I Where a taxpayer believes that the treatment by contracting states(s) is not in
accordance with the provisions of the tax treaty competent authorities of both
would take place as follows

OECD Model UN Model

Request of MAP Tax payer can make Alternative A: Taxpayer has to
the request to either approach to his resident country
contracting state Alternative B: Reference to
arbitration press as a part o f
MAP. The decision arrived at is
binding unless person directly
affected does not accept i t
Timelimit 2 years from the date Arbitration may be initiated i f

when all information competent authorities are unable
required in order the to reach agreement on a case
case needs to be within 3 years from presentation
provided to both states. of that case [alternative B]
Who can request fo r Arbitration must be Arbitration may be requested by

arbitration? requested by person who competent authorities of either
initiated the case state once such a request is
made, taxpayer will be notified
[Alternative B]
Departure from No specific provision C o m p e t e n t a u t h o r i t i e s may

arbitration? depart from arbitration decision
by agreement within 6 months
after decision is communicated
[alternative B]

Article 26 : Exchange of Information

In order to complete tax cases, a country may require certain info which may be available
with the treaty partner.
Article 26 provides f o r :
» the info which may be exchanged
» t h e manner in which such a request has to be made.
Importance of Article 26:

» facilitates effective exchange of information between Css.
» curtails cross-border tax evasion and avoidance,
» curtails the capital flight that is often accomplished through tax evasion & avoidance.
This is particularly relevant in the perspective of developing countries.
Similar provisions contained in OECD and UN Mcs

» A CS cannot be expected to provide confidential financial info to another CS unless it
has confidence that th e info will not be disclosed to unauthorized persons.
» A CS can avoid th e EOI obligations by showing that the info pertains to
communication between an attorney and his client which is protected from disclosure
under domestic law.
» Lack of interest or use in such info cannot, however, f or m the basis for a CS to not co-
operate with the EOI obligations.

Sources of origin of International Tax Law
Multinational international agreements: Agreement signed by more than 2 countries
is called as "MIA". Example: Vienna Convention on Law of Treaties (VCLT)
DTAA: It included protocols, memorandum of understanding, and exchange of
information, etc. forming part of the DTAA
Customary international law and its general practices: For example, principles of law
recognised by civilized nations in their national legal systems, customary law and
judicial decisions and the practices of international organizations.
Double Taxation <& Connecting Factors which lead to Double Taxation.

The taxability of a foreign entity in any country depends upon whether it is doing
business with that country or in that country. There are two types of connecting
factors to determine the jurisdiction, namely, "Residence" and "Source". It means a
company can be subject to tax either on its residence link or its source link with a
country. If a company is doing business with another country (i.e. host/source
country), then i t would be subject to tax 1 in its home country only, based on its
residence link. However, if a company is doing business in a host/source country,
then, besides being taxed in the home country on the basis of its residence link, it
will also be taxed in the host country on the basis of its source link.
Jurisdictional double taxation: When source rules overlap, double taxation may
arise i.e. tax is imposed by two or more countries as per their domestic laws in
respect of the same transaction, income arises or is deemed to arise in their
respective jurisdictions. This is known as "jurisdictional double taxation". In order
to avoid such double taxation, a company can invoke provisions of DTAA with the
host/source country, or in the absence of such an agreement, invoke provisions of
section 91 of the Income-tax Act, 1961, providing unilateral relief in the event of
double taxation.
Economic double taxation: ‘Economic double taxation' happens when the same
transaction, item of income or capital is taxed in two or more states but in hands of
different person (because of lack of subject identity).
APPLICATION X BN A WIAmi'ATION
OM 2 AX ¥3F A N E S ....................................... .
Example: Suppose Sam Inc. (USA Co.) distribute dividend and paid bbT in USA <&
same dividend is received by Indian Resident is taxed in India. In this case, same
Income is taxed in hands of Sam Inc. as well as Indian Resident.
Types of bTAA:
Limited bTAA - Limited to certain types of Income only
Ex: bTAA between India and Pakistan is limited to aircraft profits only
Comprehensive bTAA - They cover almost all types of incomes covered by any model
convention.
Ex: Sometimes, a treaty covers wealth tax, gift tax, etc.
birectives Principle set out by Article 51 of Indian Constitution to be followed by the

State in the context of International Agreements
The State shall endeavor to
Promote international peace and security;
Maintain just and honorable relations amongst nations;
Foster respect for international law and treaty obligations in the dealings of organized
people with one another; and
Encourage settlements of international disputes by arbitration
Need of Tax Treaty

Allocating the taxing rights
Elimination of double taxation
Ensuring non-discrimination between residents and non-residents
Resolution of disputes arising on account of different interpretations of tax treaty
Providing assistance in the collection of the fair and legitimate share of tax.
Further, in addition to above, there are some other principles which must be considered
by countries in their tax system -
Equity and fairness : Same income earned by different taxpayers must be taxed at
the same rate regardless of the source of income.
Neutrality and efficiency : Neutrality factor provides that economic processes
should not be affected by external factors such as taxation. Neutrality is two-fold:
_ __ ® C o m p a c t \A2
APPLICATION A C1TERPN ' ; 'WION
i' f KATIES
Capital export neutrality (CEN) provides that business decision must not be affected
by tax f a c t o r s between t h e country o f residence and t h e t a r g e t country
Example: Mr bevam Resident of India wants to invest in Business of Country X then
his business decision must not be affected due to taxation.
Capital import neutrality (CIN) provides that the level of tax imposed on non-
residents as well as the residents must be similarExample: Mr Sam resident of country X
doing business in India then Tax imposed on Mr Sam and Indian resident person must be
similar.
Promotion of mutual economic relations, trade and investment
Interpretation of Tax Treaties

Basic Principles of Interpretation of a Treaty derived by customary international law
Golden Rule - Objective Interpretation
Ideally any term or word should be interpreted keeping its objective or ordinary or
literal meaning in mind and the term has to be interpreted contextually. However, if
grammatical interpretation would result in absurdity or inconsistency, it should not
be adopted.
Subjective Interpretation
Terms of Treaty are to be interpreted according to the common intention of the
Contracting parties at the time treaty was concluded.
Purposive Interpretation (Objects and Purpose method)
Treaty is to be interpreted so as to facilitate t he attainment of the aims and
objectives of the Treaty.
The Principle of Ef f ectiveness
A treaty should be interpreted in a manner to have effect rather than make it void.
Principle of Contemporanea Expositio
A treaty’s terms are normally to be interpreted on the basis of their meaning at the
time the treaty was concluded. However, this is not a Universal Principle.
Liberal Construction
It is a general principle of construction with respect to treaties that they shall be
liberally construed so as to carry out the apparent intention of the parties.
118 Compact V-2

• J&U ’ ?PR ON
— OF TAX TREATIES
Treated as a whole - Integrated Approach

\ treaty should be construed as a whole and effect should be given to each word
which would be construed in the same manner wherever it occurs. Any provision
should not be interpreted in isolation; rather the entire treaty should be read as a
whole to arrive at its object and purpose
Reasonableness and Consistency
Treaties should be given an interpretation in which the reasonable meaning of words
and phrases is preferred, and in which a consistent meaning is given to different
portions of t h e instrument. In accordance w i t h t h e principles of consistency,
treaties should be interpreted in the light of existing international law.
Extrinsic Aids to interpretation of a tax treaty

A wide range of extrinsic material is permitted to be used in interpretation of tax treaties
Interpretative Protocols, Resolutions and Committee Reports, setting out agreed
interpretations;
A subsequent agreement between the parties regarding the interpretation of the
treaty or the application of its provisions;
Subsequent conduct of the state parties, as evidence of the intention of the parties
and their conception of the treaty;
parallel Treaty, in pari materia (i.e., relating to the same subject matter), in case of doubt;
International Articles/Essays/Reports/ Cahiers published by International Fiscal
Association (IFA), Netherlands
Preamble
Mutual Agreement Procedure
Commentaries on OECb/UN Models and their importance
Foreign Courts' Decisions
Protocol
Protocol is like a supplement to the treaty. In many treaties, in order to put certain matters
beyond doubt, there is a protocol annexed at the end of the treaty, which clarifies
borderline issues. A protocol is an integral part of a tax treaty and has the same binding
force as the main clauses there in.
... : _a :
APPlJCATiOh . t iTE ■
C REATIES
Protocol to India France treaty contains the Most Favoured Nation Clause. Thus, one
must refer to protocol before arriving at any final conclusion in respect o f any tax
treaty provision.
Under MFN clause a country agrees to extend the benefits to the residents of the
other country, which i t had (first country) promised to the residents of t h i r d country.
! It tries to avoid discrimination between residents of different countries.
! Example : suppose as per India-UK treaty resident of UK liable to pay tax in India on
\ royalty derived from India @10% . After some time India entered into DTAA with S r i
Lanka & as per India-Sri Lanka DTAA, resident of S r i Lanka liable to pay tax in India
on royalty derived from India @5%. Now in this example suppose India-UK treaty
i contain MFN clause then Resident of UK liable to pay tax in India only @5%
Difference between Ambulatory and Static Approach |

To decide what meaning is to be assigned to the said term, 2 views can be taken:
Static - It looks at the meaning at the time when the Treaty was signed.
Ambulatory - It provides that one looks to the meaning of the term at the time of
application o f Treaty Provisions. All Model Commentaries favor t h i s Approach,
however with one caution that this approach cannot be applied when there is a radical
amendment in th e domestic law thereby changing the sum and substance of the said term.
Principles under Vienna Convention of Law of Treaties

Article 26 - Pacta Sund Servanda (in good faith)
Every treaty in force is binding upon the parties and must be followed by them in
good faith
Article 28 - Non-retroactivity of treaties
Treaty provisions are not binding on a party for any act which ceased to exist before the
date of the entry into force of the treaty with the respect to that party. In other
words, unless otherwise provided, treaties cannot have retrospective application
A treaty is binding upon each party in respect of its entire territory, unless a different
intention appears from the treaty.
810 Compact Vo
I C O - W OWCCM V, UW. a C C ' C
t.X' mm
► > Article31 -General Rule of Interpretation

A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be
given to the terms thereof in the context and in the light of its object and purpose.
. The context fo r the purpose of interpretation of a treaty shall comprise its text,
; preamble and annexure
(a) i Any agreement relating to the treaty which was made between all the parties in
connection with th e conclusion of the treaty;
(b) Any instrument which was made by one or more parties in connection with the conclusion
i o f th e treaty and accepted by the other parties as an instrument related there to.
; The following shall be taken into account, together with the context in that:
(a) Any subsequent agreement between the parties regarding the interpretation of th e
treaty or the application of its provisions;
(b) Any subsequent practice in the application of the treaty which establishes the
; agreement of th e parties regarding its interpretation;
(c) : Any relevant rules of international law applicable to relation between the parties.
A special meaning shall be given to a term i f it is established that t he parties so
intended.
► Article 32 - Supplementary means of Interpretation

When interpretation according to Article 31
-Leaves meaning ambiguous
-Leads to an unreasonable result
► Article 33 - Interpretation of Treaties authenticated in 2 or more languages

4- Text shall be equally authoritative in each language
-4 ; A version of treaty in another language shall be considered authentic if treaty so
provides
4- Terms of th e Treaty shall be presumed to have the same meaning in each text
4- Except where a particular text prevails in accordance with paragraph 1, when a
; comparison of the authentic texts discloses a difference in meaning which the
application of Articles 31 and 32 does not remove, the meaning which best reconciles
; the texts, having regard to the object and purpose of the treaty, shall be adopted.
— Compact VC
AAPMAAdIOM A IWTEIWA • il ATiON >
OA AAA TREATIES
Article 34 - General rule regarding t h i r d states

A treaty creates neither obligations nor rights for a third State without its consent
Article 42 - Validity and continuance in force of treaties
The validity of a treaty or of the consent of a State tKo be bound by a treaty may be
impeached only through the application of the Convention
The termination of a treaty, its denunciation or the withdrawal of a party, may
take place only as a result of the application of the provisions of the treaty or of the
Convention. The same rule applies to suspension of the operation of a treaty.
Article 6 0 - Termination or Suspension of the operation of a treaty as a consequence

of a breach
A material breach of a bilateral treaty by one party entitles the other to invoke the
breach as a ground for terminating the treaty or suspending its operation wholly or
partly
Material breach of a multilateral party.
Other parties may unanimously agree to suspend the operation of the treaty wholly
or partly or terminate it.
A party specially affected by the breach to invoke it as a ground for suspending the
operation wholly or partly in relation between itself and Contracting State
Any party other than the Defaulting State to invoke the breach as a ground for
suspending the operation of the Treaty wholly or partly with respect to itself if the
treaty is of such nature that a material breach of its provisions by one party
radically changes the position of every other party with respect to further
performance of its obligations under the treaty.
Material breach means

Repudiation ( r e j e c t i o n ) o f t h e t r e a t y n o t sanctioned by t h e Convention
Violation of an essential provision
Article 61 Su
- Pervenil y possibility of performance
«•
operation.
■■ — $ f° r
"• — "
suspending its
But impossibility of performance shall not be invoked if impossibility is a result of a
breach of an obligation by that party.
A r t i c l e 62 - Fundamental change of circumstances

A fundamental change of circumstances which has occurred w i t h regard to those
existing at the time of conclusion of a treaty, and which was not foreseen by t h e parties,
may not be invoked as a ground f o r terminating o r withdrawing f r o m the treaty unless-
(i) The existence of those circumstances constituted an essential basis o f the
consent of the parties bound by the Treaty , and
(..) The effect of the change is radically to transform t h e extent of obligations
still to be performed under t h e Treaty.
If the treaty establishes a boundary, or
If the f undamental change is the result of a breach by the party invoking it

either of an obligation owed to any other party to the treaty
If a party invokes fundamental change of circumstances as a ground f o r terminating o r

w i t h drawing from a treaty, i t may also invoke the change as a ground for suspending its
operation.
A r t i c l e 64 ' Emergence of new peremptory n o r m o f general international law

If a new peremptory norm (new international laws) emerges, any existing treaty which is
in conflict with that norm becomes void and stands terminated.
Compact V-2
BASE EROSION AND
PROFIT SHIFTING .
| Base Erosion and Profit Shifting A its adverse ef f ects
Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies that exploit
gaps and mismatches in tax rules to make profits 'disappear' f or tax purposes or to
s h i f t profits to locations where there is l i t t l e or no real activity but the taxes are low,
resulting in l i t t l e or no overall corporate tax being paid.
Adverse Effects of BEPS:
(i) Governments have to cope with less revenue and a higher cost to ensure compliance.
(ii) In developing countries, t h e lack of tax revenue leads to significant under-funding
I of public investment that could help foster economic growth.
I (iii) BEPS undermines the integrity of the tax system, as reporting of low corporate
taxes is considered to be unfair. When tax laws permit businesses to reduce their
tax burden by shif ting their income away from jurisdictions where income producing
activities are conducted, other taxpayers, especially individual taxpayers in that
jurisdiction bear a greater share of the burden. This gives rise to tax fairness
issues on account o f individuals having t o bear a higher t ax burden,
(iv) Enterprises that operate only in domestic markets, including family owned
businesses or new innovative businesses, may have difficulty competing with AANEs
that have th e ability to s h i f t their profits across borders to avoid or reduce tax.
Fair competition is harmed by the distortions i n d u c e d b y BEPS.
Need for international collaboration between countries

Interaction of domestic tax laws with other countries laws may either lead to gaps (no
taxation in either country or taxed at a nominal rate) or double taxation. Since there is
no principle of matching (payment deductible by the payer is generally taxable in the
hands of the recipient, unless specifically exempted) at the International level, it leaves
considerable scope of arbitrage by taxpayers. BEPS relates to instances where the
interaction of tax rules of different countries leads to double non-taxation and
arrangements that achieve low or no taxation by shifting profits away from the
jurisdictions where the activities creating those profits take place. International
standards have tried to reduce these f rictions; however, gaps still remain. Therefore,
there is a need for countries to collaborate on tax matters so that they are able to get
thei r due share of taxes.
A Bhanwar Borana
BASE EROSION AND Chapters
PROFIT SHIFTING
T h e A c t i o n Plans w e r e s t r u c t u r e d a r o u n d t h r e e f u n d a m e n t a l p i l l a r s viz.:
Introducing coherence in the domestic rules that affect cross-border activities.

“ ____ 'substance' requirements i n e x i s t i n g international standards;
Alignment of taxation w i t h location of value creation and economic activity; and

Improving transparency and tax certainty .
Action Plan 1 - Addressing t h e Challenges of The Digital Economy
These new business models have created new tax challenges. The typical taxation
issues relating to & ~c o m m & r c e ar&
'
(i)
between a taxable transaction, activity and a taxing jurisdiction,
income tax purposes.

T h e d i g i t a l business, t h u s , challenges p h y s i c a l p r e s e n c e - b a s e d p e r m a n e n t
establishment rules. If PE principles are to remain effective in the new economy, the
fundamentalPE components developed f o r the o l d economy i.e., place of business,
on pe r m a nency must be reconciled w i t h the new digital real ity .
► OECD Recommendation . . .
(i) Modifying existing PE r u l e to provide whether an enterprise engaged in f u l l y de-
presence in another country ' s economy.
A virtual fixed place of business PE when the enterprise maintains a website on a
server of another enterprise located in a jurisdiction & carries on business through

that website. .
Imposition of a equalisation levy o n consideration for certain digital transactions

received by a NR from a resident o r NR having PE in the other country.

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► Provision incorporated in Indian Tax Laws

1. Significant economic presence (Already Covered in topic 2)
2. Equalisation Levy
In order to address the challenges of the digital economy, Chapter VIII of the
Finance Act, 2016, titled "Equalisation Levy", provides f or an equalisation levy of 6%
of t h e amount of consideration for specified services received or receivable by a
non-resident not having permanent establishment in India, from a resident in India
who carries out business or profession, or from a non-resident having permanent
establishment in India.
This scope has been further expanded by FA, 2020, wherein Equalisation levy of 2%
would be chargeable on the amount of consideration received or receivable by an NR
E-commerce operator from e-commerce supply or services made or provided or
facilitated by it to a person resident in India or to a non-resident in specified
circumstances or to a person who buys such goods or services or both using IP
address located in India.
Action Plan 2 - Neutralise the Effects of Hybrid Mismatch Arrangements

HMA means exploits a difference in the tax treatment of an entity or an instrument
under the law of two or more countries to achieve double non-taxation.
Examples
Creation of two deductions for single borrower
Taking deductions without corresponding Income Inclusion.
Misuse of foreign Tax Credit
Participation exemption regime (showing activity in low tax jurisdiction)
► OECD Recommendation
1. Change in the domestic law <& make rules to neutralise the effect of HMA
2. Change in tax treaty to deal with duel resident companies, transparent entity, Hybrid
entity etc
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~ j Recommended general amendments

I A rule denying transparency to entities where the non-resident investors' resident
country treats th e entity as opaque (Non-transparent)
| Example: Let us say, X Co., a parent company in country X indirectly holds Y Co., an
operating company in country Y. Between X Co. and Y Co. is a hybrid entity that is
treated as transparent or disregarded for country X tax purposes and as non-
transparent for country Y tax purposes. X Co. holds all or almost all equity interest in
| the hybrid entity which in turn holds all or almost all equity interests in Y Co. The
hybrid entity borrows money from a t hi rd party and the loan is used to invest equity
into Y Co (or to buy th e shares in Y Co from either another company of the same group
or from an unrelated t h i r d party). The hybrid entity pays interest on the loan. Except
for the interest, the hybrid entity does not claim any other significant deduction and
■ ■ - ..........-......................................................... ............................................................................ .......................................... .................... - ........................................... ......... ............. — ------------------------— — ........... ......
i does not have any significant income.

With respect to Country Y, for tax purposes, Hybrid Entity is subject to corporate
income tax. Its interest expenses can be used to offset other country Y group
companies' income under the country Y group tax relief regime. On the other hand,
country X treats the hybrid entity as transparent or disregarded, with the result
that its interest expenses are allocated to X Co, which deducts the interest expense
to offset unrelated income. The net effect is that there are two deductions for the
same contractual obligation in two different countries. Therefore, by virtue of rule
denying transparency to an entity which is treated as opaque in the subsidiary
company ' s country , the double deduction can be avoided.
k A rule denying an exemption or credit f o r foreign underlying tax for dividends that
are deductible by the payer;
Example: N Co, a company resident in country N is funded by M Co., a company
resident in country M with an instrument that qualifies as equity in country M but as
debt in country N. A payment made under the instrument would be deductible as
interest expense for N Co under country N tax law. The corresponding receipts are
j treated as exempt dividends under the tax laws of country M. Consequently,
| deduction is available under the tax laws of country N without a corresponding income
I inclusion in country M. Therefore, by virtue of rule denying an exemption or credit for
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foreign underlying tax f o r d are deductible by t he payer, exemption of such

i income in country M would not be possible.
A rule denying a foreign tax credit f o r withholding tax where that tax is also credited
I to some other entity
.....................' ................... ................................. ' " ...................... ............... ...

• Amendments to CFC and similar regimes attributing local shareholders t h e income of
> foreign entities that are treated as transparent under their local law.
i Branch mismatches
Branch mismatches occur where two jurisdictions take a different view as to the
existence o f , or the allocation of income or expenditure between, the branch in head
office of the same taxpayer.
Branch mismatches arise where t h e ordinary rules f o r allocating income and
expenditure between the branch and head office result in a portion of the net income
o f t h e taxpayer escaping the charge to taxation in both the branch and residence
jurisdiction. Unlike hybrid mismatches, which result from conflicts in t he legal
treatment o f entities o r instruments, branch mismatches are t h e result o f
differences in the way th e branch and head office account f or a payment made by or
to the branch.
Action Plan 3 - Strengthen Controlled Foreign Company (CFC)Rules

CFC are corporate entities incorporated in Tax Haven countries <& controlled directly
or indirectly by Resident of higher tax jurisdiction. (Parent state)
Example: BB Ltd is an Indian Company setup a subsidiary in Dubai (tax haven) BB Dubai
Ltd. In this case BB Dubai Ltd. is treated as CFC. Normally CFC earn Passive Income &
\ accumulated such income in tax haven countries. Such income is taxable in parent
I state only i f CFC distribute dividend but practically CFC never distribute dividend so
’ such income is never taxable in parent state.
I To curb these practices many countries come out with CFC regulation. As per CFC
I rules Income earn by CFC is deemed to be income of parent entity and taxable in
i parent state. Normally CFC rules applicable in passive income like Interest, Royalty,
! Dividend, Income from transactions with related parties etc.
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Building Blocks
The OECD recommended 'building blocks' are as follows.
Computation and attribution of CFC income - CFC income should be calculated under a
notional application of the parent jurisdiction's tax laws and attribution should be
subject to a control threshold and based on proportionate ownership or influence.
prevention and elimination of double taxes - CFC rules should not result in double
taxation. The specific measures suggested are to provide a credit fo r foreign tax
paid on CFC income, provide relief where a dividend is paid out of attributed income or
where taxpayers dispose of their interest in a CFC where there has been attribution.
CFC definition - CFC rules apply to foreign subsidiaries controlled by shareholders in

the parent jurisdiction. OECD recommends application of CFC rules to non-corporate
entities, if those entities earn income that raises BEPS concerns and such concerns
are not addressed.
CFC exemptions and threshold requirements - Companies should be exempted from

CFC rules where they are subject to an effective tax rate that is not below the
applicable tax rate in the parent jurisdiction.
Definition of CFC income - CFC rules should have a definition of income that ensures
that BEPS concerns are addressed, but countries are free to choose their own definition.
Provision incorporated in Indian Tax Laws

At present, there are no specific CFC rules in the Income-tax Act, 1961, CFC rules
formed part of the proposed Direct Tax Code. CFC regime has been debated over
last many years in India and is one of the last remaining concepts from the DTC to be
incorporated in the Income-tax Act, 1961. In order to encourage repatriation of
profits, section 115BBD provides a concessional tax rate of 15% (gross basis) on
dividends received from a specified foreign company i.e., a foreign company in which
the Indian company holds 26% or more in the nominal value of the equity share capital
of t h e company A India changed definition of residential status of company.
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Action Plan 4 - Interest Deductions and other Financial Payments

Normally International Group taking loan or debt in High Tax Jurisdiction because I
interest is deductible expenses <& they can reduce their over all tax liability. Many
time enterprise of MNE located in tax haven gives loan to entity located in high tax
jurisdiction so their over all tax burden get reduced.
Recommendations of OECD
Fix Ratio Rule: Interest deduction should be allowed on the basis of level of economic
activity. As per this rule interest is allowed at certain percentage of EBITDA (India
@30%)
Group Ratio Rule: As per this rule entity allows to deduct more interest expenses on
the basis of position of its worldwide group.
Targeted Rules: There should be certain rule to address some specific risk in case o f
Banking and Insurance business. If there is no risk then country can exclude banking
and insurance business.

Section 94B of the Income-tax Act, 1961: Addressing Thin Capitalization Debt
financing of cross-border transactions is often favorable than equity financing f o r
taxpayer. In view of the above, in line with the recommendations of OECD BEPS Action
Plan 4, section 94B has been inserted in the Income-tax Act, 1961 by the Finance Act,
2017 to provide a cap on the interest expense that can be claimed by an entity to its
associated enterprise. The total interest paid in excess of 30% of its earnings before
interest, taxes, depreciation and amortization (EBITDA) or interest paid or payable to
associated enterprise for that previous year, whichever is less, shall not be deductible,
(refer TP topics for more details)
Action Plan 5 - Counter Harmf ul Tax Practices
Normally every country tax royalty on Intellectual Property at lower rate. MNE's
normally develop IP in high tax jurisdiction but registered that IP in tax haven or low
tax rates jurisdiction.
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! Action Plan 5 - Counter Harmful Tax Practices

Normally every country tax royalty on Intellectual Property at lower rate. MNE's
normally develop IP in high tax jurisdiction but registered that IP in tax haven or low
•+...
) tax rates jurisdiction.
OECb recommended that low tax rate benefit should be available only if IP is
developed (substantial Activity) in that country.

The nexus approach has been recommended by the OECb under BEPS Action Plan 5.
This approach requires attribution and taxation of income arising from exploitation of
Intellectual property (IP) in the jurisdiction where substantial research and
development (R <& b) activities are undertaken instead of the jurisdiction of legal
ownership. Accordingly, section 115BBF of the Income-tax Act, 1961 provides that
where the total income of the eligible assessee ((being a person resident in India who
is the true and first inventor of t he invention and whose name is entered in the patent
register as th e patentee in accordance with the Patents Act, 1970 and includes every
such person, being the true and the first inventor of the invention, where more than
one person is registered as patentee under Patents Act, 1970 in respect of that
patent.) includes any income by way of royalty in respect of a patent developed and
registered in India, then such royalty shall be taxable at the rate of 10% (plus
applicable surcharge and cess). For this purpose, developed means atleast 75% of the
expenditure should be incurred in India by the eligible assessee for any invention in
respect of which patent is granted under the Patents Act, 1970.
Action Plan 6 - Preventing Treaty Abuse

Protection against treaty shopping
Treaty shopping means taking the benefit of any treaty by any person which is not
meant for that person. Suppose as per India Mauritius treaty if any person resident of
Mauritius earning capital gain on shares of Indian Company shall not be taxable in
India.
Now, suppose any person resident of UK incorporates a shell company in Mauritius <&
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takes t h e benefit o f India-Mauritius treaty is treated as treaty shopping.
Recommendations of OECD
Clear statement in Preamble of treaty that such treaty is fo r avoidance of double
taxation not fo r creating opportunities f o r Non-taxation through treaty shopping.
LOB Rules: Rules based on objective criteria's such as Legal Nature, ownership,
general activities etc. As per India-Mauritius treaty resident of Mauritius shall be
liable to pay tax in India on shares @ 50% of Indian Tax rate but this benefit is not
available Mauritius residents shell companies whose operational expenses is less than
? 7,00,000.
PPT Rules: General anti-abuse rules on the basis of principle purpose of transaction.

LOB clause introduced in India-Mauritius Tax Treaty - On 10th May, 2016, India and
Mauritius has signed a protocol amending the India-Mauritius tax treaty at Mauritius.
In the said treaty, for the first time, it has been provided that gains from the
alienation of shares acquired on or after 1.4.2017 in a company which is a resident of
India may be taxed in India. The tax rate on such capital gains arising during the
period from 1.4.2017-31.3.2019 should, however, not exceed 50% of the tax rate
applicable on such capital gains in India.
A Limitation of Benefit (LOB) Clause has been introduced which provides that a
resident of a Contracting State shall not be entitled to the benefits of 50% of the tax
rate applicable in transition period if its affairs are arranged with t he primary purpose
of taking advantage o f concessional rate of tax. Further, a shell or a conduit company
claiming to be a resident of a Contracting State shall not be entitled to this benefit. A
shell or conduit company has been defined as any legal entity falling within t h e meaning
of resident with negligible or nil business operations or with no real and continuous
business activities carried out in that Contracting State. A resident of a Contracting
State is deemed to be a shell/conduit company if its expenditure on operations in that
Contracting State is less than Mauritian rupee 15,00,000 or Indian ? 7,00,000 in t he
respective Contracting State as the case may be, in the immediately preceding period
of 12 months from the date the gains arise.
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I
Action Plan 7 - Prevent the Artificial Avoidance of Permanent Establishment (PE) Status
Recommendations of OECb
Reworking exceptions to PE definition: To define PE all activities carried on by
enterprises alongwith activity by closely related shall be examined.
Analyzing arrangements entered through contractual agreements: Business through
commissionaire also included in the definition of PE except it is performed as
independent Business activity.
Additional Guidance on attribution of profits to PEs under BEPS Action Plan 7: The
March 2018 report contains additional guidance on the attribution of profits to
permanent establishments resulting from the changes in the Report on BEPS Action
Plan 7 to Article 5 of the OECb Model Tax Convention. This additional guidance sets out
high-level general principles for the attribution of profits to permanent establishments
arising under Article 5(5), in accordance with applicable treaty provisions, and includes
examples of a commissionnaire structure for the sale of goods, an online advertising
sales structure, and a procurement structure. It also includes additional guidance
related to permanent establishments created as a result of the changes to Article 5(4),
and provides an example on the attribution of profits to permanent establishments
arising from the anti-f ragmentation rule included in Article 5(4.1)
Action Plan 8-10 - Transf er Pricing outcomes in Line with Value Creation / Intangibles /
Risk and Capital and other High-Risk Transactions
Action Plan betails
8 Addresses transfer pricing issues relating to controlled transactions
involving intangibles, since intangibles are by definition mobile and they
are generally difficult-to-value. Misallocation of the profits generated
by valuable intangibles is a significant cause of BEPS.
9 Contractual allocations of risk are respected only when they are
supported by actual decision-making and thus exercising control over
these risks.
Contractual allocations of risk are respected only when they are

supported by actual decision-making and thus exercising control over
these risks.
Compact V-2 133 CA Bhanwar Borana

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10 This action focuses on o t h e r high-risk areas, which include:

..
- the scope for addressing profit allocations resulting from controlled
transactions which are not commercially rational, — ——
- th e scope for targeting the use of transfer pricing methods in a
way which results in diverting profits from the most economically
important activities of the MNE group, and
- the use of certain type of payments between members of the MNE
group (such as management fees and head office expenses) to erode
the tax base in the absence of alignment with the value-creation.
► Recommendations of OECb
1. Analysing t h e c o n t r a c t u a l r e l a t i o n s h i p b e t w e e n a s s o c i a t e e n t e r p r i s e s .
2. Risk <& Return should be allocated to enterprise having financial capacity to assume the
risk i f any enterprise is not having financial capacity to take risk then such risk should
not be allocated to that entity.
3 Return should not be allocated to entity which merely owns asset but it should be
allocated on th e basis of Function performed, risk assume <& asset employed. If any
enterprise only provides funding then that enterprise is eligible for risk free return.
4 The actual nature of transaction to be determined for transf er pricing in case of where
substances is different from Form,
5 Profit should be allocated to enterprise carrying on most important activity rather than
low value adding activities. If any enterprise of MNE engaged in low value added intra
group service (back office operation) then profit mark-up should be restricted to 5%,
# Action Plan11- Measuring and Monitoring BEPS

► Indicators of BEPS activity
Six indicators of BEPS activity highlight BEPS behaviour using different sources of
data, employing different metrics, and examining different BEPS channels. When
combined and presented as a dashboard of indicators, they confirm the existence of
BEPS,and its continued increase in scale in recent years.

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The profit rates of AANE affiliates located in lower-tax countries are higher than their
group's average worldwide profit rate. For example, the profit rates reported by AANE
affiliates located in lower-tax countries are twice as high as their group's worldwide
profit rate on average.
(•>) The effective tax rates paid by large AANE entities are estimated to be lower than
similar enterprises with only domestic operations - This ti lt s t he playing-field against
local businesses and non-tax aggressive AANEs, although some of this may be due to
AANEs' greater utilisation of available country tax pref erences.
Foreign direct investment (Fbl) is increasingly concentrated - Fbl in countries with net
Fbl to GbP ratios of more than 200% increased from 38 times higher than all other
countries in 2005 to 99 times higher in 2012.
The separation of taxable profits from the location of t he value creating activity is
particularly clear with respect to intangible assets, and t he phenomenon has grown
rapidly - For example, the ratio of the value of royalties received to spending on
research and development in a group of low-tax countries was six times higher than th e
average ratio for all other countries, and has increased three-fold between 2009 and
2012.
(v) Royalties received by entities located in these low-tax countries accounted f or 3% of
total royalties - This provides evidence of the existence of BEPS, though not a direct
measurement of the scale of BEPS.
Debt from both related and third-parties is more concentrated in AANE affiliates in
higher statutory tax-rate countries -The interest-to-income ratio for affiliates o f the
largest global AANEs in higher-tax rate countries is almost three times higher than their
AANE's worldwide third-party interest-to-income ratio.
Action Plan12 - bisclosure of Aggressive Tax Planning Arrangements

► besign principles and significant objectives of a mandatory disclosure regime:
Clarity and comprehensibility
4- Ability to balance additional compliance costs to taxpayers with t he benefit obtained
by the tax administration
Flexibility and dynamism: to allow the tax administration to adjust the system to
respond to new risks (or carveout obsolete risks)
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Accurateidentificationof the schemes to be disclosed

...... .! ....... .............- • - . .. .- ...............
4- ! Effective achievement of objectives
■4 ! Ensuringeffectiveuseof informationcollected
#
►
{ The BEPS report recommends that countries adopt a standardised approach to
| transfer pricing documentation; it mandates the following three-tier structure:-
Document Information
Master file Standardised i n f o r m a t i o n r e l e v a n t f o r a l l multinational
enterprises (MNE) group members.
Master file requires MNEs to provide tax administrations with
high-level information regarding their global business operations
and transfer pricing policies. The master file is to be delivered by
MNEs directly to local tax administrations.
2. Local File Local file requires maintaining of transactional information
specific to each country in detail covering related-party
transactions and the amounts involved in those transactions. In
addition, relevant financial information regarding specific
transactions, a comparability analysis and analysis o f t he
selection and application of the most appropriate transfer pricing
method should also be captured. The local file is to be delivered by
MNEs directly to local tax administrations
3. Country-by Information relating to the global allocation of the MNE's income
Country Resort and taxes paid; and
Indicators of the location of economic activity within the MNE
group.
CBC report requires MNEs to provide an annual report of economic
indicators viz. the amount of revenue, profit before income tax,
income tax paid and accrued in relation to the tax jurisdiction in
which they do business. CBC reports are required to be filed in the
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jurisdiction of tax residence of the ultimate parent entity, being

subsequently shared between o t h e r jurisdictions through
automatic exchange of inf ormation mechanism.
Advantages of the three-tier structure [as per BEPS Report]:

a
b
c
resources can most effectively be deployed, and, in the event audits aPe called for,
provide inf ormation to commence and target audit enquiries.
►
Country-by-country Report: Reporting Requirements of AANEs
The Country-by-£°untry (CbC) report has to be submitted by parent entity of an

international group to t h e prescribed authority in it s country o f residence.
This report is to based on consolidated financial statement of t h e group.
a AANEs have to report annually and f o r each tax jurisdiction in which they do business:
(1) the amount of revenue;
(2 ) profit before income tax; and
(3) income tax paid and accrued.
b AANEs have to report their total employment, capital, accumulated earnings and
tangible assets in each tax jurisdiction.
c AANEs have to identify each entity within t he group doing business in a particular tax
a The master file would provide an overview of the AANE groups business, including:
(1) the nature of its global business operations,
(2) its overall transfer pricing policies, and
(3) its global allocation of income and economic activity in order to assist tax
administrations in evaluating the presence of significant transfer pricing risk. ,
is
b The master file intended to provide a high-level overview in order to place t he AANE
group's transfer pricing practices in their global economic, legal, financial and tax
context. _ ______________________
C o m p a c t VC; 137 CA Bhanwar Borana
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The master file shall contain information which may not be restricted to transaction
undertaken by a particular entity situated in particular country.
Thus, information in master file would be more comprehensive than the existing
regular transf er pricing documentation.
The master file shall be furnished by each entity to the tax authority of the country in
which i t operates.
India is one of the active members of BEPS initiative and part of international
consensus. For the purpose of implementing the international consensus, a specific
reporting regime in respect of CbC reporting and also the master file has been
incorporated in the Income-tax A c t , 1961. The essential elements have been
incorporated in the Income-tax Act, 1961 while remaining aspects would be dealt with
in detail in the Income-tax Rules, 1962. (Refer TP for more details)
Action Plan14 - Making Dispute Resolution more Effective

Due to implementation of BEPS action plan there may be risk of uncertainty or
unintended double taxation. The above issue should be resolved through proper
implementation of tax treaties resolution of disputes through MAP.
Minimum Standard: Ensure effective implementation of MAP
that treaty obligations related to the MAP are fully implemented in good faith and
that MAP cases are resolved in a timely manner
t h e implementation of administrative processes that promote the prevention
and timely resolution of treaty-related disputes
that taxpayers can access the MAP when eligible.
Action Plan 15 - Developing A Multilateral Instrument

The MLI is a flexible instrument which will modify tax treaties according to a
jurisdiction's policy preferences with respect to the implementation of the tax
treaty-related BEPS measures. The MLI provides for different types of flexibility:
(i) jurisdictions can choose amongst alternative provisions in certain MLI articles;
(ii) jurisdictions can choose to apply optional provisions (for instance, the provisions
on mandatory binding arbitration);
1
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j (iii) jurisdictions may also choose to reserve the right not to apply MLI provisions (to
opt out through a "reservation") with respect to all of their Covered Tax
Agreements or with respect to a subset of their Covered Tax Agreements.
Jurisdictions only have the possibility to opt out of provisions that do not reflect
a BEPS minimum standard, with the possibility to withdraw their reservation
(and opt in) later.
Need f o r MLI
Amending the bilateral treaties involves cumbersome legal process as each country have
their own constitutional or other legal mechanisms to invoke international treaties into
! their domestic laws. Further mere incorporation of BEPS solutions in domestic law will
not achieve the desired objective as the tax treaties will remain a tool f or tax evaders.
Therefore, to ensure the BEPS solutions are transposed into the tax treaty, action plan
15 objective was to bring all these amendments under one single umbrella.
Structure of the MLI

There are 7 parts and 39 articles in the MLL Articles 3 to 17 are recognised as
substantive provisions under the MLI convention
Part Particulars Article
Part I Scope and Interpretation of terms 1- 2
Part II Hybrid Mismatches 3-5
Part III Treaty Abuse 6-11
Part I V Avoidance of PE Status 12-15
Part V Improving Dispute Resolution 16-17
Part VI Arbitration 18-26
Part VII Final Provisions 27-39
Key Organs of MLI

Covered Tax Agreements (CTA) : CTA is an "agreement for avoidance of double taxation
with respect to taxes on income that is in force between two or more parties and/or
jurisdictions with respect to which each party has notified to the Depository as a listed
agreement under the MLI"

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To make MLI operational between two parties, each country has to notify the bTAA with
other jurisdiction under MLI upon which bTAA will be termed as CTA.
It is important that both countries under the bTAA notify the treaty as CTA f or MLI to
come into force.
For example, i f India notifies India-Mauritius bTAA as CTA, in its MLI deposit note to
OECb but Mauritius does not do so, MLI provisions will not apply until notify by Mauritius
as well.
Compatibility Clause: Bridge between bTAA and MLI
Once existing bTAA becomes a CTA, parties to the MLI are given flexibility to choose
the relevant provisions of th e MLI that needs to be transposed to their existing bTAA.
The compatibility clause is to ensure that there is no conflict between the two treaties
i.e. t h e bTAA and MLI. Further, the compatibility clause also gives options to parties to
leave an existing provision of the bTAA undisturbed, i f the existing provision serves the
desired objective with which a particular provision of the MLI was placed to.
Reservationclauses - 'Opt-Out' Mechanism
The reserved provisions of MLI shall not apply to a CTA if either of the parties makes a
reservation. A reservation is defined in the VCLT as a "unilateral statement made by a
State, when signing, ratifying, accepting, approving or acceding to a multilateral
instrument, whereby i t purports to exclude or to modify the legal effect of certain
provisions of the Convention"
Hence, reservations under treaties, introduce flexibility in treaty negotiations, so that
States come forward to be a signatory to such multilateral conventions. The general rule
of multilateral instrument is that its parties are bound by t he entire instrument unless
the parties make a reservation. The MLI enables states to opt-out of the provisions,
either entirely or partially, by introducing a mechanism of reservations.
Mandatory Minimum Standards
While MLI gives flexibility to the parties through compatibility and reservation clause,
to ensure there is some consistency, the parties have to adhere to incorporating
mandatory minimum standard provisions in the MLI.
The objective o f th e minimum standard provisions is to ensure that anti-abuse provisions
help eliminating the treaty shopping mechanism and consequentially the elimination of
double non taxation scenarios by tax-evaders. The minimum standards,
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therefore, achieve certain consistency amongst the existing tax

Out of the four minimum standards prescribed under t he BEPS action plan i.e.
Action 5-Countering Harmf ul Tax Practices.
Action 6-Treaty abuse prevention mechanism
Action 13-Country by Country Reporting
Action 14-Ef f ective Dispute Resolution Mechanism
Action 6 & Action 14 solutions are specifically provided as a minimum standard provision
under t h e MLI Wi th regards to Action 5 and Action 13, the solutions are to be
incorporated under domestic laws
However, in a case where the contracting states together agree to reflect th e minimum
standard provisions specified under the MLI into their existing DTAA then such treaty
partner may opt-out of the minimum standards under the MLI
Entry into f orce of MLI
Upon deposit of th e instrument of ratification, the MLI enters into force on the first day
of the month following the expiry of 3 calendar months beginning on th e date of such
subsequent deposit.
Effective date of MLI
Once the MLI is entered into force by both the Contracting States, the effective date
of MLI shall be
a) For withholding taxes- 1st day of next calendar year that begins on or after the
dates on which this Convention enters into force for each of the Contracting
jurisdictions to the CTA.
b) For other taxes - Taxable period that begins on or after the expiration of 6
calendar months from the dates on which this Convention enters into force for
each of the Contracting Jurisdictions to the CTA.
Mechanics for Applying MLI
Both the Contracting States to the DTAA should be signatories to the MLI and t he MLI
has entered into force.
Both t h e Contracting States should have duly notified their DTAA as a CTA.
The substantive provisions and choices of the Contracting States to be analysed through
the compatibility cause and notification clause, regarding t he provisions of the CTA that
is to be modified by th e MLI.
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PROFIT SHIFTING
Identify whether any reservation is made on the application of a provision of the MLI by
either o f th e contracting parties.
1 7 Jun 2017 The signing of the MLI

2 25 Jun 2019 Deposit of ratification instrument of 93
jurisdictions with the OECD depository.
3 9 Aug 2019 Notification No. 57/2019 giving effect to
the provisions of MLI in Union of India
4 1 Oct 2019 Entry into Force of India's MLI
CA Bhanwar Borana
MISSION CA
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RULE 128 FOREIGN
TAX CREDIT (FTC)
CA B h a n w a r B o r a n a
What is Foreign Tax Credit (FTC)?
FTC is tax paid in foreign country on income derived in foreign country by an
" '[...................... ................................. ... ..... . .............. ■■■ ... ■■■■■■■ '
assessee. It can also be tax deducted at source in the foreign country on the source
o f income generated by a resident in foreign country. Such amount of tax which is
paid/deducted in foreign country can be claimed as credit against the tax liability in
t h e country of resident. (Sec 90, 90A, 91)
j In which year th e credit is available?

I The credit of FTC is available in the year in which the income corresponding to such
tax has been offered to tax in India.
( In case the income corresponding to such tax is offered to tax in India in multiple
years, th e FTC shall be claimed across those years in the same proportion in which
! t h e income is offered to tax.
'■ Against which liability credit can be claimed?

| The FTC can be claimed against amount of Income Tax, surcharge and cess liability.
I t , however, cannot be claimed against any liability on account of interest, fee or
I penalty payable under the Income Tax Act.
j If Foreign tax paid is disputed in any manner, the same will be allowed in the year of
I offering income only if the assessee within 6 months from the end of month in which
| dispute is settled, furnishes evidence of settlement of dispute, payment of the
! disputed tax.
) What is the mechanism to compute the amount of FTC available?

( The FTC shall be computed for each source of income arising from each country.
j The credit allowable shall be lower of tax payable under the Income Tax Act on such
.. - ....................... ■ - ......■........... ■ — — — — — —— — -
income and actual foreign tax paid on such income.
j In case where the foreign tax paid exceeds the amount of tax payable according to
| t h e Double Tax Avoidance Agreement, such excess shall be ignored.
mjs u m
o TAX CREDIT (Fl
# What documents are required to claim FTC ?

A Statement of computation of Income of that country outside India and foreign tax
deducted or paid on such income in Form No. 67;
A certificate or statement specifying the Nature of Income and the manner of tax
deducted therefrom or paid by the assessee from -
a. The tax authority of that country or
b. The person responsible for deduction of such tax or
c. The assessee.
In such case, the assessee also need to provide Acknowledgement of online payment o f
tax or bank counter foil or challan for payment of tax where the payment has been made
by the assessee :
: Proof of deduction of tax where the tax has been deducted.
I # Whether the FTC can be claimed i f tax is payable under Minimum Alternative Tax
■ ; (MAT)/AMT?
Yes, FTC shall be allowed against tax payable under M A T / A M T in the same manner as
it is allowable under normal provisions of the Income Tax Act.
However, where the FTC available against tax payable under MAT/AMT exceeds the
tax credit available under normal provisions of t h e Act, the excess shall be ignored.
# What conversion rate should be adopted?

For the purpose of converting foreign currency into Indian rupee, Telegraphic
Transfer Buying Rate on the last day of the previous month in which the tax has been
paid or deducted shall be adopted.
; Telegraphic Transfer Buying rate is the rate adopted by the State Bank of India f or
buying such currency.
# What is the timeline to submit t h e claim of FTC?

The statement in Form No. 67 and a certificate or statement as referred above shall
be furnished on or before the due date specified f or furnishing return of income
under section 139(1) of The Income Tax Act. This form needs to be filed online.
O 144
RULE 115
Rule 115 : Rate o f exchange for conversion into rupees of income earn in foreign currency
The rate o f exchange for the calculation of the value in rupees of any income in foreign
currency shall be th e telegraphic transfer buying rate (TTBR) of such currency as on t he
specif ied date.
; "Specified date" means—

(a) i Salary Income - the last day of the month immediately preceding the month in which the
i salary is due, or is paid in advance or in arrears.
(b) ' Interest on securities- th e last day of the month immediately preceding the month in
which the income is due.
(c) i Income from house property, Prof its and gains of business or profession" [not being
i income referred to in clause (d)] and Income from other sources (not being income
by way of dividends and Interest on securities)- th e last day o f t he previous year of t he
j assessee.
(d) : "PGBP" in th e case of a NR engaged in the business of operation of ships- the last day of
i t h e month immediately preceding the month in which such income is deemed to accrue or
: arise in India.
(e) ; Dividends- th e last day of the month immediately preceding t he month in which the
• dividend is declared, distributed or paid by the company.
(f ) : Capital gains- the last day o f the month immediately preceding the month in which t h e
capital asset is transf erred.
, Provided that the specified date, in respect of income referred to in sub-clauses (a) to (f )
■ payable in foreign currency and from which tax has been deducted at source under rule
s 26, shall be t h e date on which the tax was required to be deducted under th e provisions
i o f the Chapter XVII-B.
# > Rule 26 - Rate o f exchange for the purpose of TbS at source on income payable in f oreign
i currency
For t h e purpose of deduction of TbS on any income payable in foreign currency, t he rate
■ o f exchange f o r the calculation of the value in rupees of such income payable to an
CA Bhanwar Borana
RULE 115 Chapter - 10
assesses outside India shall be the TTBR of such currency as on the date on which the
tax is required to be deducted at source under the provisions of Chapter XVIIB by the
person responsible for paying such income.

■MCQH
BOOKLET
for May 2022 and November 2022
CA Bhanwar Borana
I
T
CONTENTS
Test Series - 1 1
Test Series - 2 19
Test Series - 3 37
Test Series - 4 55
Test Series - 5 73
Test Series - 6 89
Test Series - 7 104
Explanation of MCQ and Case Scenario 116
CA Final - Direct Tax and International Taxation
(Applicable for May 2022 and
November 2022 attempt)
1. M r . Akash is engaged i n t h e business of running m o t o r cars o n hire. His brother, M r . Vikas, is a

dentist. M r . Akash and M r . Vikas each purchased a m o t o r car of t h e value of ? 5 lakh o n
1.11.2020 for their business/ profession and p u t t h e same to use immediately. The written
d o w n value of m o t o r cars as o n 1.4.2020 may be taken as 5 0 lakh for M r . Akash and Nil for
M r . Vikas. W h a t is t h e depreciation allowable i n respect of motor cars to M r . Akash and M r .
Vikas under section 32 for A.Y. 2022-23, assuming t h a t b o t h of t h e m have not opted for t h e
special provisions of section 115BAC?
(a) ? 11,77,500 and ? 69,375, respectively
(b) ? 11,55,000 and ? 63,750 respectively
(c) ? 11,77,500 and ? 63,750, respectively
(d) ? 12,24,375 and ? 1,27,500, respectively
2. The turnover of M r . Aarav, engaged i n wholesale trading business, f o r t h e P.Y.2021-22 is ? 2
crore and t h e gross receipts of M r . Vishal, engaged i n legal profession is ? 5 0 lakhs. M r . Aarav
has been regularly following mercantile system of accounting and M r . Vishal regularly follows
cash basis of accounting. Out of t h e turnover of M r . Aarav, he receives ? 1.20 crores through
ECS through bank account during t h e P.Y.2021-22. He receives another ? 60 lakhs through ECS
through bank account o n o r before 31.7.2022. M r . Vishal receives ? 3 0 lakhs by account payee
bank draft and ? 20 lakhs by crossed cheque during t h e P.Y.2021-22. W h a t would be t h e
income chargeable to tax under t h e head "Profits and Gains of Business and Profession", if they
w a n t to minimize their tax liability? Both of t h e m maintain books of account as per section
44AA. Income computed as per t h e regular provisions of Income-tax Act, 1961 is ? 11,50,000
and ? 24,75,000 i n t h e hands of Aarav and Vishal, respectively. However, they have not got t h e
books of account audited and d o not intend to d o so i n future.
(a) ? 16,00,000 and ? 25,00,000, respectively
(b) ? 13,60,000 and ? 25,00,000, respectively
(c) ? 11,50,000 and ? 24,75,000, respectively
CA Bhanwar Borana Test Series - 1

2 MCQ Booklet
3. Mr. Vishal and Mr. Guha sold their residential house property in Pune for ? 3 crore and ? 4
crore, respectively, in January, 2022. The house property was purchased by them 25 months
back. The indexed cost of acquisition is ? 1 crore and ? 1.75 crore, respectively. Mr. Vishal
purchased two residential flats, one in Delhi and one in Agra for ? 70 lakhs and ? 80 lakhs,
respectively, in April, 2022. On the same date, Mr. Guha also purchased two residential flats,
one in Mumbai and the other in Pune, for ? 80 lakhs and ? 75 lakhs, respectively. Both of them
invested ? 30 lakhs in bonds of NHAI in March, 2022 and ? 30 lakhs in bonds of RECL in April,
2022. What is the income taxable under the head "Capital Gains" for A.Y.2022-23 in the hands
of Mr. Vishal and Mr. Guha?
(a) ? 70 lakhs and ? 95 lakhs, respectively
(b) T 60 lakhs and ? 85 lakhs, respectively
(c) Nil and ? 95 lakhs, respectively
(d) Nil and ? 20 lakhs, respectively
4. Mr. Hari is an interior decorator declaring profits under 44ADA in the P.Y.2021-22 and the
earlier previous years. Mr. Hari has to pay brokerage of ? 10 lakhs to Mr. Lal, a broker, to buy a
residential house, and ? 50 lakhs to Mr. Shyam, a contractor for reconstruction of the
residential house. Are TDS provisions attracted in the hands of Mr. Hari in respect of the above
transactions, and if so, what is the amount of tax to be deducted?
(a) No; TDS provisions are not attracted in the hands of Mr. Hari in respect of payments to Mr.
Lal and Mr. Shyam
(b) Yes; Mr. Hari has to deduct tax from payment to Mr. Lal and Mr. Shyam
(c) Mr. Hari does not have to deduct tax on payment to Mr. Lal but has to deduct tax from
payment to Mr. Shyam
(d) Mr. Hari does not have to deduct tax on payment to Mr. Shyam but has to deduct tax from
payment to Mr. Lal
5. Mr. X, a foreign national and citizen of USA, working with M Inc., a US based company, came to
India during the P.Y. 2021-22 for rendering services on behalf of the employer. He wishes to
claim his salary income earned during his stay in India as exempt. Which of the following is not
a condition to be fulfilled to claim such remuneration as exempt income under the Income-tax
Act, 1961?
(a) M Inc. should not be engaged in any trade or business in India
(b) Mr. X should not be engaged in any trade or business in India
(c) Mr. X's stay in India should not exceed 90 days in aggregate during the P.Y. 2021-22
(d) Remuneration received by Mr. X should not liable to be deducted from M Inc.'s income
chargeable to tax under the Income-tax Act, 1961
6. Mr. Ram, born on 1.4.1962, has a gross total income of ? 2,90,000 for A.Y.2022-23 comprising
of his salary income. He does not claim any deduction under Chapter Vl-A. He pays electricity
bills of ? 10,000 per month. He made a visit to Melbourne along with his wife for a month in
February, 2022 for which he incurred to and fro flight charges of ? 1.20 lakhs. The remaining
expenditure for his visa, stay and sight seeing amounting to ? 80,000 was met by his son
residing in Melbourne. Is Mr. Ram required to file return of income for A.Y.2022-23, and if so,
why?

MCQ Booklet 3
(a) No, Ram is not required to file his return of income
(b) Yes, Ram is required to file his return of income, since his gross t o t a l income/total income
exceeds t h e basic exemption limit
(c) Yes, Ram is required to file his return of income since he pays electricity bills of ? 10,000 per
month
(d) Yes, Ram is required to file his return of income since he has incurred foreign travel
expenditure exceeding ? 1 lakh
7. M r . Rajesh is aggrieved by an order passed by t h e Commissioner of Income-tax imposing

penalty under section 270A for under-reporting of income. W h a t is t h e appellate remedy
available to h i m under t h e Income-tax Act, 1961 and t h e specified t i m e limit within which he
has to file an appeal?
(a) He can file an appeal to Commissioner (Appeals) u/s 246A within 30 days from t h e date o n
which t h e order is communicated to h i m
(b) He can file an appeal to Commissioner (Appeals) u/s 246A within 60 days from t h e date o n
which t h e order is communicated to h i m
(c) He can file an appeal to Appellate Tribunal u/s 253 within 30 days from t h e date o n which
t h e order is communicated to h i m
(d) He can file an appeal to Appellate Tribunal u/s 253 within 60 days from t h e date o n which
t h e order is communicated to h i m
8. Ms. Aparna and Ms. Dimple, Indian citizens residing i n California since t h e year 2011, visit India
for 60 days every year. On 1.3.2022, Ms. Aparna transferred to Ms. Dimple i n California, for
consideration of dollar equivalent to ? 15 lakhs, rupee denominated bonds (issued outside
India) of X Ltd., a company incorporated i n India, which were acquired by her on 1.3.2020 for a
price of dollar equivalent to ? 10 lakhs. W h a t are t h e capital gains tax implications of such
transfer i n t h e hands of Ms. Aparna?
(a) Ms. Aparna is liable to capital gains tax o n long-term capital gains arising o n transfer of
rupee denominated bonds; indexation benefit is n o t available
(b) Ms. Aparna is liable to capital gains tax o n long-term capital gains arising o n transfer of
rupee denominated bonds; indexation benefit is available
(c) Ms. Aparna is liable to capital gains tax o n short-term capital gains arising o n transfer of
rupee denominated bonds
(d) There is n o capital gains tax implication i n t h e hands of Ms. Aparna i n respect of this
transaction
9. M r . Sanjay, a salaried individual, pays brokerage of ? 40 lakhs to M r . Harish, a broker, on

5.1.2022 to buy a residential house. His father, M r . Hari, a retired pensioner, makes contract
payments of ? 15 lakhs, ? 25 lakhs and ? 12 lakhs o n 28.9.2021, 3.11.2021 and 15.2.2022 to M r .
Rajeev, a contractor, for reconstruction of residential house. W i t h respect to t h e above
payments made by M r . Sanjay and M r . Hari, which of t h e following statements is correct?
(a) Neither M r . Sanjay nor M r . Hari is required to deduct tax at source, since they are not
subject to tax audit, o n account of being a salaried individual and pensioner, respectively

4 MCQ Booklet
(b) Both Mr. Sanjay and Mr. Hari are required to deduct tax at source under the provisions of
the Income-tax Act, even though they are not subject to tax audit
(c ) Mr. Sanjay is required to deduct tax at source but Mr. Hari is not required to deduct tax at
source
(d) Mr. Hari is required to deduct tax at source but Mr. Sanjay is not required to deduct tax at
source
10 Mr. Rajesh and Mr. Brijesh, resident individuals, received ? 12 lakhs each on 1.4.2021 on
maturity of life insurance policy taken on 31.3.2012 and 1.4.2012, respectively, the sum
assured of which is ? 10 lakhs. They had paid an annual premium of ? 1.10 lakhs each. Are
provisions of tax deduction at source attracted on maturity proceeds received by Mr. Rajesh
and Mr. Brijesh?
(a) Yes; Tax is deductible at source on maturity proceeds received by both Mr. Rajesh and Mr.
Brijesh, since the annual premium is more than ? 1,00,000, being 10% of ? 10 lakhs
(b) No; Tax is not deductible at source on maturity proceeds received by either Mr. Rajesh or
Mr. Brijesh, since the annual premium is less than ? 1,20,000, being 10% of ? 12 lakhs
(c ) No tax is deductible at source on maturity proceeds received by Mr. Rajesh. Tax is
deductible at source on maturity proceeds received by Mr. Brijesh and the tax deductible at
source is ? 12,000
(d) No tax is deductible at source on maturity proceeds received by Mr. Rajesh. Tax is
deductible at source on maturity proceeds received by Mr. Brijesh and the tax deductible at
source is ? 10,500
2i, a Inc. and B Inc., incorporated in Country A and Country B, respectively, whose place of
effective management is also in the said countries, are engaged in the business of operation of
ships and aircraft, respectively. The details of receipts etc. during the P.Y.2021-22 are as
follows—
Particulars A Inc. B Inc.
Amount paid/payable in Mumbai on account of carriage of

passengers:
Shipped from Mumbai port to port in Country A ? 20 lakhs
From Mumbai airport to airport in Country B ? 15 lakhs
Amount paid/payable in Country A/B on account of carriage

of passengers:
Shipped from Mumbai port to port in Country A ? 5 lakhs
From Mumbai airport to airport in Country B ? 4 lakhs
Amount received/deemed to be received in India on
account of carriage of passengers:
Shipped from port in Country A to Mumbai port
? 7 lakhs
From airport in Country B to Mumbai airport
? 8 lakhs

MCQ Booklet 5
Particulars A Inc. B Inc.
Amount received/deemed to be received i n Country A/B o n

account of carriage of passengers:
Shipped from p o r t i n Country A to M u m b a i port ? 22 lakhs
From airport i n Country B to M u m b a i airport
? 18 lakhs
Profit (pertaining to Indian operations) computed as per

books of account maintained by A Inc. and B Inc., after ? 2.20 ? 1.20
providing t h e deductions under t h e Income- tax Act, 1961 lakhs
lakhs
The profits and gains of business of A Inc. and B Inc. chargeable to tax i n India under t h e
Income-tax Act, 1961 for A.Y.2022-23 is -
(a) ? 2.20 lakhs and 1.20 lakhs, respectively, provided t h e books of accounts are audited
under section 44AB of t h e Income-tax Act, 1961
(b) 1.60 lakhs and ? 2.025 lakhs, respectively
(c) ? 2.40 lakhs and ? 1.35 lakhs, respectively
(d) ? 2.70 lakhs and ? 3.375 lakhs, respectively
12. Kaveri Ltd. is an Indian Company i n which Andes Inc., a Country A company, holds 30%
shareholding and voting power. During t h e previous year 2018-19, t h e Indian company
supplied computers to t h e Country A based company @CAD 2200 per piece. The price of
computer supplied to other unrelated parties i n Country A is @CAD 2500 per piece. During t h e
course of assessment proceedings relating to A.Y.2019-20, t h e Assessing Officer carried o u t
primary adjustments and added a sum of ? 138 lakhs, being t h e difference between actual price
of computer and arm's length price for 500 pieces and it was duly accepted by t h e assessee.
The Assessing Officer passed t h e order, in which t h e primary adjustments were made, o n
1.7.2021. On account of this adjustment, t h e excess money of ? 138 lakhs is available w i t h
Andes Inc, Country A. What would be t h e effect of this transaction while computing t h e total
income of Kaveri Ltd. for t h e assessment year 2022-23, assuming t h a t -
(i) Kaveri Ltd. declared an income of ? 220 lakhs;
(ii) t h e excess money is still lying w i t h Andes Inc. till today;
(iii) Kaveri Ltd. has not opted to pay additional income-tax o n such excess money n o t
repatriated; and
(iv) t h e rate of exchange is 1 CAD = ? 9 2 and t h e six-month LIBOR as o n 30.9.2021 is 10%. [CAD
stands for Country A Dollars, which is t h e currency of Country A].
The correct answer is -
(a) Interest of ? 13.80 lakhs would be added to t h e total income of Kaveri Ltd.
(b) Interest of ? 13.418 lakhs would be added to t h e t o t a l income of Kaveri Ltd.
(c) Interest of ? 10.35 lakhs would be added to t h e t o t a l income of Kaveri Ltd.
( d ) Interest of ? 8.97 lakhs would be added to t h e total income of Kaveri Ltd.
6 MCQ. Booklet
13. During the P.Y.2021-22, M r . Aakash has ? 80 lakhs of short-term capital gains taxable u/s 111A,
? 70 lakhs of long-term capital gains taxable u/s 112A and business.income of ? 90 lakhs. Which
of t h e following statements is correct?
(a) Surcharge@25% is leviable o n income-tax computed o n t o t a l income of ? 2.40 crore, since

t h e total income exceeds ? 2 crore
(b) Surcharge@15% is leviable on income-tax computed on total income of ? 2.40 crore

(c) Surcharge@15% is leviable i n respect of income-tax computed o n capital gains of ? 1.50
crore, since such income exceeds ? 1 crore b u t is less t h a n 2 crore; in respect of business
income of ? 90 lakhs, surcharge is leviable@25% o n income-tax, since t h e t o t a l income
exceeds ? 2 crore
(d) Surcharge@15% is leviable i n respect of income-tax computed o n capital gains of ? 1.50

crore, since such income exceeds ? 1 crore b u t is less than ? 2 crore; i n respect of business
income o f ?1 90 lakhs, surcharge is leviable@10% o n income-tax, since such income exceeds
? 50 lakhs b u t is less than ? 1 crore
14. An investment fund's income for A.Y.2022-23 comprised of t h e following components:

(i) Business income ? 5 crore; and
(ii) Capital loss ? 3 crore.
All the unit holders of the investment fund have held units i n t h e investment f u n d for more
than 12 months. What would be the tax treatment?
(a) Business income of ? 5 crore is taxable i n t h e hands of t h e investment fund. The capital loss
of ? 3 crore has to be carried forward by t h e investment fund
(b) Business income of ? 5 crore is taxable i n t h e hands of t h e unit holders. Capital loss of ? 3
crore can be carried forward only by t h e unit holders
(c) Business income of ? 5 crore is taxable i n t h e hands of t h e investment fund. The capital loss
of T 3 crore cannot be carried forward by either t h e investment fund or the unit holders
(d) Business income of ? 5 crore is taxable i n t h e hands of t h e investment fund. Capital loss of ?
3 crore can be carried forward only by t h e u n i t holders
15. LPG, a partnership firm, is engaged i n t h e business of manufacturing of garments. It furnishes

you the following data for the year ended 31.3.2022.
Profit & Loss Account
Particulars Particulars
Expenses 2,36,00,000 Gross Turnover 2,55,00,000
Interest to partners (including

? 1,20,000 paid to Gopal for
loan given by Gopal HUF) 5,40,000
Salary to Partners:
Jay (? 30,000 p.m.)

MCQ Booklet 7
Particulars Particulars
Gopal (? 28,000 p.m.)
Madhav (? 16,000 p.m.) 8,88,000
Net Profit 4,72,000
2,55,00,000 2,55,00,000
Other Information:
The partners share profits and losses equally.
During t h e P.Y. 2020-21, t h e f i r m had incurred a business loss of ? 3,00,000 and unabsorbed
depreciation of ? 1,50,000.
- On 01.04.2021, M r . Jayesh, a partner died and his legal heir M r . Jay got admitted o n same
date. Another partner, M r . Raj, also retired o n t h e same date.
M r . Madhav is not actively engaged i n conducting t h e affairs of t h e business of t h e f i r m
while M r . Jay and M r . Gopal are actively engaged i n conducting t h e affairs of t h e business.
Interest@16% p.a. for t h e first t i m e on partner's capital was paid from 01.07.2021. The
clause for t h e same was, however, entered i n t h e partnership deed o n 01.01.2022. Salary
paid to partners is authorized by t h e partnership deed since inception.
M r . Gopal relinquished his title i n a land i n t h e name of LPG for a consideration of ? 18
lakhs, which was duly recorded i n t h e books of accounts of LPG o n 31.10.2020. The stamp
d u t y value of t h e land o n t h a t date was ? 20 lakhs.
From t h e information given above, choose t h e most appropriate answer to t h e following
questions -
(i) How much interest can t h e f i r m claim as deduction for A.Y. 2022-23?
(a) ? 5,40,000
(b) ? 4,35,000
(c) ? 2,25,000
(d) ? 1,05,000
(ii) How much salary can t h e f i r m claim as deduction for A.Y.2022-23?
(a) ? 10,05,000
(b) ? 8,88,000
(c) ? 8,70,000
(d) ? 6,96,000
(iii) The business loss and unabsorbed depreciation allowed to be set off while computing total
income of t h e f i r m for A.Y.2022- 23 are -
(a) ? 3,00,000 and ? 1,50,000, respectively

3 MCQ. Booklet
(iv) What would be the total income of the firm for A.Y.2022-23?
(a) ? 6,30,250
(b) ? 4,12,000
(c) 6,04,000
(d) ? 5,29,000
(v) What would be the capital gains in the hands of LPG assuming that the land acquired from
Gopal was sold on 28.02.2022 for 25 lakhs to Mr. Jack, fair market value and stamp duty
value on the date of transfer being ? 30 lakhs and ? 28 lakhs, respectively?
(a) ? 10,00,000
(b) ? 12,00,000
(c) ? 8,00,000
(d) 7,00,000
16 MOS Pvt. Ltd. is a company engaged in providing consultancy and business advisory services. It
provides a range of services including financial management, project advisory, business
mergers, business valuations, etc. During the financial year 2021-22, it has provided various
services and its gross receipts amounted to ? 70,00,00,000. This is the first year of their
operation and the company thinks it has defaulted in certain compliances. Moreover, during
the year, it received the following loans in cash from various vendors due to some business
exigency:
. ? 25,00,000“availed from Mr. A on 15th April 2021
• ? 21,000 availed from Mr. B on 15th May 2021
e ? 11,000 availed from Mr. C on 15th June 2021
Further, MCS Pvt. Ltd. made the following loan repayments during the year:
, ? 8,000 to Mr. A on 15th July 2021 in cash
, ? 2,50,000 to Mr. A on 15th August 2021 through account payee cheque
• ? 21,000 to Mr. A on 15th September 2021 through RTGS
• ? 15,000 to Mr. A on 15th October 2021 through crossed cheque
MCS Pvt. Ltd. has also received an amount of ? 2,00,000 for services rendered to Mr. Shyam
through bearer cheque. Also, he received cash of ? 90,000 for services rendered to Mr. Ankit.
Furthermore, MCS Pvt. Ltd. does not know about the applicability of tax audit under section
44AB of the Income-tax Act, 1961.
From the information given above, choose the most appropriate answer to the following
questions-
(j) What is the amount of penalty, if any, which would be leviable on MCS Pvt. Ltd. for availing
loan in cash from various vendors?
(a) Penalty of ? 25,32,000 under section 271E
(b) Penalty of ? 25,21,000 under section 271D

MCQ Booklet 9
(c) Penalty of ? 25,00,000 under section 271E
(d) Penalty of ? 25,32,000 under section 271D
(ii) W h a t is t h e amount of penalty leviable on repayment of loan to M r . A?
(a) Penalty of ? 23,000 under section 271E

(b) Penalty of ? 23,000 under section 271D
(c) N o penalty is leviable since t h e repayment otherwise than by way of prescribed
modes is less than ? 20,000
(d) Penalty of ? 44,000 under section 271E
(iii) Has MCS Pvt. Ltd. violated any provision of t h e Income-tax Act, 1961, while receiving
payment from M r . Shyam and M r . Akhil? If yes, w h a t is t h e amount of penalty which MCS
Pvt. Ltd. is liable to pay?
(a) Yes, contravention of section 269ST on receiving payment from M r . Shyam; Penalty of
2,00,000 u/s 271DA; N o contravention o n receiving payment from M r . Akhil
(b) Yes, contravention of section 269ST on receiving payment from M r . Shyam and M r .
Akhil & Penalty o f ? 2,90,000 u/s 271DA
(c) Yes, contravention of section 269SU on receiving payment from M r . Shyam & Penalty
of ? 2,00,000 is attracted u/s 271DB; N o contravention o n receiving payment from M r .
Akhil
(d) N o violation o n receiving payment from either M r . Shyam o r M r . Akhil

(iv) W h a t is t h e t i m e limit for filing tax audit report for A.Y. 2022-23 and t h e amount of penalty
leviable if t h e company does n o t file its tax audit report within t h e due date?
(a) 30.09.2022; penalty leviable is ? 35,00,000 u/s 271A

(b) 31.10.2022; penalty leviable is ? 35,00,000 u/s 271B
(c) 30.09.2022; penalty leviable is ? 1,50,000 u/s 271B
(d) 31.10.2022; penalty leviable is ? 1,50,000 u/s 271B
17. The following are t h e details relating to four resident entities, AB & Co., LM & Co., PQ. & Co. and
XY & Co. for t h e P.Y.2021-22 -
Particulars AB & Co. LM & Co. PQ & Co. XY & Co. (Firm)
(Firm) (Firm) (LLP)
(1) Nature of Retail Business of Wholesale Interior

business/ trading plying, trading decoration
profession hiring o r
leasing
goods
carriages
(2) System of Mercantile Cash Mercantile Cash

accounting

10 MCQ Booklet
Particulars AB & Cc LM & Co P Q & Co XY&Co.(Firm)

(Firm
(Firm ) (LLP)
(3) Turnover/ Gross ?20( ) ?io:1 ? 10( 1 ? 5 0 lakhs

receipts
lakh s lakh s lakh s
(4) Amount received 15C) ? 8 Ci ? 70 lakh; ? 45 lakhs

by way of RTGS/ lakhi
lakhs
NEFT in the
P.Y.2021-22
[included i n (3)
above]
(5) A m o u n t received ? 3 0 lakhs ?21 ? 10 l a k h s ? 5 lakhs

by way o f c a s h i n lakhs
the P.Y.2021-22
[included in (3)
above]
(6) A m o u n t received ? 2 0 lakhs - ? 2 0 lakhs -

by way of RTGS/
NEFT between
1.4.2022 &
31.7.2022
(7) Working p a r t n e r s ' ? 5 lakhs ? 1.50 ? 3 lakhs ? 5 lakhs

salary
lakhs
(8) Interest o n ? 1 lakh ? 0.50 -

? 2 lakhs
capital@12% p a i d
lakh
to Partners
(9) Profit as p e r b o o k s ? 5.60 T 4.10 ?4.50 1 2 0 lakhs

of account
lakhs lakhs lakhs
maintained as p e r
section 44AA
[after deducting
working p a r t n e r s '
salary and i n t e r e s t
o n capital]
(10) No. of vehicles 10 (See - -

owned
Note 2
b e l o w for
details)
CA B h a n w a r Borana
Test Series - 1
MCQ Booklet 11
Additional information:
(1) I t may be assumed that partners' salary and interest are authorised by t h e partnership
deed, relates to a period after t h e partnership deed and is within t h e permissible limits laid
d o w n under section 40(b).
(2) The details of vehicles owned by M/s. L M & Co. are as follows -
Gross Vehicle Number Date of Date

Weight purchase when first
put to use
(in kgs)
(1) 8,000 3 28.5.2021 1.6.2021
(2) 9,000 2 31.7.2021 1.8.2021
(3) 10,000 1 17.8.2021 20.8.2021
(4) 11,000 1 30.9.2021 1.10.2021
(5) 12,000 1 11.11.2021 13.11.2021
(6) 13,000 2 31.12.2021 1.1.2022

questions-
(i) Which of t h e four entities are eligible to declare income o n presumptive basis under t h e
Income-tax Act, 1961 for A. Y.2022-23?
(a) Only AB & Co and LM & Co.
(b) Only AB & Co and XY & Co.
(c) AB & Co, PO & Co and XY & Co.
(d) AB & Co, L M & Co and XY & Co.
(ii) W h a t is t h e business income to be declared by AB & Co. and PQ & Co. for A.Y.2022-23,
assuming t h a t t h e entities wish to make maximum tax savings w i t h o u t getting their books
of account audited?
(a) ? 12.60 lakhs and ? 4.50 lakhs, respectively
(b) ? 6.60 lakhs and ? 3.20 lakhs, respectively
(c) ? 5.60 lakhs and ? 4.50 lakhs, respectively
(d) ? 13 lakhs and ? 6.60 lakhs, respectively
(iii) W h a t is t h e business income to be declared by LM & Co. for A.Y.2022-23, assuming t h a t t h e
f i r m wishes to make maximum tax savings w i t h o u t getting its books of account audited?
(a) ? 4,48,000
(b) ? 6,36,500
(c) ? 4,36,500
(d) ? 4,10,000

12 MCQ Booklet
(iv) What is the income to be declared by XY & Co. under the head "Profits and gains of
business or profession" for A.Y.2022-23, assuming that the firm wishes to make maximum
tax savings, without getting its books of account audited?
(a) ? 18 lakhs
(b) ? 20 lakhs
(c) ? 25 lakhs
(d) ? 22.50 lakhs
(v) Would your answer to questions (iii) and (iv) change, if the firms decide to get their books
of accounts audited?
(a) No, there would be no change in the answer to either questions iii and iv
(b) Yes, there would be change in the answer to both question iii and iv
(c) There would be a change in the answer to question iii but not in the answer to
question iv
(d) There would be a change in the answer to question iv but not in the answer to
question iii
18. Mr. Hari, a property dealer, sold a building in the course of his business to his friend Mr. Rajesh,
who is a dealer in automobile spare parts, for ? 100 lakh on 1.1.2022, when the stamp duty
value was ? 120 lakh. The agreement was, however, entered into on 1.9.2021 when the stamp
duty value was ? 110 lakh. Mr. Hari had received a down payment of ? 15 lakh by NEFT from
Mr. Rajesh on the date of agreement. Mr. Hari has purchased the building for ? 50 lakh on
12.7.2020.
Mr. Hari's brother, Mr. Ravi, a retail trader, sold a residential house to Mr. Vallish, a wholesale
trader for ? 50 lakh on 1.2.2022, when the stamp duty value was ? 70 lakh. The agreement was,
however, entered into on 1.8.2021 when the stamp duty value was ? 55 lakh. Mr. Ravi had
received a down payment of 5 lakh by a crossed cheque from Mr. Vallish on the date of
agreement. Mr. Ravi has purchased the building for ? 32 lakh on 17.8.2020.
questions-
(i) What is the amount of income chargeable to tax in the hands of Mr. Hari in respect of the
transaction of sale of building to Mr. Rajesh and under which head is it taxable?
(a) ? 70 lakh is taxable as his business income
(b) ? 60 lakh is taxable as his business income
(c) ? 50 lakh is taxable as his business income
(d) ? 50 lakh is taxable as short-term capital gains
(ii) Is any amount taxable in the hands of Mr. Rajesh in respect of the above transaction? If so,
what is the amount and under which head is it taxable?
(a) No amount is taxable in the hands of Mr. Rajesh
(b) ? 20 lakh is taxable under the head "Income from Other Sources"

MCQ Booklet 13
(c) ? 10 lakh is taxable under t h e head "Income from Other Sources"
(d) ? 10 lakh is taxable as his business income
(iii) W h a t is t h e amount of income chargeable to tax i n t h e hands of M r . Ravi i n respect of t h e
transaction of sale of residential house to M r . Vallish and under which head is it taxable?
(a) ? 18 lakh is taxable as short-term capital gains
(b) ? 23 lakh is taxable as short-term capital gains
(c) ? 3 8 lakh is taxable as short-term capital gains
( d ) ? 18 lakh is taxable as his business income
(iv) Is any amount taxable i n t h e hands of M r . Vallish i n respect of t h e above transaction? If so,
w h a t is t h e amount and under which head is it taxable?
(a) N o amount is taxable i n t h e hands of M r . Vallish
(b) ? 20 lakh is taxable under t h e head "Income from Other Sources"
(c) ? 5 lakh is taxable under t h e head "Income from Other Sources"
(d) ? 5 lakh is taxable as his business income
(v) Is tax deductible by M r . Rajesh and M r . Vallish o n making payment to t h e seller?
(a) Yes, tax is deductible at source by both M r . Rajesh and M r . Vallish
(b) No, tax is n o t deductible at source by either M r . Rajesh o r M r . Vallish
(c) Tax is deductible at source by M r . Rajesh b u t n o t by M r . Vallish
(d) Tax is deductible at source by M r . Vallish b u t n o t M r . Rajesh
19. M r . Akash made t h e following cash withdrawals during t h e P.Y.2021-22 -
Date Amount From
1.7.2021 ? 45 lakhs Standard Chartered Bank (SCB)
1.8.2021 ? 50 lakhs Bank of India
1.9.2021 ? 15 lakhs SCB
1.10.2021 ? 60 lakhs Repco Bank (Co-operative Bank)
1.11.2021 ? 10 lakhs SBI
1.12.2021 ? 10 lakhs Repco Bank
2.1.2022 ? 15 lakhs SCB
10.1.2022 ? 15 lakhs SCB
10.2.2022 ? 75 lakhs SBI
20.2.2022 ? 15 lakhs SCB
1.3.2022 ? 15 lakhs SBI

14 MCQ Booklet
Which of the above payers are required to deduct tax at source on cash withdrawals made by
Mr. Akash in the P.Y.2021-22 (Assume Akash regularly file his ROI)?
(a) Bank of India & SCB
(b) SCB, SBI & Repco
(c) SCB, Repco & Bank of India
(d) SCB & Repco
20. 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 2016, 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, 2020. 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 2020 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.2021-22 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 - T 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.2021-22, Mrs. Sowmya visited India from 3rd October, 2021 to 31st January, 2022.
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 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.2021-22, 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 20th September, 2021 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, 2021, 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, 2021 and joined MNC Inc. on 1st October, 2021. He earned interest of ? 40,000
from fixed deposits with Axis Bank, New Delhi.
MCQ Booklet 15
M r . Karthik resigned from LMN Inc. o n 30th November, 2021 to join PQR Ltd. i n Mumbai. He
came to India o n 2nd December, 2021 and joined PQR Ltd. o n 5th December, 2021. His salary i n
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 u p t o t h e year 2019. In t h e year 2020,
he visited India for one m o n t h i n July 2020. He earned interest of ? 9,500 from savings bank
account i n SBI, Mumbai.
TT buying rate of US $ o n various dates is given below -
Date TT buying rate of US $ Date TT buying rate of US $
31.3.2021 68.00 30.9.2021 ? 70.00
30.4.2021 ? 68.60 31.10.2021 ? 70.40
31.5.2021 ? 69.10 30.11.2021 ? 71.00
30.6.2021 ? 69.50 31.12.2021 ? 71.30
31.7.2021 ? 69.70 31.1.2022 ? 71.90
31.8.2021 ? 69.90 28.2.2022 ? 72.00
31.3.2022 ? 72.40
On t h e basis of t h e facts given above, choose t h e most appropriate answer to Q.l to Q.5 below:
Your answer should be based o n t h e provisions of t h e Income-tax Act, 1961. Ignore t h e
provisions of DTAA, if any, between India and Country X.
(i) W h a t is t h e residential status of Mrs. Sowmya for A. Y.2022-23?
(a) Resident and Ordinarily resident
(b) Resident b u t n o t ordinarily resident
(c) Non-resident
(d) Deemed resident
(ii) W h a t is t h e residential status of M r . Dinesh and M r . Karthik for A.Y.2022 -23?
(a) Both are non-residents
(b) Resident and ordinarily resident & Resident b u t n o t ordinarily resident, respectively.
(c) Non-resident & Resident b u t n o t ordinarily resident, respectively
(d) Resident and ordinarily resident & non-resident, respectively.
(iii) W h a t is t h e total income of M r . Dinesh chargeable to tax under t h e regular provisions of t h e
Income-tax Act, 1961 for A.Y.2022-23?
(a) ? 38,93,000
(b) ? 38,26,200
(c) ? 8,90,000
(d) ? 8,40,000

16 MCQ Booklet
(iv) What is t h e t o t a l income of M r . Karthik chargeable to tax under t h e regular provisions of
t h e Income-tax Act, 1961 for A. Y.2022-23?
(a) ? 31,10,000
(b) ? 31,34,500
(c) ? 3,34,000
(d) ? 3,93,500
(v) What is t h e residential status of M r . Rajesh for A.Y.2022-23?
(a) Resident and ordinarily resident
(b) Resident b u t n o t ordinarily resident
(c) Deemed resident
(d) Non-resident
21. ABC & Co. and PQR & Co. are two non-resident entities based i n Country A and Country P,
respectively. Both t h e entities own and operate an electronic facility through which they effect
online sale of organic products manufactured by t h e m . The details of their receipts f r o m such
sale during t h e P.Y.2021-22 are -
■■
Particulars ABC & Co., PQR&
Country A
Country P
(a) Receipts from sale of organic products ? 138 lakhs ? 126 lakhs
to persons resident i n India
(b) Receipts from sale of organic products ? 285 lakhs ? 377 lakhs
to persons resident i n other parts of
t h e world
Out of t h e sum mentioned i n (b), t h e ? 63 lakhs T 73 lakhs

receipts from persons using internet
protocol address located i n India
Is equalisation levy attracted i n t h e hands of ABC & Co. and PQR & Co., assuming t h a t both t h e
entities d o not have a permanent establishment i n India?
(a) Equalisation levy is attracted i n t h e hands of both ABC & Co. and PQR & Co.
(b) No equalisation levy is attracted i n t h e hands of either ABC & Co. and PQR & Co.
(c) Equalisation levy is attracted i n t h e hands of ABC & Co. b u t n o t PQR & Co.
(d) Equalisation levy is attracted i n t h e hands of PQR & Co. b u t not ABC & Co.

MCQ Booklet 17
Answer Key
Question No. Answer
1. (a) ? 11,77,500 and ? 69,375 respectively
2. (d) ? 12,40,000 and ? 25,00,000 respectively
3. (c) Nil and ? 95 lakhs, respectively
4. (a) No; TDS provisions are not attracted i n t h e hands of M r . Hari i n respect of
payments to M r . Lal and M r . Shyam
5. (b) M r . X should n o t be engaged in any trade or business i n India
6. (c) Yes, Ram is required to file his return of income since he pays electricity
bills of ? 10,000 per m o n t h
7. (d) He can file an appeal to Appellate Tribunal u/s 253 within 60 days from
t h e date o n which t h e order is communicated to h i m
8. (d) There is n o capital gains tax implication i n t h e hands of Ms. Aparna i n

respect of this transaction
9. (d) M r . Hari is required to deduct tax at source b u t M r . Sanjay is n o t required

to deduct tax at source
10. (d) N o tax is deductible at source o n maturity proceeds received by M r .

Rajesh. Tax is deductible at source o n maturity proceeds received by M r .
Brijesh and t h e tax deductible at source is ? 10,500
11. (c) ? 2.40 lakhs and ? 1.35 lakhs, respectively
12. (b) Interest of ? 13.418 lakhs would be added to t h e t o t a l income of Kaveri

Ltd.
13. (b) Surcharge@15% is leviable o n income- tax computed o n total income of

? 2.40 crore
14. (d) Business income of ? 5 crore is taxable i n t h e hands of t h e investment

fund. Capital loss of ? 3 crore can be carried forward only by t h e u n i t
holders
15.
(i) (c) ? 2,25,000
(ii) (d) ? 6,96,000
(iii) (b) ? 2,25,000 and ? 1,50,000, respectively

18 MCQ. Booklet
Question No. Answer
(iv) (c) ? 6,04,000
(v) (c) ? 8,00,000
16.
(i) (b) Penalty of ? 25,21,000 under section 271D
(ii) (a) Penalty of ? 23,000 under section 271E
(iii) (a) Yes, contravention of section 269ST o n receiving payment f r o m M r .

Shyam; Penalty of ? 2,00,000 under section 271DA; N o contravention o n
receiving payment from M r . Akhil
(iv) (c) 30.09.2022; penalty leviable is ? 1,50,000 under section 271B
17.
(i) (d) AB & Co, LM & Co and XY & Co.
(ii) (a) ? 12.60 lakhs and ? 4.50 lakhs, respectively
(iii) (c) ? 4,36,500
(iv) (c) ? 25 lakhs
(v) (b) Yes, there would be change i n t h e answer to both question iii and iv
18.
(i) (c) ? 50 lakh is taxable as his business income
(ii) (a) N o amount is taxable i n t h e hands of M r . Rajesh
(iii) (c) ? 3 8 lakh is taxable as short-term capital gains
(iv) (b) 20 lakh is taxable under t h e head "Income from Other Sources"
(v) (a) Yes, tax is deductible at source by both M r . Rajesh and M r . Vallish
19. (d) SCB & Repco
20.
(i) (b) Resident b u t n o t ordinarily resident
(ii) (d) Resident and ordinarily resident & non-resident, respectively
(iii) (b) ? 38,26,200
(iv) (c) ? 3,34,000
(v) (d) Non-resident
21. (c) Equalisation levy is attracted i n t h e hands of ABC & Co. b u t n o t PQR & Co.

1. A Ltd., an Indian company, bought back its listed shares from its shareholders and B (P) Ltd., an
Indian company, bought back its unlisted shares from its shareholders in the month of
March, 2022. What are the tax consequences of such buyback in the hands of ALtd., B
(P) Ltd. and the shareholders?
(a) Additional income-tax@23.296% of the distributed income is leviable in the hands of A Ltd.
and B (P) Ltd.; income arising to shareholders is exempt
(b) Income arising to shareholders from buyback is taxable in their individual hands; No
distribution tax is leviable in the hands ofA Ltd. and B (P) Ltd.
(c) Additional income-tax@23.296% of the distributed income is leviable in the hands of A
Ltd.; income arising to shareholdersof B (P) Ltd. is taxable in their individual hands
(d) Additional income-tax@23.296% of the distributed income is leviable in the hands of B (P)
Ltd.; income arising toshareholders of A Ltd. is taxable in their individual hands
2. Mr. Ganesh and Mr. Rajesh, resident Indians born on 1.7.1961 and 1.4.1942, respectively, have
not furnished their returns of income for the P.Y.2021-22. However, the total income assessed
in respect of such year under section 144 is 8 lakhs and 5 lakhs, respectively. Is penalty
leviable under section 270A, and if so, what is the quantum of penalty?
(a) No penalty is leviable under section 270A in the hands of either Mr. Ganesh or Mr.
Rajesh
(b) Yes; ? 36,400 and ? 5,200, respectively
(c) Yes; ? 37,700 and ? 6,500, respectively
(d) Penalty of ? 36,400 leviable in the hands of Mr. Ganesh; No penalty leviable in the hands of
Mr. Rajesh
3. M/s. X & Co. and M/s. Y & Co. are non-resident firms in receipt of fees for technical services
of ? 20 lakhs each in the P.Y.2021-22 from an Indian company, A Ltd., in pursuance of an
agreement with A Ltd. approved by the Central Government. M/s. X & Co. does not have any
fixed place of profession in India whereas M/s. Y & Co. has a fixed place of profession in
India and the contract is effectively connected with such fixed place of profession. The
revenue expenditure incurred by M/s X & Co. to earn FTS is ? 2 lakhs. The following are the
details pertaining to M/s Y & Co. -

20 MCQ Booklet
Revenue expenditure incurred to earn FTS ? 3.50 lakhs
Expenditure wholly and exclusively connectedwith fixed place of

profession i n India
? 3 lakhs
(Out of t h e above amount)
Amount paid by fixed place of professionto Head Office otherwise

t h a n towards reimbursement of actual expenses
(not included i n above amounts)
? 1 lakh
Books of account maintained u/s 44AA Yes
Books of account audited and audit reportfurnished w i t h return of

income
Yes
W h a t is t h e tax liability i n India of M/s. X & Co. and M/s. Y & Co. for P.Y.2021-22 i n
respect of fees for technical services?
(a) ? 5,61,600 and ? 4,99,200
(b) ? 1,87,200 and ? 5,30,400
(c) ? 2,08,000 and ? 5,30,400
(d) ? 1,87,200 and ? 1,76,800
4. A Ltd., an Indian company, borrowed money from B Inc. i n Country B,C Ltd. i n Country C, D
Inc. i n Country D and E Ltd. i n Country E, t h e details of which are given hereunder-
Lender Amount Interest paid Is it an Associated

borrowed byA in the Enterprise of A Ltd.?
Ltd. P.Y.2021-22
B Inc. ? 15 crores ? 1.50 crores Yes
C Ltd. ? 25 crores ? 2.50 crores No
D Inc. ? 25 crores ? 2.50 crores Yes
E Ltd. ? 15 crores ? 1.50 crores No
B Inc. has provided guarantee of loan taken by A Ltd. from C Ltd. D Inc. has deposited ?
15 crores w i t h E Ltd. Earnings before Interest,Tax and Depreciation of A Ltd. for A.Y.2022-23
is ? 10 crores. W h a t isthe interest to be disallowed under section 94B for A.Y.2022-23?
(a) ? 1 crore
(b) ? 3 crores
(c) ? 4 crores
(d) ? 5 crores

MCQ Booklet 21
5. M Ltd. and N Ltd. are Indian companies which have to pay interest of ? 2 lakhs and ? 1
lakh outside India to M r . P, a non-resident, duringthe P.Y.2021-22 o n rupee denominated
bonds issued i n January, 2019 and April, 2019, respectively. Which of t h e following
statements is correct relating to liability of M Ltd. and N Ltd. to deduct tax at source o n
such interest payable to M r . P?
(a) Both M Ltd. and N Ltd. d o not have to deduct tax at source on such interest
(b) Both M Ltd. and N Ltd. have to deduct tax at source@5.2%
(c) M Ltd. does n o t have to deduct tax at source b u t N Ltd. has to deduct tax at source@5.2%
(d) N Ltd. does n o t have to deduct tax at source b u t M Ltd. has to deduct tax at source@5.2%
6. Under which of t h e following cases, will arm's length price bedetermined by considering
t h e median of t h e dataset?
Case Most No. of Does the price at which the

Appropriate entries in transaction is undertaken fall
Method the dataset within the arm's length range
beginning from theSS
percentile of the dataset and
ending on theGS1 *1 percentile of
the dataset?
1 CUP 5 -
II RPM 6 Yes
III TNMM 7 Yes
IV Cost Plus 8 No
(a) II and III

(b) I and IV
(c) Only IV
(d) Only I
7. Which of t h e following orders is not appealable before Commissioner(Appeals)?
(a) An order of penalty under section 271B for failure to get accounts audited
(b) An order made under section 163 treating t h e assessee as an agent of a non-resident
(c) An order of assessment passed by t h e Assessing Officer i n pursuance of directions of
Dispute Resolution Panel
(d) An order made under section 201 deeming a person to be an assessee-in-default for
non-deduction of tax at source

22 MCQ Booklet
8. Which of t h e following statements are correct i n relation to t h e power of an income-tax
authority to collect information which may be u s e f u l f o r t h e purposes of t h e Income-tax Act,
1961?
(i) The income-tax authority can enter t h e place of business of t h e assessee only after sunrise
and before sunset.
(ii) The income-tax authority may enter the place of business only during t h e hours at which
such place is open for conduct of business.
(iii) The income-tax authority may impound and retain i n his custody, for a period not
exceeding 15 days, books of account o r other documents inspected by him. If he wishes to
retain for a period exceeding 15 days, he has to take t h e prior approval of Principal Chief
Commissioner o r Chief Commissioner.
(iv) The income-tax authority can o n n o account remove o r cause to be removed from t h e
building or place he has entered any books of account o r other documents.

(a) (i) and (iii)
(b) (i) and (iv)
(c) (ii) and (iii)
(d) (ii) and (iv)
9. M r . B has been holding 10% units i n Real Estate Investment Trust, 7.5% units in Securitisation
Trust and 5% units in Investment Fund for m o r e t h a n 15 months. The following incomes were
earned by t h e Trust/Fund during t h e P.Y. 2021-22:
Particulars Investment Real Estate Securitisation Trust (?)

Fund (?) InvestmentTrust (?)
Rental Income from - 10,00,000 -

directly held real
estate property
Interest income from - 8,00,000 -

SpecialPurpose
Vehicle
Profit from Business 5,00,000 6,00,000
Other Income (not in 2,00,000 1,00,000 -

the nature ofdividend)
Long-term capital (12,50,000) - -

loss

MCQ Booklet 23
What would be the total income of Mr. B for P.Y. 2021-22, assumingthat apart from share
in above income, Mr. B had only long-term capital gains of ? 2,70,000?
(a) ? 4,42,500
(b) T 4,67,500
(c) ? 4,52,500
(d) 5,05,000
10. Mr. Mahesh is found to be the owner of two gold chains of 50 gms each (value of which
is ? 1,45,000 each) during the financial year ending 31.3.2022 but he could offer
satisfactory explanation for ? 50,000 spent on acquiring these gold chains. As per section
115BBE,Mr. Mahesh would be liable to pay tax of -
(a) ? 1,87,200
(b) ? 2,26,200
(c) ? 1,49,760
(d) ? 1,80,960
11. Mr. Sarthak (a non-resident aged 65 years) is a retired person, earning rental income of
? 40,000 per month from a property located in Mumbai in the P.Y.2021-22.He is residing in
Germany. Apart from rental income, he does not have any other source of income. Is
heliable to pay advance tax in India? If not, why?
(i) Yes, he is liable to pay advance tax in India.
(ii) No, he is not liable to pay advance tax in India as his taxliability in India is less than
10,000.
(iii) No, he is not liable to pay advance tax in India as he has no income chargeable under the
head "Profits and gains of business or profession".
(iv) No, he is not liable to pay advance tax, since he is of the age of60 years or more during
the P.Y. 2021-22.
(a) Only (i)
(b) Only (ii)
(c) (ii) and (iii)
(d) (ii), (iii) and (iv)
12. XYZ Ltd., a Foreign Institutional Investor (Fll), has total income comprising of only short-term
capital gains of ? 50 lakh on sale of listed equity shares and interest income referred
under section 194LD of ? 15 lakh. What is the tax liability of the Fll for the P.Y. 2021-22?
(a) ? 8,58,000
(b) ? 16,38,000
(c) T 15,75,000
(d) ? 18,72,000

24 MCQ Booklet
13. Mr. Jakir, a non-resident, wants to file an application before the AAR on 05/04/2021 pertaining
to tax implications arising in respect of a service contract entered into with an Indian company
under the provisions of the Income-tax Act, 1961. He is of the opinion that the following
persons can be a revenue member of a Bench of the AAR for the purpose of adjudicating his
advance ruling application -
(j) A person from the Indian Revenue Service who is qualified tobe a member of CBDT.
(jj) A officer of the Indian Customs and Central Excise Service whois qualified to be a
member of CBEC.
(jjj) A member from the Indian Legal Service, who is a Jointsecretary to the Government of
India.
Identify, who can be a revenue member of a bench of the AAR for adjudicating his advance
ruling application.
(a) (i) or (ii)
(b) (i) or (iii)
(c) (i), (ii) or (iii)
(d) (i) only
14. M/s TPS, a partnership firm, is engaged in the trading business of electrical appliances. Its
turnover for the previous year 2021-22 is ? 1,10,00,000. It follows mercantile system of
accounting. It has received the amount of its turnover in the following manner-
Amount of Mode of Receipt

turnover (?)
70,00,000 Account payee cheques (? 5,00,000 received on

30.4.2022)
10,00,000 Cash (whole amount received during theP.Y.

2021-22)
15,00,000 Crossed cheques (whole amount received duringthe

P.Y. 2021-22)
10,00,000 RTGS (? 2,00,000 received on 15.5.2022)
? 5,00,000 is not received by the firm till the due date of filing return of income for the
current previous year. The profits and gains as perthe books of account maintained as per
section 44AA is ? 6,80,000. What would be the total income of the firm for A.Y. 2022-23, if
it wishes to make maximum tax savings without getting its books of accounts audited?
(a) ? 7,34,000
(b) ? 6,80,000
(c) ? 7,20,000
(d) ? 6,90,000

MCQ Booklet 25
15. The following are t h e particulars relating to four Indian companies,namely, A Ltd., B Ltd., C Ltd.
and D Ltd. -
Particulars A Ltd. B Ltd.
Date of setting up/registration 1.9.2020 1.11.2021
M a i n object Manufacture Manufactureof

apparel
of steel
Place Madhya Warangal i n

Pradesh Telengana
Value of new plant and machinery installed and p u t ? 10 crore ? 4 crore

to use o n t h e date of setting u p of t h e company
Gross Total Income of P.Y.2021-22 4.90 crore 2.80 crore
No. of n e w employees employed o n thedate of 1000 1000

setting u p of t h e company
M o n t h l y emoluments to employees byaccount

payee cheque:
500 employees ? 24,000 per ? 24,000 per

employee employee
500 employees ? 25,100 per ? 26,000 per

employee employee
Particulars C Ltd. D Ltd.
Date of setting up/registration 1.4.2000 1.1.2005
M a i n object Trading i n Trading infood

grains
leathergoods
Place Tamil Nadu Karnataka
Turnover
P.Y.2017-18 ? 347 crore 2 0 1 crore
P.Y.2018-19 ? 395 crore ? 225 crore
P.Y.2019-20 ? 499 crore ? 2 5 1 crore
P.Y.2020-21 ? 350 crore ? 342 crore
P.Y.2021-22 t 424 crore ? 380 crore

26 MCQ Booklet
Details of income returned & assessed for

A.Y.2022-23
As per return of income filed ? 14 crores ? 17 crores
Income determined u/s 143(l)(a) ? 16 crores ? 20 crores
Income assessed u/s 143(3) 20 crores ? 22 crores

questions -
(i) W h a t would be the tax liability (rounded off) of B Ltd. for A. Y.2022-23, if it avails t h e
beneficial tax rates under t h e special provisions inserted by t h e Taxation Laws
(Amendment) Act, 2019 i n t h e Income-tax Act, 1961 by fulfilling t h e conditions specified
thereunder? Assume that the gross t o t a l income reflects t h e computation under t h e special
provisions.
(a) ? 70,47,040
(b) ? 22,88,000
(c) ? 25,16,800
(d) ? 17,16,000
(ii) W h a t would be the tax liability (rounded off) of A Ltd. for A.Y.2022-23, if it avails t h e
beneficial tax rates under t h e special provisions inserted by t h e Taxation Laws
(Amendment)Act, 2019 in the Income-tax Act, 1961 by fulfilling theconditions specified
thereunder? Assume that the gross total income reflects t h e computation under t h e
special provisions.
(a) ? 1,23,32,320
(b) ? 59,89,980
(c) ? 14,59,740
(d) ? 9,95,280
(iii) W h a t would be the total income (rounded off) of A Ltd. and BLtd. for A.Y.2022-23, if
they d o not opt for the special provisions inserted by t h e Taxation Laws (Amendment)
Act, 2019 i n the Income-tax Act, 1961? Assume t h a t t h e gross t o t a l income reflects t h e
computation under the special provisions.
(a) ? 2,90,00,000; ? 2,40,00,000
(b) ? 58,00,000; ? 2,40,00,000
(c) ? 2,90,00,000; ? 60,00,000
(d) ? 58,00,000; ? 60,00,000
(iv) W h a t would be the quantum of penalty payable by C Ltd. under section 270A, assuming
t h a t t h e under-reporting of income isnot due to mis-reporting and none of t h e additions
made i n t h e assessment qualifies under section 270A(6)? Assume t h a t C Ltd. has n o t
o p t e d for t h e special provisions inserted by theTaxation Laws (Amendment) Act, 2019.

MCQ Booklet 27
(a) ? 58,24,000
(b) 69,88,800
(c) ? 87,36,000
(d) ? 1,04,83,200
(v) What would be the quantum of penalty payable by D Ltd. under section 270A, assuming
that the under-reporting of income is due to misreporting? Assume that D Ltd. has not
opted for the special provisions inserted by the Taxation Laws (Amendment) Act, 2019.
(a) ? 1,16,48,000
(b) ? 1,39,77,600
(c) ? 2,91,20,000
(d) ? 3,49,44,000
16. A business trust, registered under SEBI (Real Estate Investment Trusts) Regulations, 2014,
gives particulars of its income for the P.Y.2021-22:
(i) Interest income from Z Ltd. - ? 10 lakh;
(ii) Dividend income from Z Ltd. - ? 5 lakh;
(iii) Short-term capital gains on sale of listed shares (STT paid both atthe time of purchase and
sale) of Indian companies - ? 4 lakh;
(iv) Short-term capital gains on sale of developmental properties 8 lakh
(v) Interest received from investments in unlisted debentures ofreal estate companies 1
lakh;
(vi) Rental income from directly owned real estate assets - ? 20 lakh
Z Ltd. is an Indian company in which the business trust holds 100% of the shareholding. Z Ltd.
does not opt to pay tax under section 115BAA.
Assume that the business trust has distributed the entire 48 lakh to the unit holders in the
P.Y. 2021-22 in the month of March, 2022. Mr. X is a resident holder holding 100 units and
Mr. Y is a non-resident holder holding 500 units. The total number of units subscribed to by
all unit holders is 5,000.
questions -
(i) In respect of the component of interest income from Z Ltd. distributed by the business trust
to unit-holders X and Y -
(a) No tax is deductible by the business trust, since such income is not taxable in the
hands of unit holders
(b) Tax is deductible@5% on ? 20,000 distributed to Mr. Xand @5.2% on ? 1 lakh
distributed to Mr. Y
(c) Tax is deductible@10% on ? 20,000 distributed to Mr. Xand @5.2% on 1 lakh

28 MCQ Booklet
(d) Tax is deductible@10% on ? 20,000 distributed to Mr. X and 10.4% on ? 1 lakh
(ii) In respect of short-term capital gains of ? 4 lakh on sale of listed shares of Indian companies
and ? 8 lakh on sale of developmentalproperties -
(a) The business trust is liable to pay tax@15.6% and 31.2%, respectively
(b) The business trust is liable to pay tax@42.744%
(c) The business trust enjoys pass through status and hence, it need not pay any tax
on such short-term capital gains; such income is subject to tax in the hands of
unit-holders
(d) The business trust is liable to pay tax@15.6% and 42.744%, respectively
(iii) The dividend component of income from Z Ltd., distributed to unit-holders X and Y -
(a) would be subject to distribution tax in the hands of Z Ltd., hence exempt in the
hands of the business trust and the unit holders
(b) is exempt in the hands of the business trust, since the trust enjoys pass through
status in respect of such income; such income is taxable in the hands of the
unitholders X and Y
(c) is taxable in the hands of the business trust; hence, exempt in the hands of the
unitholders
(d) is exempt in the hands of the business trust and in the hands of the unit holders
(iv) If Z Ltd. exercises option under section 115BAA, then, the dividend component of income
from Z Ltd., distributed to unitholders X and Y-
(a) would be subject to distribution tax in the hands of Z Ltd., hence exempt in the
hands of the business trust and the unit holders
(b) is exempt in the hands of the business trust, since the trust enjoys pass through
status in respect of such income; such income is taxable in the hands of X and Y
(c) is taxable in the hands of the business trust; hence, exempt in the hands of the X
and Y
(d) is exempt in the hands of the business trust and in the hands of the unit holders X
and Y
(v) Interest received by the business trust from investments in unlisted debentures of real
estate companies and distributed to unit holders would be -
(a) subject to tax in the hands of the unit holders
(b) subject to tax in the hands of the business trust@31.2%
(c) subject to tax in the hands of the business trust @42.744%
(d) subject to tax in the hands of the business trust at the average rate of tax
(vi) The rental component of income from rea| estate assets received by the business trust
and distributed to its unit holdersX and Y would be -
(a) subject to tax in the hands of the business trust@42.744%

MCQ Booklet 29
(b) subject to tax in the hands of the business trust@31.2%
(c) subject to tax in the hands of the unit-holder X@10% (on ? 40,000) and Y@the
rates in force (on ? 2,00,000); such tax has to be deducted at source by the business
trust
(d) subject to tax in the hands of the unit-holders X and Y; business trust has to deduct
tax@10% on ? 40,000 distributed to X and at the rates in force on ? 2,00,000
distributed to Y
17. M/s. MNO is a firm liable to tax@30%. The following are theparticulars furnished by the
firm for A.Y.2022-23:
Particulars of total income ■■
(1) As per the return of income furnished u/s 139(1) 40,00,000
(2) Determined under section 143(l)(a) 50,00,000
(3) Assessed under section 143(3) 65,00,000
(4) Reassessed under section 147 85,00,000
Mr. N, a resident individual of the age of 58 years and a partner of the above firm, has not
furnished his return of income for A.Y.2022-23. However, his total income assessed in respect
of such year under section 144 is ? 15 lakh.
questions -
(i) M/s. MNO is deemed to have under-reported its income since its:
(1) income determined u/s 143(l)(a) exceeds its income declared as per return of
income furnished u/s 139(1)
(2) income assessed u/s 143(3) exceeds its incomedetermined u/s 143(l)(a)
(3) income reassessed u/s 147 exceeds its income assessedu/s 143(3)
(a) (1) and (2) above
(b) (1) and (3) above
(c) (2) and (3) above
(d) (1), (2) and (3) above
(ii) Mr. N is deemed to have under-reported his income since:
(1) He is a partner of a firm which has under-reported its income
(2) He has not filed his return of income
(3) His assessed income exceeds the maximum amount notchargeable to tax

30 MCQ. Booklet
(d) (1), (2) and (3) above
(iii) Assuming that t h e underreporting of income is n o t o n account of misreporting and none
of the additions o r disallowances made i n assessment qualifies u/s 270A(6), penalty
leviable on M/s. M N O u/s 270A at t h e t i m e of assessment would be:
(a) ? 3,12,000
(b) ? 1,56,000
(c) ? 4,68,000
(d) ? 2,34,000
(iv) Assuming t h a t t h e underreporting of income is o n account of misreporting, penalty
leviable on M/1. M N O under section 270Aat t h e t i m e of reassessment would be:
(a) ? 3,12,000 j
(b) ? 2,34,000 ' .
(c) ? 12,48,000
(d) ? 6,24,000
(v) Assuming that t h e under-reporting of income is not o n account of misreporting, t h e
under-reported income of M r . N and penalty leviable o n M r . N u/s 270A w o u l d be:
(a) Under-reported income ? 15,00,000; penalty ? 2,34,000
(b) Under-reported i n c o m e ? 12,50,000; p e n a l t y ? 97,500
(c) Under-reported income ? 15,00,000; penalty ? 1,36,500
(d) Under-reported income ? 12,50,000; penalty ? 1,36,500
18. An investment fund (Investment Fund I) incorporated i n India i n t h e f o r m of a LLP has 35
u n i t holders each holding 2 units.
The particulars of income of Investment Fund I for t h e P.Y.2021-22 isas follows:
(i) Business income - ? 14 lakh;
(ii) Long-term capital gains - ? 2 1 lakhs; and
(iii) Income from other sources - ? 7 lakhs.
Another investment fund (Investment Fund II) incorporated i n India i n t h e form of a
company has 50 unit holders each holding 4 units. Allunit holders have held t h e units for a
period of more than a year.
The particulars of income of Investment Fund II for t h e P.Y.2021-22 isas follows:
)
(i) Business loss - (? 10 lakh); (
(ii) Long-term capital losses - (? 20 lakhs); and

(iii) Income from other sources - ? 6 lakhs.

MCQ Booklet 31
questions -
(i) With respect to income of Investment Fund I for the P.Y.2021-22 -
(a) ? 42 lakhs is taxable in the hands of the investment fund
(b) ? 1,20,000 is taxable in the hands of each unit holder
(c) ? 21 lakh is taxable in the hands of the investment fund;
? 60,000 is taxable in the hands of each unit holder
(d) ? 14 lakh is taxable in the hands of the investment fund;
? 80,000 is taxable in the hands of each unit holder
(ii) What is the applicable rate of tax on the component(s) of income of Investment Fund I for
the P.Y.2021-22 in the hands of Investment Fund I?
(a) The entire income of ? 42 lakhs is taxable@30% (pluscess@4%)
(b) N.A., since Investment Fund I enjoys pass through status for all its income
components
(c) Long-term capital gains is taxable@20% (pluscess@4%) and other income@30% (plus
cess@4%)
(d) Business income of ? 14 lakhs is taxable@30% (pluscess@4%)
(iii) With respect to income of Investment Fund II for the P.Y.2021-22-
(a) Income of ? 6 lakhs from other sources is taxable in the hands of the investment fund
and losses of ? 30 lakhcan be carried forward by the investment fund
(b) Losses of ? 24 lakh, arrived at after set-off of business loss against income from other
sources, can be carried forward by the investment fund
(c) Business loss of ? 4 lakh can be carried forward by the investment fund; capital loss of
? 40,000 can be carried forward by each unit holder
(d) Business loss of ? 10 lakh can be carried forward by the investment fund; Income of
? 12,000 from other sources istaxable in the hands of each unit holder and long-term
capital loss of ? 40,000 can be carried forward by each unitholder
(iv) If, in the P.Y.2022-23, Investment Fund II has business incomeof ? 15 lakh and long-term
capital gains of ? 25 lakhs, then, its total income for A.Y.2023-24 would be -
(a) ? 5 lakh
(b) ? 10 lakh
(c) ? 11 lakh
(d) ? 36 lakh
19. 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 follows
mercantile system of accounting, Mr. Aakash engaged in interior decoration profession follows

32 MCQ. Booklet
cash system of accounting. The details pertaining to their business for t h e year ending
31.3.2022 are as under -
Particulars M r . Arvind Mr. Arjun Mr. Anand
(i) Turnover of P.Y.2021-22 ? 95 lakhs ? 1.80 crore ? 5.00 crore
(ii) Amount received i n cash [ o u t of (i) ? 5 lakh ? 8 lakh ? 4 lakh

above]
(iii) Amount received through NEFT/ ? 85 lakh ? 1.65 crore ? 4.80 crore
RTGS o n o r before 31.7.2022 [ o u t
of (i) above]
(iv) Total receipts i n t h e P.Y.2021-22 ? 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 i n t h e P.Y. T 80 lakhs ? 1.60 crore ? 4.50 crore

2021-22 J
(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 ? 3 0 lakhs
account u/s 44AA
M r . Aakash's gross receipts for P.Y.2021-22 are ? 48 lakhs, o u t of which ? 3 lakhs has been
received i n cash afid the remaining ? 45 lakhs through NEFT/RTGS. His profits as per books of
account u/s 44AA for P.Y.2021-22 are ? 24.75 lakhs.
From t h e details given above, choose t h e most appropriate answer to Q. i to Q.v given b e l o w -
(i) Which of t h e following individuals are eligible to declare income o n presumptive basis
under t h e provisions of the Income-tax Act, 1961 for A.Y.2022-23?
(a) M r . Arvind and M r . Aakash
(b) M r . Arvind, M r . Arjun, M r . Anand and M r . Aakash
(c) M r . Arvind, M r . Arjun and Mr. Aakash
(d) M r . Arvind and M r . Arjun
(ii) Which of t h e following individuals have to mandatorily get their books of account audited
under section 44AB for A.Y.2022-23?
(a) M r . Arjun and M r . Anand
(b) M r . Arjun and M r . Arvind
(c) Only M r . Anand
(d) None of them.

MCQ Booklet 33
(iii) W h a t is t h e amount of profits and gains of business chargeable to tax i n t h e hands of M r .
Arvind, M r . Arjun and M r . Anand, assuming t h a t they wish to make maximum tax savings
w i t h o u t 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 ? 3 0 lakhs, respectively
(d) ? 5.50 lakhs, ? 10.50 lakhs and ? 30 lakhs, respectively
(iv) Would your answer to MCQ iii (i.e., t h e profits and gains of business chargeable to tax i n t h e
hands of M r . Arvind, M r . Arjun and M r . Anand) undergo a change, if they decide to get their
books of account audited?
(a) The profits and gains of business chargeable to tax i n t h e hands of M r . Arjun and M r .
Anand would undergo a change; however, there would be n o change i n t h e case of M r .
Arvind
(b) The profits and gains of business chargeable to tax i n t h e hands of M r . Anand would
undergo a change; however, there would be n o change i n t h e hands of M r . Arvind and
M r . Arjun
(c) The profits and gains of business chargeable to tax i n t h e hands of M r . Arjun would
undergo a change; however, there would be n o change i n t h e hands of M r . Arvind and
M r . Anand.
(d) The profits and gains of business chargeable to tax i n t h e hands of M r . Arvind and M r .
Arjun would undergo a change; however, there would be n o change i n t h e hands of M r .
Anand.
(v) W h a t is t h e due date of filing of return of income of M r . Arvind, M r . Arjun , M r . Anand and
M r . Aakash for A. Y.2022-23, if they wish to make maximum tax savings?
(a) 31st July, 2022 for all of t h e m
(b) 31st July, 2022 for M r . Arvind and M r . Aakash; and 31st October, 2022 for M r . Arjun and
M r . Anand
(c) 31st July, 2022 for M r . Arvind, M r . Aakash and M r . Arjun; and B i s t October, 2022 for
M r . Anand I
(d) 31st July, 2022 for M r . Arvind, M r . Aakash and M r . Anahd; and B i s t October, 2022 for
M r . Arjun
20. ABC Inc., a Country A company whose place of effective management is outside India, receives
royalty from A Ltd., an Indian company, i n pursuance of an agreement made which is approved
by t h e 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. i n pursuance
of an agreement made which is approved by t h e Central Government. The DTAA between India
and Country A provides t h a t royalty will be subject to tax i n t h e Source State at 9% and t h e
DTAA between India and Country B provides t h a t FTS will be subject to tax i n t h e Source State
at 12%. Both ABC Inc. and XYZ Inc. d o not have a permanent establishment i n India. ABC Inc.
and XYZ Inc. have also invested i n shares of Indian companies i n respect of which they receive
dividend. The treaty states t h a t t h e dividend will be taxed at t h e rates provided under t h e

34 MCQ Booklet
domestic laws of t h e source country. Are ABC Inc. and XYZ Inc. required to file their return of
income for A.Y.2022-23, assuming t h a t t h e 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.2022-23
(b) Both ABC Inc. and XYZ Inc. need n o t file their return of income u/s 139 for A.Y.2022-23
(c) ABC Inc. has to file its return of income u/s 139 for A.Y.2022 -23, b u t 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.2022 -23, b u t ABC Inc. need not file
its return of income
21. M r . Harsh has to pay ? 3 lakhs o n 3.3.2022 to "Plan your t r i p " , a travel agency, for a holiday
package i n 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, o n 20.3.2022 f r o m SBI,
and remitted t h e said sum through t h e same bank, which is also an authorised dealer. Is tax
required to be collected at source from M r . Harsh by travel agency and the bank? I f so, how
much?
(a) N o tax is required to be collected by t h e travel agency since t h e payment for overseas
t o u r programme package is less t h a n ? 7 lakhs; tax has to be collected by SBI@5% of ? 3
lakhs, being the amount i n excess of 7 lakhs.
(b) N o tax is required to be collected by t h e travel agency since t h e payment for overseas
t o u r programme package is less than ? 7 lakhs; tax has to be collected by SBI@0.5% of
? 3 lakhs, being t h e amount in excess of ? 7 lakhs.
(c) Tax has to be collected by t h e travel agency@5% o n ? 3 lakhs; and by SBI@5% of ? 3
lakhs, being the amount i n excess of 7 lakhs.
(d) Tax has to be collected by t h e travel agency@5% o n ? 3 lakhs; and by SBI@0.5% of ? 3
lakhs, being the amount i n excess of ? 7 lakhs.
Answer Key
Question No. Ill® Answer
1. (a) Additional income-tax @23.296% of t h e distributed income is

leviable i n t h e hands of A Ltd. and B (P) Ltd.; income arising to
shareholders is exempt
2. (d) Penalty of ? 36,400 leviable in t h e hands of M r . Ganesh; N o

penalty leviable i n t h e hands of M r . Rajesh
3. (c) ? 2,08,000 and T 5,30,400
4. (d) ? 5 crores
5. (c) M Ltd. does not have to deduct tax at source b u t N Ltd. has to
deduct tax at source@5.2%

MCQ Booklet 35
Question No. Answer
6. (c) Only IV
7. (c) An order of assessment passed by t h e Assessing Officer in

pursuance of directions of Dispute Resolution Panel
8. (d) (ii) and (iv)
9. (a) ? 4,42,500
10. (a) ? 1,87,200
11. (b) Only (ii)
12. (a) ? 8,58,000
13. (d) (i) only
14. (c) ? 7,20,000
15.
(i) (d) ? 17,16,000
(ii) (c) ? 14,59,740
(iii) (d) ? 58,00,000; ? 60,00,000
(iv) (b) ? 69,88,800
(v) (a) ? 1,16,48,000
16.
(i) (c) Tax is deductible@10% o n ? 20,000 distributed t o M r . X and @5.2%

o n ? 1 lakh distributed to M r . Y
(ii) (d) The business trust is liable to pay tax@15.6% and 42.744%,
respectively
(iii) (d) is exempt i n t h e hands of t h e business trust and i n t h e hands of

t h e unit holders
(iv) (b) is exempt i n t h e hands of t h e business trust, since t h e trust

enjoys pass through status i n respect of such income; such
income is taxablein t h e hands of X and Y
(v) (c) subject to tax i n t h e hands of t h e business trust@42.744%

36 MCQ Booklet
Question No. Answer
(vi) (d) subject to tax i n t h e hands of t h e unit-holders X and Y; business

trust has to deduct tax@10% o n ? 40,000 distributed to X and at
t h e rates i n force o n ? 2,00,000 distributed to Y
17.
(i) (c) (2) and (3) above
(ii) (c) (2) and (3) above
(iii) (d) ? 2,34,000
(iv) (c) ? 12,48,000
(v) (d) Under-reported income 12,50,000; penalty ? 1,36,500
18.
(i) (d) ? 14 lakh is taxable i n t h e hands of t h e investment fund; ? 80,000 is

taxable i n t h e hands of each unit holder
(ii) (d) Business income of ? 14 lakhs is taxable@30% (plus cess@4%)
(iii) (c) Business loss of ? 4 lakh can be carried forward by t h e investment

fund; capital loss of ? 40,000 canbe carried forward by each unit
holder
(iv) (c) ? 11 lakh
19.
(i) (c) M r . Arvind, M r . Arjun and M r . Aakash
(ii) (d) None of t h e m .
(iii) (c) ? 5.90 lakhs, ? 11.10 lakhs and ? 30 lakhs, respectively
(iv) (c) The profits and gains of business chargeable to tax i n t h e hands of
M r . Arjun w o u l d undergo a change; however, there w o u l d be n o
change in t h e hands of M r . Arvind and M r . Anand
(v) (d) 31st July, 2022 for M r . Arvind, M r . Aakash and M r . Anand; and 31st
October, 2022 for M r . Arjun
20. (c) ABC Inc. has to file its return of income u/s 139 for A.Y.2022 -23, b u t
XYZ Inc. need n o t file its return of income
21. (d) Tax has to be collected by t h e travel agency@5% o n ? 3 lakhs; and

by SBI@0.5% of ? 3 lakhs, being t h e amount i n excess of ? 7 lakhs.

Test Series - 3
1. Mr. Ranveer, a non-resident, earned interest income of ? 6,20,000 during the P.Y. 2021-22
on bonds, issued by Tilt Ltd., an Indian company, under a scheme notified by the Central
Government, whichwere purchased by him in foreign currency. Such interest is -
(a) Not taxable
(b) Taxable@10.4%
(c) Taxable@15.6%
(d) Taxable@20.8%
2. X Ltd. is engaged in the business of letting out of properties. As perthe memorandum of
association of X Ltd., letting out of properties isits main objective. The total income of X Ltd.
comprises only of rental income from the business of letting out of properties. Y Ltd. is
engaged in the construction and sale of properties, which is also itsmain objective as per
its memorandum of association. Incidentally, it lets out some properties which are held as
stock-in-trade and earns rental income therefrom. Which of the following statements is
correct?
(a) Rental income from letting out of properties by X Ltd. and YLtd. is taxable under the
head "Income from house property"
(b) Rental income from letting out of properties by X Ltd. and YLtd. is taxable under the
head "Profits and gains of business or profession"
(c) Rental income from letting out of properties by X Ltd. is taxable under the head "Income
from house property" and by Y Ltd. is taxable under the head "Profits and gains of business
or profession"
(d) Rental income from letting out of properties by Y Ltd. is taxable under the head "Income
from house property" and X Ltd. is taxable under the head "Profits and gains of business or
profession"
3. PQ Ltd. is a company having two units - Unit P carries on specified business of setting up and
operating warehousing facility for storage of agricultural produce and Unit Q carries on
specified business of settingup and operating warehousing facility for storage of edible oil.
Unit P commenced operations on 1.4.2020 and claimed deduction o f ? 120 lakhs incurred in
April, 2020 on purchase of two buildings for ? 70 lakhs and ? 50 lakhs (for operating
warehousing facility for storage of agricultural produce) under section 35AD for A.Y.2021-22.

38 MCQ Booklet
However, in March, 2022, Unit P transferred its building costing ? 70 lakhs to Unit Q. What are
the tax implications of such transfer in the hands of PQ Ltd.?
(i) ? 70 lakhs would be deemed as business income in the handsof PQ Ltd. for A.Y.2022-
23.
(ii) ? 63 lakhs would be deemed as business income in the handsof PQ Ltd. for A.Y.2022-
23.
(iii) Actual cost of building for computing depreciation forP.Y.2021-22 would be ? 70 lakhs.
(iv) Actual cost of building for computing depreciation forP.Y.2021-22 would be ? 63 lakhs.
Which of the above statements are correct?
(a) (i) and (iii) above
(b) (i) and (iv) above
(c) (ii) and (iii) above
(d) (ii) and (iv) above
4. XYZ Ltd. engaged in the business of manufacture of steel, claimed deduction under section 80-
IB on the profits and gains of business, which included transport subsidy, interest subsidy and
power subsidy received from the Government and duty drawback receipts. XYZ Ltd. contended
that all the above receipts are profits derived from the business of the industrial undertaking
and are hence, eligible for deduction under section 80-IB. Is the contention of XYZ Ltd.
correct?
(a) Yes; transport subsidy, interest subsidy, power subsidy and duty drawback are profits
derived from the business of the industrial undertaking and hence, eligible for deduction
u/s 80-IB
(b) No; none of the above receipts can be treated as profits "derived" from the business of
the industrial undertaking and hence, deduction u/s 80-IB cannot be claimed in respect of
any such receipt
(c) No; transport subsidy, interest subsidy and power subsidy received from Government are
profits derived from the business of the industrial undertaking and hence, eligible for
deduction u/s 80-IB. However, duty drawbacks belong to the category of ancillary profits
and hence, deduction u/s 80-IB cannot be claimed in respect of such receipt
(d) No; transport subsidy, interest subsidy and power subsidy received from Government are
ancillary profits and hence, deduction u/s 80-IB cannot be claimed in respect of such
receipts. However, duty drawbacks are profits derived from the business of the industrial
undertaking and hence, deduction u/s 80-IB can be claimed in respect of such receipt
5. A REIT has distributed ? 2 crore to its unitholders, which comprises of -
(i) Rental income from real estate property directly held by it ? 80 lakhs
(ii) Interest income from special purpose vehicle ? 50 lakhs
(iii) Dividend income from special purpose vehicle ? 40 lakhs
(iv) Capital gains on disposal of assets ? 30 lakhs

MCQ Booklet 39
In this case, the special purpose vehicle is an Indian company, A Ltd., in which REIT holds
100% of shares. A Ltd. does not exercisp option to pay tax u/s 115BAA. Which of the
following statements relating to taxability of the above income are correct?
(1) All the above income are taxable in the hands of REIT. The said income are exempt in the
hands of unit holders.
(2) Only income referred to in (i) and (ii) are taxable in the handsof REIT.Income referred
to in (iii) and (iv) are taxable in the hands of unit holders.
(3) Only income referred to in (i) and (ii) are taxable in the hands of REIT. Income
referred to in (iv) is taxable in the hands ofunit holders. Income referred to in (iii) is
exempt both in the hands of REIT and unitholders.
(4) Only income referred to in (iv) is taxable in the hands of REIT.Income referred to in (i) and
(ii) is taxable in the hands of unit holders. Income referred to in (iii) is exempt both in the
hands of REIT and unitholders.
(5) Tax is deductible by REIT from income referred to in (i) and (ii).
(6) Tax is deductible by REIT from income referred to in (iii) and (iv).
(7) Tax is deductible by REIT only from income referred to in (iv).
(8) No tax is deductible by REIT since the entire income is taxable in its hands.
The correct option is -
(d) (4) and (5) above
6. During the P.Y.2021-22, HelpAid Charitable Trust registered under section 12AA/12AB
received donations of ? 80 lakhs, out of which ? 10 lakhs were corpus donations and ? 20 lakhs
were anonymous donations. The trust applied ? 40 lakhs towards its objects during the
P.Y.2021-22. The tax liability of the trust for A.Y.2022-23 is -
(a) ? 6,24,000
(b) ? 5,92,800
(c) ? 5,30,920
(d) ? 5,97,220
7. In the course of search operations under section 132 in May, 2022, Mr. Hari makes a
declaration under section 132(4) on the earning of income in respect of P.Y.2021-22 not
disclosed in the books of account. Mr. Hari explains the manner in which income was
derivedand pays the tax, together with interest in respect of such income. However, he
does not disclose such income in his return of income filed on 31.7.2022. Is penalty
leviable in this case, and if so, what isthe quantum of penalty?
(a) No penalty is leviable since Mr. Hari has made a declaration under section 132(4)
(b) Yes; penalty@10% is leviable

40 MCQ Booklet
(c) Yes; penalty@30% is leviable
(d) Yes; penalty@60% is leviable
8. A Ltd. filed its return of income for A.Y.2022-23 on 30t h September, 2022. The return is
selected for regular assessment under section 143(3). The time limit for service of notice u/s
143(2) in this case is -
(a) 30.06.2023
(b) 30.09.2023
(c) 31.12.2023
(d) 31.03.2024
9. Shipcargo Inc., a company based in Netherlands operating its ships toand from Cochin port,
collected freight of ? 85 lakhs, demurrage of ? 5 lakhs and handling charges of ? 2 lakhs in
respect of goods shipped at Cochin port. It incurred expenses of ? 35 lakhs during the year for
operating its fleet. In respect of goods shipped at Rotterdam, Netherlands, it received ? 50
lakhs in India. Its tax liability (roundedoff) for the A.Y.2022-23 is -
(a) ? 4,21,200
(b) ? 4,43,040
(c) ? 3,12,000
(d) ? 1,77,840
10. Mr. Ganesh, a citizen of India, is employed in the Indian embassy inthe USA. He is a non-
resident for A.Y.2022-23. He received salary and allowances in the USA from the Government
of India for the year ended 31.3.2022 for services rendered by him in the USA. In addition,
he was allowed perquisites by the Government. Which of the following statements is correct?
(a) Salary, allowances and perquisites received outside India are not taxable in the hands of
Mr. Ganesh, since he is a non-resident
(b) Salary, allowances and perquisites received outside India by Mr. Ganesh is taxable in
India since such income is deemed to accrue or arise in India
(c) Salary received by Mr. Ganesh is taxable in India but allowances and perquisites are
exempt
(d) Salary received by Mr. Ganesh is exempt but allowances and perquisites are taxable
11. Mr. Rajesh, a resident Indian, is an employee of M/s. ABC Ltd., Bangalore. In addition to the
salary income from M/s. ABC Ltd., he also earns interest from fixed deposits. M/s. PQR
Inc., a foreign company not having permanent establishment in India, rendered online
advertisement services to Mr. Rajesh, for which Mr. Rajesh made a payment of ? 2 lakhs in
the F.Y.2021-22.
(i) The transaction is subject to equalisation levy since paymentexceeding ? 1 lakh has been
made for online advertisement services.
(ii) The transaction is subject to equalisation levy since payment is made by a resident to a
non-resident not having permanentestablishment in India.
(iii) Equalisation levy has to be deducted and paid by Mr.Rajesh.

MCQ Booklet 41
(iv) Equalisation levy has to be paid by M/s. ABC Ltd.
(v) The rate of equalization levy is 6%.
(vi) The rate of equlisation levy is 2%.
(vii) The transaction is not subject to equalization levy.
Which of the statements is correct?
(a) (i), (ii), (iii) and (v)
(b) (i), (ii), (iv) and (vi)
(c) (i), (ii), (iv) and (v)
(d) Only (vii)
12. Mr. A, aged 59 years, won ? 9 lakh and Mr. B, aged 50 years, won ? 8 lakh from
lotteries. Tax deductible at source under section 194B was duly deducted. Assuming that
this is the only source of income ofMr. A and Mr. B for A.Y.2022-23, are Mr. A and Mr. B
liable to pay advance tax for that year?
(a) No, Mr. A and Mr. B are not liable to pay advance tax as tax deductible at source under
section 194B has been fullydeducted
(b) Yes, Mr. A and Mr. B are liable to pay advance tax
(c) Mr. A is liable to pay advance tax but Mr. B is not liable to payadvance tax
(d) Mr. B is liable to pay advance tax but Mr. A is not liable to payadvance tax
13. Mr. Vallish, employed as Manager with ABC Ltd., pays rent o f ? 50,000 per month
to his landlord. Which of the following statementsis correct?
(a) Mr. Vallish is liable to deduct tax@10% u/s 194-1, since hisannual rent exceeds ? 2,40,000
(b) Mr. Vallish is liable to deduct tax@5% u/s 194-IB every month, since he pays rent of ?
50,000 per month
(c) Mr. Vallish is liable to deduct tax@5% u/s 194-IB on the annual rent in he month of March,
since he pays rent of ? 50,000 per month
(d) Mr. Vallish is not liable to deduct tax at source
14. Mr. Sanjay, a resident, and Mr. Andrew, a British citizen and a non-resident in India, are
both sports commentators deriving income of ? 5 lakh from sports commentaries in India for
A.Y.2022-23. Which ofthe following statements are correct?
(i) Tax is deductible u/s 194J from remuneration payable to Mr. Sanjay.
(ii) Tax is deductible u/s 194E from remuneration payable to Mr. Andrew.
(iii) Tax is deductible u/s 195 from remuneration payable to Mr. Andrew.
(iv) Mr. Andrew is not required to file his return of income u/s 139, if tax deductible at
source is fully deducted.
(v) Mr. Sanjay is not required to file his return of income u/s 139, iftax deductible at source
is fully deducted.

42 MCQ Booklet
Which of the above statements are correct, assuming that this is the only source of
income for Mr. Sanjay and Mr. Andrew?
(a) (i), (ii) and (iv)
(b) (i), (ii), (iv) and (v)
(c) (i) and (iii)
(d) (i), (iii) and (iv)
15. Mr. B is an interior decorator by profession. He also delivers online lectures on interior
decoration via an e-commerce platform - Indeco- Academy. The relevant information from Mr.
B's Indeco-Academy account is given hereunder:
Date of Credit of Date of Payment Value of Services Provided(?)

services to account to Mr. B
of Mr. B
31.05.2021 10.06.2021 2,00,000
31.10.2021 10.10.2021 1,50,000
31.03.2022 10.04.2022 1,40,000
In addition to the above, Mr. B received ? 20,000 on 18.02.2022 directly from a student instead
of through the Indeco-Academy payment portal. Mr. B has not furnished his PAN or Aadhar
number to Indeco- Academy but has furnished his driving license for KYC requirements.
On 05.05.2021, Mr. B provided interior decorating services to Mr. N in Mumbai having
business turnover of ? 1.2 crores during P.Y. 2020-21 for his office premises as well as
residential premises, the consideration for which was ? 40,000 and ? 60,000, respectively.
Mr. B has provided his PAN details to Mr. N for invoicing purpose.
Mr. B's gross receipts from interior decoration profession (excluding fees for online
lectures) from clients in India (including Mr. N) in total in the P.Y.2021-22 is ? 40 lakhs.
Further, ? 1,10,000 is payable by Mr. B to Tumble LLC - a social networking website having no
office in India and ? 1,05,000 to Doodle Inc., USA, for giving online advertisements for the
purpose of attracting foreign clients. Though Doodle Inc., USA, has an office in India, the said
office is involved in providing designing services and nothing in relation to online
advertisements. Fortunately, Mr. B got one client based in Country A (with which India does not
have a DTAA) from whom he received ? 3,50,000 as net income after deduction o f ? 50,000 as
foreign tax.
Profits of Mr. B computed as per books of account maintained under section 44AA is ? 24
lakhs. He has, however, not got his books of account audited.
questions -
(i) Is Indeco-Academy required to deduct tax at source on amount received/receivable by Mr.
B? If so, what is the amount of taxto be deducted?
(a) No tax is required to be deducted at source

MCQ. Booklet 43
(b) Yes; ? 2,325
(c) Yes; ? 15,500
(d) Yes; ? 25,500
(ii) Is Mr. N required to deduct tax at source under section 194J? If so, what is the amount of
tax to be deducted?
(a) No tax is required to be deducted at source u/s 194J
(b) Yes; ? 1,000
(c) Yes; ? 4,000
(d) Yes; ? 10,000
(iii) ls Mr. N required to deduct tax at source under section 194M?lf so, what is the amount
of tax to be deducted?
(a) No tax is required to be deducted at source u/s 194M
(b) Yes; ? 600
(c) Yes; ? 1,200
(d) Yes; ? 3,000
(iv) ls Mr. B required to deduct equalisation levy on the amounts payable to Tumble LLC or
Doodle Inc.? If so, what is the amount of levy to be deducted?
(a) No; there is no requirement to deduct equalisation levy fromthe amount payable to either
Tumble LLCor Doodle Inc.
(b) Yes; T 6,600 to be deducted on the amount payable to Tumble LLC; No deduction is,
however, required on the amount payable to Doodle Inc.
(c) Yes; ? 6,300 to be deducted on amount payable to Doodle Inc; No deduction is
required on the amount payable to Tumble LLC.
(d) Yes; ? 6,600 to deducted on the amount payable to Tumble LLC and ? 6,300 to be
deducted on the amount payable to Doodle Inc.
(v) What is Mr. B's gross income-tax liability for the P.Y.2021-22, assuming that he does not
exercise option u/s 115BAC?
(a) ? 5,70,960
(b) ? 4,91,400
(c) ? 5,08,560
(d) ? 5,53,800
16. On 1.4.2021, Ul Ltd., an Indian company, borrowed ? 50 crores@ 9.5% p.a. from M Inc., a
US entity, thereby increasing its total borrowings to ? 65 crores. The said loan is guaranteed by
H Inc., another US entity. The place of effective management of both M Inc. and H Inc. is
in the USA. The total assets of Ul Ltd. is ? 180 crores.
Ul Ltd. imported turbo equipment worth ? 30 crores from H Inc. Import duty of ? 4.50
crores on the same was paid by Ul Ltd. The equipment was sold to T Ltd. for ? 40 crores.
Normal GP margin of UlLtd. in similar uncontrolled transaction is 20%.

MCQ Booklet
Net profit of III Ltd. of A.Y.2022-23 was ? 8 crores after debiting interest of ? 6 crores (out of
which ? 1-25 crores interest pertaining to local borrowings), depreciation of ? 2.5 crores and
income tax o f ? 1.5 crores.
questions -
(i) What is the amount of interest to be allowed in the computation of total income of Ul Ltd.
for A.Y. 2022-23, if for A.Y. 2021-22 there was an interest expenditure disallowed to the
extent of ? 4 crores under section 94B?
(a) ? 6,65,00,000
(b) ? 4,75,00,000
(c) ? 6,00,00,000
(d) ? 3,65,00,000
(ii) The transfer pricing adjustment for the arm's length purchase price to be made in the
computation of total income of Ul Ltd.for A.Y. 2022-23 would be -
(a) ? 3,00,00,000
(b) ? 2,50,00,000
(c) ? 2,00,00,000
(d) No adjustment is required, since transfer pricing adjustment cannot result in
reduction of income
(iii) lf Ul Ltd. repatriated the excess money on 31.03.2023, what will be the interest income
that would be added to its total income of A.Y. 2023-24, if SBI's one-year marginal of
lending rate is 11.25% on 1.4.2022 and 10.25% on 1.4.2023? Assumethat Ul Ltd. suo
motu made the primary adjustment in its books of account and filed its return for
A.Y.2022-23 on 30.11.2022.
(a) ? 12,01,712
(b) ? 11,18,836
(c) ? 9,32,363
(d) ? 8,49,486
(iv) lf Ul Ltd. decides not to repatriate the excess money and instead, pay additional income-
tax on the entire excess money, then, what would be the additional income-tax payable?
(a) ? 62,89,920
(b) ? 52,41,600
(c) ? 41,93,280
(d) ? 53,87,200
(v) If Ul Ltd. decides to pay additional income-tax on the entire excess money on 15.03.2023,
should interest be calculated and added to its total income of A.Y.2023-24? If so, what is
the amount to be added? Assume that SBI one-year marginal cost of lending rate is 11.25%
on 1.4.2022 and 10.25% on 1.4.2023 -

MCQ Booklet 45
(a) No, since it has paid additional income-tax o n t h e entire excess money i n t h e P.Y.2022-
23
(b) Yes; ? 9,70,890
(c) Yes; ? 10,42,808
( d ) Yes; ? 8,09,075
(vi) In addition t o t h e facts given i n t h e case scenario, assuming t h a t -
(1) o n 23.08.2021, Ul Ltd. has entered i n t o an agreementfor sale of t u r b o equipment
w i t h Y Ltd., an Indian company n o t related to Ul Ltd;
(2) Y Ltd. had already entered i n t o an agreement on 21.8.2021 for t h e sale of t h e same
goods to K Inc. (unrelated to Y Ltd.), a UK entity whose place of effective management
is also i n t h e UK; and
(3) Ul Ltd. holds shares carrying 28% voting power in K Inc.
Which of t h e following are associated enterprise/deemedassociated enterprise of Ul Ltd.?
(a) H Inc. and K Inc.
(b) M Inc. and K Inc.
(c) H Inc., K Inc. and Y Ltd.
(d) M Inc., H Inc. and K Inc.
17. A co-operative bank provides t h e following information relating to cash withdrawals by its two
customers during t h e P.Y.2021-22:
Date of cash M r . A (Savings M r . B (Current

withdrawal Account) (?) Account) (?)
05.04.2021 20,00,000 -
10.05.2021 - 22,00,000
25.06.2021 25,00,000
17.07.2021 - 5,00,000
28.10.2021 35,00,000
10.11.2021 - 38,00,000
12.12.2021 25,00,000 -
02.01.2022 - 37,00,000
M r . B has not filed his return of income for t h e last three years whereas M r . A has been
regularly filing his return of income. N o other customer of t h e co-operative bank had
withdrawn more than ? 10 lakhs during t h e P.Y. 2021-22.

46 MCQ Booklet
One of the customers of the co-operative bank - Mr. K paid ? 12 lakhsout of bills for ? 15
lakhs raised in respect of the credit card accountby account payee cheque and was declared
bankrupt thereafter. The actual bad debts of the bank (including bad debts on account of Mr. K)
during the P.Y. 2021-22 were ? 30 lakhs. The aggregate average advances made by its rural
branches were ? 120 lakhs. The gross total income of the bank, before any deduction under
section 36(l)(vii)/36(l)(viia) for A.Y. 2022-23 is ? 100 lakhs.
A notice was issued t o the co-operative bank on 30.09.2022 by the prescribed income tax
authority requiring it to furnish the statement of financial transaction by 30.10.2022 as the
co-operative bank had failed to do so. The co-operative bank, however, furnished the
statementonly on 25.11.2022.
questions -
(i) The amount of income-tax that is required to be deducted by the co-operative bank
under section 194N during the P.Y.2021-22 in respect of withdrawals by Mr. A and Mr. B
are -
(a) ? 25,000 and ? 10,000, respectively
(b) ? 10,000 and ? 1,60,000, respectively
(c) ? 10,000 and ? 1,66,000, respectively
(d) ? 10,000 and ? 1,70,000, respectively
(ii) Assuming that the co-operative bank commenced operations on 1.4.2021, the co-operative
bank can, for A.Y.2022-23, claim -
(a) ? 30,00,000 only u/s 36(l)(vii),
(b) ? 20,50,000 u/s 36(l)(viia) and ? 30,00,000 u/s 36(l)(vii)
(c) ? 20,50,000 u/s 36(l)(viia) and ? 9,50,000 u/s 36(l)(vii)
(d) ? 12,00,000 u/s 36(l)(viia) and ? 18,00,000 u/s 36(l)(vii)
(iii) Identify the accounts which are required to be reported in relation to the specified
financial transactions in the statementof financial transaction by the co-operative bank,
based on the above mentioned facts, for P.Y. 2021-22.
(a) Only B
(b) K and B
(c) A and B
(d) A, K and B
(iv) What is the amount of penalty leviable under section 271FA?
(a) ? 1,01,500
(b) ? 1,17,000
(C) ? 89,000
(d) ? 1,02,000

MCQ Booklet 47
(v) Let us assume that, o n 26.02.2022, as a result of business reorganisation, t h e co-operative
bank got succeeded by another co-operative bank. Assuming t h a t t h e deduction
allowable u / s 3 2 for t h e P.Y.2021-22 is ? 3,50,000 and t h a t t h e predecessor co-operative
bank had incurred expenditure of ? 30,00,000 during t h e P.Y.2019-20 on voluntary
retirement scheme for its employees, what is t h e aggregate deduction allowable to
predecessor co-operative bank under section 32 and 35DDA for t h e P.Y.2021-22?
(a) ? 8,61,507
(b) ? 3,17,397
(c) ? 9,50,000
(d) ? 9,17,397
18. X Pvt. Ltd. ("X") is an Indian company. Y Inc ("Y") is a private company incorporated i n t h e
USA and its income is n o t chargeable to tax i n India. Both are promoted by M r . Ayush w h o
holds 30% equity share capital and voting power i n both X and Y. The balance sheet ofX as
o n 31st March, 2022 is as follows:
Liabilities Amount (? Assets Amount (?

million) million)
Paid u p capital 250 Fixed Assets 700
Loans: 800 Investments 300
From Y 620 Cash and bank 200

From others 180 balance
Current liabilities 150

Total
Total 1,200 1,200
(i) The loan was advanced by Y to X o n 1 s t July, 2021 i n rupee terms and carries 6.5% p.a.
rate of interest. For borrowers with similar risk profile w h o are not associated enterprises of
Y, Y advances loan at 4% p.a. interest rate.
(ii) X has maintained such information and document i n respect of t h e international
transaction as has been prescribed under section 92D b u t has n o t reported t h e
transaction as an international transaction. X does not make any adjustment toits total
income o n account of application of provisions of Chapter X of t h e Income-tax Act, 1961
i n its return of income.
questions -
(i) Are X and Y associated enterprises? I f so, why?
(1) Yes, X and Y are associated enterprises because M r . Ayush holds voting power of 30%
i n b o t h t h e companies.

48 MCQ Booklet
(2) Yes, X and Y are associated enterprises as n o t less than 75% of X's total loans have
been availed from Y.
(3) Yes, X and Y are associated enterprises since t h e loan advanced by Y to X is not less
than 51% of t h e bookvalue of X's total assets.
(4) No, X and Y are not associated enterprises
The most appropriate answer is -
(a) Only (i)

(b) (i) and (ii)
(c) (i) and (iii)
(d) Only (iv)
(ii) What is the amount of primary adjustment required to be madeto t h e t o t a l income of X
for A.Y.2022-23?
(a) ? 1,16,25,000
(b) ? 58,12,500
(c) ? 1,55,00,000
(d) ? 77,50,000
(iii) If X has accepted t h e primary adjustment made by t h e Assessing Officer o n 31.3.2023,
what should X do if it does not want to treat t h e excess money as deemed advance and
include interest o n t h e same i n its t o t a l income?
(1) The excess money which is available to Y, has to berepatriated to India w i t h i n 90 days
from the due date of filing of return.
(2) The excess money which is available to Y, has to berepatriated to India within 90 days
from t h e date of order of t h e Assessing Officer.
(3) X has to pay additional income-tax @20.9664% o n t h e excess money.
(4) Interest has to be paid upto t h e date of payment ofadditional income-tax.
The most appropriate answer is -

(a) (i) o r (iii)
(b) (ii) or (iii)
(c) (i) or [(iii) and (iv)]
(d) (ii) o r [(iii) and (iv)]
(iv) l f X has accepted t h e primary adjustment made by t h e Assessing Officer o n 31.3.2023
and t h e excess money has n o t been repatriated i n t o India u p t o 31.3.2024, w h a t would be
t h e consequence if X has n o t opted to pay additional income-tax? Assume t h a t SBI
one-year marginal cost of lending rate is 10%on 1.4.2023 and 11% on 1.4.2024.
(a) Interest of ? 16,56,563 has to be added to its totalincome for P.Y.2023-24
(b) Interest of ? 11,60,509 has to be added to its totalincome for P.Y.2023-24

MCQ Booklet 49
(c) Interest of ? 15,40,313 has to be added to its totalincome for P.Y.2023-24
(d) Interest of ? 20,53,750 has to be added to its totalincome for P.Y.2023-24
(v) Which factor is relevant in determining whether penalty under section 270A of the Income-
tax Act, 1961 will be leviable inrespect of the primary adjustment to X's total income?
(a) Since X has maintained information and documents asprescribed under section 92D,
that by itself is sufficientfor holding that X has not under-reported its income
(b) If the Assessing Officer/Transfer Pricing Officer makes adjustment to X's total income on
account of an international transaction not being in accordance with arm's length
price, that by itself is sufficient to hold that X has under-reported its income;
consequently, penaltyu/s 270A is leviable
(c) Since X has not reported the transaction as an international transaction, X will be
considered to have under-reported its income and penalty will be 50% of the amount of
tax payable on the under-reported income
(d) Since X has not reported the transaction as an international transaction, X will be
considered to have misreported its income and penalty will be 200% of the amount of
tax payable on the misreported income
(vi) ln the scenario given above, what would be the situation on account of application of
transfer pricing provisions if X, the Indian company would have been the lender and Y, the
UScompany, the borrower?
Rate of interest on loan by X to Y = 6.5% p.a.
For borrowers with similar risk profile who are not associatedenterprises of X, X
advances loan at 4% p.a. interest rate.
(a) Identical adjustment would be made to the income of Yinstead of X
(b) No adjustment would be required in the hands of X or Y
(c) Identical adjustment would made to the income Y aswell as X
(d) Adjustment would still be made to the income of X and no adjustment would be
made to the income of Y
19. Z Pvt. Ltd. ("Z") files its return of income for the P.Y. 2021-22 on 30t h September 2022 declaring
loss of ? 14,00,000. The rate of income-tax applicable to the company is 30%. The tax auditor
of Z, in his audit report submitted under section 44AB, has reported a disallowance of ?
50,000 towards personal expenditureof directors as no evidence was produced by Z in support
of this expenditure. However, Z did not disallow the same in its computationand return of
income.
The return of income was processed by the Centralisec. Processing Centre making an
addition of ? 50,000 towards personal expenditureand the loss u/s 143(1) was computed at
? 13,50,000.
The return of income was selected for scrutiny assessment and by order passed u/s 143(3),
the loss as per normal provisions was reduced to ? 10,50,00n by making an addition of ?
3,00,000.

50 MCQ. Booklet
The assessment was reopened u/s 147 and by order passed u/s 147, the loss as per
preceding order u/s 143(3) was converted into incomeof ? 2,00,000.
questions (Ignore MAT) -
(i) Which of the following statements regarding penalty on addition of ? 50,000 towards
personal expenditure is correct?
(1) Since Z has claimed deduction of amount incurred towards personal expenditure of
directors, Z shall be considered to have under-reported its income.
(2) The under-reporting on account of claiming personal expenditure of directors as
deduction can be construed as misreporting of income as it is a claim of expenditure
not substantiated by any evidence.
(3) Since addition of ? 50,000 is an adjustment referred to in section 143(l)(a), no penalty is
leviable in respect of this addition.
(4) No penalty is leviable if Z offers an explanation and the Assessing Officer is satisfied that
the explanation is bona fide and Z has disclosed all the material facts to substantiate the
explanation offered.
(a) (i) and (iv)
(b) (ii) and (iv)
(c) (iii) only
(d) (iv) only
(ii) What is the penalty leviable u/s 270A as a consequence of assessment u/s 143(3), if the
addition was not on account of misreporting?
(a) ? 46,800
(b) ? 70,200
(c) ? 93,600
(d) ? 1,63,800
(iii) What is the penalty leviable u/s 270A at the time of passing of the order u/s 147
considering that all additions are on accountof misreporting of income?
(a) ? 7,80,000
(b) ? 5,30,400
(c) ? 1,95,000
(d) ? 1,24,800
(iv) Assuming that the additions made in the order u/s 147 are not on account of
misreporting of income but only on account of under-reporting, Z seeks to claim immunity
from imposition of penalty u/s 270A and initiation of proceedings u/s 276C of theAct by
filing an application in this regard before the Assessing Officer. What are the other
conditions that need to be satisfiedby Z in this regard?
(1) Pay the tax and interest payable as per the order u/s section 147 within the period
specified in the notice of demand.

MCQ Booklet 51
(2) Pay t h e tax as per t h e order u/s section 147 within t h e period specified i n t h e notice of
demand.
(3) Contest t h e additions made i n t h e order, after payment of tax and interest, within
t h e period specified i n thenotice of demand.
(4) N o appeal should be or should have been filed againstthe order.

The correct answer is-
(a) (ii) and (iv)
( b ) (i) and (iii)
(c) (ii) and (iii)
(d) (i) and (iv)
(v) Out of t h e addition of ?3,00,000 made by order passed u/s 143(3), an amount of
?l,00,000 is o n account of a false entry deliberately made by Z i n its books of account.
Apart from penalty under section 270A, what are t h e are other prosecution and penal
consequences, if any, t h a t would be attracted i n caseof Z?
(a) Penalty of ?l,00,000 u/s 271AAD and prosecution u/s276C would be attracted
(b) Penalty of ?30,000 u/s 271AAD and prosecution u/s276C would be attracted
(c) Once penalty u/s 270A is levied, n o other penalty will belevied b u t prosecution may
be initiated u/s 276C
(d) Penalty u/s 271AAD may b e levied b u t prosecution u/s276C will not be initiated
20. M r . Pranav, a resident aged 48 years, and his brother M r . Vaibhav, a non-resident aged 45
years, received dividend of 7 lakhs and ? 5 lakhs, respectively, from A Ltd., an Indian company
i n January, 2022. The interest expenditure incurred by t h e m i n t h e P.Y. 2021-22 o n loan taken
for investing i n shares of A Ltd. is ? 1.50 lakh and ? 80,000, respectively. W h a t is t h e tax payable
by t h e m o n such income, assuming it is t h e only source of income of M r . Pranav and M r .
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
21. ABC Ltd., an Indian company, receives dividend of ? 10 lakhs from its subsidiary company XYZ
Ltd., also an Indian company i n January, 2022. I t also receives dividend of ? 8 lakhs i n February,
2022 from MNC Inc., a foreign company, i n which it holds 25% shareholding. ABC Ltd. declares
dividend of ? 20 lakhs i n April, 2022 for t h e F.Y.2021-22. W h a t is t h e deduction available to ABC
Ltd. under section 8 0 M for A.Y. 2022-23?
(a) ? 8 lakhs
(b) ? 10 lakhs
(c) ? 18 lakhs
(d) ? 20 lakhs

52 MCQ Booklet
Answer Key
Question Answer
No.
1. (b) Taxable @10.4%
2. (d) Rental income from letting o u t of properties by Y Ltd. is taxable under t h e

head "Income f r o m house property" a n d X Ltd. is taxable under t h e
head "Profits and gains of business o r profession"
3. (d) (ii) and (iv) above
4. (c) No; transport subsidy, interest subsidy and power subsidy received from
Government are profits derived from t h e business of t h e industrial
undertaking and hence, eligible for deduction u/s 80- IB. However, duty
drawbacks belong to t h e category of ancillary profits and hence, deduction
u/s 80-1B cannot be claimed i n respect of such receipt
5. (d) (4) and (5) above
6. (c) ? 5,30,920
7. (d) Penalty@60% is leviable
8. (a) 30.6.2023
9. (b) 4,43,040
10. (c) Salary received by M r . Ganesh is taxable i n India b u t allowances and

perquisites are exempt
11. (d) Only(vii)
12. (c) M r . A is liable to pay advance tax b u t M r . B is not liable to pay advance tax
13. (d) M r . Vallish is not liable to deduct tax at source
14. (c) (i) and (iii)
15.
(i) (d) Yes; ? 25,500
(ii) (c) Yes; ? 4,000
(iii) (a) N o tax is required to be deducted at source u / s l 9 4 M
(iv) (d) ? 6,600 to deducted on t h e amount payable to Tumble LLC and ? 6,300 to
be deducted on the amount payable to Doodle Inc.
(v) (a) ? 5,70,960

MCQ Booklet 53
Question Answer
No.
16.
(0 (a) ? 6,65,00,000
(ii) (b) ? 2,50,00,000
(iii) (a) ? 12,01,712
(iv) (b) ? 52,41,600
(v) (c) Yes; ? 10,42,808
(vi) (c) H Inc., K Inc. and Y Ltd.
17.
(i) (d) ? 10,000 and ? 1,70,000, respectively
(ii) (c) ? 20,50,000 u/s 36(l)(viia) and ? 9,50,000 u/s 36(l)(vii)
(iii) (b) K and B
(iv) (d) ? 1,02,000
(v) (a) ? 8,61,507
18.
(i) (c) (i) and (iii)
(ii) (a) ? 1,16,25,000
(iii) (d) (ii) o r [(iii) and (iv)]
(iv) (c) Interest of ? 15,40,313 has to be added to its totalincome for P.Y.2023-
24
(v) (d) Since X has n o t reported t h e transaction as an international transaction, X

will be considered to have misreported its income and penalty will be
200% of t h e amount of tax payable o n t h e misreported income
(vi) (b) N o adjustment would be required in t h e hands ofX o r Y
19.
(i) (c) (iii) only
(ii) (a) ? 46,800

54 MCQ Booklet
Question Answer
No.
(iii) (a) ? 7,80,000
(iv) (d) (i) and (iv)
(v) (a) Penalty of ? 1,00,000 u/s 271AAD and prosecution u/s 276C would be
attracted
20. (d) ? 19,240 and ? 1,04,000, respectively
21. (c) ? 18 lakhs

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1. Mr. X is aggrieved by an order passed under section 143(3) by the Assessing Officer. Mr. Y is
aggrieved by an order passed under section 272A by the Director General. What is the remedy
available to Mr. X and Mr. Y and the time limit within which they should exercise the remedy?
(a) Both Mr. X and Mr. Y have to file an appeal before Commissioner (Appeals) u/s 246A within
30 days of the date on which the order sought to be appealed against is communicated to
them
(b) Both Mr. X and Mr. Y have to file an appeal before the Appellate Tribunal u/s 253 within 60
days of the date on which the order sought to be appealed against is communicated to
them
(c) Mr. X has to file an appeal u/s 246A before Commissioner (Appeals) within 30 days of the
date of service of the notice of demand relating to the assessment. Mr. Y has to file an
appeal u/s 253 before the Appellate Tribunal within 60 days of the date on which the order
sought to be appealed against is communicated to him
(d) Mr. Y has to file an appeal before Commissioner (Appeals) u/s 246A within 60 days of the
date on which the order sought to be appealed against is communicated to him. Mr. X has
to file an appeal u/s 253 before the Appellate Tribunal within 30 days of the date of service
of the notice of demand relating to the assessment
2. Mr. Ram Mohan, a non-resident, operates an aircraft between Malaysia and Cochin. He
received the following amounts while carrying on the business of operation of aircrafts for the
year ended 31.3.2022:
(i) ? 2 crores in India on account of carriage of passengers from Cochin.
(ii) ? 1 crore in India on account of carriage of goods from Cochin.
(iii) ? 3 crores in India on account of carriage of passengers from Malaysia.
(iv) ? 0.50 crore in Malaysia on account of carriage of passengers from Cochin.
(v) ? 1.30 crores in Malaysia on account of carriage of passengers from Malaysia.
(vi) ? 1.20 crore in Malaysia on account of carriage of goods from Malaysia.
(vii) ? 0.50 crore in Malaysia on account of carriage of goods from Cochin

56 MCQ Booklet
The total expenditure incurred by Mr. Ram Mohan for the purposes of the business during the
year ending 31.3.2022 was ? 3 crores. What is the income of Mr. Ram Mohan chargeable to tax
in India under the head "Profits and gains of business or profession" for the A.Y.2022-23?
(a) ? 35 lakh
(b) ? 30 lakh
(c) ? 20 lakh
(d) ? 47.50 lakh
3. As per section 245N(a)(iv), advance ruling means determination or decision by the Authority for
Advance Rulings (AAR) whether an arrangement, which is proposed to be undertaken by a
person is an impermissible avoidance arrangement as referred to in Chapter X-A or not. For
making an application in this regard, the applicant has to be -
(a) Only a Non-resident
(b) Only a Resident
(c) Only a Resident falling within such class or category of persons as notified by the Central
Government
(d) Either a resident or a non-resident
4. Gamma Ltd. has distributed on 15.12.2021, dividend of ? 460 lakhs to its shareholder from
April, 2021 to November, 2021, Gamma Ltd. has received dividend of ? 120 lakhs from
domestic companies and ? 30 lakhs from a foreign company in which it has 5% shareholding.
What is the deduction, if any, available to Gamma Ltd. in respect of such dividend?
(a) Nil
(b) ? 120 lakhs
(c) ? 150 lakhs
(d) ? 460 lakhs
5. Mr. Hari has income of ? 52 lakhs under the head "Profits and gains of business or profession".
One of his businesses is eligible for deduction@100% of profits under section 80-IA for
A.Y.2022-23. The profit from such business included in the business income is ? 35 lakhs. What
is the tax payable (rounded off) by Mr. Hari for A.Y.2022- 23, assuming that he has no other
income during the P.Y.2021-22, and credit for alternate minimum tax, if any, to be carried
forward?
(a) ? 3,35,400; AMT credit to be carried forward is Nil
(b) ? 10,00,480; AMT credit to be carried forward is ? 6,65,080
(c) ? 11,00,530; AMT credit to be carried forward is ? 7,65,130
(d) ? 11,50,550; AMT credit to be carried forward is ? 8,15,150
6. Mr. Anjan, a property dealer, sold a flat in Mumbai, the stamp duty of which is ? 2 crores for
1 1.80 crores to his friend Mr. Ashwin, a college lecturer. Mr. Anjan had purchased the flat one
year back for ? 1.50 crores and the stamp duty value on that date was also ? 1.50 crores. What
are the tax implications of such sale?

MCQ Booklet 57
(a) ? 50 lakhs would be taxable as short-term capital gains in the hands of Mr. Anjan. There
would be no tax implication in the hands of Mr. Ashwin
(b) ? 50 lakhs would be taxable as business income in the hands of Mr. Anjan. There would
be no tax implication in the hands of Mr. Ashwin
(c) ? 50 lakhs would be taxable as business income in the hands of Mr. Anjan and ? 20 lakhs
would be taxable as income from other sources in the hands of Mr. Ashwin
(d) ? 50 lakhs would be taxable as short-term capital gains in the hands of Mr. Anjan and
? 20 lakhs would be taxable as income from other sources in the hands of Mr. Ashwin
7. In the P.Y.2021-22, Mr. Ganguly, a resident individual aged 60 years, earned income from
profession (computed) ? 1,45,000, winnings from card games ? 1,50,000 (gross). He also has
interest of ? 40,000 on fixed deposit with banks and ? 9,000 on savings bank account with
banks. He deposited ? 1,50,000 in PPF. What is the total income of Mr. Ganguly for P.Y.2021-
22, assuming that he does not opt for section 115BAC?
(a) ? 1,45,000
(b) ? 1,50,000
(c) ? 1,85,000
(d) ? 1,90,000
8. Dinesh, a resident individual of age of 47 years, has not furnished his return of income for the
A.Y. 2022-23. However, his total income for such year as assessed u/s 144 is ? 18 lakhs. Is
penalty under section 270A attracted and if so, what is the quantum of penalty?
(a) No; penalty under section 270A is not attracted since he has not filed his return of income,
hence, this is not a case of underreporting or misreporting of income.
(b) Yes; penalty is ? 3,66,600
(c) Yes; penalty is ? 1,83,300
(d) Yes; penalty is ? 1,44,300
9. The assessment of M/s. Epsilon Associates for A.Y.2020-21 was made u/s 143(3) on 28th
March, 2022. The Assessing Officer added ? 3 lakh being 30% of ? 10 lakh, for non-deduction of
tax at source and ? 4 lakh on account of unexplained investments. The assessee contested the
addition on account of unexplained investments in appeal before Commissioner (Appeals). The
appeal was decided against the assessee in December, 2021. What is remedy available to the
assessee in respect of disallowance under section 40(a)?
(a) The assessee can file an application for revision to the Commissioner under section 264
(b) The assessee can file an application for rectification under section 154, if it is a mistake
apparent from the record
(c) The assessee can opt for either (a) or (b)
(d) The assessee can neither opt for remedy stated in (a) nor for remedy stated in (b)
10. The Assessing Officer within his jurisdiction surveyed a popular Cyber Cafe at 1 a.m. in night for
the purpose of collecting information which may be useful for the purposes of the Income-tax
Act, 1961. The Cyber Cafe is kept open for business every day between 2 p.m. and 2 a.m. He
impounded and retained in his custody, books of account and other documents inspected by
58 MCQ Booklet
him, after recording his reasons for doing so, for 12 days. Which of t h e following statements is
correct?
(a) The Assessing Officer's action in entering t h e cyber cafe at 1 a.m. and impounding books of
account and documents inspected by him is in order
( b ) The Assessing Officer's action in entering t h e cyber cafe a t 1 a.m. is not in order, since he
can enter t h e cyber cafe only after sunrise but before sunset
(c) The Assessing Officer's action in entering the cyber cafe at 1 a.m. and i n impounding books
of account and documents inspected by him are n o t i n order, since h e can enter t h e cyber
cafe only after sunrise b u t before sunset and he does n o t have t h e power to impound books
of account under section 133B
(d) The Assessing Officer's action in entering the cyber cafe at 1 a.m. is i n order b u t impounding
books of account and documents inspected by h i m is n o t i n order, since he does n o t have
t h e p o w e r to impound books of account under section 133B
11. M r . X made a fixed deposit of ? 12,000 with a non-banking finance company (NBFC) o n
1.4.2021 i n cash. Thereafter, he made another fixed deposit of ? 7,500 w i t h t h e same NBFC o n
1.8.2021 by bearer cheque. On 31.3.2022, he made yet another fixed deposit of T 8,000 with
t h e same NBFC by an account payee cheque. Which of t h e following statements is correct?
(a) Penalty under section 271D is attracted at t h e t i m e of acceptance of first deposit o n

1.4.2021
(b) Penalty under section 271D is attracted at t h e t i m e of acceptance of second deposit o n
1.8.2021
(c) Penalty under section 271D is attracted at t h e t i m e of acceptance of t h i r d deposit on
31.03.2022
(d) Penalty under section 271D is not attracted
12. M r . Rajesh is engaged i n t h e profession of technical consultancy and his gross receipts for t h e
P.Y.2021-22 is ? 45 lakhs. He does not maintain books of account. He is also a partner of a firm,
M/s. Rajesh & Co., which carries on the profession of technical consultancy. The gross receipts
of t h e f i r m during t h e P.Y.2021-22 is T 48 lakhs. Which of t h e following statements is correct?
(a) M r . Rajesh and M/s. Rajesh & Co. have to pay entire advance tax o n o r before 15 t h March,
2022
(b) M r . Rajesh does n o t have to pay advance tax. However, M / s . Rajesh & Co. has to pay t h e
entire advance tax o n o r before 15th March
(c) M r . Rajesh does n o t have to pay advance tax. However, M/s. Rajesh & Co. has to pay
advance tax i n f o u r instalments
(d) M r . Rajesh has to pay entire advance tax on or before 15th March and M/s. Rajesh & Co.
has to pay advance tax i n four instalments
13. M r . Rajan purchased 300 shares in Vaigai Ltd. on 12.1.2017 at a cost of ? 2,500 per share. The
Fair Market Value (FMV) of t h e share as on 31.1.2018 is ? 1,800. M r . Rajan sold all t h e shares of
Vaigai Ltd. o n 15.7.2021 for ? 3,200. Mr. Rajan's brother M r . Ravi purchased 600 shares i n Tapti
Ltd. on 25.1.2017 at a cost of ? 1,900 per share. The FMV of t h e share as o n 31.1.2018 is
? 2,400. M r . Ravi sold all t h e shares of Tapti Ltd. on 31.1.2022 for ? 1,700 per share. W h a t is t h e

MCQ Booklet 59
chargeable capital gains on sale of shares of Vaigai Ltd. and Tapti Ltd. in the hands of Mr. Rajan
and Mr. Ravi, respectively, for A.Y.2022-23, assuming that STT was paid at the time of
acquisition and sale?
(a) Long-term capital gains of Mr. Rajan ? 2,10,000; Long-term capital loss of Mr. Ravi
? 4,20,000
(b) Long-term capital gains of Mr. Rajan ? 4,20,000; Long-term capital loss of Mr. Ravi
? 4,20,000
(c) Long-term capital gains of Mr. Rajan ? 4,20,000; Long-term capital loss of Mr. Ravi
? 1,20,000
(d) Long-term capital gains of Mr. Rajan ? 2,10,000; Long-term capital loss of Mr. Ravi
? 1,20,000
14. X Ltd. ("X") is an Indian company incorporated on 1st October, 2020 with the objective of
manufacturing medicines using state-of-the-art technology previously unused in India. One of
the incidental business objects of X as per its Memorandum of Association is trading in futures
and options ("F&O") on the Bombay Stock Exchange and the National Stock Exchange.
It commences production from 1st December, 2020 from its newly- constructed manufacturing
facility in Uttar Pradesh; its registered office is also situated at the said manufacturing facility.
Y Inc ("Y") is a private company incorporated in a foreign jurisdiction. X holds 30% share in the
nominal value of the equity share capital of Y. Y lent an amount of ? 50 crores@6% p.a. to X on
1st April 2021 and X paid the interest due for the F.Y. 2021-22 on 31st March, 2022. The
transaction is at arm's length price and X has not availed any other loan.
Profit before giving effect to interest, tax and depreciation allowance of X for FY 2021-22 is
6,00,00,000, which includes dividend of ? 7,50,000 received by X from Y on 1st July, 2021. It
earned ? 2,50,000 from F& O trading during F.Y. 2021-22.
(i) X has registered a patent in India for treatment of a novel virus which it has developed in
collaboration with Y. 90% of the total expenditure for developing the patent has been
incurred by X in at its manufacturing facility in Uttar Pradesh while the remaining has been
incurred by Y outside India.
(ii) X receives royalty of ? 5 crore by permitting other companies to use its patent. The total
expenditure incurred for earning such royalty is ? 42,00,000.
(iii) On 1st January 2022, Z Pvt. Ltd. ("Z"), an Indian company, engaged in the same business as
X, gets amalgamated with X.
Immediately after approval of the scheme of amalgamation by the Court, X, as the
amalgamated company, informs the Assessing Officer of Z as well as of X about such
amalgamation. However, both Z and X had filed their returns of income for A.Y.2021-22
separately within the time specified under section 139(1) before the order of amalgamation.

60 MCQ Booklet
questions-
(I) What would be the amount of disallowance, if any, of interest paid by X to Y in computation
of total income of X?
(a) No disallowance is attracted since the transaction is at arm's length.
(b) ? 3,00,00,000
(c) ? 1,20,00,000
(d) ? 1,80,00,000
(ii) At what rate of tax will income of X from manufacturing business, dividend and F&O trading
be taxed, assuming that X opts for the special provisions introduced by the Taxation Laws
(Amendment) Act, 2019? Ignore surcharge and health and education cess.
(a) 15%, 10%, 22%, respectively
(b) 22%, 15%, 22%, respectively
(c) 15%, 22%, 30%, respectively
(d) 22%, 10%, 30%, respectively
(iii) Which of the statements is correct as regards taxability of royalty in the hands of X?
(a) Royalty of ? 5 crore is taxable@15% u/s 115BBF
(b) Royalty of ? 5 crore is taxable@10% u/s 115BBF
(c) Royalty of ? 4.58 crore (? 5 crore less expenditure of ?
(d) 42 lakh) is taxable @10% u/s 115BBFRoyalty of ? 5 crore is not eligible for concessional
rate of tax u/s 115BBF, since the entire expenditure for development of patent was not
incurred in India
(iv) lf X desires to avail the beneficial rate of taxation provided under the Taxation Laws
(Amendment) Act, 2019, then:
(a) it cannot claim deduction u/s 32(l)(ii) as well as deduction u/s 80JJAA
(b) it can claim deduction u/s 32(l)(iia) as well as u/s 80JJAA
(c) it can claim deduction u/s 32(l)(ii) but cannot claim deduction u/s 80JJAA
(d) it cannot claim deduction u/s 32(l)(iia) but can claim deduction u/s 80JJAA
(v) The Assessing Officer sought to undertake scrutiny assessment of Z by issuing notices under
section 143(2) and 142(1) in the name of Z. The notices were served at the registered office
of Z. Thereafter, the proceedings continued and assessment was made on Z knowing fully
well that it got amalgamated with X. Which of the following statements is correct?
(a) The notices are invalid as they have been issued to a non-existent company. However, if
X participates in the assessment proceedings, its participation would operate as an
estoppel and thereafter, X cannot challenge the validity of the notices
(b) The notices are invalid as they have been issued to a non-existent company and
participation of X in the assessment proceedings would not validate the notices

MCQ Booklet 61
(c) X is precluded from taking technical objection as regards mention of name of Z on the
notices by virtue of section 292B of the Act. The notices are valid as they have been
served at the registered office of Z
(d) The Assessing Officer is not bound to take cognisance of the intimation of amalgamation
of Z with X. Since X and Z have filed separate returns, the Assessing Officer is justified in
issuing notices in the name of Z and has correctly served the notices at the registered
office of Z
15. DEF Inc., a company incorporated under the laws of Country A, is engaged in management
consultancy services. It has set up a branch office in India.
During the F.Y. 2021-22, it earns the following income in India -
(i) Fee for technical services of ? 75,00,000 from ABC Ltd., an Indian company, in pursuance of
an agreement made with it and approved by the Central Government. The tax rate on such
income under India-Country A tax treaty is 10% on gross income. The fee for technical
services is not effectively connected with the branch office in India.
(ii) DEF Inc. incurred expenses of ? 3,00,000 in earning such income from fee for technical
services.
(iii) Sale of shares of Bottle Pvt. Ltd., an Indian company, for ? 2,60,00,000.
(iv) Other income ? 10,00,000
All the above income have been credited to the statement of profit and loss of the company
DEF Inc. had made an investment in 100% equity share capital of Bottle Pvt. Ltd., purchased for
? 1,75,00,000 on 5th November, 2004. The said shares were purchased out of foreign exchange
of USD 3,50,000 brought from outside India.
questions -
(i) In the context of the provisions of section 115JB, state which of the following statements is
correct -
(a) The provisions of section 115JB do not get attracted in the hands of DEF Inc., since it is a
foreign company
(b) The provisions of section 115JB do not get attracted in the hands of DEF Inc., since its
entire income from India is subject to tax at a rate lower than the rate prescribed u/s
115JB
(c) The provisions of section 115JB are attracted in the hands of DEF Inc. since it is resident
of a country with which India has a DTAA and the branch office of DEF Inc. constitutes
permanent establishment in terms of such agreement
(d) The provisions of section 115JB are attracted in the hands of DEF Inc., since the
provisions of section 115JB are applicable to every company deriving income from India

62 MCQ Booklet
(ii) What is the rate at which fee for technical services received by DEF Inc. is chargeable to tax
in India?
(a) 10.4% o n ? 75 lakh
(b) 10.4% on ? 72 lakh
(c) 10% on ? 75 lakh
(d) 41.6% on ? 7 2 lakh
(iii) ln respect of sale of shares in Bottle Pvt. Ltd., state which of the following statements is
correct -
(a) The transaction of sale of shares in Bottle Pvt. Ltd. is subject to transfer pricing since
DEF Inc. holds more than 26% shares in Bottle Pvt. Ltd. Hence, sale price of
? 2,60,00,000 shall be subject to arm's length computation
(b) Sale of shares in Bottle Pvt. Ltd. shall not be considered as transfer, since DEF Inc. holds
whole of the share capital of Bottle Pvt. Ltd.
(c) Capital gains arising on sale of shares shall be taxable @20% with indexation or 10%
without indexation, whichever is beneficial to DEF Inc.
(d) Capital gains is taxable@10% without benefit of indexation and foreign currency
conversion
(iv) Which of the following statements is correct, assuming that the rates specified in the DTAA
are the same as provided under the Act?
(a) Only capital gains has to be reduced while computing book profit of DEF Inc. for levy of
minimum alternate tax.
(b) Only fee for technical services has to be reduced while computing book profit of DEF
Inc. for levy of minimum alternate tax.
(c) Both capital gains and fee for technical services have to be reduced while computing
book profit of DEF Inc. for levy of minimum alternate tax
(d) Capital gains, fee for technical services and other income have to be reduced while
computing book profit of DEF Inc. for levy of minimum alternate tax
16. Wellness Pvt Ltd, an Indian company incorporated on 1st April, 2021 offers multi-disciplinary
marketing services in print and digital media to Indian businesses. To carry on its business, the
company has engaged local advertising specialists in the field of print and digital media. These
specialists attend to clients of the company by doing required consultancy, execution and also
perform analysis of results. Depending upon the service request of the client - whether print or
digital mode, specialists perform relevant tasks. The specialists employ their individual skills
and exercise discretion, judgement while performing the duties. The policies of the company
regarding working hours, annual leave applicable to the staff do not apply to these specialists.
The remuneration of specialists varies every month depending upon type of service, seniority of
specialist, skills involved etc.

MCQ Booklet 63
During the year 2021-2022, Wellness Pvt Ltd recorded a turnover of ? 1.10 crores in its books of
accounts. Inspired by the Government's Digital India initiative, the company provided electronic
payment facilities to customers. Most of the billed amount was collected through digital
means, except from Customer X (Bill no. 15, dated 26th June, 2021 of ? 5,50,000). Customer X
paid the amount in cash to the company in 4 installments on different dates - ? 1,50,000,
? 75,000, ? 1,75,000 and ? 1,50,000.
The details of payments made by the company during the year 2021- 2022 are as under:
Particulars Mode of Amount]?)

payment ■ . ■ ■ ■■ ■
Remuneration to 20 specialists Net-banking 35,00,000
Salary to staff (HR, junior co-ordinators) (Each Net-banking 20,00,000

person has total income more than
? 5 lakh)
Wages to 1 security guard, 2 housekeeping Cash 5,40,000

(wages of ? 15,000 p.m. each)
Computers purchased on 15th May, 2021 and A/c payee 3,50,000

put to use from 15th October, 2021 Cheque
1
Interest for P.Y. 2021-22 on loan availed on A/c payee I 34,500

15th April, 2021 from SBI for purchase of Cheque
computers
Other administration expenses (Each expense Cash 70,000

is of less than ? 8,000)
Advance given to suppliers, specialists etc. Cash 90,000
The company could recruit a qualified finance and accounts professional only on 21st March,
2022. Post his appointment, necessary income tax statutory compliances were undertaken and
the default with respect to non-deduction of tax on expenses from April, 2021 to March, 2022
was corrected in the month of April, 2022. The company withheld tax on expenses liable for
withholding tax and paid such tax to the credit of Government in the same month.
Being the first year of operation, all transactions of the company are with Indian resident
parties. The company has chosen to follow mercantile system of accounting for tax purposes.
questions -
(i) Is Wellness Pvt. Ltd. required to get its books of account audited under section 44AB for
A.Y.2022-23?
(1) No, since turnover of company is less than ? 5 crore.
(2) Yes, since the turnover of the company is more than ? 1 crore.

64 MCQ Booklet
(3) No, since the turnover of the company is less than ? 2 crore.
(4) No, as aggregate cash receipts during the year do not exceed 5% of total amount
received.
(5) Yes, as cash payments during the year exceed 5% of aggregate payments.
(6) Yes, as the company is not eligible for presumptive taxation.
(a) No, due to reasons stated in (i) and (iv) above
(b) Yes, due to reasons stated in (ii) and (v) above
(c) No, due to reason stated in (iii) above
(d) Yes, due to reasons stated in (ii) and (vi) above
(ii) What is the amount to be disallowed for non-deduction of tax at source while computing
profits and gains of business or profession?
(a) Nil, since the entire amount of tax has been deducted and remitted on or before the
due date of filing of return u/s 139(1)
(b) ? 10,50,000
(c) ? 16,50,000
(d) ? 18,12,000
(iii) WI at is the amount of depreciation allowable u/s 32(1) for the P.Y. 2021-22 on the
con outers purchased?
(a) < 73,600
(b) ? 70,000
(C) ? 73,450
(d) ? 76,900
(iv) What is the total income of Wellness Pvt Ltd. for the A.Y. 2022-23?
(a) ? 69,89,900
(b) ? 69,75,500
(c) 53,39,900
(d) T 47,99,900
(v) Is any penalty imposable on the company for cash receipts from Customer X and if yes, how
much?
(a) No, since each receipt is less than ? 2,00,000
(b) Yes, ? 5,50,000
(c) No, since amount exceeding ? 2,00,000 is not received on a single day
(d) No, since amount received is not in the nature of loan or advance

MCQ Booklet 65
17. Which of t h e following cannot be adjusted while computing t o t a l income while processing t h e
return of income for A.Y. 2022-23 under section 143(1)?
(a) any arithmetical error i n t h e return
(b) an incorrect claim apparent from any information i n t h e return

(c) disallowance of expenditure indicated i n t h e audit report b u t n o t taken into account in
computing t o t a l income i n t h e return.
(d) addition of income appearing i n Form 26AS which has not been included i n computing t o t a l
income i n t h e return.
18. Benefit of presumptive taxation under t h e Income-tax Act, 1961 would not be available to
Akash, a non-resident, i n A.Y. 2022-23, i n respect of t h e related Indian income, if he is engaged
i n t h e business of -
(a) Operation of ships
(b) Operation of Aircraft
(c) Civil construction i n connection w i t h an approved turnkey project
(d) Plying, hiring o r leasing of goods carriages
19. M r . Mahesh engaged i n t h e business of trading of car accessories. His turnover for F.Y. 2020-21
and F.Y. 2021-22 was ? 11.5 crore and ? 9.75 crore, respectively. During t h e previous year, XYZ
Ltd. placed order for purchase of car accessories for ? 50 lakhs o n 01.08.2021. He again placed
order for ? 35 lakhs o n 01.11.2021. M r . Mahesh delivered both t h e orders within 15 days of
receipt of orders and received t h e payment within 7 days from t h e date of delivery. W h a t is t h e
amount of tax which M r . Mahesh is required to collect tax at source, o n t h e consideration
received from XYZ Ltd during t h e F.Y. 2021-22?
(a) Nil, since his turnover does n o t exceed ? 10 crores i n t h e F.Y. 2021-22
(b) ? 2,625
(c) ? 3,000
(d) ? 3,500
20. M r . X is a resident of India, w h o involved i n t h e business of trading of Fast Moving Consumer
Goods (FMCG) under t h e name of M/s. Aadhar Stores. M / s . Aadhar Stores has turnover of
? 4,80,00,000 and 10,20,00,000, for F.Y. 2021-22 and F.Y. 2020-21, respectively. M r . X has taken
a building o n rent for t h e purposes of carrying o u t his business. This building is taken o n rent
from M r . U, w h o is non- resident i n India. During t h e previous year 2021-22, M r . X has paid
monthly rent of 5,00,000 to M r . U. During t h e previous year 2021-22, majority of t h e sales is
made to retail buyers. However, M/s Aadhar Stores also sold goods i n wholesale and has issued
t h e following invoices:
(a) Invoice 1 to ABC Ltd. for goods sold worth ? 45,50,000 o n 15.5.2021
(b) Invoice 2 to EFG Ltd. for goods sold worth ? 10,00,000 o n 20.5.2021
(c) Invoice 3 to ABC Ltd. for goods sold worth ? 25,50,000 o n 31.10.2021
(d) Invoice 4 to EFG Ltd. for goods sold worth ? 8,00,000 o n 12.12.2021

66 MCQ Booklet
M / s . Aadhar Stores has received t h e following amounts from ABC Ltd. and EFG Ltd. against t h e
goods sold:
(a) ? 19,90,000 for Invoice 1 o n 30.06.2021 through crossed cheque.
(b) ? 22,50,000 for Invoice 3 o n 31.12.2021 in cash.
(c) Balance amount of ? 28,60,000 for Invoice 1 & 3 received i n bank through RTGS o n
13.01.2022.
(d) ? 18,00,000 for Invoice 2 & 4 received through account payee cheque o n 15.02.2022.
He received and made all t h e payments other t h a n t h e above-mentioned receipts via NEFT,
account payee cheque, UPI o r credit card. His total receipts for t h e year 2021-22 is ? 4.95
crores. On 1.12.2021, M r . X has remitted ? 7,50,000 to his son studying i n Australia through an
authorized dealer. He has taken education loan of ? 7,50,000 from a financial institution for t h e
purpose of such remittance.
M r . X has also sold 1500 listed equity shares on 1st M a y 2021 through Bombay Stock Exchange,
which he sold after holding t h e shares for 15 months. He has paid STT b o t h at t h e t i m e
acquisition and sale of such shares. He acquired such shares for ? 2,50,000. M r . X made a profit
of ? 1,70,000 by selling these shares. He is of t h e view t h a t whole of t h e amount of profit is
exempt from tax. Based o n this view, he has furnished his return of income o n o r before t h e
due date specified under section 139(1). On 12.12.2022, he received an intimation under
section 143(1), intimating there is n o tax payable by h i m o r refundable to him.
Based o n t h e facts of t h e above case scenario, choose t h e most appropriate answers to t h e
following questions:
(i) Whether M r . X is under any obligation to deduct tax at source o n t h e rent paid to Mr. U as
per t h e provisions of Income-tax Act, 1961. If yes, under which section and at w h a t rate?
(a) No, he is not liable to deduct tax at source.
(b) Yes, h e is liable to deduct tax at source under section 194-1 @ 10%.
(c) Yes, he is liable to deduct tax at source u/s 195 at t h e rates i n force.
(d) Yes, he is liable to deduct tax at source u/s 194-IA @ 5%.
(ii) Whether M r . X is required to collect tax at source during t h e previous year 2021-22? I f yes,
w h a t would be t h e amount of tax collection at source?
(a) No, M r . X is not required to collect tax at source, since his turnover for t h e P.Y. 2021-22
does not exceed ? 5 0 crores.
(b) Yes, M r . X is required to collect tax at source of ? 1,575.
(c) Yes, M r . X is required to collect tax at source of ? 2,925.
(d) Yes, M r . X is required to collect tax at source of ? 2,100.
(iii) W h a t would be t h e a m o u n t of tax collection at source o n t h e remittance made by M r . X to
his son?
(a) Nil, since such remittance is for education purposes.
(b) ? 250, being @0.5% o n t h e amount exceeding ? 7,00,000.

MCQ Booklet 67
(c) ? 2,500, being @5% on the amount exceeding ? 7,00,000.
(d) ? 187.50, being @0.375% on the amount exceeding ? 7,00,000.
(iv) On 22.12.2022, on having discussion with his friends about the gains he earned on sale of
listed shares, he came to know about the following views:
(i) capital gain on sale of listed shares exceeding ? 1,00,000 is taxable @10% under section
112A
(ii) he cannot revise his return of income, since he received intimation u/s 143(1)
(iii) he can revise his return of income even if he received intimation u/s 143( 1), since time
limit for filing revised return has not yet expired.
(iv) while computing capital gain he can take the benefit of FMV as on 31.1.2018
(v) whole of the amount of capital gain of ? 1,70,000 is taxable @10% u/s 112A
Choose the correct statements:
(a) (i), (ii) & (iv)
(b) (iii) & (v)
(c) (i) & (iii)
(d) (i) & (ii)
(v) Is Mr. X required to get his books of account audited u/s 44AB for P.Y. 2021-22? If yes, what
is due date for filing tax audit report?
(a) Yes; 30.9.2022
(b) No
(c) Yes; 31.7.2022
(d) Yes; 31.10.2022
21. Mr. Shivam, an Indian citizen, has left India with his family, when he was 16 years old, to US on
31.03.2002. He was interested in cricket since his childhood days and took cricket as his career.
He came to India for playing T-20 matches on 15.02.2022. Mr. Shivam has made the following
investments:
Purchased shares
Company Date of Investment Amount
Mittal Lifestyle Ltd. 01-06-2019 ? 60,00,000 (purchased in US $)

(STT not paid on purchase)
HEG Ltd 01-06-2019 ? 10,00,000 (purchased in ?)

(STT paid on purchase through
stock exchange)
Dabur Ltd. 22-01-2021 ? 40,00,000 (purchased in US $)

(STT not paid on purchase)

68 MCQ Booklet
Other Investments
100 GDRs of Listed Co. 10-10-2011 ? 2,000 per GDR (purchased i n US

$)
Bonds of Indian Co. issued 01-04-2015 ? 10,00,000 (purchased i n US $)

abroad and purchased i n
foreign currency
10% debentures of Indian Co 01-04-2016 ? 10,00,000 (purchased i n US$)

(Unlisted public Ltd. Co.)
M r . Shivam received ? 11,00,000 as dividend from above companies. All t h e above

investment i n shares were sold by Shivam o n 20.01.2022 o n stock exchange and STT was paid
as follows -
® Shares of M i t t a l Lifestyle Ltd. for ? 1,50,00,000 and he deposit ? 90 Lacs from t h e sale
proceeds w i t h a Indian Public Limited Co. o n 30-06-2022.
• Shares of HEG Ltd. for ?15,00,000 and he invested ? 15,00,000 i n shares of Reliance Ltd.
o n 30-06-2022.
» Shares of Dabur Ltd. for ? 60,00,000 and invested ? 60,00,000 i n shares of Reliance Ltd.
o n 30-06-2022.
50% GDR's were sold to Priya, a non-resident, on 01.04.2021 for ? 18,00,000 and balance 50%
were sold to Hitesh, a resident, o n 01.03.2022 for ? 15,00,000.
M r . Shivam also received interest as follows
(a) Interest o n bonds ? 1,00,000 Bank charges for above interest ? 5,000
(b) Interest o n debentures 1,00,000
Interest o n loan taken to acquire debentures 10,000
For matches played in India, M r . Shivam has earned ? 6,00,000 as match participation fee.
Details of Telegraphic buying and selling rates:
Date TTBR TTSR
01-06-2019 28 32
30-06-2021 43 47
10-10-2021 48 52
22-01-2021 48 52
20-01-2022 58 62

MCQ Booklet 69
Based on the facts of the above case scenario, choose the most appropriate answers to the
following questions assuming that Shivam has opted for Chapter Xll-A -
(i) Compute taxable long term capital gain on sale of shares by Mr. Shivam for A.Y. 2022-23.
(a) ? 34,00,000
(b) ? 16,60,000
(c) ? 11,60,000
(d) ? 5,00,000
(ii) What is the taxable short term capital gain on sale of shares for A.Y. 2022-23?
(a) ? 20,00,000
(b) 11,60,000 taxable u/s 111A
(c) Nil
(d) ? 11,60,000 taxable at normal rates
(iii) Which of the following is correct in respect to the taxability of transfer of GDRs by
Mr. Shivam?
(a) Capital gains arising on sale of 100 GDRs shall be subject to tax @20% (plus
applicable surcharge and HEC@4%) with indexation benefit in India.
(b) No Capital Gain will arise on sale of 50 GDRs to Priya but tax @ 10% (plus applicable
surcharge and HEC@4%) is leviable on capital gains computed after giving benefit of
foreign currency conversion (but not indexation) in respect of transfer of GDRs to
Hitesh.
(c) No Capital Gain will arise on sale of 50 GDRs to Priya but tax @ 10% (plus applicable
surcharge and HEC@4%) is leviable on capital gains computed without giving benefit
of indexation and foreign currency conversion in respect of transfer of GDRs to
Hitesh.
(d) Capital gains arising on sale of 100 GDRs shall be subject to tax @10% (plus
applicable surcharge and HEC@4%) without giving benefit of indexation and foreign
currency conversion.
(iv) What will be total Income excluding capital gain of Mr. Shivam for A.Y. 2022-23?
(a) 19,00,000
(b) 18,85,000
(c) 18,90,000
(d) 8,00,000

IQ MCQ Booklet
Answer Key
Question No. Answer
1. (c) M r . X has to file an appeal before Commissioner (Appeals) u/s

246A within 3 0 days of t h e date of service of t h e notice of demand
relating to t h e assessment. M r . Y has to file an appeal before t h e
Appellate Tribunal within 60 days of t h e date on which t h e order
sought to be appealed against is communicated to him
2. (a) ? 35 lakh
3. (d) Either a resident o r a non-resident
4. (c) ? 150 lakhs
5. (c) ? 11,00,530; AMT credit t o be carried forward is ? 7,65,130
6. (C) ? 50 lakhs would be taxable as business income in t h e hands of M r .

Anjan and ? 20 lakhs would be taxable as income from other sources
in the hands of M r . Ashwin
7. (b) ? 1,50,000
8. (c) Yes; penalty is ? 1,83,300
9. (b) The assessee can file an application for rectification under section
154, if it is a mistake apparent from t h e record
10. (a) The Assessing Officer's action i n entering t h e cyber cafe at 1 a.m.
and impounding books of account and documents inspected by
him is in order
11. (d) Penalty under section 271D is not attracted
12. (a) Mr. Rajesh and M/s. Rajesh & Co. have to pay entire advance tax
on or before 15th March, 2022
13. (d) Long-term capital gains of M r . Rajan

? 2,10,000; Long-term capital loss of M r . Ravi T 1,20,000
14.
(i) (c) ? 1,20,00,000
(ii) (b) 22%, 15%, 22%, respectively
(iii) (b) Royalty of ? 5 crore is taxable @10% u/s 115BBF
(iv) (d) it cannot claim deduction u/s 32(l)(iia) b u t can claim deduction u/s
80JJAA

MCQ Booklet 71
Question No. Answer
(v) (b) The notices are invalid as they have been issued to a non-existent
company and participation of X i n t h e assessment proceedings
would n o t validate t h e notices
15.
(i) (c) The provisions of section 115JB are attracted i n t h e hands of DEF
Inc. since it is resident of a country w i t h which India has a DTAA
and t h e branch office of DEF Inc. constitutes permanent
establishment in terms of such agreement
(■0 (c) 10% o n ? 75 lakh
(iii) (d) Capital gains is taxable@10% w i t h o u t benefit of indexation and

foreign currency conversion
(iv) (c) Both capital gains and fee for technical services have to be reduced
while computing book profit of DEF Inc. for levy of m i n i m u m
alternate tax
16.
(i) (b) Yes, due to reasons stated i n (ii) and (v) above
(ii) (c) ? 16,50,000
(iii) (a) ? 73,600
(iv) (a) ? 69,89,900
(v) (b) Yes, ? 5,50,000
17. (d) addition of income appearing i n Form 26AS which has not been
included i n computing t o t a l income in t h e return
18. (c) Civil construction i n connection w i t h an approved turnkey project
19. (d) ? 3,500
20.
(i) (c) Yes, he is liable to deduct tax at source u/s 195 at t h e rates i n force
(ii) (d) Yes, M r . X is required to collect tax at source of ? 2,100
(iii) (b) ? 250, being @0.5% o n t h e amount exceeding ? 7,00,000
(iv) (c) (i) & (iii)
(v) (a) Yes, 30.09.2022

72 MCQ Booklet
Question No. Answer
21.
0) (b) ? 16,60,000
(ii) (b) ? 11,60,000 taxable u/s 111A
(iii) (c) No Capital Gain will arise o n sale of 50 GDRs to Priya b u t tax @
10% (plus applicable surcharge and HEC@4%) is leviable o n capital
gains computed w i t h o u t giving benefit of indexation and foreign
currency conversion i n respect of transfer of GDRs to Hitesh
(iv) (a) 19,00,000

1. Under which of the following methods, arm's length price shall be the arithmetical mean of all
values included in the dataset, irrespective of the number of entries in the dataset. It may be
assumed that the variation between the arm's length price computed and the transaction price
is 15%.
(a) Profit split method
(b) Resale price method
(c) Cost plus method
(d) Transactional net margin method
2. Air India Ltd. has paid an amount of ? 20 lakhs on 1.4.2021 to Airports Authority of India
towards landing and parking charges for the month of April, 2021. Which of the following
statements is correct?
(a) No tax is deductible at source on such payment
(b) Tax is deductible at source @2% u/s 194C on such payment
(c) Tax is deductible at source @1.5% u/s 194C on such payment
(d) Tax is deductible at source @7.5% u/s 194-1on such payment
3. A Ltd. credited ? 28,000 towards fees for professional services and ? 27,000 towards fees for
technical services to the account of Ram in its books of account on 11.05.2021. The total sum of
? 55,000 was paid by cheque to Ram on the same date. Which of the following statements is
correct?
(a) No tax is deductible at source from such payment
(b) Tax is deductible at source @7.5% u/s 194J on ? 55,000
(c) Tax is deductible at source @10% u/s 194J on ? 25,000
(d) Tax is deductible at source @10% u/s 194J on ? 55,000
4. Music Academy, as per its rules, pays a fixed honorarium per concert to each musician
performing in the concerts organised by it. Hari, a violinist, however, refuses to accept this sum.
If he requests Music Academy to pay such sum directly to Aid Us, an unregistered institution
providing relief to the poor and needy in rural India, what would be the tax consequence?

74 MCQ Booklet
(a) No amount would be chargeable to tax in the hands of Mr. Hari, since this is a case of
diversion of income at source by overriding title
(b) The amount payable to Aid Us would be chargeable to tax only in the hands of Mr. Hari,
since it is a case of application of income
(c) The amount payable to Aid Us would be chargeable to tax only in the hands of the
institution which has received the amount
(d) The amount payable to Aid Us would be chargeable to tax both in the hands of Mr. Hari and
in the hands of the institution
5. Mr. X, set up a manufacturing unit in Warangal in the State of Telangana on 01.06.2021. It
invested ? 30 crore in new plant and machinery on 1.6.2021. Further, it invested ? 25 crore in
the plant and machinery on 01.11.2021, out of which ? 5 crore was second hand plant and
machinery. The depreciation allowable under section 32 for A.Y.2022-23 is -
(a) ? 23.875 crore
(b) ? 20.375 crore
(c) ? 14.375 crore
(d) ? 14.875 crore
6. Y Ltd. purchased computers for ? 10 lakhs on 5th October, 2021, installed the same in its office
and put the said computers to use on the same date. The depreciation allowable under section
32 for A.Y.2022-23 is respect of the said computers is -
(a) ? 1.5 lakhs
(b) ? 3 lakhs
(c) ? 4 lakhs
(d) 1 2 lakhs
7. Mr. Arvind, engaged in the business of wholesale trade, has a turnover of ? 90 lakhs for
P.Y.2020-21 and ? 210 lakhs for P.Y.2021-22. In the P.Y.2021-22, he paid salary of 3 lakhs to
Mr. Hari, a resident, without deduction of tax at source and commission of ? 5 1 lakhs to
Mr. Rajesh, a resident, without deduction of tax at source. The disallowance under section
40(a)(ia) while computing business income of A.Y.2022-23 would be -
(a) ? 54,00,000
(b) ? 16,20,000
(c) ? 15,30,000
(d) Nil
8. For the previous year ended 31.3.2022, a public charitable trust, registered under section
12AA/12AB, derived income of ? 10 lakhs from properties held by trust and ? 15 lakhs, being
voluntary contributions from public, out of which ? 8 lakhs was applied for charitable purposes
and ? 4 lakhs towards repayment of loan taken for construction of orphanage. The total income
of the trust for A.Y.2022-23 is -
(a) ? 13 lakhs
(b) ? 9.25 lakhs

MCQ Booklet 75
(c) ? 13.25 lakhs
(d) ? 17 lakhs
9. If Country A is a notified jurisdictional area (NJA), then, the rate at which interest receivable
from an infrastructure debt fund notified u/s 10(47) is taxable in the hands of Mr. Ram, a
resident of Country A, and the rate at which tax has to be deducted at source on such income
are, respectively, -
(a) 30% and 5%
(b) 5% and 5%
(c) 30% and 30%
(d) 5% and 30%
10. In October, 2015, Mr. Raghav, an Indian citizen who is a non-resident, bought 500 Global
Depository Receipts (GDRs) of Alpha Limited, India, issued in accordance with the notified
scheme of the Central Government against the company's initial issue of shares in foreign
currency. In January, 2022, he sold 300 GDRs outside India to Mr. Joe, a citizen and resident of
a country outside India and 200 GDRs to Mr. Kamal, a Resident but not ordinarily resident in
India. What are the tax consequences of such sale transaction under the Income-tax Act, 1961?
(a) Capital gains arising on sale of 500 GDRs shall be subject to tax @20% with indexation
benefit in India
(b) No capital gains would arise on sale of 500 GDRs in India, since the GDRs are purchased in
foreign currency
(c) No capital gains would arise on sale of 300 GDRs, but capital gains arising on sale of 200
GDRs shall be taxed in India @10% without indexation benefit
(d) No capital gains would arise on sale of 300 GDRs, but capital gains arising on sale of 200
GDRs shall be taxed @20% with indexation benefit in India
11. If ABC Ltd. has two Units, Unit 1 is engaged in power generation business and Unit 2 is engaged
in manufacture of wires. Both the units were set up in Karnataka in the year 2015. In the year
2021-22, twenty lakh metres of wire are transferred from Unit 2 t o Unit 1 at ? 125 per metre
when the market price per metre was ? 180. Which of the following statements is correct?
(a) Transfer pricing provisions would be attracted in this case
(b) Transfer pricing provisions would not be attracted in this case since Unit 1 and Unit 2
belong to the same company and are not associated enterprises
(c) Transfer pricing provisions would not be attracted in this case as it is not an international
transaction since both Units are in India. For the purpose of Chapter Vl-A deduction, the
profits of power generation business shall, however, be computed as if the transfer has
been made at the market value of ? 180 per MT
(d) Transfer pricing provisions would not be attracted in this case due to reasons mentioned in
both (b) and (c) above

76 MCQ Booklet
12. M r . Anjan, a property dealer, sold a flat in Mumbai, the stamp duty of which is ? 2 crores for
? 1.80 crores to his friend Mr. Ashwin, a college lecturer. M r . Anjan had purchased t h e flat one
year back for ? 1.50 crores and the stamp duty value on that date was also ? 1.50 crores. W h a t
are the tax implications of such sale?
(a) ? 50 lakhs would be taxable as short-term capital gains i n t h e hands of M r . Anjan. There
would be no tax implication in the hands of M r . Ashwin
(b) ? 50 lakhs would be taxable as business income i n t h e hands of M r . Anjan. There would be
no tax implication in the hands of M r . Ashwin
(c) ? 50 lakhs would be taxable as business income in t h e hands of M r . Anjan and ? 20 lakhs
would be taxable as income from other sources in the hands of M r . Ashwin
(d) ? 50 lakhs would be taxable as short-term capital gains i n the hands of M r . Anjan and ? 20
lakhs would be taxable as income from other sources i n t h e hands of M r . Ashwin
13. Dividend received by a real estate investment trust (REIT) from special purpose vehicle (SPV)
and distributed to its unit holders is -
(a) exempt in the hands of both the REIT and the unit holders unconditionally
(b) exempt in the hands of the REIT only if the SPV is a specified domestic company; taxable i n
t h e hands of unit holders only if SPV does not exercise option under section 115BAA
(c) exempt in the hands of the REIT; exempt in the hands of unit holders only if SPV does not
exercise option under section 115BAA
(d) taxable in the hands of the REIT; exempt unconditionally i n t h e hands of unitholders
14. ABC Ltd., an Indian company engaged in manufacture of steel, has incurred expenditure o n
advertisement in a souvenir of a registered political party. Which of t h e following statements is
correct?
(a) Such expenditure is allowable as deduction while computing its business income
(b) Such expenditure is not allowable as deduction while computing its total income
(c) Such expenditure is not allowable as deduction while computing its business income b u t is
allowable as deduction from gross total income
(d) Such expenditure is neither allowable as deduction f r o m business income nor allowable as
deduction from gross total income
15. Mallika purchased a land in Pune at a cost of ? 50 lakhs in December 2008 and held t h e same as
her capital asset till 30th September, 2020. She started her real estate business on 1st October,
2020 and converted the said land into stock-in-trade of her business o n t h e said date, when t h e
fair market value of the land was ? 300 lakhs.
She constructed 20 apartments of equal size, quality and dimension and t h e construction was
completed in December, 2021. Cost of construction of each apartment is ? 15 lakhs. She sold 14
apartments at ? 40 lakhs per apartment during the period from January, 2022 - February, 2022.
The remaining 6 apartments were held in stock as o n 31st March, 2022. All t h e six apartments
were sold in April, 2022 at ? 40 lakhs per apartment. She also holds a penthouse i n Nagpur,
construction of which was completed in March, 2021, as stock-in-trade. She let o u t t h e
penthouse to Mr. Harish, a salaried individual, for ? 60,000 per m o n t h f r o m April, 2021 to
March, 2023, who has furnished his PAN to her. He paid municipal taxes of ? 7,200 each for t h e

MCQ Booklet 77
years 2021-22 and 2022-23 in March, 2022 and March, 2023, respectively. The said penthouse
was, thereafter, sold in April, 2023 for ? 70 lakhs.
She invested ? 20 lakhs in bonds issued by National Highway Authority of India on 31st March,
2022; ? 20 lakhs in bonds of Rural Electrification Corporation Ltd. on 30th June, 2022, ? 10 lakhs
in bonds of Rural Electrification Corporation Ltd. on 30th September, 2022 and ? 10 lakhs in
bonds of National Highway Authority of India on 31st December, 2022. Mallika is subject to tax
audit for the P.Y.2021-22.
Cost Inflation Indices:
F.Y.2008-09: 137;
F.Y.2018-19: 280;
F.Y.2020-21: 301;
F.Y.2021-22: 317
questions -
(i) What is the amount of capital gains chargeable to tax in the hands of Mallika for A.Y.2022-
23?
(a) ? 86,16,788
(b) ? 93,10,218
(c) 50,00,000
(d) ? 60,14,599
(ii) What is the amount of income chargeable to tax in the hands of Mallika for A.Y.2022-23
under the head "Profits and gains of business or profession" for the A.Y.2022-23?
(a) 350 lakhs
(b) ? 50 lakhs
(c) ? 100 lakhs
(d) ? 140 lakhs
(iii) What is the amount of income chargeable to tax under the head "Capital gains" and "Profits
and gains of business or profession" in the hands of Mallika for the A.Y.2023-24?
(a) Nil and Nil, respectively
(iv) Is the annual value of penthouse held as stock-in-trade taxable? If so, under which head and
what is the amount taxable for A.Y.2022-23?
(a) No, since annual value of property held as stock-in-trade is exempt for a period of two
years from the end of the financial year of completion of construction
(b) Yes, ? 5,04,000 under the head "Income from house property"

78 MCQ Booklet
(c) Yes, ? 4,98,960 under the head "Income from house property"
(d) The rental income of ? 7,20,000 is chargeable under the head "Profits and gains of
business or profession", since property is held as stock in trade
(v) Is Mr. Harish liable to deduct tax at source on rent paid to Mallika in the F.Y.2021-22? If so,
what is the amount of tax to be deducted and when?
(a) No, since Mr. Harish, being a salaried employee, is not subject to tax audit; hence, there
is no obligation to deduct tax at source
(b) Yes, he has to deduct tax at source of ? 6,000 from rent payable every month
(c) Yes, he has to deduct tax at source of ? 3,000 from rent payable every month
(d) Yes, he has to deduct tax of ? 27,000 from the rent payable for March, 2022
16. PQR LLP commenced operations of the business of a new three-star hotel in Baroda, Gujarat on
1.4.2021. The company incurred capital expenditure of ? 75 lakh on land in March, 2021
exclusively for the above business, and capitalized the same in its books of account as on 1st
April, 2021. Further, during the P.Y. 2021-22, it incurred capital expenditure of ? 3 crore (out of
which ? 1.25 crore was for acquisition of land and ? 1.75 crore was for acquisition of building)
exclusively for the above business. The payments in respect of the above expenditure were
made by account payee cheque. The profits from the business of running this hotel (before
claiming deduction under section 35AD) for the A.Y.2022-23 is ? 80 lakh.
Mr. P, one of the partners of the LLP, has commenced the business of manufacture of apparel
on 1.10.2021. He employed 220 new employees during the P.Y.2021-22, the details of whom
are as follows -
No. of Date of Regular/ Total monthly

employees employment Casual emoluments per
employee
(?)
(0 40 1.10.2021 Regular 24,000
(ii) 80 1.10.2021 Regular 24,500
(iii) 50 1.11.2021 Regular 25,500
(iv) 30 1.11.2021 Casual 25,000
(v) 20 1.12.2021 Casual 24,000
All employees participate in Recognized Provident Fund. The profits and gains derived from
manufacture of apparel that year is ? 92 lakhs and his total turnover is ? 5.20 crores.
questions -
(i) Assuming that PQR LLP has fulfilled all the conditions specified for claim of deduction under
section 35AD and has not claimed any deduction under Chapter Vl-A under the heading "C.
- Deductions in respect of certain incomes, what would be the quantum of deduction under
section 35AD, which it is eligible to claim as deduction, for A.Y.2022-23?

MCQ Booklet 79
(a) ? 375 lakh
(b) ? 300 lakh
(c) ? 200 lakh
(d) ? 175 lakh
(ii) Assuming that PQR LLP also has another existing business of running a four-star hotel in
Ahmedabad, which commenced operations fifteen years back, the profits from which are
? 130 lakh for the A.Y.2022-23, what would be its income chargeable/loss under the head
"Profits and gains of business or profession" for the A.Y.2022-23?
(a) ? 130 lakh
(b) ? 35 lakh
(c) (? 45 lakh)
(d) ? 10 lakh
(iii) lf, out of the amount of 1.25 crore paid for acquisition of land in the P.Y.2021-22, ? 75
lakh was paid by way of cash, what would be the answer to questions 20.1 and 20.2 above?
(i) ? 175 lakh; ? 35 lakh, respectively
(ii) ? 125 lakh; ? 85 lakh, respectively
(iii) ? 100 lakh; ? 110 lakh, respectively
(iv) ? 225 lakh; (? 15 lakh), respectively
(iv) Considering the assumption given in question 20.2 above, what would be the tax payable
(rounded off) by PQR LLP for A.Y.2022-23?
(a) ? 10,92,000
(b) ? 41,48,140
i (c) Nil
(d) ? 40,40,000
(v) Would Mr. P be eligible for deduction under section 80JJAA in the A.Y.2022-23? If so, what
is the quantum of deduction?
(a) No, he would not be eligible for deduction u/s 80JJAA since the employees have not
been employed for 240 days in the P.Y.2021-22. He can, however, claim deduction
thereunder in the P.Y.2022-23
(b) Yes; ? 63,81,000
(c) Yes; 58,68,000
(d) Yes; ? 52,56,000

80 MCQ Booklet
17. Delta Limited has three Units - Alpha, Beta and Gamma. It transferred its U n i t Gamma to
Epsilon Limited by way of slump sale o n 28th February, 2022. The Balance Sheet of Delta
Limited as o n t h a t date is given below:
Liabilities ? (in lakhs) Assets ? (in lakhs)
Paid u p capital 2,550 Fixed Assets:
Reserve & Surplus 930 Unit Alpha 225
U n i t Beta 225
Liabilities: Unit Gamma 825
Unit Alpha 60 Other Assets:
U n i t Beta 165 U n i t Alpha 780
Unit Gamma 135 U n i t Beta 1,200
U n i t Gamma 585
Total 3,840 Total 3,840
(i) Lump sum consideration o n transfer of Unit Gamma is ? 1200 lakhs and FMV calculated as
per rule ? 1,320 lakhs.
(ii) Fixed assets of Unit Gamma include land which was purchased at ? 90 lakhs i n March, 2020
and revalued at ? 135 lakhs as o n March 31, 2021.
(iii) Other fixed assets are reflected at ? 690 lakhs (i.e. ? 825 lakhs less value of land) which
represents written down value of those assets as per books. The written d o w n value of
these assets u/s 43(6) of t h e Income-tax Act, 1961 is ? 615 lakhs.
(iv) Unit Gamma was set u p by Delta Limited i n March, 2020.
(v) Assume t h a t t h e turnover of Delta Ltd. for F.Y. 2019-20 is ? 1295 lakhs and Delta Ltd. has
not opted for section 115BAA.
(vi) Book profit of Delta Ltd. computed as per section 115JB is ? 400 lakhs
questions -
(i) For computing capital gains o n slump sale of U n i t Gamma, what would be t h e deemed cost
of acquisition and improvement for t h e purposes of section 48 and 49 and t h e resultant
capital gains?
(i) ? 1275 lakhs and ? 45 lakhs, respectively
(ii) ? 1230 lakhs and ? 90 lakhs, respectively
(iii) ? 1200 lakhs and ? 120 lakhs, respectively
(iv) ? 1155 lakhs and ? 165 lakhs, respectively

MCQ, Booklet 81
(ii) What is the tax liability on capital gain arising on slump sale of Unit Gamma?
(a) ? 55,08,360
(b) ? 45,90,300
(c) ? 57,65,760
(d) ? 48,04,800
(iii) lf Unit Gamma was set up on March, 2010 instead of March, 2020, and the sale
consideration is ? 3000 lakhs instead of ? 1320 lakhs, what would be the capital gains
arising to Delta Ltd. on slump sale and the resultant tax liability? The Cll of F.Y.2009- 10 is
148 and F.Y.2021-22 is 317. Assume that there is no change in any other information given
in the case scenario.
(i) ? 650.98 lakhs and ? 135.40 lakhs, respectively
(ii) ? 650.98 lakhs and ? 181.10 lakhs, respectively
(iii) ? 1845 lakhs and ? 429.81 lakhs, respectively
(iv) ? 1845 lakhs and 410.62 lakhs, respectively
(iv) What would be the minimum alternate tax computed under section 115JB for A.Y.2022-23,
if Delta Ltd. is located in an IFSC and derives its income solely in convertible foreign
exchange?
(a) ? 66,76,800
(b) ? 62,40,000
(c) ? 40,06,080
(d) ? 37,44,000
(v) If Delta Ltd. is a company, being a unit of an IFSC, deriving income solely in convertible
foreign exchange and has distributed dividend of ? 200 lakhs in the P.Y.2021-22, what
would be the tax implications in the hands of Delta Ltd. and shareholders?
(i) No distribution tax in the hands of Delta Ltd. and no income-tax in the hands of the
shareholders in respect of dividend so distributed
(ii) Delta Ltd. is liable to pay distribution tax; income is exempt in the hands of shareholders
(iii) No distribution tax in the hands of Delta Ltd.; shareholders liable to tax on dividend
income
(iv) No distribution tax in the hands of Delta Ltd.; shareholders liable to tax on aggregate
dividend income in excess of ? 10 lakh
18. Ganga LLP is a limited liability partnership set up a unit in Special Economic Zone (SEZ) in the
financial year 2016-17 for manufacture of textiles. The unit fulfills all the conditions under
section 10AA of the Income-tax Act, 1961. During the financial year 2020-21, it has also set up a
warehousing facility in Pune for storage of sugar, fulfilling the conditions for claim of deduction
under section 35AD. Capital expenditure in respect of warehouse amounted to ? 97 lakhs
(including cost of land ? 32 lakhs). The warehouse became operational with effect from 1st
April, 2021 and the expenditure of ? 97 lakhs was capitalized in the books on that date.

82 MCQ Booklet
The details for t h e financial year 2021-22 are given hereunder:
Particulars
Profit of unit located i n SEZ 60,00,000
Export sales of above u n i t 1,20,00,000
Domestic sales of above unit 40,00,000
Profit from operation of warehousing facility (before 1,60,00,000

considering deduction under section 35AD)
M r . Ganesh, one of t h e partners of t h e LLP, commenced t h e business of manufacture of leather

o n 1.4.2020. His turnover i n t h e P.Y.2020-21 is ? 180 lakh and i n t h e P.Y.2021-22 is ? 200 lakhs.
The payments made i n t h e P.Y.2021-22 is ? 190 lakhs. The profit for P.Y.2021-22 as per books of
account maintained u/s 44AA is ? 12.10 lakhs. Out of t h e turnover of 200 lakhs, ? 190 lakhs is
received through RTGS and NEFT and ? 10 lakhs is received by way of cash. Out of t h e
payments of ? 190 lakhs made (including expenditure incurred), ? 180 lakhs is through RTGS/
NEFT and t h e remaining ? 10 lakhs through cash.
questions -
(i) W h a t is t h e amount of deduction under section 10AA and 35AD available to Ganga LLP
while computing income under t h e regular provisions of t h e Income-tax Act, 1961 for A.Y.
2022-23?
(a) 45 lakhs and ? 65 lakhs, respectively
(b) ? 22.50 lakhs and ? 65 lakhs, respectively
(c) ? 45 lakhs and ? 9 7 lakhs, respectively
(d) ? 22.50 lakhs and ? 97 lakhs, respectively
(ii) W h a t is t h e tax liability of Ganga LLP computed under t h e regular provisions of t h e Income-
tax Act, 1961 for A.Y.2022-23?
(a) ? 38,43,840
(b) ? 31,70,000
(c) ? 46,30,080
(d) ? 19,65,600
(iii) W h a t t h e alternate m i n i m u m tax (rounded off) payable by Ganga LLP as per section 115JC
for A.Y.2022-23?
(a) T 39,49,750
(b) ? 41,07,740
(c) ? 43,95,280
(d) ? 46,00,670

MCQ Booklet 83
(iv) ls there any A M T credit to be carried forward under section 115JEE? I f so, what is t h e
amount of such credit?
(a) Yes; ? 5,22,340

(b) Yes; ? 7,56,830
(c) Yes; ? 2,63,900
(d) N o
(v) W h a t is t h e income to be declared by M r . Ganesh for A.Y.2022-23 under t h e head "Profits
and gains of business o r profession", so t h a t he makes maximum tax savings w i t h o u t
getting his books of account audited?
(a) ? 12 lakhs
(b) ? 12.10 lakhs
(c) ? 12.20 lakhs
(d) ? 16 lakhs
(vi) Can M r . Ganesh declare income as per books of account for t h e A.Y.2022-23, w i t h o u t
getting his books of account audited?
(a) Yes, he can declare income as per books of account since t h e same is higher t h a n t h e
income computed at t h e presumptive rate under section 44AD
(b) Yes, he can, since his turnover does n o t exceed ? 500 lakhs, and he has received 95% of
his receipts through prescribed electronic modes
(c) Yes, due to t h e reasons stated i n (a) and (b) above
(d) No, he cannot since his turnover exceeds ? 100 lakhs, and he cannot declare income less
t h a n presumptive income under section 44AD w i t h o u t getting his books of account
audited
19. BMT Shipping Co. is an Indian company having its place of effective management i n India. It
owns three vessels out of which two are "Qualifying Ships". The registered tonnage of t h e two
qualifying vessels is 33,840 tonnes and 230 kgs and 24,952 tonnes and 370 kgs respectively. In
t h e F.Y. 2021-22, t h e first vessel was operated for 212 days and t h e second for 347 days.
The WDV of t h e block of assets for tax purposes, being ships, as o n 01.04.2021 was ? 1200
lakhs
Ships forming part of WDV as per books as on 01-04- 2021

Block of Assets (? in lakhs)
Qualifying Ship 1 580
Qualifying Ship 2 270
Non-qualifying Ship 3 230

84 MCQ Booklet
Other Information:
( i ) Profit from core activity referred to i n section 115-VI(1) read w i t h 115-VI(2) is ? 70 lakhs.
(ii) Profit from incidental activity computed as per section 115- V l ( l ) read w i t h 115-VI(5) is ? 14
lakhs.
Book profits calculated as per t h e Explanation to section 115JB(2) [in so far as it relates to
income derived from core and incidental activity] are ? 100 lakhs. LMN Shipping Co. is a foreign
company whose place of effective management is outside India in t h e P.Y.2021-22. Its gross
receipts for P.Y.2021-22 is ? 630 lakhs, t h e break u p of which is given hereunder -
Place where goods are Place where amount Amount paid

shipped is paid to/received (? in
by B M I Shipping Co. lakhs)
(i) Goods shipped at ports i n India In India 200
Outside India 150
(ii) Goods shipped at ports In India 180

outside India
Outside India 100
630

questions -
(i) W h a t would be t h e tonnage income of BMT Shipping Co. computed under section 115VG
for A.Y. 2022-23?
(a) ? 71,05,880
(b) ? 71,12,028
(c) ? 71,20,454
(d) ? 71,26,602
(ii) W h a t would be t h e w r i t t e n d o w n value as o n 01.04.2021 of "Qualifying Ships" of BMT
Shipping Co. for tax purpose as per section 115VK?
(a) ? 850 lakhs
(b) ? 944.44 lakhs
(c) ? 1200 lakhs
(d) ? 970 lakhs
(iii) The m i n i m u m reserve requirement as per section 115VT i n case of BMT Shipping Co. for
P.Y.2021-22 i s -
(a) ? 16.8 lakhs
(b) ? 20 lakhs

MCQ Booklet 85
(c) ? 14 lakhs
(d) ? 15 lakhs
(iv) Would any amount be taxable under the other provisions of the Income-tax Act, 1961 as
per section 115VT(5), if BMT Shipping Co. had transferred ? 15 lakhs to Tonnage Tax
Reserve Account during P.Y. 2021-22? If yes, what is the amount so taxable?
(a) Yes; ? 1.80 lakhs
(b) No amount is taxable as per section 115VT(5), since the amount transferred is more
than the minimum reserve requirement
(c) Yes; ? 5 lakhs
(d) Yes; ? 21 lakhs
(v) What shall be the income computed under section 44B of LMN Shipping Co. for A.Y.2022-
23?
(a) ? 39.75 lakhs
(b) ? 53 lakhs
(c) ? 26.50 lakhs
(d) ? 47.25 lakhs
20. Mr. Vyomesh, a non-resident individual aged 61 years, has not furnished his return of income
! for A.Y.2022-23. However, the total income assessed in respect of such year under section 144
I is ? 13 lakh. Determine the quantum of penalty leviable under section 270A (Ignore the
) provisions of section 115BAC).
(a) ? 2,10,600, being tax payable on total income of ? 13 lakh
(b) ? 1,05,300, being 50% of tax payable on ? 13 lakh
j (c) ? 66,300, being 50% of tax payable on under-reported income of ? 10.50 lakhs (i.e., ? 13
lakhs - basic exemption limit of ? 2.50 lakhs)
(d) ? 58,500, being 50% of tax payable on under-reported income of ? 10 lakhs (i.e., ? 13 lakhs -
j basic exemption limit of ? 3 lakhs)
] 21. ABC Ltd. filed its return of income for A.Y.2021-22 on 29th September, 2021 and XYZ Ltd. filed
its return of income for A.Y.2021-22 on 30th November, 2021. Both returns have been filed
within the due date u/s 139(1). The returns are selected for regular assessment u/s 143(3) for
which notice u/s 143(2) has been served on ABC Ltd. and XYZ Ltd. on 25th October, 2022.
Which of the following statements are correct?
(a) Notice has been issued to ABC Ltd. and XYZ Ltd. u/s 143(2) within the time permitted under
the Income-tax Act, 1961.
(b) Notices issued to both ABC Ltd. and XYZ Ltd. u/s 143(2) are time-barred.
(c) Notice issued u/s 143(2) to ABC Ltd. is time-barred. However, notice has been issued to XYZ
Ltd. u/s 143(2) within the time permitted under the Income-tax Act, 1961.
(d) Notice issued u/s 143(2) to XYZ Ltd. is time-barred. However, notice has been issued to ABC
Ltd. u/s 143(2) within the time permitted under the Income-tax Act, 1961.
j

86 MCQ Booklet
Answer Key
Question No. Answer
1. (a) Profit split method
2. (b) Tax is deductible at source@2% u/s 194C o n such payment
3. (a) N o tax is deductible at source from such payment
4. (d) The amount payable to Aid Us would be chargeable to tax both i n

t h e hands of M r . Hari and i n t h e hands of t h e institution
5. (c) ? 14.375 crore
6. (d) ? 2 lakhs
7. (c) ? 15,30,000
8. (b) ? 9.25 lakhs
9. (d) 5% and 30%
10. (c) N o capital gains would arise o n sale of 300 GDRs, b u t capital gains
arising o n sale of 200 GDRs shall be taxed i n India @10% w i t h o u t
indexation benefit
11. (a) Transfer pricing provisions would be attracted i n this case
12. (c) ? 50 lakhs would be taxable as business income in t h e hands of M r .

Anjan and ? 20 lakhs would be taxable as income from other
sources i n t h e hands of M r . Ashwin
13. (c) exempt i n t h e hands of t h e REIT; exempt i n t h e hands of unit

holders only if SPV does n o t exercise option under section 115BAA
14. (c) Such expenditure is n o t allowable as deduction while computing its

business income b u t is allowable as deduction from gross total
income
15.
(i) (b) ? 93,10,218
(ii) (d) ? 140 lakhs
(iii) (b) ? 47,04,379 and ? 60,00,000, respectively
(iv) (b) Yes, ? 5,04,000 under t h e head "Income from house property"

MCQ Booklet 87
Question No. Answer
(v) (d) Yes, he has to deduct tax of ? 27,000 from t h e rent payable for March,
2022
16.
(i) (d) ? 175 lakh
(ii) (b) ? 35 lakh
(iii) (a) ? 175 lakh; ? 35 lakh, respectively
(iv) (b) ? 41,48,140
(v) (b) Yes; ? 63,81,000
17.
(0 (d) ? 1155 lakhs and ? 165 lakhs, respectively
(ii) (b) ? 45,90,300
(iii) (c) ? 1845 lakhs and ? 429.81 lakhs, respectively
(iv) (c) ? 40,06,080
(v) (a) N o distribution tax i n t h e hands of Delta Ltd. and n o income-tax i n t h e

hands of t h e shareholders i n respect of dividend so distributed
18.
(i) (b) ? 22.50 lakhs and ? 65 lakhs, respectively
(ii) (c) ? 46,30,080
(iii) (d) ? 46,00,670
(iv) (d) No
(v) (c) ? 12.20 lakhs
(vi) (d) No, h e cannot since his turnover exceeds ? 100 lakhs, and he cannot
declare income less than presumptive income under section 44AD
w i t h o u t getting his books of account audited
19.
(i) (c) ? 71,20,454
(ii) (b) ? 944.44 lakhs

88 MCQ Booklet
Question No. Answer
(iii) (b) ? 20 lakhs
(iv) (d) ? 21 lakhs
(v) (a) ? 39.75 lakhs
20. (b) ? 1,05,300, being 50% of tax payable on ? 13 lakh
21. (b) Notices issued to both ABC Ltd. and XYZ Ltd. u/s 143(2) are t i m e -
barred

1. Himalaya Ltd. is an eligible start-up engaged i n eligible business. Its gross total income included
profits of ?25 lakhs from such business. The Assessing Officer made disallowance of ?3 lakhs
under section 40(a)(ia) and of ?2 lakhs under section 43B. The deduction allowable under
section 80-IAC would be -
(a) ? 25 lakhs
(b) ? 28 lakhs
(c) ? 30 lakhs
(d) ? 20 lakhs
2. In t h e course of search operations under section 132 i n t h e m o n t h of May, 2022, M r . Aakash
makes a declaration under section 132(4) o n t h e earning of income not disclosed i n respect of
P.Y. 2021-22. He also explains t h e manner i n which he has derived such income and he pays t h e
tax together w i t h interest o n such income and declares such income i n t h e return of income
filed by h i m i n t h e m o n t h of July, 2022. Is penalty leviable i n this case? If so, how much?
(a) N o penalty is attracted since M r . Aakash has voluntarily made a declaration under section
132(4)
(b) Yes; Penalty@10% of undisclosed income would be attracted even if M r . Aakash has
voluntarily made a declaration under section 132(4)
(c) Yes; Penalty@30% of undisclosed income would be attracted even if M r . Aakash has
(d) Yes; Penalty@60% of undisclosed income would be attracted even if M r . Aakash has
3. ABC Ltd. t o o k o n sub-lease a building f r o m Ms. Jhanvi w i t h effect from 1.7.2021 o n a r e n t of
? 20,000 per month. It also t o o k o n hire machinery from Ms. Jhanvi with effect from 1.10.2021
o n hire charges of ? 15,000 per m o n t h . ABC Ltd. entered i n t o two separate agreements with
Ms. Jhanvi for sub-lease of building and hiring of machinery. Which of t h e following statements
is correct w i t h reference to ABC Ltd.'s liability to deduct tax at source, assuming t h a t one-
month's rent was received as security deposit, which is refundable at t h e end of t h e lease
period?

90 MCQ Booklet
(a) N o tax needs to be deducted at source since rent for building does n o t exceed ? 2,40,000
p.a. and rent for machinery also does n o t exceed ? 2,40,000 p.a. Security deposit
refundable at t h e end of t h e lease t e r m is n o t rent for t h e purpose of TDS
(b) Tax has to be deducted@10% o n ? 2,00,000 and @2% o n ? 1,05,000 (i.e., rent including
security deposit)
(c) Tax has to be deducted@10% o n ? 1,80,000 and @2% o n ? 90,000 (i.e., rent excluding
security deposit)
(d) Tax has to be deducted@10% o n ? 1,80,000 and @2% o n ? 90,000 (i.e., rent excluding
security deposit)
4. M r . X acquired a house property at M u m b a i from M r . Y, a resident, for a consideration of ? 90
lakhs, o n 20.6.2021. On t h e same day, M r . X made two separate transactions, thereby acquiring
an urban plot i n Kolkata from M r . C for a sum of ? 49.50 lakhs and rural agricultural land from
M r . D for a consideration of ? 60 lakhs. Which of t h e following statements is correct?
(a) N o tax deduction at source is required i n respect of any of t h e three payments
(b) TDS@1% is attracted o n all t h e three payments
(c) TDS@1% o n ? 90 lakhs and ? 49.50 lakhs are attracted. No TDS o n payment of ? 60 lakhs for
acquisition of rural agricultural land
(d) TDS@1% o n ? 90 lakhs is attracted. N o TDS o n payments of ? 49.50 lakhs and ? 60 lakhs
5. A notified infrastructure debt fund eligible for exemption under section 10(47) of t h e Income-
tax Act, 1961 has to pay interest of ? 5 lakhs to a company incorporated i n a foreign country.
The foreign company incurred expenditure of ? 12,000 for earning such interest. The f u n d also
has to pay interest of ? 3 lakhs to M r . Frank, w h o is a resident of Country A, a notified
jurisdictional area. Which of t h e following statements is correct?
(a) N o tax deduction at source is required i n respect of both t h e payments
(b) N o TDS is required i n respect of ? 5 lakhs payable to t h e foreign company. However,
payment of interest to Frank attracts TDS@31.2%
(c) TDS@5.20% is attracted o n ? 4,88,000 payable to t h e foreign company. TDS@31.2% is
attracted o n interest payment of ? 3 lakhs to M r . Frank
(d) TDS@5.20% is attracted o n interest of ? 5 lakhs payable to t h e foreign company.
TDS@31.2% is attracted o n interest of ? 3 lakhs payable to M r . Frank
6. A private bank has n o t filed its statement of financial transaction o r reportable account i n
relation to t h e specified financial transactions for t h e financial year 2021-22. A notice was
issued by t h e prescribed income-tax authority o n 1st October, 2022 requiring t h e bank to
furnish t h e statement by 31st October, 2022. The bank, however, furnished t h e statement only
on 15th November, 2022. W h a t would be t h e penalty leviable under section 271FA?
(a) ? 91,500
(b) ? 13,600
(c) ? 16,800
(d) ? 22,800

MCQ Booklet 91
7. P is a salaried employee. On 01.06.2021, he gets a gift of house property situated in Mumbai
(stamp duty value ? 80,00,000) from Q. On 02.08.2021, P gets a gift of house property in a small
town near Pune (stamp duty value ? 50,000) from R. On 03.09.2021, P also gets a gift of house
property in a small town near Kanpur in Uttar Pradesh from R, the stamp duty value of which is
? 1,00,000. What will be the tax implications in the hands of P, Q and R, assuming that they are
not related to each other?
(a) ? 81,00,000 shall be chargeable to tax in the hands of P as income from other sources and
capital gains shall arise in the hands of Q and R respectively on account of transfer of capital
asset
(b) ? 80,00,000 shall be chargeable to tax in the hands of P as income from other sources and
capital gains shall arise in the hands of Q on account of transfer of capital asset
(c) ? 81,00,000 shall be chargeable to tax in the hands of P as income from other sources and
no capital gains shall arise in the hands of Q and R respectively as gift does not constitute
"transfer"
(d) ? 81,50,000 shall be chargeable to tax in the hands of P as income from other sources and
no capital gains shall arise in the hands of Q and R respectively as gift does not constitute
"transfer"
8. PQR Ltd., a domestic company, has distributed on 15.10.2021, dividend of ? 230 lakh to its
shareholders. On 17.9.2021, PQR Ltd. has received dividend of ? 60 lakh from its domestic
subsidiary company XYZ Ltd. The deduction under section 80M allowable to PQR Ltd. would be-
(a) ? 230 lakhs
(b) ? 60 lakhs
(c) ? 170 lakhs
(d) Nil
9. Lima Ltd., a domestic company, purchases its own listed shares on 13th August, 2021. The
consideration for buyback amounted to ? 23 lakh, which was paid on the same day. The
amount received by the company two years back for issue of such shares determined in the
manner specified in Rule 40BB was ? 17 lakh. The additional income- tax payable by Lima Ltd.
is-
(a) ? 1,02,960
(b) ? 1,04,832
(c) ? 1,39,776
(d) ? 1,37,280
10. A REIT derives rental income of ? 2 crore from real estate property directly owned by it and
short-term capital gains of ? 1 crore on sale of developmental properties. It also receives
interest income of ? 3 crore from Gamma Ltd., an Indian company, in which it holds controlling
interest. The REIT holds 90% of the shareholding of Gamma Ltd. Which of the following
statements is correct?
(a) All the above income are taxable in the hands of REIT

92 MCQ Booklet
1
(b) REIT enjoys pass through status in respect of the above income and hence, such income are
taxable in the hands of the unit holders
(c) REIT enjoys pass through status in respect of interest income from Gamma Ltd. and hence,
such income is taxable in the hands of the unit holders. Rental income and short-term
capital gains are taxable in the hands of the REIT
(d) REIT enjoys pass through status in respect of interest income from Gamma Ltd. and rental
income from directly owned real estate property and hence, such income are taxable in the
hands of the unit holders. Short-term capital gains is taxable in the hands of the REIT
11. Mr. Aryan is constructing a residential house property in Coimbatore for self-occupation. He
has taken a loan of ? 35 lakhs from SBI on 30.3.2021 for this purpose. He pays interest of ? 3
lakhs during the P.Y.2021-22. He repays 1.50 lakhs towards principal on 31.3.2022. The
construction is completed in April, 2022. The stamp duty value of the house is ? 46 lakhs. This is
the only house property of Mr. Aryan. For A.Y. 2022-23 -
(a) Mr. Aryan is entitled for deduction of T 2 lakhs under section 24 and ? 1.50 lakhs under
section 80C
(b) Mr. Aryan is entitled for deduction of ? 2 lakhs under section 24, ? 1 lakh under section
80EEA and ?1.50 lakhs under section 80C
(c) Mr. Aryan is neither entitled for deduction under section 24 nor under section 80C. He is,
however, entitled for deduction of ? 1.50 lakhs under section 80EEA
(d) Mr. Aryan is not entitled for deduction under section 24, section 80C and section 80EEA
12. The assessment of Satpura Ltd. was completed under section 143(3) with an addition of ? 18
lakhs to the returned income. Satpura Ltd. preferred appeal before the Commissioner (Appeals)
which is pending now. Which of the following statements is not correct?
(a) The Assessing Officer can initiate reassessment proceedings in respect of income
chargeable to tax which has escaped assessment, provided such income which has escaped
assessment does not form part of the additions of ? 18 lakhs to the returned income, which
is the subject matter of appeal
(b) The Assessing Officer can pass an order under 154(1) t o rectify a mistake apparent from the
record, provided the rectification is in relation to a matter, other than the matter which has
been considered and decided in the appeal before Commissioner (Appeals)
(c) Under section 264, the Commissioner can revise the order pending before the
Commissioner (Appeals), if the revision pertains to a matter, other than the matter(s)
covered in the appeal before Commissioner (Appeals)
(d) Under section 263, if the order is prejudicial to the interests of the revenue, the
Commissioner can revise the order pending before the Commissioner (Appeals), if the
revision pertains to a matter, other than the matter(s) covered in the appeal before
Commissioner (Appeals)
13. Kamala charitable trust, registered u/s 12AA/12AB, having its main object as medical relief,
earned income of ? 2 lakhs as interest on bonds issued by local authority and agricultural
income of ? 4 lakhs during the P.Y. 2021-22. Which of the following statements is correct?

I
MCQ Booklet 93
(a) The trust has to apply such income for charitable purposes as per the provisions of section
11 to claim exemption in respect of such income
(b) The trust can claim exemption u/s 10(1) and 10(15) in respect of its agricultural income and
income from bonds of local authority, respectively, without applying such income for
charitable purposes
(c) The trust can claim exemption u/s 10(15) in respect of its interest income from bonds of
local authority, without applying such income for charitable purposes. However, it cannot
claim exemption u/s 10(1) in respect of agricultural income without applying such income
for charitable purposes
(d) The trust can claim exemption u/s 10(1) in respect of its agricultural income. However, it
cannot claim exemption u/s 10(15) in respect of its interest income from bonds of local
authority without applying such income for charitable purposes
14. Delta Ltd., a domestic company, declared interim dividend of ? 85 lakh for the year F.Y.2021-22
and distributed the same on 27.6.2021. Mr. Ganesh, a resident, holding 15% shares in Delta
Ltd., receives dividend of ? 12.75 lakh and Mr. Rajesh, a resident, holding 10% shares in Delta
Ltd., receives dividend of ? 8.50 lakh. Which of the following statements is correct?
(a) Dividend distribution tax is payable by Delta Ltd. There would be no tax on dividend
received by Mr. Ganesh and Mr. Rajesh in their individual hands
(b) Dividend distribution tax is payable by Delta Ltd. Further, dividend of ? 2.75 lakhs received
by Mr. Ganesh i.e., dividend in excess of ? 10 lakhs will be taxable at 10%
(c) Tax is deductible by Delta Ltd. before making payment of dividend. Also, the same shall be
taxable in the hands of both Mr. Ganesh and Rajesh at 10%
(d) Tax is deductible by Delta Ltd. before making payment of dividend. The dividend income
would be included in the total income of both Mr. Ganesh and Rajesh and subject to tax in
their hands at their respective slab rates
15. UJay International AG is a company incorporated under the laws of Switzerland and is a tax
resident of Switzerland. It operates specific website (i.e. Ujayinternational.com) providing an
online platform for sale of goods, provision of services as well as for facilitating the purchase
and sale of goods and services of third parties to users based in India and outside India. It does
not have any Permanent Establishment in India during the P.Y. 2021-22.
The modus operand! of the third party transactions undertaken through the such website
operated by the assessee is as under :-
• Any seller is entitled to list its products for sale on such website. At the time of listing, the
seller is required to provide various details regarding the product that is desired to be sold
through the website, such as, photograph, description and price of the product.
• Any buyer can also register himself for buying of the goods through the assessee's website.
While registering, the buyers are required to provide information, such as, their name, age
and address. When the buyer accesses the website, he goes through various products listed
by the sellers. Depending on his requirements, he chooses the product which he wants to
purchase online, out of the variety of products available on website alongwith all the
necessary details.

94 MCQ. Booklet
• The buyer is required to choose any of the payment methods for making payment of the
product directly to the seller. Once the buyer clicks 'Buy It Now' button after registering
itself with the website and agreeing to the terms and conditions of sale as displayed by the
seller on the website, an email is sent by the assessee to the seller confirming the sale of his
product listed on the website.
UJaylnternational.com also collects data of potential customers located in different parts of
India and other South-East Asian Countries who are interested in holidaying in different
countries of Europe and Asia from GE Tourism India Pvt. Ltd., an Indian company, and other
companies in South East Asia. It sells these data to different tourism companies and hotels in
Europe and Asia and earns revenue therefrom.
Assume that the gross receipts of UJay International AG from e- commerce supply and services
is ? 8 crore during the P.Y. 2021-22.
questions -
(i) Mr. Alex being a resident of UK, visited India during November 2021 and he ordered certain
apparel of brand Ujay worth ? 10,000 from online website Ujayinternational.com during his
stay in India. His apparels were delivered via readymade garments showroom located in
Connaught Place, Delhi. Which of the following statements is correct?
(a) Mr. Alex is required to withhold equalization levy of 200 and deposit the same with
Indian tax authorities
(b) UJay International AG is not required to charge equalization levy on such transaction
since sale is made to Mr. Alex who is not a resident in India
(c) UJay International AG is not required to charge equalization levy on such transaction
since it a non- resident not having any PE in India
(d) Ujay International AG is required to charge equalization levy of ? 200 and deposit the
same with Indian tax authorities
(ii) What is the due date for payment of equalization levy charged in the month of March, 2022
by UJay International AG?
(a) April 7, 2022
(b) April 30, 2022
(c) June 30, 2022
(d) March 31, 2022
(iii) In which of the following cases, equalisation levy would be chargeable, assuming that the
aggregate turnover of the E- Commerce operator is ? 2 crore during the P.Y. 2021-22?
(a) Where an E-Commerce operator, being a resident in India, sells goods of parties located
in India to overseas customers
(b) Where an E-Commerce operator, being a non-resident having PE in India and online
sales is effectively connected with such PE in India
(c) Where a E-Commerce operator, being a non-resident having PE in India, sells goods to
non-resident customers

MCQ Booklet 95
(d) Where a E-Commerce operator, being a non-resident having no PE in India, provides
access to online movies, TV Shows and other contents to Indian customers via its
electronic platform
(iv) UJay lnternational.com collects data of potential customers located in different parts of
India who are interested in holidaying in Singapore from GE Tourism India Pvt. Ltd. During
November, 2021, it sells the data to Y Tourism P Ltd., Singapore for ? 1,00,000. Which of the
following statements is correct?
(a) Equalisation levy of ? 2,000 is payable by Ujay lnternational.com
(b) Equalisation levy of ? 2,000 is deductible and payable by Y Tourism P Ltd.
(c) Equalisation levy of ? 6,000 is deductible and payable by Y Tourism P Ltd.
(d) Equalisation levy implications are not attracted in this case, since both
UJaylnternational.com and Y Tourism P Ltd. are non-residents
16. Mr. M (age 45 years), an Indian citizen is employed with a multi-national company, Worldwide
Ltd. Mr. M holds a senior level position as pharmaceutical researcher in the Indian group
company of Worldwide Ltd. based at Mumbai, since 2009. Considering the importance of his
role in the Worldwide Group and his exceptional performance in India, for the first time in the
year 2021, he was entrusted with task to travel to other group companies of Worldwide Ltd.
outside India to share his knowledge, findings in research, etc., while continuing to be based at
the Mumbai office.
The details of his travel outside India during the financial year 2021-22 are as under:
Country Period of stay
UK 20 August to 10 November
Australia 21 November to 23 December
France 10 January to 26 March
Salary
Mr. M is entitled to salary of ? 43,80,000 for the financial year 2021-22. The entire salary is paid
by the Indian company in his Indian bank account. Proportionate salary was, however, borne by
overseas companies based on the number of days he was physically present and working for
them in the respective countries. The overseas companies have reimbursed the proportionate
amount of salary to Indian company.
Other than salary, he has not disclosed details of income under any other head to his employer.
House Properties
Mr. M owns a house property in Mumbai since 2009, which he occupies for his own residence.
He continues to repay the loan availed in the year 2009 for purchase of this property. The
interest payable for the financial year 2021-22 on such loan is ? 4,25,000. The brought forward
losses attributable to his house property for A.Y. 2020-21 and A.Y. 2021-22 is ? 5,00,000.
Impressed by better infrastructure, quality education, safety in UK, Mr. M bought a residential
property in the UK in December 2021. He earned rental income of GBP 3,300 (@ GBP 1,100 per
month for January to March, 2022) from letting out of UK property.
96 MCQ Booklet
The telegraphic transfer buying rates are as follows:
Date (financial year 2021-22) Rate (GBP to INR)
3 1 December 93.49
3 1 January 93.26
28 February 92.32
3 1 March 93.07
Investment in shares
M r . M had purchased 500 shares of Indian company XYZ Ltd o n 17th March 2017 at t h e cost of
? 150 per share (STT paid). As per scheme of amalgamation dated 10th January, 2018 between
XYZ Ltd w i t h another Indian company PQR Ltd, M r . M received 250 shares of PQR Ltd i n lieu of
his shareholding i n XYZ Ltd. On 4th April 2021, M r . M sold shares of PQR Ltd at ? 325 per share
(STT paid).
Date Company Fair market value per share

(Fair market value as on) (quoted price on stock
exchange)
10th January 2018 XYZ Ltd ? 160
10th January 2018 PQR Ltd ? 320
31st January 2018 PQR Ltd 360

questions—
(i) W h a t is t h e residential status of M r . M for A.Y.2022-23 as per section 6(1)?
(a) Non-resident
(b) Resident and ordinarily resident
(c) Resident b u t n o t ordinarily resident
(d) Deemed resident
(ii) W h a t would be t h e income chargeable under t h e head "Salaries" to be considered for t h e
purpose of deduction of tax under section 192, assuming t h a t he does not opt for section
115BAC?
(a) 1 43,80,000
(b) ? 43,30,000
(c) ? 20,76,000
(d) ? 20,52,300

MCQ Booklet 97
(iii) What is the cost of acquisition for computation of capital gains on sale of shares of PQR
Ltd?
(a) ? 81,250
(b) ? 90,000
(c) ? 37,500
(d) ? 85,000
(iv) Mr. M wants to know his tax liability under section 115BAC. For this purpose, what would
be the amount of income chargeable under the head "Income from house property"?
(a) ? 2,14,992
(b) ? 14,992
(c) Nil
(d) ? 3,07,131
17. Mr. Sachdeva had bought a residential house worth ? 4 crores at Worli, Mumbai in 2019 and let
out the house on rent to Mr. Akhil. The property was funded through loan from SBI. The
interest due for F.Y.2021-22 to SBI is 40 lakhs, out of which he paid only ? 37 lakhs during the
year. Mr. Sachdeva then took a loan of ? 2 crores from another bank, namely, MPC Bank on
1.10.2021 for construction of first floor in that house for self-occupation. The construction is in
progress as on 31.3.2022. Mr. Sachdeva started repaying EMIs due to MPC Bank. During the
P.Y. 2021-2022, he repaid principal amount of ? 30 lakhs and ? 5 lakhs to SBI and MPC Bank,
respectively. He also paid interest of 5 lakhs to MPC Bank out of 6 lakhs, being interest due
for the period from 1.10.2021 to 31.3.2022.
Mr. Sachdeva transfers ? 30 lakhs to his minor daughter Miss Rysha's account as her birthday
gift. Her daughter Rysha purchased a house in a village at Wada in her name. Miss Rysha gave
the said house to the Panchayat head from April, 2021 at a rent of ? 5,000 per month. Mrs.
Sachdeva's total income for A.Y.2022-23 is higher than that of Mr. Sachdeva, since she won
? 20 lakhs from lottery this year. In other years, Mr. Sachdeva's total income is higher than
that of Mrs. Sachdeva. Miss Rysha has not had any other source of income in any earlier year.
Also, she does not have any other source of income this year.
Mr. Sachdeva bought petrol driven car worth ? 50 lakhs and an electric vehicle worth ? 70 lakhs
on loan from BSM Bank which it sanctioned on 1.4.2021. BSM Bank charged interest of ? 5
lakhs on petrol driven car and ? 7 lakhs on electric vehicle for the P.Y.2021-22. Mr. Sachdeva
has also taken loan from FRM Bank for his daughter's higher education. He paid ? 50,000 as
interest to FRM Bank. He also paid mediclaim of ? 20,000 to New India Assurance Scheme for
insuring his health.
Mrs. Sachdeva owns a shop of 100 square feet area in Mumbai. She rented it to an architect
who gave her an interest-free deposit of ? 1,00,000. The rent paid by the architect from
1 st April is ? 60,000 per month. Mr. Sachdeva's brother, Mr. Ajay who is a non-resident sold his
house at Bandra Kurla Complex, Mumbai to another non-resident, Mr. David, who is based at
Germany for a consideration of ? 20 crores on 01.09.2021. Mr. Ajay died on 01.11.2021 on
account of a car accident.

98 MCQ Booklet
questions -
(i) What is the amount of interest allowable as deduction u/s 24 to Mr. Sachdeva for A.Y.2022-
23?
(a) ? 46 lakhs
(b) ? 42 lakhs
(c) ? 40 lakhs
(d) ? 37 lakhs
(ii) What is the amount of deduction permissible to Mr. Sachdeva under Chapter Vl-A of
Income-tax Act, 1961 for A.Y. 2022-23?
(a) ? 1,70,000
(b) ? 2,20,000
(c) ? 3,70,000
(d) ? 14,20,000
(iii) Is notional interest on interest free deposit received in respect of shop let out on rent
chargeable to income-tax? If so, under which head of income would the same be taxable?
(a) No, it is not chargeable to tax
(b) Yes, it is chargeable to tax as profits and gains from business, since a commercial
property has been let out
(c) Yes, it is chargeable to tax as "Income from Other Sources", being the residuary head of
income
(d) Yes, it is chargeable to tax as "Income from house property", since section 22 does not
distinguish between a residential house property and commercial house property
(iv) The Assessing Officer came to know about the transaction of sale of property at BKC,
Mumbai on 15th December, 2021 and wants to hold Mr. David as an agent of Mr. Ajay u/s
163(1). Can he do so? If not, why?
(a) No, he cannot hold Mr. David as an agent since Mr. David is non-resident
(b) No, he cannot hold Mr. David as an agent since Mr. Ajay's brother stays in India and he
has to be treated as an agent
(c) No, he cannot hold Mr. David as an agent due to reasons stated in (a) and (b) above
(d) Yes, he can hold Mr. David as an agent as per the provisions of the Income-tax Act, 1961
(v) In whose hands would Rysha's rental income from house property at Wada be taxable?
(a) In Rysha's hands
(b) In Mr. Sachdeva's hands
(c) In Mrs. Sachdeva's hands
(d) It would change every year depending on the parent whose income is higher in that
year

MCQ Booklet 99
18. X Ltd. has two units, Unit A and Unit B engaged i n setting u p and operating a warehousing
facility for storage of sugar and edible oil, respectively, since the year 2015. Y Ltd., an Indian
company, takes over Unit B of X Ltd. by way of slump sale for 400 lakhs (FMV o n date of
transfer as per rules ? 415 lakhs) o n 25.07.2021. The expenses incurred for this transfer were ?
10.5 lakhs. The following is t h e extract of t h e Balance Sheet of X Ltd. as o n 25.7.2021:
(? i n lakhs)
Liabilities Total Assets Unit A Unit B Total
Paid-up equity share capital 550 Fixed assets 160 280 440
General Reserve 180 Debtors 250 175 425
Revaluation Reserve 110 Inventories 270 100 370
Bank Loan 115
Trade creditors (45% for u n i t B) 280
1235 1235
Other information:
(a) Unit A had transferred a plant and machinery o n 02.05.2021 to Unit B acquired for ? 30
lakhs o n 31.10.2018.
(b) Revaluation reserve is created solely by revising upward t h e value of t h e fixed assets of Unit
B.
(c) In fixed assets of Unit B, value of land is included at revalued figure of ? 160 lakhs which
was purchased at ? 50 lakhs i n t h e year 2015 and value of plant and machinery acquired, as
above, from Unit A, is included at ? 3 0 lakhs.
(d) N o individual value of any asset is considered i n t h e transfer deed.
(e) Bank loan is i n nature of specific borrowings -70% attributable to Unit B and 30%
attributable to Unit A.
(f) X Ltd. does not have any associated enterprise o r deemed associated enterprise.
Based o n t h e facts given i n t h e above case scenario, choose t h e most appropriate answer to
following questions:
(i) W h a t would be t h e amount taxable o n transfer of plant and machinery from Unit A to Unit
B, assuming there is n o slump sale of unit B?
(a) T 18,42,375
(b) ? 20,04,937
(c) ? 30,00,000
(d) Nil

100 MCQ Booklet
(ii) What shall be the cost of acquisition for the purpose of computing capital gains in respect
of the slump sale?
(a) ? 2,18,50,000
(b) ? 2,38,50,000
(c) ? 2,28,54,937
(d) ? 2,08,54,937
(iii) What would be amount of tax payable on capital gain arising on slump sale in the hands of
X Ltd. assuming X Ltd. is opting for section 115BAA?
(a) ? 40,25,750
(b) ? 39,15,957
(c) ? 37,98,080
(d) ? 44,28,325
(iv) What is the due date upto which X Ltd. is required to furnish a report from Chartered
Accountant?
(a) 31.10.2022
(b) 30.11.2022
(c) 31.03.2022
(d) 30.09.2022
(v) Assuming X Ltd. has transferred Unit B to Y Ltd., in accordance with the scheme of
demerger under section 2(19AA), what would be the taxability in the hands of X Ltd. and
Mr. Raj, a shareholder of X Ltd., on such transfer?
(a) Capital gains arising on transfer would be taxable both in the hands of X Ltd. and Mr.
Raj.
(b) Capital gains arising on transfer would only be taxable in the hands of X Ltd. and
nothing would be taxable in the hands of Mr. Raj.
(c) Capital gains arising on transfer would only be taxable in the hands of Mr. Raj and
nothing would be taxable in the hands of X Ltd.
(d) No capital gain would arise neither in the hands of X Ltd. nor in the hands of Mr. Raj.
19. XYZ Ltd. has failed to report an international transaction entered into by it with PQR Inc., which
is a specified foreign company in relation to XYZ Ltd. What would be the penalty leviable in this
case?
(a) 2% of the value of the international transaction
(b) 50% of tax payable on under-reported income
(c) 200% of tax payable on under-reported income
(d) Both (a) and (c)

MCQ Booklet 101
20. Alpha Ltd.'s total income of A.Y. 2022-23 has increased by ?34 lakhs due to application of arm's
length price by the Assessing Officer on transactions of purchase of goods from its foreign
holding company in respect of a retail trade business carried on by it, and the same has been
accepted by Alpha Ltd., then, -
(a) business loss of A.Y. 2018-19 cannot be set-off against the enhanced income
(b) deductions under Chapter Vl-A cannot be claimed in respect of the enhanced income
(c) unabsorbed depreciation of A.Y. 2012-13 cannot be set-off against the enhanced income
(d) Business loss referred to in (a), deductions referred to in (b) and unabsorbed depreciation
referred to in (c) cannot be set-off against the enhanced income.
Answer Key
Question No. Answer
1. (c) ? 30 lakhs
2. (c) Yes; penalty@30% of undisclosed income would be attracted even if Mr.

Aakash has voluntarily made a declaration u/s 132(4).
3. (d) Tax has to be deducted @10% on ? 1,80,000 and @2% on ? 90,000 (i.e.,
rent excluding security deposit)
4. (d) TDS@1% on ? 90 lakhs is attracted. No TDS on payments of ? 49.50 lakhs

and ? 60 lakhs
5. (d) TDS@5.20% is attracted on interest of ? 5 lakhs payable to the foreign

company. TDS@31.2% is attracted on interest of 3 lakhs payable to
Mr. Frank
6. (a) ? 91,500
7. (c) ? 81,00,000 shall be chargeable to tax in the hands of P as income from

other sources and no capital gains shall arise in the hands of Q. and R
respectively as gift does not constitute "transfer"
8. (b) T 60 lakhs
9. (c) ? 1,39,776
10. (d) REIT enjoys pass through status in respect of interest income from
Gamma Ltd. and rental income from directly owned real estate property
and hence, such income are taxable in the hands of the unit holders.
Short-term capital gains is taxable in the hands of the REIT
11. (d) Mr. Aryan is not entitled for deduction u/s 24, section 80C and section
80EEA

102 MCQ Booklet
Question No. Answer
12. (c) Under section 264, t h e Commissioner can revise t h e order pending
before t h e Commissioner (Appeals), if t h e revision pertains to a matter,
other than t h e matter(s) covered i n t h e appeal before Commissioner
(Appeals)
13. (d) The trust can claim exemption u/s 10(1) i n respect of its agricultural
income. However, it cannot claim exemption u/s 10(15) i n respect of its
interest income from bonds of local authority w i t h o u t applying such
income for charitable purposes
14. (d) Tax is deductible by Delta Ltd. before making payment of dividend. The
dividend income would be included i n t h e t o t a l income of both
M r . Ganesh and Rajesh and subject to tax in their hands at their
respective slab rates
15.
(i) (d) Ujay International AG is required to charge equalization levy of 200

and deposit t h e same w i t h Indian tax authorities
(ii) (d) March 31, 2022
(Hi) (d) Where a E-Commerce operator, being a non-resident having n o PE i n

India, provides access to online movies, TV Shows and other contents to
Indian customers via its electronic platform
(iv) (a) Equalisation levy of ? 2,000 is payable by Ujaylnternational.com
16.
(0 (b) Resident and ordinarily resident
(ii) (b) ? 43,30,000
(iii) (a) ? 81,250
(iv) (a) ? 2,14,992
17.
(i) (c) ? 40 lakhs
(ii) (c) ? 3,70,000
(iii) (a) No, it is not chargeable to tax
(iv) (d) Yes, he can hold M r . David as an agent as per t h e provisions of t h e

Income-tax Act, 1961
(v) (c) In Mrs. Sachdeva's hands

MCQ Booklet 103
Question No. Answer
18.
(0 (b) ? 20,04,937
(ii) (c) ? 2,28,54,937
(iii) (a) ? 40,25,750
(iv) (d) 30.09.2022
(v) (d) N o capital gain would arise neither i n t h e hands of X Ltd. nor i n t h e hands
of M r . Raj
19. (d) Both (a) and (c)
20. (b) deductions under Chapter Vl-A cannot be claimed i n respect of t h e

enhanced income

1. Which of the following individuals would be entitled to opt for presumptive taxation schemes
under the Income-tax Act, 1961 for A.Y.2022-23?
(i) A retail trader having turnover of ? 2 crore during the previous year 2021-22.
(ii) A practicing chartered accountant having gross receipts of ? 92 lakhs during the previous
year 2021-22.
(iii) A wholesale trader having turnover of ? 1.96 crore during the previous year 2021-22.
(iv) A doctor having gross receipts of ? 50 lakhs during the previous year 2021-22.
(v) An individual owning 8 goods carriages as on 1.4.2021. He sold 2 goods carriages on
1.5.2021 and purchased 4 goods carriages on 1.7.2021.
(a) Only (iii)
(b) (iii) & (v)
(c) (i), (iii), (iv) & (v)
(d) (i), (ii), (iii), (iv) & (v)
2. Mr. Arjun's total income comprises of long-term capital gains on sale of land ? 5 lakhs; short-
term capital gains on sale of STT paid listed equity shares ? 2 lakhs; income from lottery ? 1 lakh
and savings bank interest ? 30,000. He invests ? 1.50 lakhs in PPF.His tax liability for A.Y.2022-
23, assuming that he is of the age of 40 years and does not opt for the provisions of section
115BAC, i s -
(a) ? 1,64,800
(b) ? 1,66,400
(c) ? 1,14,400
(d) ? 1,13,300
3. Mrs. Kavitha, wife of Mr. Sundar, is a partner in a firm. Her capital contribution of ? 5 lakhs to
the firm as on 1.4.2021 included ? 3 lakhs contributed out of gift received from Sundar. On
2.4.2021, she further invested ? 1 lakh out of gift received from Sundar. The firm paid interest
on capital of ? 60,000 and share of profit of ? 50,000 during the F.Y.2021-22. The entire interest

MCQ Booklet 105
has been allowed as deduction in t h e hands of t h e firm. Which of t h e following statements is
correct?
(a) Share of profit is exempt but interest o n capital is taxable i n t h e hands of Mrs. Kavitha
(b) Share of profit is exempt b u t interest of ? 40,000 is includible i n t h e income of M r . Sundar
and interest of ? 20,000 is includible i n t h e income of Mrs. Kavitha
(c) Share of profit is exempt b u t interest of ? 36,000 is includible i n t h e income of M r . Sundar
and interest of ? 24,000 is includible i n t h e income of Mrs. Kavitha
(d) Share of profit to t h e extent of ? 30,000 and interest o n capital to t h e extent of ? 36,000 is
includible i n t h e hands of M r . Sundar
4. X Ltd., a domestic company n o t opting for t h e provisions of section 115BAA, has a t o t a l income
of ? 10,01,00,000 for A.Y.2022-23. The gross receipts of X Ltd. for P.Y.2019-20 is ? 260 crore.
The tax liability of X Ltd. for A.Y.2022-23 is -
(a) ? 2,76,55,500
(b) 2,79,24,000
(c) ? 3,46,42,610
(d) 3,49,78,940
5. M / s . Atlanta Airlines, incorporated as a company i n USA, operated its flights to India and vice
versa during t h e year 2021-22 and collected charges of ? 280 crores for carriage of passengers
and cargo, o u t of which ? 100 crores were received i n US Dollars for t h e passenger fare from
Atlanta to Delhi. Out of ? 100 crores, US dollars equivalent to ? 40 crores is received i n India.
The total expenses for t h e year o n operation of such flights were ? 11 crores. The effective rate
of income-tax applicable o n t o t a l income of M/s. Atlanta Airlines is -
(a) 42.432%
(b) 43.68%
(c) 41.6%
(d) 44.512%
6. M r . Akhilesh, a non-resident Indian citizen, is an enthusiastic sports person and is keen o n

contributing an article on t h e game of hockey i n a leading newspaper i n India. He approaches
you to enquire o n taxability of such income for A.Y. 2022-23. As per t h e provisions of Income-
tax Act, 1961, such income shall be taxable in his hands at -
(a) 5%
(b) 10%
(c) 20%
(d) Normal tax slab rates
(Note: The above rates are excluding cess and surcharge, if any)
7. Samraat, a resident Indian, has earned an income of ? 4 lakh by way of lump sum consideration
for copyright of a book, being a work of literary nature, from a publisher i n Country E, w i t h
which India does not have a DTAA. The same has been taxed at a flat rate of 5% i n Country E. In
India, his gross total income is T 7 lakhs. The double taxation relief available is -

106 MCQ. Booklet
(a) ? 20,000
(b) ? 7,725
(c) ? 1,950
(d) Nil
8. Mr. Ganesh is running a steel factory. The total turnover of the factory during the F.Y. 2020-21
amounted to ? 2.5 crores. The estimated turnover for F.Y. 2021-22 is likely to exceed ? 3 crore.
On 10-04-2021, he availed consultancy services from a Delhi based chartered accountant. The
consultancy fees amounted to ? 1,84,000. Should Mr. Ganesh deduct tax from consultancy fees
of ? 1,84,000? If yes, then what shall be the amount of tax to be deducted and by when should
the same be deposited with Government?
(a) Yes; ? 18,400 to be deposited by 07.05.2021
(b) Yes; ? 18,400 to be deposited by 07.07.2021
(c) Yes; ? 15,400 to be deposited by 07.05.2021
(d) He is not liable to deduct tax in respect of professional fees paid
9. Mr. Naveen is an employee working in a public sector company. He repaid a loan in cash of
? 24,000 (including interest of ? 5,000), which he took from his friend for higher studies. What
will be the consequence of the said transaction for A.Y. 2022-23?
(a) Disallowance under section 40A(3) of ? 24,000
(b) Penalty of ? 24,000 u/s 271E due to violation of section 269T
(c) Penalty of ? 19,000 u/s 271E due to violation of section 269T
(d) No disallowance or penalty u/s 271E, since the principal amount of loan is less than
? 20,000
10. Mr. Sam (aged 40 years), a US football match referee, has earned income from football
tournaments in India for A.Y. 2022-23. Are TDS provisions applicable while making payment to
him and if so, under which section?
(a) Yes; TDS@20.8% as per section 194E
(b) Yes; TDS@5.2% as per section 194E
(c) Yes; TDS under section 195
(d) No; TDS provisions are not applicable
11. Nikhil, an individual aged 35 years, incurs the following expenses for the benefit of his family
(i.e., Self, Mrs. Nikhil and dependent children) and parents [father (80 years), mother (76
years)] during the previous year 2021-22:
Medical Preventive health Medical

insurance check-up expenditure (by
Particulars
premium (by expenditure (in cheque) (?)
cheque) (?) cash) (?)
For the benefit 20,000 7,000 2,000

of his family

MCQ. Booklet 107
For t h e benefit Nil Nil 32,000

of his father
For t h e benefit 6,000 Nil Nil

of his mother
W h a t is t h e amount of deduction allowable u/s 80D to Nikhil for t h e A.Y; 2022-23?

(a) ? 63,000
(b) ? 55,000
(c) ? 67,000
(d) ? 65,000
12. M r . X took a loan from SBI o n 31.03.2013 of ? 10,00,000. During previous year 2021-22, interest
actually paid o n such loan was ? 1,00,000. However, t h e amount of interest unpaid o n such
loan from 01.04.2013 u p t o 31.03.2022 is ? 2,00,000. As M r . X was making continuous defaults
i n payment of interest, a restructuring arrangement was entered i n t o wherein t h e unpaid
interest was converted i n t o Funded Interest Term Loan (FITL) which is shown separately from
t h e original loan and no interest is chargeable on FITL. This converted interest is to be paid 4
annual equal installments from 01.04.2023. M r . X is of t h e view t h a t for A.Y. 2022-23, t h e
following deductions shall be allowed to h i m while computing his business income:
• Interest of ? 1,00,000 o n original principal of ? 10,00,000.
• Converted interest of ? 2,00,000.
Is X's view correct?
(a) Correct, total deduction of ? 3,00,000 shall be allowed to M r . X in A.Y. 2022-23
(b) Incorrect, n o deduction shall be allowed to M r . X i n A.Y. 2022-23
(c) Partially correct, interest of ? 1,00,000 shall be fully allowed, however, proportionate
amount of converted interest for t h e period 01.04.2021 to 31.03.2022 shall be allowed
(d) Incorrect, only deduction of ? 1,00,000 shall be allowed to M r . X in A.Y. 2022-23
13. A search u/s 132 was carried o u t i n t h e case of M r . M o n 20.12.2021. During t h e course of
search, t h e assessee admitted t h e additional income of ? 50 crore as additional sales for t h e
financial year 2020-21. While filing his return of income i n response to notice u/s 148, M did
n o t declare t h e said income. What is t h e amount of penalty to be payable by M i n respect of
t h e said undisclosed income?
(a) ? 5 crore
(b) ? 10 crore
(c) ? 15 crore
(d) ? 30 crore
14. M r . Harry and M r . Sujoy, resident and Indian citizens, have been appointed as senior officials of
County A embassy and County B embassy, respectively, i n India i n October, 2021. M r . Harry and
M r . Sujoy are subjects of Country A and County B, respectively, and are not engaged i n any
other business o r profession i n India. The remuneration received by Indian officials working i n

108 MCQ Booklet
Indian embassy i n County A is exempt b u t i n County B is taxable. The tax treatment of
remuneration received by M r . Harry and M r . Sujoy from embassies of Country A and Country B,
respectively, i n India for t h e P.Y. 2021-22 is-
(a) Exempt from income-tax under section 10
(b) Taxable under t h e Income-tax Act, 1961

(c) Remuneration received by M r . Harry is exempt b u t remuneration received by M r . Sujoy is
taxable
(d) Remuneration received by M r . Sujoy is exempt b u t remuneration received b y M r . Harry is
taxable
15. Y is a foreign company having permanent establishment i n India namely X. Z, a non-resident

associated enterprise, has invested ? 900 crore through d e b t i n X. Earnings before interest,
taxes, depreciation and amortisation (EBITDA) of X during t h e financial year was ? 150 crore.
W h a t is t h e amount of interest allowable i n respect of t h e debt assuming t h a t t h e debt was
invested o n t h e first day of t h e financial year and t h e rate of interest is 10% p.a.?
(a) ? 45 crore
(b) ? 90 crore
(c) ? 30 crore
(d) ? 27 crore
16. Mr. Billabong stays i n India from April to September and i n UK from October to M a r c h every
year. He owns a house i n London, which he has let o u t at £ 1000 per m o n t h . He paid taxes of £
100 levied by local authorities of London every year [ 1 £ = ? 120].
M r . Billabong also has a flat i n Winchester, UK, where he stays when he visits UK every year. It
is unoccupied for t h e rest of t h e year. He paid municipal tax of £ 5000 i n respect of t h e said
house property for t h e F.Y.2021-22.
He owns t h e following house properties at Mumbai:
Flats at Mumbai Status Municipal tax paid in the F.Y.2021-22 (?)
Bandra Unoccupied 10,000
Worli Unoccupied 20,000
The other details relating to t h e properties owned by h i m are given under:
Place Standard Rent Municipal Value Fair Rent

(?) (?)
Bandra, M u m b a i 60,000 p.m. 50,000 p.m. ? 70,000 p.m.
Worli, M u m b a i 1,30,000 p.m. 1,40,000 p.m. ? 1,20,000 p.m.
Winchester, UK £ 1000 p.m.
London, UK £ 2000 p.m.

MCQ Booklet 109
In April, 2021, Mr. Billabong's father, Mr. Hongkong, who is 61 years old and resident in India,
has sold a flat owned by him for last 5 years to his neighbour, who is 70 years old, for 3 crore
which resulted in capital gains of ? 2 crore. He decided to immediately invest the sale proceeds
received from the flat in NCD of Mahindra and Mahindra to the tune of ? 1.35 crore to earn a
high rate of return, ? 20 lakhs in bonds issued by NHAI, ? 15 lakhs in GSec and remaining ? 30
lakhs in bonds issued by RECL. All the investments were made by him in June, 2021. In March,
2022, he purchased two adjacent apartments in Pune for ? 50 lakhs each and made suitable
modifications to use them as a single house. He also purchased a flat in Baroda for ? 40 lakhs in
April, 2022.
Further, he has received other income from various sources as detailed hereunder:
Nature of Income Amount (?)
Interest on Fixed Deposit (in March, 2022) 40,000
Commission (in April, 2021) 20,000
Rent (throughout the year) 2,00,000
questions, assuming Mr. Billabong does not opt for section 115BAC -
(i) What is the amount of municipal taxes allowable as deduction from gross annual value
while computing the income from house property of Mr. Billabong for A.Y.2022-23?
(a) ? 22,000
(b) ? 42,000
(c) ? 6,22,000
(d) T 6,42,000
(ii) What is the income chargeable under the head "Income from House property" of Mr.
Billabong for A.Y.2022-23?
(a) ? 25,04,600
(b) ? 25,95,600
(c) ? 30,92,600
(d) ? 41,70,600
(Hi) Suppose if the house property at Winchester is sold on 1.4.2021, then, what would be the
income from house property for A.Y.2022-23?
(a) ? 25,04,600
(b) ? 4,97,000
(c) ? 20,07,600
(d) ? 30,85,600

110 MCQ Booklet
(iv) What is the amount of capital gains chargeable to tax for A.Y.2022-23 in the hands of
Billabong's father?
(a) ? 60,00,000
(b) ? 50,00,000
(c) ? 10,00,000
(d) Nil
(v) What is the amount of tax which would have been deducted in respect of income received
by Mr. Billabong' father?
(a) ? 1,000
(b) ? 2,01,000
(c) ? 3,00,000
(d) ? 3,01,000
17. Mr. Bharat, a cloth manufacturer, runs his proprietary business in the name of ”M/s Bharat
Traders". He also exports clothes outside India to his associate enterprises as well as unrelated
parties. The turnover of P.Y. 2021-22 was Rs 400 lakhs from such business.
Mr. Bharat had taken a loan of ? 35 lakhs@9% from SBI on 01.11.2021 for a term of 10 years
for the education of his brother Mr. Ram. Mr. Ram is studying in a university in London. He
remitted the loan amount to Mr. Ram. For the previous year ended on 31.03.2022, he repaid
principal of ? 7,50,000 and paid interest of ? 1,31,250 towards the said loan. The entire foreign
remittances are settled through SBI, which is an authorised dealer.
Other information:
(1) In April, 2021, he went on a tour to London for the purpose of learning new technology to
leverage his business. The Foreign Tour Package was arranged by Franklin Tours and
Travelers, New Delhi. The details of expenditure on this tour are as follows:
Particulars Amount
(?)
* Ticket fare (round trip) ? 4,50,000
* Hotel accommodation charges ? 1,60,000
* Sight-seeing charges (including entry tickets, cab ? 80,000

fare etc.)
(2) On 15.4.2021, he sold scrap to Gentleman Suitings Pic, a foreign buyer, who remitted the
payment of ? 80,000 for the same during the year through ABC Forex Bank, an authorised
dealer.
(3) On 17.8.2021, he received ? 55,00,000 from M/s Shakti Traders, a LLP, for supplying clothes
as per its specifications. The raw material for the same was also supplied by the LLP. The
invoice for such supplies is raised in the following manner:

MCQ Booklet 111
Value of Material - T 37,80,000
Stitching charges - ? 17,20,000
questions -
(i) Would Mr. Bharat be eligible for any deduction under section 80E in respect of payment of
interest and repayment of loan taken for higher education of Mr. Ram? Also, does any
liability for tax deduction at source or tax collection at source arise on remittances to Mr.
Ram under the provisions of the Income-tax Act, 1961?
(a) Yes, deduction u/s 80E is allowable in respect of interest payment of ? 1,31,250. No
deduction is, however, allowable for principal repayment of loan. Mr. Bharat is required
to deduct tax at source u/s 195 on the amount remitted to Mr. Ram
(b) No, Mr. Bharat is not eligible for any deduction u/s 80E. Further, no tax deduction at
source or tax collection at source liability arises on the amount remitted to Mr. Ram
(c) Yes, Mr. Bharat is eligible for deduction u/s 80E in respect of interest payment of
? 1,31,250. No deduction is, however, allowable for principal repayment of loan.
Moreover, SBI is required to collect tax at source on the amount remitted to Mr.
Ram@5% (plus cess) on ? 28 lakh, being the amount in excess of ? 7 lakh
(d) No, Mr. Bharat is not eligible for any deduction u/s 80E. Moreover, SBI is required to
collect tax at source on the amount remitted to Mr. Ram @0.5% (plus cess) on T 28
lakh, being the amount in excess of ? 7 lakh.
(ii) Is tax is required to be collected at source on payment made by Mr. Bharat towards
expenditure on foreign tour package? If yes, what would be rate of TCS and the amount on
which tax is to be collected at source?
(a) No tax to be collected at source, since the amount of expenditure does not exceed
? 7,00,000
(b) Yes, tax to be collected at source @5% only on travel expenditure of ? 4,50,000
(c) Yes, tax to be collected at source @5% only on travel expenditure of ? 4,50,000 plus
hotel accommodation charges o f ? 1,60,000
(d) Yes, tax to be collected at source @5% on ? 6,90,000, being the total amount of
expenditure on overseas tour program package
(iii) What is the amount of tax required to be collected at source on sale of scrap to Gentlemen
Suitings Pic?
(a) ? 600
(b) ? 624
(c) ? 800
(d) ? 832

112 MCQ Booklet
(iv)What is the rate at which M/s Shakti Traders LLP is required to deduct tax u/s 194C and on
what amount?
(a) @1% on ? 55,00,000
(b) @1% on ? 17,20,000
(c) @2% on ? 55,00,000
(d) @2% on ? 17,20,000
18. Mr. Rajat is a diamond merchant. During the P.Y.2021-22, he has turnover of ? 20 crores and
net profit of ? 60 lakhs after taking into account all the permissible deductions. He has invested
in shares of various private limited companies, from which he received dividend of ? 12 lakhs.
He has two house properties in India, both of which were self-occupied. On one of the
properties, he had taken loan of ? 50 lakh on which interest payable was ? 2,50,000, out of
which he paid ? 1,80,000 during the year. On his birthday, he received jewellery from his friend
(fair market value of which was ? 5 lakhs). He had also withdrawn cash of ? 1.2 crores during
the P.Y. 2021-22 in aggregate from his current account maintained with ABC Bank. Further, he
also withdrew ? 50 lakhs from a co-operative bank account in October, 2021. He is regularly
filing his return of income.
His brother Mr. Rahul has not filed his return of income for the last five years, even though his
total income exceeded the basic exemption limit. He withdrew ? 50 lakhs from a co-operative
bank account in March, 2022.
Also, Mr. Rajat holds 20% voting power in XYZ Pvt. Ltd. (closely held company and engaged in
diamond manufacturing) from which he has obtained loan of ? 10 lakhs on 1.4.2021. The
company had free reserves of T 8 lakh as on 31.3.2021.
questions -
(i) Which of the following statements is correct in respect of loan of 10 lakhs obtained by Mr.
Rajat from XYZ Pvt. Ltd?
(a) ? 10 lakhs would be taxable as deemed dividend in the hands of Mr. Rajat
(b) ? 8 lakhs would be taxable as deemed dividend in the hands of Mr. Rajat
(c) The entire amount is received in the ordinary course of the business and therefore, the
loan obtained would not be treated as deemed dividend
(d) The company will pay distribution tax@ 34.944% on 8 lakhs
(ii) Would cash withdrawals by Mr. Rajat during the P.Y. 2021-22 attract deduction of tax at
source?
(a) Yes, tax is required to be deducted u/s 194N @5% on ? 1.2 crores by ABC Bank and 2%
on ? 50 lakhs by the co-operative bank
(b) Yes, tax is required to be deducted@2% on ? 20 lakhs u/s 194N by ABC Bank
(c) Yes, tax is required to be deducted@5% on ? 20 lakhs u/s 194N by ABC Bank
(d) Yes, tax is required to be deducted u/s 194N @5% on ? 20 lakhs by ABC Bank and 2% on
? 50 lakhs by the co- operative bank

MCQ Booklet 113
(iii) Would cash withdrawals by Mr. Rahul during the P.Y. 2021-22 attract deduction of tax at
source?
(a) No, TDS provisions are not attracted since cash withdrawals is less than ? 1 crore
(b) No, TDS provisions are not attracted in respect of cash withdrawals from co-operative
bank
(c) No, TDS provisions are not attracted due to reasons stated in both (a) and (b)
(d) Yes, tax is required to be deducted@2% on ? 30 lakhs u/s 194N by co-operative bank
(iv) What is the total income of Mr. Rajat for P.Y.2021-22, assuming that he has not opted for
section 115BAC?
(a) ? 72 lakhs
(b) ? 75 lakhs
(c) ? 83 lakhs
(d) 83.20 lakhs
(v) What is the amount of gross tax liability of Mr. Rajat for the A.Y. 2022-23, assuming that he
has not opted for section 115BAC?
(a) ? 23,59,500
(b) ? 26,34,060
(c) ? 25,94,060
(d) ? 26,40,924
19. Mr. Sourabh received an assessment order dated 11.11.2021 on 15.11.2021 wherein his total
income was assessed at ?20 lakh. The returned income of Mr. Sourabh was ?5 lakh. However,
Mr. Sourabh did not accept the assessment order and filed an appeal against the same before
the Commissioner (Appeals). Now, while contesting the appeal, he wishes to submit some
evidences that were not submitted by him before the Assessing Officer. As the Tax Consultant
of Mr. Sourabh, what will be your advice to him regarding the submission of the said
evidences?
(a) Commissioner (Appeals) has no power to accept any evidences other than the evidences
already submitted before the Assessing Officer.
(b) Commissioner (Appeals) may accept the additional evidences in the exceptional
circumstances mentioned in Rule 46A(1) of the Income-tax Rules, 1962, subject to recording
reasons for its admission.
(c) Commissioner (Appeals) may accept the additional evidences if the conditions giv en in Rule
46(1) of the Income-tax Rules, 1962 are satisfied.
(d) Commissioner (Appeals) has no power to reject any evidences which the Appellant wishes
to submit before him during the appellate proceedings.
20. Mr. Ganesh, a resident Indian aged 42 years, is a salaried employee whose salary computed
under the normal provisions of the Income-tax Act, 1961 for A.Y.2022-23 is ?14,50,000. In
addition, he has interest on savings bank account to the tune of ?12,000. He has deposited
?l,50,000 in PPF and has paid medical insurance premium of ?25,000 by way of account payee

114 MCQ Booklet
cheque for insuring his health and ?30,000 by way of crossed cheque for insuring t h e health of
his mother, aged 75 years. He incurred medical expenditure of ?35,000 by account payee
cheque for his father, aged 78 years, w h o does not have an insurance policy. Ganesh's brother
Rajesh, a resident Indian aged 40 years, earns rental income of ?40,000 per m o n t h and ?45,000
f r o m his two le t o u t flats. He also has interest o n savings bank account to t h e t u n e of ?15,000.
He deposits ?50,000 i n NPS Tier I account. Should M r . Ganesh and M r . Rajesh opt for t h e
provisions of section 115BAC for A.Y.2022 -23 to minimise their tax liability?
(a) Both Ganesh and Rajesh should opt for t h e provisions of section 115BAC
(b) Neither Ganesh nor Rajesh should o p t for t h e provisions of section 115BAC
(c) M r . Ganesh should o p t for t h e provisions of section 115BAC b u t not M r . Rajesh
(d) M r . Rajesh should o p t for t h e provisions of section 115BAC b u t not M r . Ganesh
Answer Key
Question No. Answer
1. (c) (i), (iii), (iv) & (v)
2. (c) ? 1,14,400
3. (c) Share of profit is exempt b u t interest of ? 36,000 is includible i n t h e

income of M r . Sundar and interest of T 24,000 is includible in t h e income
of Mrs. Kavitha
4. (b) ? 2,79,24,000
5. (b) 43.68%
6. (d) Normal tax slab rates
7. (d) Nil
8. (a) Yes; ? 18,400 to be deposited by 07.05.2021
9. (c) Penalty of ? 19,000 u/s 271E due to violation of section 269T
10. (c) Yes; TDS under section 195
11. (a) ? 63,000
12. (d) Incorrect, only deduction of ? 1,00,000 shall be allowed to M r . X i n A.Y.

2022-23.
13. (d) ? 30 crore
14. (b) Taxable under t h e Income-tax Act, 1961
15. (a) T 45 crore

MCQ Booklet 115
Question No. Answer
16.
(i) (a) ? 22,000
(ii) (a) ? 25,04,600
(iii) (c) ? 20,07,600
(iv) (c) ? 10,00,000
(v) (d) ? 3,01,000
17.
(i) (d) No, M r . Bharat is not eligible for any deduction u/s 80E. Moreover, SBI is
required to collect tax at source o n t h e amount remitted to M r . Ram
@0.5% (plus cess) o n ? 28 lakh, being t h e amount i n excess of ? 7 lakh
(ii) (d) Yes, tax to be collected at source @5% o n ? 6,90,000, being t h e t o t a l

amount of expenditure o n overseas t o u r program package.
(iii) (d) ?832
(iv) (b) @1% o n ? 17,20,000
18.
(i) (b) ? 8 lakhs would be taxable as deemed dividend i n t h e hands of M r . Rajat
(ii) (b) Yes, tax is required to be deducted@2% o n ? 20 lakhs u/s 194N by ABC
Bank
(iii) (d) Yes, tax is required to be deducted@2% o n T 3 0 lakhs u/s 194N by t h e co-
operative bank
(iv) (c) ? 83 lakhs
(v) (b) ? 26,34,060
19. (b) Commissioner (Appeals) may accept t h e additional evidences i n t h e

exceptional circumstances mentioned in Rule 46A(1) of t h e Income-tax
Rules, 1962, subject to recording reasons for its admission
20. (d) M r . Rajesh should opt for t h e provisions of section 115BAC b u t n o t M r .

Ganesh

Explanation of MCQ and Case Scenario
(For M a y 2022 and November 2022 attempt)
Test Series 1
s. Explanations
No.
1. As per Section 32, Depreciation rate for M o t o r Vehicles used i n a business of running o n
hire is 30%. Depreciation rate for Other M o t o r Vehicles is 15%.
Therefore, depreciation o n assets purchased will be charged at @ 30% and 15% for M r .
Akash and M r . Vikash respectively.
As per t h e proviso to sec 32(1), depreciation is restricted to 50% if asset is acquired and
p u t to use for less t h a n 180 days.
Calculation of Depreciation allowable for FY 2021-22-
Particulars M r . Akash M r . Vikas
WDV as o n 01.04.2020 ? 50,00,000.00 ?0.00
Add: Put to use for less than 180 days

(01.11.2020) ? 5,00,000.00 ? 5,00,000.00
Total ? 55,00,000.00 ? 5,00,000.00
Depreciation
On Opening WDV @ 30% ? 15,00,000.00 ?0.00
On asset p u t to use o n 01.11.2020 for half year ? 75,000.00 ? 37,500.00
WDV as on 01.04.2021 ? 39,25,000.00 ? 4,62,500.00
Depreciation allowable for FY 2021-22 @30%

and 15% respectively ? 11,77,500.00 ? 69,375.00
CA Bhanwar Borana Explanation of MCQ and Case Scenario

MCQ Booklet 117
s. Explanations
No.
2. Mr. Aarav is eligible for presumptive taxation as per Sec 44AD, since his turnover is upto
2Cr.
Presumptive PGBP income = Turnover/ Gross Receipt x 8% but if turnover or gross
receipt is received by account payee cheque/DD/ECS upto due date of return of return
filing then PGBP Income = Turnover/ Gross Receipts * 6%.
Mr. Vishal is engaged in legal profession and his Gross receipt is upto 50 lacs then he is
eligible for Presumptive basis for profession. PGBP income = Gross receipts * 50%.
Both Mr. Aarav and Mr. Vishal have not got the books of a/c audited and do not intend
to do in future so they can opt for presumptive taxation.
Mr. Aarav Income 12,40,000 i.e. [(6% of 1,80,00,000) +(8% of 20,00,000)]
Mr. Vishal Income 25,00,000 i.e. (50% of 50,00,000)
3. Sec 54 provides exemption on Capital gain on sale of Residential house property used
by individual/ HUF. if assessee purchase One House property in India within 1 year
before or 2 years after the date of transfer or complete construction in India within 3
years after date of transfer, then Capital gain is exempt to the extent purchase/
construction of new House property.
If LTCG is upto 2 Crores then assessee can acquire 2 Residential house properties in
prescribed time limits.
For claiming exemption u/s 54EC, Assessee has to invest in NHAI/RECL/PFCL/RFCL
within 6 months from the date of transfer, assessee can claim maximum exemption of ?
50 lacs.
Particulars Mr. Vishal Mr. Guha
FVOC ? 3,00,00,000.00 ? 4,00,00,000.00
Indexed Cost of Acquisition t 1,00,00,000.00 ? 1,75,00,000.00
Long term Capital Gain ? 2,00,00,000.00 ? 2,25,00,000.00
Less: Exemptions
U/s 54
Since capital gain is up to 2 crores,

benefit of both the properties will be ? 1,50,00,000.00
available

118 MCQ Booklet
s. Explanations
No.
Since capital gain exceeds 2 crores,

benefit of only one t h e property will be ? 80,00,000.00
available
U/s 54EC (Max. 5 0 lakhs)
Bonds of NHAI ? 30,00,000.00 ? 30,00,000.00
Bonds of RECL ? 20,00,000.00 ? 20,00,000.00
Long term Capital Gain after exemption ? - ? 95,00,000.00
4. As per t h e section 194H, any person making payment of any income i n respect of
commission/ brokerage is required to deduct TDS. In case of Individual/ Hindu
Undivided Family (HUF) provisions of section 194H applies only i f t h e t o t a l Turnover
exceeds 1 crore in case of business or gross receipts exceeds fifty lakhs i n case of
profession.
However, as per sec 194M Individual o r HUF (other t h a n covered u/s 194C,194H,194J)
make a payment to resident person for contract, commission, brokerage o r fees for
professional service t h e n TDS @5% required to be deducted if aggregate of sum
paid/credited is m o r e than 50,00,000.
TDS under Section 194C is n o t liable for deduction if t h e payment for contract is made
for personal purpose of individual / HUF.
In t h e given case, 194H is n o t applicable to M r . Hari as his gross receipts does not
exceed 50 lakhs (declaring profit u/s 44ADA). Further, 194C is also not applicable.
Further, since t h e payment made to M r . Lal and M r . Shyam individually does not exceed
5 0 lakhs, therefore n o TDS is to be deducted u/s 194M.
5. As per sec 10(6)(vi) following conditions are required to be fulfilled to claim exemption -
(i) Foreign entity is n o t engaged i n any trade o r business i n India.
(ii) His stay i n India does not exceed t h e aggregate period of 90 days i n such PY.
(iii) Such remuneration is n o t liable to deducted f r o m t h e income of employer

chargeable under this act.
There is n o such condition t h a t M r . X o r employee should n o t be engaged i n any trade
o r business i n India

MCQ Booklet 119
s. Explanations
No.
6. As per seventh proviso of sec 139(1)

(i) has deposited an amount o r aggregate of t h e amounts exceeding one crore rupees
i n one or more current accounts maintained w i t h a banking company o r a co-
operative bank; o r
(ii) has incurred expenditure of an amount o r aggregate of t h e amounts exceeding two
lakh rupees for himself o r any other person for travel to a foreign country; o r
(iii) has incurred expenditure of an amount o r aggregate of t h e amounts exceeding one
lakh rupees towards consumption of electricity;
(iv) o r fulfils any other condition as may be prescribed.
In this case, Total electricity expenditure is 1,20,000 (10,000 * 12)]
As per sec 139(1), for individual if GTI (before claiming exemption u/s 54, 54B, 54D,
54EC, 54F, 54G, 54GA, 54GB) > basic exemption, t h e n return filing is compulsory. M r
Ram was born o n 01.04.1962. On 31.03.2022, his age will be considered as 60 years
based o n CBDT Circular. So, for M r . Ram basic exemption l i m i t is 3,00,000.
Hence, M r Ram is required to file his return of income since he pays electricity bills of ?
10,000 per m o n t h (? 1.20 Lakhs per annum) which is more t h a n threshold of ? 1 lakh.
7. As per Sec 253, any order of CIT/CCIT/DIT/DGIT can be appealed against ITAT. Appeal to
ITAT has to be filed within 60 Days from date of receipt of a copy of order sought to be
appealed against.
8. Ms. Aparna and Ms. Dimple b o t h are Non-Resident as per section 6.

As per sec 47(viia), transfer of rupee denominated bond of Indian company by one NR
to another NR Outside India is n o t a transfer and hence, capital Gain not applicable i n
this case.
9. As per t h e section 194H, any person making payment of any income i n respect of
commission/ brokerage is required to deduct TDS. In case of 1ndividua l/Hind u Undivided
Family (HUF) provisions of section 194H applies only if t h e t o t a l Turnover exceeds 1
crore i n case of business o r gross receipts exceeds fifty lakhs in case of profession.
However, as per sec 194M Individual o r HUF (other than covered u/s 194C,194H,194J)
make a payment to resident person for contract, commission, brokerage o r fees for
professional service t h e n TDS @5% required to be deducted if aggregate of sum
paid/credited is more t h a n 50,00,000.
So, Sanjay is not required to deduct TDS o n brokerage amount under Section 194H since
he is a salaried Individual and not required to deduct tax under Section 194M since t h e
brokerage amount not exceeding t h e threshold limit.
TDS under Section 194C is not liable for deduction if t h e payment for contract is made
for personal purpose.
However, if payment exceeds 50,00,000, t h e n TDS under Section 194M is required to be
deducted. Hence, M r . Hari is required to deduct tax under Section 194M.

120 MCQ. Booklet
s. Explanations
No.
10. As per sec 194DA, TDS is required to be deducted on receipt of maturity proceeds of a
life insurance policy on income portion @5% if policy matured on or after 01.09.2019.
No TDS if amount exempted u/s 10(10D) and Amount less than ? 1,00,000.
TDS not required to be deducted in case of Mr. Rajesh because it is exempted u/s
10(10D) as Policy has been taken before 01.04.2012 and premium paid is not exceeding
20% of policy value.
TDS required to be deducted in case of Mr. Brijesh as policy has been taken on or after
01.04.2012 and premium paid is exceeding 10% of policy value.
TDS = 10,500 i.e., 5% of 2,10,000 [12,00,000 - 9,90,000 (1,10,000 * 9)]
Note - 9 years has been calculated as 01.04.2012 to 01.04.2021.
11. As per sec 44B and 44BBA, when Non-Resident is engaged in shipping Business and
operation of aircraft respectively, then presumptive income is 7.5% of specified sum for
Shipping Business and 5% of specified sum for operation of aircraft.
Specified sum means -
1. the amount paid or payable (whether in or out of India) to the assessee or to any
person on his behalf on account of the carriage of passengers, livestock, mail or
goods from any port in India; and
2. the amount received or deemed to be received in India by or on behalf of the
assessee on account of the carriage of passengers, livestock, mail or goods from
any port outside India.
Shipping Business Operation of aircraft
7.5% of (2000000 + 500000 + 5% of (1500000 + 400000 + 800000)

700000) i.e., ? 2,40,000 i.e., ? 1,35,000
12. As per Section 92CE and Rule 10CB, If Primary adjustment made by AO and excess
money or part thereof not repatriated within 90 days from the date of order, then
interest shall be calculated and added as part of income.
Where the international transaction is denominated in foreign currency then interest at
six- month LIBOR as on 30th September of relevant PY+3% shall be added as part of
income.
Hence, interest rate would be 13% = (10%+3%)
As per section 92CE(2A) Assessee can pay additional Income tax @20.9664% instead of
secondary adjustment.
Excess money = 1,38,00,000
Interest = 1,38,00,000 x 13/100 x 273/365 = 13.418 Lakhs
Note - 273 days has been calculated from 02.07.2021 to 31.03.2022

MCQ Booklet 121
s. Explanations
No.
13. Surcharge to individual, HUF, AOP, BOI and Artificial Judicial Person assessee will be
15% on tax on dividend income & capital gains u/s 111A & 112A where total income
including such capital gains exceed ? 2 Cr.
Surcharge on tax on remaining total income will also be 15% in case total income of
assessee exceeds 2 Crores and not 5 crores due to 111A or 112A or Dividend Income.
14. As per Section 115UB, PGBP income of investment funds is taxable in hands of
investment funds.
As per amendment made by FA 2019, Losses other than PGBP of Investment Fund shall
be distributed to unit holders and unit holder can set off and carry forward such loss if
unit holder hold such units for 12 months or more. So, long term capital loss of 3
Crores shall be carrying forward by unit holders.
15. (i) As per section 40(b), Where an individual is a partner in a firm otherwise than in a
representative capacity, the provisions of section 40(b) shall not apply to any
interest payable by the firm to such individual on behalf of any other person. Such
interest shall be allowed as deduction in full even though the interest rate is more
than 12% p.a. In normal cases, interest @ 12% is allowed from the date of
partnership deed.
Therefore, interest on HUF loan (? 1,20,000) will be fully allowed and to partners, it
will be allowed at 12% for 3 months (from 01.01.2022)
Capital Amount = (540000-120000)/16*100*12 month/9 month = 35,00,000
Interest allowed = 35 lakh*12%*3/12 (Interest of Partners) + 120000 (Interest of
HUF Loan) = 225000
(ii) Remuneration is paid only to the working partner, therefore remuneration paid to
Madhav is not allowed.
Calculation of allowable remuneration-
Net profit 472000
Add: Interest as per Books 540000
Less:Interest allowed (as calculated 225000

above)
Add: Remuneration 888000
Less:Unabsorbed Depreciation 150000
Book Profit 1525000
Allowable remuneration

122 MCQ Booklet
S. Explanations
No.
First 3 lakhs = 90% or 1.5 lakh (whichever is higher) 1005000
Balance @60%
Or
Remuneration paid to working partners (Jay and Gopal) 696000
Whichever is lower.
(iii) Section 78(1) - If there is retirement of partner or death of partner the firm shall not
carry forward share of retired /deceased partner in the losses of firm.
If Legal heir becomes partner after death of any partner, then firm can C/F and Set-
off Losses. Section 78 does not apply to unabsorbed dep so it can be c/f by firm even
if partner dies or retires.
Raj Share = 3 Lakhs x % = 75,000 will not be allowed.
(iv) Calculation of total income
Net profit 472000
Add: Remuneration 888000
Add: Interest as per books 540000
Less:Interest allowable 225000
Less:Remuneration allowable 696000
Less: unabsorbed loss and dep 375000
Total 604000
(v) As per Section 45(3), FVOC will be amount recorded in books of firm. However, in
case of immovable property if SDV is more than amount recorded then SDV shall be
treated as FVOC in the hands of Gopal. i.e. 20 lakhs.
Now, for firm, Purchase price would be the selling price for Gopal i.e 20 Lakhs.
SDV is more than 110% of actual consideration, hence SDV will be treated as FVOC.
Therefore, capital gain = 28 lakh - 20 lakh - 8 lakhs.
16. Section 269SS - No person shall take or accept from any other person, any loan or
deposit or any specified sum, otherwise than by an account payee cheque or account
payee bank draft or use of electronic clearing system through a bank account if the
amount of such loan/advance/deposit is more than 20,000 or the account balance
exceeds 20,000 on the date of accepting such loan/advance/deposit.
Penalty - Amount of loan/ deposit taken or accepted (section 271D)

MCQ Booklet 123
s. Explanations
No.
Section 269T - No branch of a banking company or a co-operative bank and no other
company or co-operative society and no firm or other person shall repay any loan or
deposit made with it or any specified advance received by it otherwise than by an
account payee cheque or account payee bank draft drawn in the name of the person
who has made the loan or deposit or paid the specified advance, or by use of electronic
clearing system through a bank account if the amount of such loan/advance/deposit
repaid is more than 20,000 or the account balance (outstanding as on such date)
exceeds 20,000 on the date of repayment of such loan/advance/ deposit.
Penalty - Amount of loan/deposit so repaid (section 271E)
Section 269ST - No person shall receive an amount of two lakh rupees or more—
(a) in aggregate from a person in a day; or
(b) in respect of a single transaction; or
(c) in respect of transactions relating to one event or occasion from a person,
otherwise than by an account payee cheque or an account payee bank draft or use of
electronic clearing system through a bank account.
Penalty - Sum equal to amount received (section 271DA)
(i) Violation exist for Mr. A and Mr. B loan.
(ii) Cash payment and cross cheque payment is violation.
(iii) Contravention for Mr shyam since amount is 2 lakhs, no contravention in case of
Mr. Ankit since amount is 90,000 only.
(iv) Due date for filing return is 31.10.2022. Tax Audit due date is one month before the
due date of ROI as per Sec 139(1). Penalty leviable under Section 271B if assessee
fails to get accounts audited is 0.50% of Turnover or Gross Receipts (subject to max
1.5 lakh).
17. (i) As per section 44AD, eligible assessee for this section are resident firms (excluding
LLP)/individual/HUF having Turnover/Gross Receipts upto ?2 Cr. and not in the
business of section 44AE, agency, commission and brokerage.
Resident assessee being Individual, HUF and partnership firm (other than LLP) are
eligible for 44ADA if it is engaged in profession as referred in Sec 44AA and Gross
Receipt is upto ? 50 Lakhs.
For the business of plying, hiring, leasing such goods carriage presumptive income
will be calculated as per Sec44AE.
44AE is applicable only if assessee owns Max 10 Vehicles.
Therefore, in the given case eligible firms for declaring income on presumptive basis
are AB& Co., LM & Co. and XY & Co.

124 MCQ Booklet
s. Explanations
No.
(ii) As per section 44AD, income on presumptive basis is Turnover/Gross Receipts *6%
(for account payee cheque/DD/ECS received upto due date of ROI) and for
remaining modes it is Turnover/GR *8%. Therefore, in the given cases income will be
calculated as follows
AB & Co.
Presumptive Income = (150+20) *6% + 30*8% = ? 12,60,000
Working Partner's Salary and Interest shall not be deductible while computing
income as per Sec 44AD
PQ & Co.
Since sec 44AD is not applicable therefore book profits of 4,50,000
(iii) As per section 44AE, presumptive income (after deducting partners remuneration,
salary, interest, etc. as per 40(b)) in case of transporters is as follows -
Heavy Goods Vehicle (more than 12000 kgs) = 1,000 per ton per vehicle for every
month or part thereof.
Other Vehicle = 7500 per vehicle per month or part thereof.
Purchase Date (not put to use) is considered under Sec 44AE.
In the given case presumptive income for LM & Co. is as follows
= (11x3x7500 + 9x2x7500 + 8x1x7500 + 7x1x7500 + 5x1x7500 + 4x2x13x1000) -
(1,50,000+ 50,000)
= 6,36,500 - 2,00,000
=4,36,500.
(iv) As per section 44ADA, presumptive income in case of professional is (Gross Receipt
x 50%). Therefore, income of XY & Co. for AY 22-23 would be = 50,00,000 x 50% =
25,00,000
(v) Yes, since in both the cases, presumptive income is more than the income calculated
as per books of accounts. Hence, if assessee wishes to get their books of accounts
audited, then they can declare income as per books of accounts maintained.
18. (i) Section 43CA - Where the consideration received due to transfer of asset (other
than a capital asset), being land or building or both, is less than stamp duty value in
respect of such transfer, the SDV shall, for the purposes of computing profits and
gains from transfer of such asset, be deemed to be the full value of the
consideration. However, where the SDV does not exceed 110% of consideration the
sale consideration shall be treated as FVOC.
Further, in case of transfer of an asset, being a residential unit, where the SDV does
not exceed 120% of consideration the sale consideration shall be treated as FVOC if
the following conditions are satisfied:

MCQ Booklet 125
S. Explanations
No.
(i) t h e transfer of such residential unit takes place during t h e period beginning
f r o m t h e 12th day of November, 2020 and ending o n t h e 30th day of June,
2021;
(ii) such transfer is by way of first-time allotment of t h e residential unit to any
person; and
(iii) t h e consideration received o r accruing as a result of such transfer does n o t
exceed two crore rupees.
Also, if t h e date of agreement and registration are n o t same, t h e n assessee can take
SDV o n t h e date of agreement if he has received consideration o r part thereof u p t o
date of agreement i n A/c payee cheque/DD, use of ECS, etc.
Date of transfer i n given case is 01.01.2022. Since, SDV on date of agreement does
n o t exceed 110% of 100 lakhs, therefore 100 lakhs will be treated as FVOC.
Business Income (since Rajesh is a property dealer) = 100 lakh - 5 0 lakh = 50 lakhs
(ii) Where immovable property is acquired for inadequate consideration, if per
immovable property (SDV - Consideration) exceeds 50,000 AND SDV is m o r e t h a n
110% of consideration t h e n difference between SDV and consideration is taxable
under IFOS - Section 56(2)(x)
In instant case, since SDV o n date of agreement does n o t exceed 110% of 100 lakhs.
Nothing is chargeable i n IFOS.
(iii) Provision similar to section 43CA exist for transfer of capital asset also except t h a t
120% special provision (Section 50C).
In instant case, since d o w n payment on date of agreement is received by crossed
cheque, SDV o n date of agreement is not acceptable.
Further, SDV on date of transfer exceeds 110% of 5 0 lakh i.e. m o r e than 55 lakhs,
therefore, 70 lakh will be treated as FVOC.
Short Term Capital Gain - 70 - 32 = 38 lakhs.
No indexation benefit since period of holding does n o t exceed 24 months.
(iv) Where immovable property is acquired for inadequate consideration, if per
immovable property (SDV - Consideration) exceeds 50,000 AND SDV is m o r e t h a n
110% of consideration t h e n difference between SDV and consideration is taxable
under IFOS - S e c t i o n 56(2)(x)
In instant case, since SDV o n date of transfer exceed 110% of 5 0 lakhs and difference
(70 lakh- 5 0 lakh) is m o r e t h a n 50,000.
20 lakhs (70 lakh - 5 0 lakh) will be chargeable i n IFOS.
(v) Section 194IA - TDS @ 1% is deductible by payee o n transfer of immovable property
if t h e consideration is 5 0 lakh o r more.
Therefore, TDS is to be deducted by both Rajesh and Vallish.
CA Bhanwar Borana Explanation of MCQ a n d Case See

126 MCQ Booklet
s. Explanations
No.
19. As per Section 194N, TDS @2% is applicable only if payer paying sum o r aggregate of sum
i n cash i n excess of one crore i n PY from one or m o r e accounts maintain by payee. TDS
applicable only o n excess of amount over one crore.
Bank of India - 0.50 crore
SCB - 1.05 crore
Repco Bank - 1.05 crore

SBI - 1 crore
In this case, withdrawal from SCB and Repco bank i n excess of 1 crore will attract TDS.
20. As per section 6(1), a person is treated as resident i n India if He stays in India for 182
days o r more i n PY
Or
Stay i n India for 60 days o r more i n PY and 365 days i n Last 4 PY's.
As per section 6(6), a person will be treated as ordinary resident if he satisfies b o t h
conditions-
Resident for 2 PY o r more i n Last 10 PYs And
Stay i n India for 730 days o r more in Last 7 PYs.
(i) Mrs. Sowmya
Period of stay during PY 2021-22 = 3 rd Oct 2 0 2 1 to 3 1st Jan 2022 i.e. 121 days.
She spend May, December and January in India each year. Therefore, period of stay
i n last 4 PYs = (31+31+31)*4 = 372 days.
She satisfy t h e condition of section 6(1) i.e. stay i n India for 60 days o r m o r e i n PY
and 365 days in Last 4 PY's. Therefore, she is a resident.
Period of stay in last 7 PYs = (31+31+31)*7 = 6 5 1 days. Therefore, 2 n d condition of
section 6(6) is not satisfied.
Therefore, she is considered as resident b u t not ordinary resident.
(ii) M r . Dinesh
Period of stay during PY 2021-22 = 1 st April 2021 to 28t h September 2021 less one
m o n t h of visit to Country X i.e. 30+31+30+31+31+28-30 = 151 days.
He spends 11 months each year in India since 2016. Therefore, period of stay i n last
4 PYs = (365-30)*4 = 1340 days.
He satisfy t h e condition of section 6(1) i.e. stay i n India for 60 days o r m o r e i n PY and
365 days i n Last 4 PY's. Therefore, he is a resident.
Period of stay i n last 7 PYs = (365-30)*5 # = 1675 days. Also, he will be resident i n
each of t h e 5 PY due to stay more t h a n 182 days i n each year. Therefore, both
condition of section 6(6) are satisfied.

MCQ Booklet 127
S. Explanations
No.
Therefore, he is considered as resident and ordinary resident.
#
l t is mentioned that he is in India since 2016, it is assumed, he is from April 2016.
Mr. Karthik
Period of stay during PY 2021-22 = 2nd December 2021 to 31 st March 2022 i.e.
30+31+28+31 = 120 days.
He spends 2 month in India upto year 2019 and one month in July 2020. Therefore,
period of stay in last 4 PYs =
2020-21 - 3 1 days
2019-20 - 6 2 days
2018-19-62 days
2017-18-62 days
Total = 217 days.
He does not satisfy the condition of section 6(1) i.e. stay in India for 60 days or more
in PY and 365 days in Last 4 PY's. Therefore, he is a non-resident.
(iii) Mr. Dinesh
Since he is resident and ordinary resident, his all global income will be taxable in
India.
Particulars Amount Remarks
Indian Salary Income 8,50,000 April 2021 to 20t h September 2021
Salary from MNC Inc. 29,86,200 From October 2021 to March 2022 at
$7000 p.m. (calculation shown in
note)
Less: Standard deduction -50,000
FD Interest 40,000
Total Income 38,26,200
Note:
As per Rule 115, the rate of exchange for the calculation of the value in rupees of any
income accruing or arising or deemed to accrue or arise to the assessee in foreign
currency shall be the telegraphic transfer buying rate of such currency as on the
specified date.
"Specified date" means, in respect of income chargeable under the head "Salaries", the
last day of the month immediately preceding the month in which the salary is due, or is
paid in advance or in arrears.
CA Bhanwar Borana Explanation of MCQ and Case Sceih<to

128 MCQ. Booklet
s. Explanations
No.
—
Therefore, income will be calculated as follows:
Income
Salary M o n t h Date of rate being used Rate to be used after
conversion
October 30.9.2021 70.00 ' 490000
November 31.10.2021 70.40 492800
December 30.11.2021 71.00 497000
January 31.12.2021 71.30 499100
February 31.1.2022 71.90 503300
March 28.2.2022 72.00 504000
Total 29,86,200
(iv) M r . Karthik
Since he is non-resident, only Indian income will be taxable i n India.
Indian Salary Income 3,84,000 5 t h December 2021 to 3 1st March

2022.
December - 99200 * 2 7 / 3 1 = 86400
January - 99200
February - 99200
March - 99200
Less: Standard deduction -50,000
Saving Interest 9500
Less: Deduction u/s 9500

80TTA
(v) M r . Rajesh
Period of stay during PY 2021-22 = 3 0 days.
He does n o t satisfy either condition of section 6(1). Therefore, he is a non-resident.

MCQ Booklet 129
S. Explanations
No.
21. Section 165A of Finance Act 2016 - (1) On and from the 1st day of April, 2020, there shall
be charged an equalisation levy at the rate of 2% of 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—
(i) to a person resident in India; or
(ii) to a non-resident in the specified circumstances as referred to in sub-section (3); or
(iii) to a person who buys such goods or services or both using internet protocol address
located in India.
(2) The equalisation levy under sub-section (1) shall not be charged—
(i) where the e-commerce operator making or providing or facilitating e-commerce
supply or services has a permanent establishment in India and such e-commerce
supply or services is effectively connected with such permanent establishment;
(ii) where the equalisation levy is leviable under section 165; or
(iii) sales, turnover or gross receipts, as the case may be, of the e-commerce operator
from the e-commerce supply or services made or provided or facilitated as referred
to in sub-section (1) is less than two crore rupees during the previous year.
(3) For the purposes of this section, "specified circumstances" mean—
(i) sale of advertisement, which targets a customer, who is resident in India or a
customer who accesses the advertisement though internet protocol address located
in India; and
(ii) sale of data, collected from a person who is resident in India or from a person who
uses internet protocol address located in India.
Turnover of ABC & Co. from above referred services = 138 lakhs + 63 lakhs = 201 lakhs,
therefore equalization levy will be attracted.
Turnover of PQR & Co. from above referred services = 126 lakhs + 73 lakhs = 199 lakhs,
therefore equalization levy will not be attracted.

130 MCQ. Booklet
S. No. Explanations
1. Provisions of section 115QA were initially applicable only to unlisted companies.

However, vide t h e Finance (No. 2) Act, 2019, t h e provisions of section 115QA are
amended and t h e same is made applicable to the listed companies also.
As per Sec 115QA, rate of tax is 23.296% (Tax Rate applicable is 20% plus 12 % SC plus
4% HEC). Amount received by shareholders is exempt u/s 10(34A).
2. M r . Ganesh (Age 60 years 9 months) -

Tax as per Slab Rate:
• U p t o 3 Lakhs - T a x Amount Nil

• From 3 - 5 Lakhs- Tax Amount (2 Lakhs x 5% = 10,000
• From 5 - 8 Lakhs- Tax Amount (3 Lakhs x 20% = 60,000)
• Total Tax = 70,000 + HEC @ 4% = 72,800

Penalty under Sec 270A = 50% of tax payable = 36,400
M r . Rajesh - Since his age is 80 years completed on 31-03-2021 (as per CBDT Circular),
he will get t h e basic exemption of 5 Lakhs, and hence n o tax is payable.
3. W h e n Royalty o r Fees for technical service received by Non-Resident o r Foreign

Company which has -
PE i n India - Section 44DA is applicable
N o PE i n India -Section 115A is applicable
Section 115A - 10% o n Gross FTS = 200000 + Cess 4% = 2,08,000
Sec 44DA - Net Income = 20 Lokhs - 3 Lakhs (Expenditure wholly and exclusively
connected w i t h fixed place of profession in India is allowed) = 17,00,000 taxable @ 30%
+ 4% Cess = 5,30,400
Expenditure wholly and exclusively not connected w i t h fixed place of profession i n India
and Amount paid by fixed place of profession to Head Office otherwise than towards
reimbursement of actual expenses is disallowed.
4. As per Section 94B, i n case of t h e debt is issued by a lender which is not associated b u t
an associated enterprise either provides an implicit o r explicit guarantee to such lender
o r deposits a corresponding and matching amount of funds with t h e lender, such debt
shall be deemed to have been issued by an associated enterprise.
Hence, C Ltd. and E Ltd. b o t h are associated enterprises.
Lower of t h e following will be disallowed -
1. Total Interest - 30% of EBITDA

MCQ Booklet 131
S. No. Explanations
2. Interest paid to AE
Alternate View = Allowed interest is 30% of EBITDA
Here. As per both views, disallowed interest would be 5 Crores.
5. As per Section 10(4C), interest is exempted on RDB issued between 17/09/18 to

31/03/2019.
Hence, only N Ltd. Is required to deduct TDS in this case.
6. Range concept is applicable only when data sets entries are 6 or more.
If Actual transaction price is falling within 35th and 65th percentile, then actual
transaction will be considered as ALP.
In case, if it is not falling, then ALP will be determined by considering the median of the
dataset.
7. An order of assessment passed by the Assessing Officer in pursuance of directions of

Dispute Resolution Panel cannot be appealed before CIT(A)
8. Below are the powers of an income-tax authority to collect information—

■ The income-tax authority may enter the place of business only during the hours
at which such place is open for conduct of business
■ The income-tax authority can on no account remove or cause to be removed
from the building or place he has entered any books of account or other
documents.
9. REIT
Rental income received by unitholder from REIT and interest received by unitholder from
business trust (which was received from SPV) shall be taxable in hands of unitholder.
Therefore, taxable amount = 18 lakh x 10% share = 1.8 lakh.
Securitisation Trust
Section 115TCA - Any income accruing or arising to, or received by, a person, being an
investor of a securitisation trust, out of investments made in the securitisation trust,
shall be chargeable to income-tax in the same manner as if it were the income accruing
or arising to, or received by, such person, had the investments by the securitisation trust
been made directly by him.
Therefore, taxable amount = 6 lakh x 7.5% share = 0.45 lakh.
Investment Fund
Section 115UB - All income received by unit holders from investment fund are taxable in
hands of unit holders (except PGBP).
Loss other than PGBP is allowed to be carried forward by Unit holder.

MCQ Booklet
S. No. Explanations
Therefore, taxable amount = 2 lakh x 5% share = 0.10 lakh. Share i n capital loss = 12.50
lakh x 5% share = 0.625 lakh.
Total Income = 1.8+0.45+0.10+2.70-0.625 = 4.425 lakhs.
10. As per Section 115BBE, tax is chargeable at 60%. Further, surcharge of 25% and HEC of
4% will be levied). Effective rate is 78%
Therefore, tax payable will be 2,40,000*78% - 1,87,200.
11. As per section 208, Advance tax shall be payable during a financial year i n every case
where t h e amount of such tax payable by the assessee during that year, as computed i n
accordance with t h e provisions of this Chapter, is ten thousand rupees o r more.
Exception - Resident senior citizen n o t having income under the head "PGBP".
Here, Sarthak is a non-resident.
12. As per Section 115AD, short t e r m capital gain will be chargeable at 15% (Gain referred to
in section 111A)
As per Section 115A, Interest referred under Section 194LD will be chargeable at 5%.
13. A person shall be qualified for appointment as a revenue Member-

(i) f r o m t h e Indian Revenue Service, who is, or is qualified to be, a M e m b e r of t h e
Board; or
(ii) from t h e Indian Customs and Central Excise Service, who is, o r is qualified to be,
a M e m b e r of t h e Central Board of Excise and Customs,
Provided t h a t where t h e Authority is dealing with an application seeking advance ruling
in any matter relating to this Act, the revenue Member of the Bench shall be such
Member as referred to in clause (i) above.
14. M/s TPS is eligible for presumptive taxation as per Sec 44AD, since his turnover is u p t o
2Cr. Presumptive PGBP income = Turnover/ Gross Receipt x 8% b u t i f turnover o r gross
receipt is received by account payee cheque/DD/ECS upto due date of return of return
filing then PGBP Income = Turnover/ Gross Receipts x 6%.
M/s TPS have not got t h e books of a/c audited so they can opt for presumptive taxation.
Income 7,20,000 i.e. [(6% of 80,00,000) +(8% of 30,00,000)]
15. Section 80JJAA - 1) Deduction of an amount equal to 30% of additional employee cost
incurred is allowed. 2) "additional employee" means an employee w h o has been
employed during t h e previous year b u t does not include—
(a) an employee whose total emoluments are more than 25000 per m o n t h ; o r
(b) an employee for w h o m t h e entire contribution is paid by the Government under t h e

Employees' Pension Scheme notified in accordance with t h e provisions of t h e
Employees'
Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952); o r
CA Bhanwar Borana Explanation of MCQ a n d Case Scenario

MCQ Booklet 133
S. No. Explanations
(c) an employee employed for a period of less than 240 days during the previous year;
or However, for apparel, footwear or leather products business, period is 150 days
(d) an empi'/ycc wno does not participate in the recognised provident fund: additional
employees employed during the previous year:
Section 115BAB - Applicable only if company set up and registered on or after the 1 st
October 2019. Tax Rate - 17.16% (15% + 10% + 4%)
Section 115BAA - Tax rate 25.168% (22% + 10% + 4%)
B Ltd
As per section 115BAB, tax rate is 15% plus surcharge 10% plus HEC 4%. Deduction u/s
80JJAA = (500 employees*24000* 5 months) *30% = 1.8 crore Total Income = GTI less
deduction u/s 80JJAA
= 2.8 crore - 1.8 crore = 1 crore
Tax = 1 crore*0.15*17. 16% = 17,16,000.
A Ltd
As per section 115BAA, tax rate is 22% plus surcharge 10% plus HEC 4%. Deduction u/s
80JJAA = (500 employees*24000* 12 months) * 30% = 4.32 crore Total Income = GTI less
deduction u/s 80JJAA
= 4.9 crore - 4.32 crore = 0.58 crore
Tax = 0.58 crore*25.168% = 14,59,740.
A Ltd
Total Income under special provisions = 0.58 crore
Since the company was set up in September 2020, it already had claimed benefit of
additional depreciation in PY 20-21 and therefore no additional claim is available to it.
Total Income = 0.58 crore
B Ltd
For B Ltd, 50% of additional depreciation will be allowed in PY 21-22 since P&M put to
use for less than 180 days in this PY
Total Income under special provisions = 1 crore
Less: Additional dep since P&M put to use for less than 180 days (4 crore * 20%*l/2) =
0.40 crore
Total Income = 1 crore - 0.40 crore = 0.60 Crore.
Since his turnover in PY 2019-20 is more than 400 crore, tax rate of 30% is applicable.
Since in this case return is filed therefore penalty will be 50% of tax on URI for under-
reporting of income u/s 270A, at the time of assessment it would be determined as
follows -:
Assessed Income - 16 Crore Income u/s 143(3) - 20 Crore

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134 MCQ Booklet
S. No. Explanations
URI = 20 Crore - 16 Crore = 4 Crore
Tax on Un-Reported Income = 4 crore * 30%* 1.12* 1.04 = 1.39766 crore Penalty =
1.39776*50% = 0.69888 crore.
Since his turnover in PY 2019-20 is less than 400 crore, tax rate of 25% is applicable.
In the given case penalty on account of mis-reporting of income u/s 270A will be 200% of
tax on URI, at the time of reassessment it will be determined as follows -:
Assessed Income - 20 Crore Income u/s 143(3) - 22 Crore
URI = 22 Crore - 20 Crore = 2 Crore
Tax on Un-Reported Income = 2 crore *25%* 1.12* 1.04 = 0.5824 crore
Penalty = 0.5824*200% =1.1648 crore.
16. (i) The business trust has to deduct tax at source under section 194LBA -
@10%, on interest component of income distributed to resident unit holders;
and
@5% (plus cess), on interest component of income distributed to non-corporate
Non- resident unit holders and foreign companies.
Interest component of income distributed to unit holders is taxable in the hands of
the unit holders - @5%, in case of unit holders, being non-corporate non-residents
or foreign companies; and at normal rates of tax, in case of resident unit holders.
Therefore, tax is deductible at 10% for Mr. X (Resident) and 5.2% (including HEC) for
Mr. Y (Non-resident).
(ii) As per section 115UA(2), the business trust is liable to pay tax@15% under section
111A in respect of short-term capital gains on sale of listed shares and MMR for sale
of developmental properties.
(iii) Section 10(23FC) - Interest & Dividend from SPV shall be fully exempt in hands of
REIT. Any other income (except interest from SPV & Rental income from REIT)
received by unit Holders for Business Trust shall be exempt in hands of Unitholders
u/s 10(23FD).
Dividend taxable only when SPV paid taxes as per 115BAA. Therefore, no tax
payable by REIT or unit holder.
(iv) Since, tax is paid by SPV as per section 115BAA. Dividend will be taxable in hands of
unitholder.
Dividend exempt in hands of business trust due to its pass-through status.
(v) Such interest is taxable at maximum marginal rate, in the hands of the Business
trust, as per section 115UA(2). However, 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).
(vi) The distributed income or any part thereof, received by a unit holder from the REIT,
which is in the nature of income by way of renting or leasing or letting out any real

MCQ Booklet 135
S. No. Explanations
estate asset owned directly by such REIT is deemed income of t h e unit holder as per
section 115UA(3).
The business trust has to deduct tax at source@10% under section 194LBA i n case of
distribution to a resident unit holder and at rates i n force in case of distribution to a
non- resident unit holder.
17. (i) M/s M N O Ltd. has under reported its income since twice (i) AO has issued order of
scrutiny assessment u/s 143(3) for return processed u/s 143(l)(a) where AO has
determined under reporting of income, (ii) Further, AO has reassessed income u/s
147 and f o u n d escaping of income assessed u/s 143(3).
(ii) M r . N has under reported its income since he has not furnished his return of income
u / s l 3 9 ( l ) , upon which AO has assessed income u/s section 144 which exceeds
maximum amount not chargeable to tax.
(iii) Since i n this case return is filed therefore penalty will be 50% of tax o n URI for
under-reporting of income u/s 270A, at t h e t i m e of assessment it w o u l d be
determined as follows -
Assessed Income - 65,00,000
Income u/s 143(1) - 50,00,000
URI = 65,00,000-50,00,000 = 15,00,000
Tax o n Un-Reported Income = {(15,00,000 + 50,00,000) *30% -(50,00,000) *30%} *
104% =4,68,000
Penalty = 4,68,000*50% = 2,34,000.
(iv) In t h e given case penalty o n account of mis-reporting of income u/s 270A will be
200% of tax o n URI, at the t i m e of reassessment it will be determined as follows -:
Reassessed income - 85,00,000
Income assessed i n last order - 65,00,000
URI = 85,00,000-65,00,000 = 20,00,000
Tax o n Un-Reported income = {(20,00,000+65,00,000) *30% - (65,00,000) * 30%}
*104% =6,24,000
Penalty = 6,24,000*200% = 12,48,000.
(v) In t h e given case return has n o t been furnished by assessee, penalty o n account of
under- reporting of income u/s270A by M r . N will be 50% of tax o n URI, t h e same
will be assessed as follows -:
Assessed Income - 15,00,000
URI = 15,00,000-2,50,000 = 12,50,000
Tax o n URI = (2,50,000*5% + 5,00,000*20% + 5,00,000*30%) * 104%
= 2,73,000
Penalty = 2,73,000*50% = 1,36,500.

MCQ Booklet
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18. As per Section 115UB, PGBP income of investment funds is taxable i n hands of
investment funds.
Section 115UB - All income received by unit holders from investment fund are taxable
i n hands of unit holders (except PGBP).
As per amendment made by FA 2019, Losses other than PGBP of Investment Fund shall
be distributed to unit holders and unit holder can set off and carry forward such loss if
unit holder hold such units for 12 months o r more.
(i) As per taxation o n investment fund, PGBP income of ?14,00,000 will be taxable i n
the hands of investment fund and remaining income of ?28,00,000 (Capital Gain-
21,00,000 + IFOS - 7,00,000) will be taxable i n t h e hands of unit holder i.e. T80,000
to each holder (28,00,000/35).
(ii) As per taxation on investment fund, PGBP income of ? 14,00,000 will be taxable
@30% plus HEC 4% since i t is LLP.
(iii) As per taxation o n investment fund PGBP loss of ? 4,00,000 (PGBP loss 10,00,000 -
IFOS 6,00,000) will be carried forward by Investment Fund II and since units have
been hold by holders for a period of atleast 12 months therefore capital loss of
?40,000 (20,00,000/50) can be c/f by each unit holder.
(iv) As per taxation on investment f u n d PGBP income will be ? 11,00,000 for A.Y. 23-24
as PBGP income for current year is ? 15,00,000 and carried forward loss of previous
year is ?4,00,000.
19. (i) Section 44AD is applicable for Resident Individual/HUF and Resident Firm (excluding
LLP) if Turnover or gross receipts of business is u p t o ?2 Crores.
Section 44ADA is applicable for resident professionals (Individual, HUF and
partnership firms except LLP) i f gross receipt of Profession is u p t o ?50 lacs,
Mr. Arvind and M r . Arjun are eligible for section 44AD since their turnover is less
than 2 crore.
M r Aakash is eligible for section 44ADA since his turnover is less t h a n 50 lakhs.
(ii) Section 44AB - Every person, carrying o n business shall, if his t o t a l sales, turnover o r
gross receipts, as t h e case may be, i n business exceed or exceeds one crore rupees
in any previous year shall get its books audited.
Provided that in t h e case of a person whose—
(a) aggregate of all amounts received including amount received for sales, turnover
or gross receipts during t h e previous year, i n cash, does n o t exceed five per cent
of the said amount; and
(b) aggregate of all payments made including amount incurred for expenditure, i n
cash, during t h e previous year does n o t exceed five per cent of t h e said
payment,
Provided further t h a t for t h e purposes of this clause, t h e payment o r receipt, as t h e
case may be, by a cheque drawn o n a bank or by a bank draft, which is not account
payee, shall be deemed to be t h e payment o r receipt, as t h e case may be, i n cash

MCQ Booklet 137
S. No.
this clause shall have effect as if for the words "one crore rupees", the words "ten
crore rupees" had been substituted.
Mr. Arjun
Turnover ~ 1.8 crore
In given case, his receipts in cash does not exceed 5% (2 crore*5% = 10 lakhs),
amount received in cash is also 10 lakh.
Total payments made = 1.60 crore, payment in cash = 8.10 lakhs. Payments allowed
in cash = 8 lakhs (1.60 crore*5%)
Since, the turnover exceeds 1 crore and cash payments exceeds 5% of total
payment, audit as per Sec. 44AB is mandatory. However, since his turnover is up to
2 crore, he is eligible for section 44AD and can pay taxes at 6%/8%.
Therefore, audit is not mandatory for him.
Mr. Anand
Turnover - 5 crore
In given case, his receipts in cash does not exceed 5% (5.5 crore*5% = 27.5 lakhs),
amount received in cash is 27 lakh.
Total payments made = 4.50 crore, payment in cash = 22 lakhs. Payments allowed in
cash = 22.50 lakhs (4.50 crore*5%)
Since, the turnover does not exceed 10 crore and cash receipt & payments does not
exceed 5% of total receipt & payment respectively, Audit as per Sec. 44AB is not
mandatory.
(iii) As per section 44AD, income on presumptive basis is Turnover/Gross Receipts *6%
(for account payee cheque/DD/ECS received upto due date of ROI) and for
remaining modes, it is Turnover/GR *8%.
Therefore, in the given cases income will be calculated as follows
Mr. Arvind
85 Iakhsx6% + 10 Iakhsx8% = 5.9 lakhs.
Mr. Arjun
165 Iakhsx6% + 15 Iakhsx8% = 11.1 lakhs.
Mr. Anand
He is not eligible for section 44AD, therefore he has to mandatory get books
audited.
Income as per books - 30 lakhs
(iv) Since profit of Mr. Arjun as per books of accounts is 10.50 lakhs (11.1 lakhs as per
44AD). Therefore, the answer will change only for him.
Mr. Arvind's income is indifferent and Mr. Anand has no choice.

138 MCQ Booklet
S. No. Explanations
(v) As per section 139(1), for person (other than a company) whose accounts are
required to be audited under this Act o r under any other law for the time being in
force, t h e due date is 31st October of t h e assessment year.
For other assesses, 31st July of t h e assessment year.
M r . Arvind
He should opt for section 44AD (income is same)
Due date = 3 1st July 2022.
M r . Arjun
He should get his accounts audited for maximum savings
Due date = 31 st October 2022.
M r . Anand
He is n o t required to get his accounts audited as per section 44AB (reasons
mentioned above)
Due date = 31 st July 2022.
M r . Aakash
He should opt for section 44AD (income will be 48*50% = 24 lakhs)
Due date = 31 st July 2022.
20. As per Section 115A(1) -

Clause (b) Royalty & Fees for technical services is taxable at 10%.
As per Section 115A(5) - It shall not be necessary for an assessee referred to i n sub-
section (1) to furnish under a return of his o r its income if—
(a) his o r its total income during t h e previous year consisted only of income referred to
i n clause (a) or clause (b) of sub-section (1); and
(b) t h e tax deductible at source under t h e provisions of Part B of Chapter XVII has been
deducted from such income and t h e rate of such deduction is not less than t h e rate
specified under clause (a) or, as t h e case may be, clause (b) of sub-section (1).
In given case, royalty income for ABC Inc. is taxable at 9% i n the source state which is
less than 10% rate mentioned i n above section, so TDS deducted will be at 9% instead of
10%. Therefore, it will be required to file return i n India.
XYZ Inc. is n o t required to file return as TDS is deducted at 12% which is more than 10%.
21. Sec 2O6C(1G): TCS on remittance outside India o r sale of Tour package
(1) In case of authorised dealer, w h o receives an amount of more than 7,00,000 in PY
from a buyer who remitting such a m o u n t o u t of India under the Liberalised
Remittance Scheme (LRS) of t h e RBI t h e n he required to collect TCS @ 5% in excess
of 7,00,000.
CA Bhanwar Borana Explanation of MCQand Case Scenario

MCQ Booklet 139
S. No. Explanations
Note: I f remitted amount is o u t of Educational Loan taken f r o m Financial Institution,
t h e n TCS rate shall be 0.5% instead of 5%.
(2) In case of sale of an overseas t o u r program package (OTPP), seller receives any
a m o u n t from a buyer required to collect TCS @5%.
So, SBI is required to collect tax at source o n t h e amount remitted by M r . Harsh @0.5%
o n ? 3 lakhs, being t h e amount i n excess of ? 7 lakhs.
Further, travel agency is required to collect tax at source @5% o n t h e amount paid i.e. ? 3
lakhs.

140 MCQ Booklet
Test Series 3
S. No. Explanations
1. Section 115AC, Tax on income by way of interest on bonds of an Indian company issued
n accordance with such scheme as the Central Government may, by notification in the
Official Gazette, specify in this behalf is chargeable at 10% (plus HEC@4%)
2. As per sec 28 Charging section - Any profit or gain of any Business/ Profession
chargeable under PGBP. So, for X ltd letting out of properties is its main objective so
total income of X ltd is taxable under the head PGBP.
The same has also been given in Chennai Properties Case Law.
For Y ltd construction and sale of properties is its main Business. Y ltd let out some
properties which are held as stock in trade and earned rental income. Such Rental
income from letting out of properties is taxable under Income from House Property.
3. As per sec 35AD Assets on which deduction claimed u/s 35AD should be exclusively
used for specified business for minimum 8 years from the year of acquisition. If it is
used for non- specified business within 8 years then following shall be taxable under
PGBP i.e., Amount of tax claimed u/s 35AD earlier less depreciation that would have
been allowable if sec 35AD not there.
Actual cost of assets for computing depreciation would be Actual cost less depreciation
claimed as per Explanation 14 to Section 43(1).
Particulars Amount
Deduction claimed u/s 35AD 70,00,000
Less:Depreciation for PY 2020-21 (Depreciation for PY 21-22 7,00,000

has not
been taken since asset sold in PY 21-22)
PGBP Income 63,00,000
Actual cost of building for computing depreciation for

P.Y.2021-22 would be ? 63 lakhs.
4. As per CBDT Circular 39/2016, transport subsidy, interest subsidy and power subsidy
received from government are profit derived from the business of the industrial
undertaking and hence, eligible for deduction u/s 80-IB.
However as per Case Law of Otcher Pharma, Duty Drawback under Customs Act belong
to the category of ancillary profit hence deduction u/s 80-IB cannot be claimed in
respect of such receipt.

MCQ Booklet 141
■5. No. Explanations
5. Section 1O(23FC) - Interest & Dividend from SPV shall be fully exempt i n hands of REIT
Section 10(23FCA) - any income of a business trust, being a real estate investment trust,
by way of renting o r leasing or letting o u t any real estate asset owned directly by such
business trust will be exempt.
Any other income (except interest from SPV & Rental income from REIT) received by
u n i t Holders for Business Trust shall be exempt i n hands of Unitholders u/s 10(23FD).
Dividend f r o m SPV exempt i n hands of Business Trust as well as Unit holders if SPV not
opted section 115BAA.
Capital Gain o n disposal of capital assets is taxable i n hands of Business Trust b u t
exempted in hands of unit holders as per sec 10(23FD)
Therefore,
Income REIT Unit holder
Rental Income Exempt Taxable
Interest Exempt Taxable
Dividend Exempt Exempt
Capital Gain Taxable Exempt
REIT will deduct TDS for rental income and Interest, since they are taxable i n hands of
u n i t holder.
6. Particulars Amount
Donation other than corpus donation and anonymous donation 50,00,000

(80-10-20)
Add - Part of anonymous donation i.e., higher of 5% of t o t a l 4,00,000

donation
(80,00,000*5% = 4,00,000) o r 1,00,000
Total 54,00,000
Less-15% 8,10,000
45,90,000
Less- Applied Income of Trust 40,00,000
Balance 5,90,000
Tax - 0-250000 = 0

142 MCQ Booklet
S. No. Explanations
250001-500000=12500
500001-590000=18000
On Anonymous donation as per Sec 115BBC
30% of 16,00,000 (20,00,000-4,00,000) = 4,80,000 5,10,500
Add HECi.e., 4% of 510500 20,420
Total 5,30,920
7. As per Section 271AAB, penalty @ 60% is levied since he does n o t furnish t h e return
disclosing t h e undisclosed income.
As per Sec.271AAB, where an assessee during a search admits t h e undisclosed income
and specify t h e manner i n which such income was earned and pay tax & interest o n
such undisclosed income and also furnish t h e return of income declaring undisclosed
income u/s 139(l)/period specified u/s 147 notice t h e n i n such case penalty would be
levied @ 30%. In other cases, penalty would be 60%
8. As per Section 143(2), notice has to be served within 3 months from t h e end of t h e
financial year i n which return was filled.
9. As per sec 44B, when Non-Residents is engaged in shipping Business t h e n presumptive

income is 7.5% of specified sum for Shipping Business.
Specified sum mean amount paid o r payable o n account of carriage of goods at/from
any port/place i n India and amount received or deemed to be received i n India o n
account of passengers at/from any port/place outside India.
............................ ......................................
Particulars Amount
Amount collected (85+5+2) 92,00,000
Amount received i n India 50,00,000
Total 1,42,00,000
Deemed Income 7.5% 10,65,000
Tax rate for Foreign Company i.e., 4,43,040

40% +HEC (41.6% of 1065000)

144 MCQ Booklet
S. No. Explanations
15. (i) Section 194-0: Where sale of goods or services of an e-commerce participant is
facilitated by an e-commerce operator, such e-commerce operator shall, at the time
of credit or at the time of payment thereof to such e-commerce participant by any
mode, whichever is earlier, deduct income-tax at the rate of 1% of the gross amount
of such sales or services or both.
Explanation—For the purposes of this sub-section, any payment made by a
purchaser of goods or recipient of services directly to an e-commerce participant for
the sale of goods or provision of services or both, facilitated by an e-commerce
operator, shall be deemed to be the amount credited or paid by the e-commerce
operator to the e-commerce participant and shall be included in the gross amount
of such sale or services for the purpose of deduction of income-tax under this sub-
section
Further, as per Section 206AA, If the e-Commerce participant does not furnish his
PAN or Aadhaar, TDS must be deducted at the rate of 5%.
In instant case, 200000, 150000, 140000 and 20000 will be liable for TDS deduction
at 5% rate. 510000*5/100 = 25500
(ii) As per Section 194J, TDS on professional services provided by Mr. B for office
premises of Mr. N are liable to TDS @10%, therefore Mr. N will deduct TDS of Mr. B
on ?40,000 @10%
i.e. 4,000.
(iii) As per Section 194M, TDS is not required to be deducted if professional services
received less than ? 50,00,000. Hence in given case Mr. N is not required to deduct
TDS of Mr. B u/s 194M as total services received are less than ? 50 Lacs.
(iv) As per sec 165 of FA 2016 equalization levy @6% is applicable if payment for
specified services is received/ receivable by NR from person resident in India
carrying business or profession, specified services includes online advertisement. In
the given case, Mr. B has received online advertisement services from Tumble LLC
and Doodle Inc. Therefore, equalization levy of ?6,600 on Tumble LLC and ? 6,300
on Doodle Inc. is required to be deducted.
(v) Since, assessee does not want to get accounts audited, hence 44ADA is applicable if
gross receipts is upto 50 Lacs.
Total Gross receipts = 49,10,000 (200000 + 150000 + 140000 + 20000 + 4000000 +
400000)
In given case, since PGBP shown is less than 50% and audit is not done. Assessee
have to opt section 44ADA.
PGBP = 4910000x50% = 24,55,000
Tax as per Slab rates = 5,70,960 (inclusive of HEC)

MCQ Booklet 145
S. No. Explanations
16. (i) As per sec 94B, excess interest paid by Indian Company to a NR being an associate
enterprise shall be disallowed, also such disallowed interest can be carried forward
upto a period of 8 AYs. Hence, in the given case allowed interest for computation of
income of Ul ltd. for AY 2022-23 is as follows
Interest paid to AE - 30% of EBITDA
Here, EBITDA = PAT + Tax + Interest + Depreciation EBITDA = 8 + 1.5 + 6 + 2.5 = 18
Cr.
Interest Allowed (Max which can be allowed) = 18*30/100 = 5.4Cr.
Interest paid to AE in AY 22-23 = ? 4.75 Cr. (50 crore * 9.5%)
Since, actual interest is less than max allowed interest, hence nothing will be
disallowed. Therefore, additional interest that can be further allowed (C/f from AY
21-22) = 5.4 - 4 . 7 5 = 0.65 Cr.
Local borrowings interest will be fully allowed.
Hence, Allowed interest expenditure for AY 22-23 = 4.75 + 1.25 + 0.65 = ? 6.65 Cr.
(ii) As per Section 92C, calculation of ALP by Resale Price Method (RPM) on import of
turbo equipment by Ul Ltd from H Inc. is as follows - :
Resale price of Equipment sold to unrelated party = 40,00,00,000
(-) Normal GP margin @ 20% = (8,00,00,000)
Arm's Length Price = 32,00,00,000
Purchase related expenses [inclusive of custom duty paid] = 34,50,00,000
Increase in Income of Ul Ltd. = 34,50,00,000 - 32,00,00,000 = ?2,50,00, 000
(iii) As per section 92CE, if excess money of ? 2.5 crore is not repatriated in India then
following interest income will be added -:
= 2,50,00,000*(11.25%+3.25%) * 121/365days = ? 12,01,712.
No. of Days = 31 (Dec) + 31 (Jan) + 28 (Feb) + 31 (March) =121 days
Interest is calculated from the due date of filling of return in cases where primary
adjustment is made suo motu.
(iv) As per section 92CE (2A), additional Income Tax on amount to be repatriated will be
@18%, such tax will be increased by surcharge of 12% + 4% HEC.In the given case
calculation of additional tax to be paid will be -
Tax to be paid = 2,50,00,000*20.9664% = ? 52,41,600.
(v) Excess money should be repatriated within 90 days from due (i.e 28-02-23) but in
the given case, the same has been repatriated on 15-03-23.
As per section 92CE (2A), if the assessee pays additional income tax, he will not be
required to make secondary adjustment or compute interest form the date of
payment of such tax. In the given case additional tax has been paid by Ul ltd on
15.03.2023, hence interest income to be added for AY 23-24 will be as follows -:
= 2,50,00,000 * (11.25%+3.255) * 105/365 = ? 10,42,808.

146 MCQ. Booklet
S. No. Explanations
(vi) As per section 92A, Ul Ltd holds more than 26% shares of K Inc and Y Ltd and K Inc
has prior agreement of sale for such transaction, hence H Inc, K Inc and Y ltd. are
associate and deemed associates of Ul Ltd.
17. (i) As per section 194N, TDS @ 2% is applicable on cash withdrawals in excess of ? 1
Crore.
However, if the account holder has not filled his ROI for the 3 years immediately
preceding the PY then TDS @ 2% is applicable on withdrawals above ? 20,00,000 but
upto lCr. and TDS @ 5% on withdrawals in excess of ? ICr. Therefore, in the given
case TDS u/s 194N for account holders will be as follows
Mr. A
Total cash withdraws = ?1,05,00, 000 TDS on ?5,00,000 @ 2% = ?10,000
Mr. B
Total cash withdrawal = ?1,02, 00,000 TDS on 2 lakh*5% - 0.10 lakh
TDS on balance withdrawal (100 lakh - 20 lakh) * 2% = 1.60 lakhs Total = 1.70 lakhs
(ii) As per sec 36(l)(viia), Indian banks can provide provision for bad debts @8.5% of
GTI (before this deduction) + 10% of aggregate average advances made by rural
branches. If provision for bad debts is less than actual bad debts, then remaining
bad debts allowed u/s 36(l)(vii). Therefore, in given case amount of provision will be
= 100,00,000*8.5% + 120,00,000*10% = ? 20,50,000

Total actual bad debts = ? 30,00,000
Therefore, deduction for bad debts u/s 36(l)(viia) = 20,50,000
Deduction u/s 36(l)(vii) = 30,00,000-20,50,000 = ? 9,50,000
(iii) As per the provisions of IT Act, reportable accounts under SFT are of Mr. B & Mr. K
as Mr. B has withdrawals of more than ? 50 Lacs from his current account and Mr. K
has paid a bill of credit card in excess of ? 10 Lacs from account payee cheque.
(iv) As per section 271FA penalty for non-filling of SFT from the due date of 31 st May of
the AY till the till the period of expiry of notice is 500 per day and ?1000 on failure
to furnish the same after expiry of notice period.
In the given case penalty u/s 271FA would be -:
= (1/06/22-30/10/22)152 days *500 + (31/10/22-25/11/22) 26 days *1000
=? 1,02,000.
(v) In the given assets have been used by predecessor company for 332 days till
26/02/22, therefore deduction u/s 32 & 35DDA will be as follows -:
=350000*331/365 + (30,00,000/5) *331/365
=8,61,507.

MCQ Booklet 147
S. No. Explanations
18. (i) Section 92A: Two enterprises shall be deemed to be associated enterprises if, at any
time during the previous year-
any person or enterprise holds, directly or indirectly, shares carrying not less than
twenty-six per cent of the voting power in each of such enterprises
or
a loan advanced by one enterprise to the other enterprise constitutes not less than
fifty-one per cent of the book value of the total assets of the other enterprise.
(ii) 620 million * 2.5% (6.5-4) * 9/12 months = 1,16,25,000.
(iii) If primary adjustment is made due to order of AO, then the excess money is
required to be brought back within 90 days from the date of order of AO.
Alternatively, additional income tax u/s 92CE(2A) can be paid and then the excess
money will not be required to be repatriated. However, interest will be charged
upto date of payment of additional income tax.
(iv) As per section 92CE, if excess money of ? 1,16,25,000 is not repatriated in India
within 90 days from the date of order of AO, then following interest income will be
added to PY 23- 24 -:
= l,16,25,000*(10.00%+3.25%) = ? 15,40,313.
Interest is calculated from the date of order by AO in cases where primary
adjustment is made AO.
(v) As per section 270A(9), failure to report any international transaction or any
transaction deemed to be an international transaction or any specified domestic
transaction, to which the provisions of Chapter X apply shall be treated as mis
reporting of income and penalty would be 200% of amount of the tax payable.
(vi) No adjustment would be required in hands of X and Y since this is an extra income to
X and income of Y is not chargeable to tax in India.
19. (i) Section 143: Where a return has been made under section 139, such return shall be
processed in the following manner, namely:
(a) the total income or loss shall be computed after making the following
adjustments, namely: (ii) an incorrect claim, if such incorrect claim is apparent
from any information in the return;
Since, it is a normal adjustment, this will not be treated as under reporting of
income.
(ii) Since in this case return is filed therefore penalty will be 50% of tax on URI for
under- reporting of income u/s270A, at the time of assessment it would be
determined as follows -: Assessed Income - (10,50,000)
Income u/s 143(1) - (13,50,000)
URI = 13,50,000-10,50,000 = 3,00,000
Tax on Un-Reported Income = 300000*30%* 104% = 93,600 Penalty = 93,600*50% =
46,800.

148 MCQ Booklet
S. No. Explanations
(iii) In t h e given case penalty o n account of mis-reporting of income u/s 270A will be
200% of tax o n U Rl, at t h e t i m e of reassessment it will be determined as follows
Reassessed income - 2,00,000

Income assessed i n last order - (10,50,000) URI = 2,00,000-(-10,50,000) = 12,50,000
Tax on Un-Reported income = 12,50,000*30%*104% = 3,90,000 Penalty =
3,90,000*200% = 7,80,000.
(iv) Section 270AA: An assessee may make an application to the Assessing Officer to
grant immunity from imposition of penalty under section 270A and initiation of
proceedings under section 276C o r section 276CC, if he fulfils the following
conditions, namely:—
(a) t h e tax and interest payable as per t h e order of assessment or reassessment
under sub- section (3) of section 143 o r section 147, as the case may be, has
been paid within t h e period specified i n such notice of demand; and
(b) n o appeal against t h e order referred to i n clause (a) has been filed.
(v) Section 271AAD -

(1) Without prejudice to any other provisions of this Act, if during any proceeding
under this Act, it is found t h a t in t h e books of account maintained by any
person there is—
(i) a false entry; o r
(ii) an omission of any entry which is relevant for computation of total income
of such person, to evade tax liability,
(2) Such person shall pay by way of penalty a sum equal to the aggregate amount
of such false or omitted entry.
Section 2 7 6 C -
(1) If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or
interest chargeable or imposable, o r under reports his income, under this Act, he
shall, without prejudice to any penalty t h a t may be imposable on him under any
other provision of this Act, be punishable,—
(i) in a case where t h e amount sought to be evaded or tax on under-reported

income exceeds twenty-five hundred thousand rupees, with rigorous
imprisonment for a term which shall n o t be less than six months but which may
extend to seven years and w i t h fine;
in any other case, w i t h rigorous imprisonment for a t e r m which shall not be less than
three months b u t which may extend to two years and w i t h fine.
20. As per Section 115A, for non-residents, dividend income it is taxable at 20% + HEC 4%.
Further, deduction of expenses is n o t allowed.
As per section 57, max. 20% deduction is allowable from dividend income.

MCQ Booklet 149
S. No. Explanations
M r . Pranav (Resident)
Particulars N o r m a l provisions U/s 115BAC
Dividend Income 700000 700000
Less: deduction u/s 57
Lower of 20% of 7 lakh or ? 1.5 lakh 140000 140000
Taxable Income 560000 560000
Tax u p t o 2.5 lakh 0 0
Tax from 2.5 lakh to 5 lakh @5% 12500 12500
Tax from 5 lakh to 5.6 lakh @20% 12000
24500 18500
Add: H&EC @ 4% 980 740
Tax Payable 25480 19240
I t is beneficial for h i m to pay tax u/s 115BAC.

M r . Vaibhav (Non-resident)
Taxable Income = 5 lakh
Tax@20.8% = 1,04,000.
21. Section 8 0 M - Where t h e gross t o t a l income of a domestic company i n any previous year
includes any income by way of dividends from any other domestic company or a foreign
company o r a business trust, there shall, i n accordance w i t h and subject to t h e
provisions of this section, be allowed i n computing t h e t o t a l income of such domestic
■■ company, a deduction of an amount equal to so much of t h e amount of income by way
of dividends received from such other domestic company o r foreign company o r
business trust as does not exceed t h e amount of dividend distributed by it o n o r before
t h e due date.
N o t e - Due date means one m o n t h before due date of ROI u/s 139(1)

150 MCQ Booklet
Test Series 4
S. No. Explanations
1. Section 246A specifies the orders against which an appeal can be filed before the CIT
(Appeals) in respect of Assessment order passed under section 143(3).
A taxpayer can file an appeal to the ITAT in respect of following orders: -
Order passed by the Commissioner of Income-Tax (Appeals) under section 250, section
270A, section 271, section 271A, 271J or section 272A.
2. Section 44BBA -
(1) Notwithstanding anything to the contrary contained in sections 28 to 43A, in the
case of an assessee, being a non-resident, engaged in the business of operation of
aircraft, a sum equal to five per cent of the aggregate of the amounts specified in
sub-section (2) shall be deemed to be the profits and gains of such business
chargeable to tax under the head "Profits and gains of business or profession".
(2) The amounts referred to in sub-section (1) shall be the following, namely: —
(a) the amount paid or payable (whether in or out of India) to the assessee or to
any person on his behalf on account of the carriage of passengers, livestock,
mail or goods from any place in India; and
(b) the amount received or deemed to be received in India by or on behalf of the
assessee on account of the carriage of passengers, livestock, mail or goods from
any place outside India.
Particulars Amount in
Crore
2 crores in India on account of carriage of passengers from 2.00

Cochin.
1 crore in India on account of carriage of goods from Cochin. 1.00
3 crores in India on account of carriage of passengers from 3.00

Malaysia.
0.50 crore in Malaysia on account of carriage of passengers 0.50

from Cochin.
0.50 crore in Malaysia on account of carriage of goods from 0.50

Cochin
Total 7
Tax as per 44BBA @5% 0.35

MCQ Booklet 151
S. No. Explanations
3. Section 245N(a)(iv) says "a determination o r decision by t h e Authority whether an

arrangement, which is proposed to be undertaken by any person being a resident o r a
non-resident, is an impermissible avoidance arrangement as referred to in Chapter X-A
o r not"
4. Section 8 0 M - Where t h e gross t o t a l income of a domestic company i n any previous

year includes any income by way of dividends from any other domestic company o r a
foreign company o r a business trust, there shall, i n accordance w i t h and subject to t h e
provisions of this section, be allowed i n computing t h e total income of such domestic
company, a deduction of an amount equal to so much of t h e amount of income by way
of dividends received from such other domestic company o r foreign company o r
business trust as does n o t exceed t h e amount of dividend distributed by it o n o r before
t h e due date.
Note - Due date means one m o n t h before due date of ROI u/s 139(1)
5. A M T = 11,00,530 (5200000*18.50% + 10% surcharge + 4% HEC)

Normal Tax - 3,35,400 ((52 lakh - 35 lakh) @ slab rates)
AMT credit to be carried forward is ? 7,65,130 (1100530-335400)
6. Apply Section 112A & Section 55 for COA.
7. Deduction u/s 80C is not available against special rate income i.e. winnings from card
games
Computation of Total Income
Particulars Amount
PGBP 1,45,000
Winnings 1,50,000
Interest o n FD 40,000
Saving Interest 9,000
Total 3,44,000
Deduction-
80C (only for normal income) 1,45,000
80TTB 49,000
8. Section 270A, penalty will be leviable @50% for under reporting of income. Under
reported income is ? 18 lakhs i n t h e given case.

152 MCQ Booklet
S. No. ■ Explanations '. ■ / ?

Tax is 3,66,600 (18 lakh @ slab rate) Penalty - 1,83,300 (3,66,600*50%)
9. As per sec. 154(1), with a view to rectifying any mistake apparent from the record an
income- tax authority referred to in section 116 may, —
(a) amend any order passed by it under the provisions of this Act.
Here order is passed by assessing officer, so assessee can file an application for
rectification under 154.
Section 264 can not be used since the matter is subject matter of appeal (Total Merger)
10. As per sec 133A(2), an income-tax authority may enter any place of business or
profession referred to in sub-section (1) only during the hours at which such place is
open for the conduct of business or profession and, in the case of any other place, only
after sunrise and before sunset. Here AO has entered in business hours, so his action is
correct.
An income-tax authority may impound books of accounts (Max 15 Working days)
Hence, action of impound of books is right.
11. Under specified circumstances, section 269SS restricts the person from taking or
accepting loan; deposit or any specified sum, if the amount is ?20,000 or more from
any other person other than the following mode -
An account payee cheque; or
An account payee bank draft; or
Electronic clearing system through a bank account; or
Any other electronic mode, as specified.
The penalty provision of section 271D applies in case the person contravenes provisions
of section 269SS of the Income Tax.
Here, amount is 12,000 which is deposit in cash and 7,500 which is deposited in bearer
cheque, so penalty will not be applicable.
12. As per Section 44ADA, eligible assessee (Individual, HUF and Partnership Firm except
LLP) can pay advance tax in one instalment on or before 15 th March of the financial
year.
13. In case of in relation to a long-term capital asset, being an equity share in a company or
a unit of an equity-oriented fund or a unit of a business trust referred to in section
112A, acquired before the 1st day of February, 2018, shall be higher of—■
(i) the cost of acquisition of such asset; and
(ii) lower of—
(A) the fair market value of such asset; and
(B) the full value of consideration received or accruing as a result of the transfer of

MCQ Booklet 153
:
S. No. Explanations
the capital asset.
Accordingly, COA in case of Mr. Rajan = ? 2500 per share
COA in case of Mr. Ravi = ? 1900 per share
14. (i) As per sec 94B, excess interest paid by Indian Company to a NR being an associate
enterprise shall be disallowed. Hence, in the given case disallowed interest is as
follows Interest paid to AE - 30% of EBITDA
Here, Interest Allowed = 6*30/100 - 1.8 Crore. Interest paid to AE - ? 3 Cr. (50
crore*6%)
Therefore, interest disallowed = 3 crore -1.8 crore = 1.2 crore.
(ii) Section 115BAA: Notwithstanding anything contained in this Act but subject to the
provisions of this Chapter, other than those mentioned under section 115BA and
section 115BAB, the income-tax payable in respect of the total income of a person,
being a domestic company, for any previous year relevant to the assessment year
beginning on or after the 1st day of April, 2020, shall, at the option of such person,
be computed at the rate of 22%. Section 115BBD provides tax rate of 15% for
dividend received from foreign company where Indian company holds 26% or more.
Here 115BAB is not eligible as assessee is engaged into trading in futures and
options. Company should not be engaged in any business other than business of
manufacturing to avail 115BAB.
(iii) Section 115BBF - Any income by way of royalty in respect of a patent developed and
registered in India, shall be taxable at 10%. No deduction in respect of any
expenditure or allowance shall be allowed to the eligible assessee under any
provision of this Act.
"developed" means at least seventy-five per cent of the expenditure incurred in
India by the eligible assessee for any invention in respect of which patent is granted
under the Patents Act, 1970.
(iv) As per section 115BAA, the assessee can claim deduction u/s 80JJAA. No deduction
u/s 32(l)(iia) will be allowed.
(v) Since, notices are issued to non-existent company, they are void ab initio.
Participation of X would not validate the notices.
CA Bhanwar Borana Explanation of M C Q and Case Scenario

154 MCQ Booklet
S. No. Explanations
15. (i) Section 115JB is applicable to all companies.

As per Explanation 4.—For the removal of doubts, it is hereby clarified that the
provisions of this section shall not be applicable and shall be deemed never to have
been applicable to an assessee, being a foreign company, if the assessee is a
resident of a country or a specified territory with which India has an agreement
referred to in sub-section (1) of section 90 or the Central Government has adopted
any agreement under sub-section (1) of section 90A and the assessee does not have
a permanent establishment in India in accordance with the provisions of such
agreement.
Since, in present case, DEF Inc. has permanent establishment, section 115JB is
applicable.
(ii) As per Section 115A, it is taxable at 10% + HEC 4% while as per DTAA, tax rate is 10%
whichever is more beneficial would apply.
Note - Deduction of expenses not allowed.
(iii) Section 112(l)(c)(iii) - Long-term capital gains arising from the transfer of a capital
asset, being unlisted securities or shares of a company not being a company in
which the public are substantially interested, shall be calculated at the rate of ten
per cent on the capital gains in respect of such asset as computed without giving
effect to the first and second proviso to section 48 (indexation and foreign currency
conversion).
(iv) Both capital gains on securities and fee for technical services have to be reduced
while computing book profit of DEF Inc. for levy of minimum alternate tax since they
are taxable at rate lower than rate in section 115JB.
16. (i) Section 44AB - Every person, carrying on business shall, if his total sales, turnover or
gross receipts, as the case may be, in business exceed or exceeds one crore rupees
Provided that in the case of a person whose—
or gross receipts during the previous year, in cash, does not exceed five per cent
(b) aggregate of all payments made including amount incurred for expenditure, in
cash, during the previous year does not exceed five per cent of the said
payment,
Provided further that for the purposes of this clause, the payment or receipt, as the
case may be, by a cheque drawn on a bank or by a bank draft, which is not account
payee, shall be deemed to be the payment or receipt, as the case may be, in cash
this clause shall have effect as if for the words "one crore rupees", the words "ten
crore rupees" had been substituted.

MCQ Booklet 155
S. No. Explanations
In given case, his receipts in cash does not exceed 5% (1.1 crore*5% = 5.5 lakh),
amount received in cash is also 5.5 lakh.
Total payments made - 65,84,500, payment in cash - 7,00,000. Payments allowed in
cash = 3,29,225 (6584500*5%)
Since, the turnover exceeds 1 crore and cash payments exceeds 5% of total
payment, Audit as per Sec. 44AB is mandatory.
(ii) TDS is required in case of payments made to specialists under section 194J and
payment of salary u/s 192.
Therefore, disallowed amount under Section 40(a)(ia) -
= 16,50,000 ((35,00,000+20,00,000)*30%)
(iii) Calculation of depreciation:
Asset value = 3,50,000
Interest to be capitalized from 15 t h April to 14 t h oct = 34500*6/11.5 months = 18000
Total asset value = 350000+18000 = 368000.
Depreciation = 368000*40/100*1/2 = 73600.
(iv) Calculation of total income
Gross receipts 1,10,00,000
Less:Payments for Remuneration, 55,70,000

Salary and other Admin Expense
Add: Expense disallowed (due to TDS 16,50,000

non-deduction)
Less:Depreciation 73600
Less:Interest other than capitalised 16500
Note - Wages of 5,40,000 will be disallowed as per 40A(3), hence not deducted.
Advances are not expenses, hence not deducted.
(v) Section 269ST - Any person should not receive an amount of 200000 or more except
by account payee cheque, DD or ECS in respect of a single transaction. Otherwise,
penalty @ 100% of such receipt shall be levied u/s 271DA.
17. As per section 143(1), the total income or loss of an Assessee shall be computed after
making the following adjustments to the returned income:
(i) any arithmetical error in the return; or

156 MCQ Booklet
S. No. Explanations
(ii) an incorrect claim, if such incorrect claim is apparent from any information in the
return.
(iii) disallowance of loss claimed, if return is filed beyond due date u/s 139(1)
(iv) disallowance of expenditure or increase of income indicated in the audit report but
not taken into account in computing the total income in the return
(v) disallowance of deduction claimed under section 10AA or under any of the
provisions of Chapter Vl-A under the heading "C-Deductions in respect of certain
incomes, if return is filed beyond due date u/s 139(1)
(vi) addition of income appearing in Form 26AS or Form 16A/16 which has not been
included in computing the total income in the return
No adjustment shall be made under cause (vi) in relation to a return furnished for A.Y.
commencing on or after 1/4/2018.
18. As per section 44BBB, only foreign company is eligible for business of Civil construction
in connection with an approved turnkey project.
19. Section 2O6C(1H) -

o Applicable on seller of goods whose total sales, gross receipts or turnover from the
business carried on by him exceed ten crore rupees during the previous financial
year.
o A seller needs to collect TCS at the rate of 0.1 per cent on receipts of sale
consideration for sale of any goods of the value or aggregate of such value exceeding
fifty lakh rupees.
Therefore, in this case, TCS will be collected on ? 35 lakh at 0.1%
20. (i) TDS on payment made to Mr. U on account of rent will be deducted under section
195 at normal tax slab rates. Such Income will be taxable at slab rate. (Note: 194-1 is
applicable only in case of resident payee)
(ii) Section 2O6C(1H) -
o Applicable on seller of goods whose total sales, gross receipts or turnover from
the business carried on by him exceed ten crore rupees during the previous
financial year.
o A seller needs to collect TCS at the rate of 0.1 per cent on receipts of sale
consideration for sale of any goods of the value or aggregate of such value
exceeding fifty lakh rupees.
Therefore, in this case, TCS will be collected on goods sold to ABC Ltd since the sale
amount is more than 50 lakhs. TCS will be collected on 21 lakhs at 0.1%
(iii) Sec 2O6C(1G): TCS on remittance outside India or sale of Tour package
(1) In case of authorised dealer, who receives an amount of more than 7,00,000 in
PY from a buyer who remitting such amount out of India under the Liberalised

MCQ Booklet 157
S. No. Explanations
Remittance Scheme (LRS) of the RBI then he required to collect TCS @ 5% in
excess of 7,00,000.
Note: If remitted amount is out of Educational Loan taken from Financial Institution,
then TCS rate shall be 0.5% instead of 5%.
So, bank is required to collect tax at source on the amount remitted by Mr. X @0.5%
on ? 0.50 lakhs, being the amount in excess of ? 7 lakhs.
(iv)
• As per section 112A, LTCG in excess of 1 lakh is taxable @10%.
• As per section 112A, benefit of FMV as on 31.01.2018 will be available on equity
share or a unit of an equity-oriented fund or a unit of a business trust acquired
before the 1st day of February, 2018.
• Intimation u/s 143(1) is not treated as completion of assessment, therefore
revised return can be filed after that as well if time is available.
(v) Section 44AB - Every person, carrying on business shall, if his total sales, turnover or
gross receipts, as the case may be, in business exceed or exceeds one crore rupees
Provided that in the case of a person whose—
or gross receipts during the previous year, in cash, does not exceed five per cent
(b) aggregate of all payments made including amount incurred for expenditure, in
cash, during the previous year does not exceed five per cent of the said payment,
Provided further that for the purposes of this clause, the payment or receipt, as the
case may be, by a cheque drawn on a bank or by a bank draft, which is not account
payee, shall be deemed to be the payment or receipt, as the case may be, in cash
this clause shall have effect as if for the words "one crore rupees", the words "ten crore
rupees" had been substituted.
In given case, his receipts in cash exceed 5% (4.95 crore*5% = 24.75 lakh), amount
received in cash is 42.4 lakh (22.50 lakh+19.90 lakh).
Since, the turnover does not exceed 1 crore and cash receipt exceeds 5% of total
receipts, audit as per Sec. 44AB is mandatory. Due date for filing tax audit report is one
month before the return filing date as per section 139(1) i.e. 30.09.2022.
21. CHAPTER XI1A - Special provisions relating to certain incomes of non-residents

(i) Section 115C, 115D and 115F:
• These are special provisions for Non-Resident Indian and are optional in nature.
• Foreign exchange assets means shares of Indian company (public/private),
debenture of Indian public company, deposits with Indian public company,

158 MCQ Booklet
S. No. Explanations
securities of central govt, acquired/purchased in foreign exchange.
• LTCG from sale of foreign exchange asset is calculated w i t h o u t indexation (2nd

■
proviso to section 48), however benefit of first proviso to section 48 is available.
Chapter Vl-A not available.
• These provision n o t applicable o n short t e r m capital gains.
• LTCG o n forex asset shall be exempt if net consideration is utilized for acquiring
other forex asset o r saving certificate u/s 10(4B) within 6 months from t h e date
of transfer. Proportionate exemption is available based o n net consideration
invested.
Calculation of LTCG o n sale of shares (using 1st proviso to section 48 for forex asset):
Foreign
exchange Normal
asset asset
Particulars Remarks (Rule 115A)
in $ lakhs in ? lakhs
Mittal HEG
32 months 32 months
POH 01.06.2019- 01.06.2019- Therefore, it will be LTCG
20.01.2022 20.01.2022
$ converted at Avg of
TTBR and TTSR o n date of
Sales Consideration 2.50 15.00 transfer- (58+62)/2 = 60
$ converted at Avg of
TTBR and TTSR o n buying
date
Purchase amount 2.00 10.00 (28+32)/2 = 30
LTCG before
exemption 0.50 5.00 -
Less: Exemption u/s

115F 0.30 0.00 -
Net LTCG $ 0.20 ? 5.00 -
$ converted at TTBR o n
N e t LTCG i n ? ? 11.60 5.00 date of transfer - ? 58
Total LTCG = 16.60 lakhs

MCQ Booklet 159
S. No. Explanations
(ii) As per section 111A, STCG on transfer of equity shares shall be taxable at 15% if STT
paid on transfer of such assets.
Calculation of STCG on sale of shares (using 1st proviso to section 48):
Foreign exchange
asset
Particulars Remarks (Rule 115A)
in $ lakhs
Dabur
Less than 12 months
POH 22.01.2021-
20.01.2022 Therefore, it will be STCG
Sales $ converted at Avg of TTBR and TTSR
Consideration 1 on date of transfer- (58+62)/2 = 60
$ converted at Avg of TTBR and TTSR
on buying date
Purchase amount 0.8 (48+52)/2 = 50
STCG 0.2 -
$ converted at TTBR on date of

STCG in ? 11.60 transfer - ? 58
(iii) As per section 47(viia) any transfer of bonds / GDR referred in sec.llSAC made
outside India by Non-Resident to another Non-Resident shall not be treated as transfer
& capital gain not applied, but where such transaction made between Non-resident &
Resident then capital gain will be applicable.
Transfer is made by NR to resident LTCG is taxable @10% (plus HEC@4%) without
indexation u/s 115AC.
(iv) Total Income (excluding capital gain) will be as follows:
Particulars Amount
Dividend 11,00,000
Interest on Bonds 1,00,000 As per section 115D, no deduction in

respect of any expenditure or
Interest on Debentures 1,00,000 allowance shall be allowed under any
provision of this Act in computing the
investment income of a non-resident
Indian.
Match participation fees 6,00,000
19,00,000

160 MCQ Booklet
Test Series 5
S. No. Explanations
1. In Profit Split Method, arm's length price shall be the arithmetical mean of all values
which are dataset. It may be assumed that the variation between the arm's length price
computed and the transaction price is 15%.
As per Sec 194C, in a case of contract between parties, TDS will be deducted @ 2%
where payment made to other than individual & HUF. In case of Japan airlines Co Ltd v
CIT (SC) it was held that landing and parking charges payable by airlines in respect of
aircrafts are not for the use 'use of land1 per se but the charges are in respect of
number of facilities provided by the Airport Authority of India. Thus, landing and
parking charges payable by airlines would attract TDS u/s 194C and not under 194-1
3. As per Sec. 194J, No TDS will be deducted where payment made for professional
services and technical services does not exceed 30,000 respectively, such limit of
?30,000 is applicable separately for professional fees & Technical fees.
4. This is the case of Diversion of Income. Hence, the income would be taxable in hands of
Mr. Hari as well as unregistered Trust.
5. ection 32(l)(iia) - Additional depreciation @20% is allowed in case of manufacturing

business. Therefore, normal depreciation @15% + additional depreciation@20% will be
allowed to assessee (excluding 2nd hand P&M)
Depreciation at half rate will be allowed for P&M put to use for less than 180 days.
6. U/s 32, Depreciation will be allowed @ 40% on Computers

In this case, 20% i.e., half rate on ?10 lakh since computers purchased and installed on
5t h October 2020.
7. If any amount is paid or credited to resident & TDS has not been deducted or TDS has
been deducted but not paid to government upto due date of return filing, then 30% of
such sum shall be disallowed in current P.Y.
For TDS u/s 194-H, assessee required to deduct only if last year Turnover is more than
one crore in case of business or Gross Receipts is more than 50 lakhs in case of
profession.
No disallowance on payment of salary because, for salary Income of T300000, Mr. Hari
will be eligible for relief u/s 87A, hence no TDS will be required to be deducted.
Disallowance under section 40(a)(ia) @30% on commission amount would be attracted
for not deducting TDS.

MCQ Booklet 161
S. No. Explanations
8. Income from properties held by trust 10 lakhs

Voluntary contributions 15 lakhs
Gross Income 25 lakhs
Less: Standard deduction @15% 3.75
Less: Amount applied for charitable purpose 8.00
Less: Amount applied for repayment of loan for construction of 4.00

Orphanage
Total Taxable Income 9.25
9. As per Sec.ll5A any interest received by a non-resident and foreign company from
infrastructure debt fund u/s 10(47) will be taxable @ 5% + 4% HEC.
As per section 94A, TDS will be deducted @ 30% + 4% HEC on transaction made with
person located in NJA.
10. As per section 47(viia) any transfer of bonds / GDR referred in sec.H5AC made outside
India by Non-Resident to another Non-Resident shall not be treated as transfer &
capital gain not applied, but where such transaction made between Non-resident &
Resident then capital gain will be applicable.
Transfer is made by NR to resident LTCG is taxable @10% without indexation u/s
115AC.
11. Section 92BA - "specified domestic transaction" in case of an assessee means any of the
following transactions, not being an international transaction, namely:—
(iii) any transfer of goods or services referred to in sub-section (8) of section 80-IA;
Section 80-IA(8) - Where any goods or services held for the purposes of the eligible
business (power generation) are transferred to any other business carried on by the
assessee, or where any goods or services held for the purposes of any other business
carried on by the assessee are transferred to the eligible business and, in either case,
the consideration, if any, for such transfer as recorded in the accounts of the eligible
business does not correspond to the market value of such goods or services as on the
date of the transfer, then, for the purposes of the deduction under this section, the
profits and gains of such eligible business shall be computed as if the transfer, in either
case, had been made at the market value of such goods or services as on that date
12. In this case, SDV is more than 110% of the Consideration, Applying Sec 50C i.e., SDV of
the immovable property is taken as full value of consideration ? 50 lacs (2 Crores -1.5
Crores) would be taxable in the hands of Mr. Anjan as business income (Since Anjan is a
property dealer), and ? 20 lacs (2 Crores - 1.8 Crores) would be taxable in the hands of
Mr. Ashwin in
IFOS as per Sec 56(2)(X).

162 MCQ. Booklet
S. No. Explanations
13. Interest from SPV & Dividend shall be fully exempt u/s 10(23FC)
Any other income (except interest from SPV & Rental income from REIT) received by
unit Holders for Business Trust shall be exempt i n hands of Unitholders u/s 10(23FD).
Dividend taxable only when SPV paid taxes as per 115BAA. Hence, exempt for b o t h REIT
and Unitholders.
14. As per Sec. 37, any expenditure incurred o n advertisement souvenir of a political party
registered i n India will n o t be allowed.
However, as per provisions of Sec. 80GGB, such expenditure incurred shall be allowed
as deduction from Gross t o t a l income to a company.
15. (i) As per section 45(2), Conversion of capital asset i n t o stock i n trade is treated as
transfer, capital gain shall arise where an assessee converts capital asset i n stock i n
trade. Capital gain shall be taxable i n t h e year i n which such stock i n trade is sold.
Calculation of capital gain for PY 21-22 -
FVOC (FMV o n date of Transfer) 300
Indexed cost of acquisition 109.85

(50*301/137)
Capital Gain 190.15
Capital Gain chargeable to 133.11 Capital gain shall be taxable i n

tax (190.15 * 14/20) t h e year i n
which such stock i n trade is sold
Less: exemption u/s 54EC 40 Max 50 lakh deduction

allowed, investment can be
made within 6 months from
sale.
Capital gain taxable 93.11
(ii) PGBP = Sale value - Cost of land - cost of construction

= (40 lakhs * 14 Flats - 300 lakhs *14 /20 - 15 lakhs * 14 Flats) = 140 lakhs.
(iii) Calculation of capital gain PY 22-23 -
Capital Gain 190.15
Capital Gain chargeable 57.04

to tax (190.15 * 6/20)

MCQ Booklet 163
S. No. Explanations
Less: exemption u/s 54EC 10 Max 50 lakh deduction allowed,

investment can be made within 6
months from sale.
Capital gain taxable 47.04
PGBP = Sale value - Cost of land - cost of construction

= (40 lakhs * 6 Flats - 300 * 6/20 - 15 lakhs * 6 Flats) = 60 lakhs.
(iv) IFHP =
Annual Value = 60000*12 months - 720000 Less: standard deduction @30% =
216000 Taxable = 504000.
Since, municipal taxes by paid by tenant, it will not be deducted.
(v) Section 194IB - Individual and HUF are required to deduct TDS @5% on rent paid for
immovable property if rent per month or part thereof exceeds 50,000.
This deduction is to be made at the time of credit of such rent for the last month of
the previous year or the last month of tenancy as the case may be.
16. (i) As per section 35AD, 100% deduction is allowed in respect of all capital expenses
except
(a) Land b) Goodwill c) Financial Instruments.
(ii) Loss of Specified business can be set off only against specified business income,
irrespective of whether the latter is eligible for deduction under section 35AD.
Loss under specified business = 80 - 175 = 95 lakh
Profit of other hotel = 130 lakh
Net = 130 - 9 5 = 35 lakhs
(iii) No change in answer since no deduction was taken for land.
(iv) Normal tax = 35 lakh *30%*1.04 = 10.92 lakhs Calculation of AMT -
Profit = 35 lakh
Add: Deduction u/s 35AD = 175 lakhs
Less: Depreciation u/s 32 on 175 Lakhs @ 10% = 17.5 lakh Adjusted total income =
192.50 lakhs
AMT = 192. 50*18. 5%*1. 12*1.04 = 41.48144 lakhs
Tax payable = 41.48144 lakhs
(v) Section 80JJAA - 1) Deduction of an amount equal to 30% of additional employee
cost incurred is allowed. 2) "additional employee" means an employee who has
been employed during the previous year but does not include—
(a) an employee whose total emoluments are more than 25,000 per month; or

164 MCQ. Booklet
S. No. Explanations
(b) an employee for w h o m t h e entire contribution is paid by t h e Government under

t h e Employees' Pension Scheme notified i n accordance with t h e provisions of
t h e Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of
1952); o r
(c) an employee employed for a period of less t h a n 240 days during t h e previous
year; o r However, for apparel, footwear o r leather products business, period is
150 days
(d) an employee w h o does n o t participate i n t h e recognised provident fund:
additional employees employed during t h e previous year:
40 1.10.2021 Regular 24000 182 Eligible
80 1.10.2021 Regular 24500 182 Eligible
50 1.11.2021 Regular 25500 151 N o t eligible since salary

exceed 25k
30 1.11.2021 Casual 25000 151 Eligible
Not eligible since

20 1.12.2021 Casual 24000 90 employed for less than
150 days
Calculation of Deduction -
Employees Months Salary Total Salary
40 6 24000 57.60 Lakhs
80 6 24500 117.6 Lakhs
30 5 25000 37.5 Lakhs
Total 212.7 Lakhs
Deduction
@ 30% 63.81 Lakhs
17. (i) Section 50B
Calculation of Deemed Cost
Depreciable Asset 615 WDV as per income tax is

considered

MCQ Booklet 165
S. No. Explanations
Other FA 90 Revaluation to be ignored
Other assets 585
1290
Liabilities 135
Net w o r t h 1155
Calculation of Capital Gain
Sale Value (FMV) 1320
Net w o r t h 1155
Short t e r m Capital Gain 165 POH is less than 3 years
(ii) Tax rate applicable to t h e company is 25% since turnover i n 19-20 was less t h a n 400
crores.
Short t e r m capital gain other than 111A will be taxable at normal tax rates. Tax
liability = 165 lakhs * 25% *1.07*1.04 = 45,90,300.
(Hi)
Calculation of Capital Gain
Sale Value 3000
Net w o r t h 1155
Long t e r m Capital Gain 1845 POH is m o r e than 3 years
Tax liability = 1845 lakhs * 20% *1.12*1.04 = 429.81 lakhs.

(iv) MAT Rate i n case of IFSC is 9%.
400 l a k h * 9 % * l .07*1.04 = 40,06,080.
(v) N o tax o n distributed profits shall be chargeable i n respect of t h e total income of a
company being a unit located i n International Financial Services Centre, deriving
income solely i n convertible foreign exchange, for any assessment year o n any
amount declared, distributed o r paid by such company, by way of dividends
(whether interim o r otherwise) o n o r after t h e lstday of April, 2017 o u t of its
current income, either i n t h e hands of t h e company or t h e person receiving such
dividend.

166 MCQ. Booklet
S. N o . Exp Sanations
18 (i) Section 10AA - Since, it is t h e 6 t h ye?ar of operations, 50% of export profit will be
exempt. Deduction = 60 lakh * 120 la kh/160 lakhs * 50% = 22.50 lakhs
Section 35AD - 100% deduction is allo>wed i n respect of all capital expenses except a)
Land b) Goodwill c) Financial Instrumcents.
Therefore, deduction = 65 lakhs.
(ii)
Profit of unit located i n SEZ 60 lakhs
Less: Deduction u/s 10AA 22.50 lakhs
A 37.50 lakhs
Profit from warehouse 160 lakhs
Less: Deduction u/s 35AD 65 lakhs
B 95 lakhs
A+B 132.50 lakhs
Tax Liability 46.3008 lakhs

132.50*30%*l.12*1.04
(iii)
Taxable Income 132.50 Lakhs
Add: Deduction u/s 10AA 22.50 lakhs
Add: Deduction u/s 35AD 65 lakhs
220
Less: Dep u/s 32 (65 Lakhs*10%) 6.5 lakhs
Adjusted Total Income 213.5 lakhs
Tax Liability 213.50*18.50%*1.12*1.04 46,00,670
(iv) Tax as per normal provision was h ighear. Therefore, n o AMT credit will be there.
(v) As per section 44AD, income on pressumptive basis is Turnover/Gross Receipts * 6 %
(for account payee cheque/DD/ECSS received u p t o due date of ROI) and for
remaining modes, it is Turnover/GR * 8%.

MCQ. Booklet 167
S. No. Explanations
Therefore, i n t h e given cases income will be calculated as follows 190 lakhs*6% +

10 lakhs*8% = 12.20 lakhs.
(vi) Section 44AB - Every person, carrying on business shall, if his total sales, turnover o r
gross receipts, as t h e case may be, in business exceed o r exceeds one crore rupees
i n any previous year shall get its books audited.
Since, income declared as per books is less than presumptive profit, hence, Audit is
mandatory.
19. (i) Section 115UG -

Tonnage shall be rounded off to nearest multiple of 100 tons. Therefore, Ship 1
rounded off to 33800 tonnes and ship 2 to 25000 tonnes.
Particulars Shipl Ship 2
First 1,000 tons (1,000 x 70/100) 700 700
Next 9,000 tons (9,000 x 53/100) 4770 4770
Next 15,000 tons (15,000 X42/100) 6300 6300
Balance (8,800 x29/100) 2552 -
14322 11770
Ship 1 = 14322*212 days = 30,36,264

Ship 2 = 11770*347 days = 40,84,190
Total = 71,20,454
(ii) Section 115VK - (1) For t h e purposes of computing depreciation under clause (iv) of
section 115VL, t h e depreciation for t h e first previous year of t h e tonnage tax
scheme (hereafter i n this section referred to as t h e first previous year) shall be
computed o n t h e written d o w n value of t h e qualifying ships as specified under sub-
section (2).
(2) The w r i t t e n d o w n value of t h e block of assets, being ships, as o n t h e first day of
t h e first previous year, shall be divided i n t h e ratio of written d o w n value as per
books of t h e qualifying ships (hereafter i n this section referred to as t h e qualifying
assets) and t h e book written d o w n value of t h e non-qualifying ships (hereafter i n
this section referred to as t h e other assets).
In t h e instant case, WDV as per books of Qualifying ships is 850 lakhs (580+270)
WDV as per books of all ships is 1080 lakhs
Ratio = 850/1080 = 78.704%
Therefore, WDV of qualifying ships for tax purpose = 1200 lakhs * 78.704% = 944.44
Lakhs.

168 MCQ. Booklet
S. No. Explanations
(iii) Section 115VT. (1) A tonnage tax company shall, subject to and in accordance with
the provisions of this section, be required to credit to a reserve account (hereafter in
this section referred to as the Tonnage Tax Reserve Account) an amount not less
than 20% of the book profit derived from the activities referred to in clauses (i) and
(ii) of sub-section (1) of section 115V-I in each previous year to be utilised in the
manner laid down in sub-section (3):
Provided that a tonnage tax company may transfer a sum in excess of twenty per
cent of the book profit and such excess sum transferred shall also be utilised in the
manner laid down in sub-section (3).
In our case, Book profits calculated as per the Explanation to section 115JB(2) [in so
far as it relates to income derived from core and incidental activity] are ? 100 lakhs.
Therefore, minimum reserve requirement is ? 20 lakhs (100 lakh*20%)
(iv) Section 115VT (5) - Notwithstanding anything contained in any other provision of
this Chapter, where the amount credited to the Tonnage Tax Reserve Account in
accordance with sub-section (1) is less than the minimum amount required to be
credited under sub-section (1), an amount which bears the same proportion to the
total relevant shipping income, as the shortfall in credit to the reserves bears to the
minimum reserve required to be credited under sub-section (1) shall not be taxable
under the tonnage tax scheme and shall be taxable under the other provisions of
this Act.
Amount required to be credits is 20 lakhs Amount credited is ? 15 lakhs
Shortfall - 5 lakh i.e. 25%.
Total Income from core and non-core activities = 70 lakh + 14 lakh - 84 lakhs
Amount that will be taxable under other provisions of the Act due to shortfall - 84
lakhs * 25% - 21 lakhs.
(v) As per sec 44B, when Non-Residents is engaged in shipping Business then
presumptive income is 7.5% of specified sum for Shipping Business.
Specified sum mean amount paid or payable on account of carriage of goods
at/from any port/place in India and amount received or deemed to be received in
India on account of passengers at/from any port/place outside India.
Particulars Amount
Goods shipped at ports in India (200+150) 350
Goods shipped at ports outside India but consideration 180

received in India
Total 530
Deemed Income @7.5% 39.75

MCQ Booklet 169
S. N o . Explanations
20. M r . Vyomesh (Non-resident - Age 61 years) -

Total Income as per section 144 - ? 13 lakhs
Tax as per Slab Rate:
• U p t o 2.5 Lakhs - T a x Amount Nil
• From 2.5 - 5 Lakhs- Tax Amount (2.5 Lakhs x 5%) = 12,500
• From 5 - 1 0 Lakhs- Tax Amount (5 Lakhs x 20%) = 1,00,000
• From 10 - 13 Lakhs- Tax Amount (3 Lakhs x 30%) = 90,000
• Total Tax = 2,02,500 + HEC @ 4% = 2,10,600

Penalty under Sec 270A = 50% of tax payable - 1,05,300
21. As per Section 143(2), notice has to be served within 3 months from t h e end of t h e
financial year i n which return was filled.

170 MCQ Booklet
Test Series 6
S. No. Explanations
1. Profit after adjustments will be ? 30 lakhs so deduction available will be ? 30 lakhs only,
i.e. 100% of the profits.
2. As per Sec.271AAB, where an assessee during a search admits the undisclosed income
and specify the manner in which such income was earned and pay tax & interest on
such undisclosed income and also furnish the return of income declaring undisclosed
income u/s 139(l)/period specified u/s 147 notice then in such case penalty would be
levied @ 30%.
In other cases, penalty would be 60%
3. As per section 194-1, TDS is deductible since aggregate of amount of rent payable to a
person exceeds 2,40,000 in a FY. TDS on rent of P&M will be deducted @ 2% and for
L&B @ 10% (refundable fixed deposit is not considered as part of rent)
4. TDS as per Section 194IA is to be deducted when amount of consideration is 50 Lakhs or

more.
Further, No TDS is to be deducted in case of Rural agriculture land
5. As per section 94A, TDS will be deducted @ 30% + 4% HEC on transaction made with
person located in NJA & as per Sec.ll5A any interest received by a non-resident and
foreign company from infrastructure debt fund u/s 10(47) will be taxable @ 5% + 4%
HEC. No deduction of any expenditure is available.
6. Failure to furnish Statement of financial transaction or reportable account within the

time prescribed u/s 285BA(2) attracts a penalty of a sum of 500 for every day during
which failure continues till the notice period.
Failure to furnish Statement of financial transaction or reportable account within the
time prescribed u/s 285BA(5) i.e. time given in notice issued attracts a penalty of A sum
of ?l,000 for every day during which failure continues.
Therefore, penalty is 153 (from 1st June to 31st oct) x 500 + 15 (from 1st Nov to 15th
Nov) x 1000 = 91500
31st May is the due date for filing Statement of Financial Transaction
7. As per sec 47, Gift is not treated as transfer. Hence, no Capital gain will arise in hands of
Q and R.
As per sec 56(2)(X), gift is taxable in hands of P. In case of immovable property (without
consideration) if SDV per property >50000, then entire SDV is taxable in hands of
recipient.
Since SDV of property in Mumbai and UP exceed 50,000 hence their SDV will be taxable
for P.

MCQ Booklet 171
S. No. ' \ Explanations
8. Section 80M - Where the gross total income of a domestic company in any previous
year includes any income by way of dividends from any other domestic company or a
foreign company or a business trust, there shall, in accordance with and subject to the
provisions of this section, be allowed in computing the total income of such domestic
company, a deduction of an amount equal to so much of the amount of income by way
of dividends received from such other domestic company or foreign company or
business trust as does not exceed the amount of dividend distributed by it on or before
the due date.
Note - Due date means one month before due date of ROI u/s 139(1).
9. Provisions of section 115QA were initially applicable only to unlisted companies.

However, vide the Finance (No. 2) Act, 2019, the provisions of section 115QA are
amended and the same is made applicable to the listed companies also.
As per Sec 115QA, taxable value is Buyback amount - Issue price i.e. 6,00,000
(23,00,000- 17,00,000) and tax amount is 6,00,000 x 23.296% (Tax Rate applicable is
20% plus 12 % Surcharge plus 4% HEC)
10. Interest income and rental income is exempted in hand of REIT as per section 10(23FC)
and 10(23FCA) respectively but taxable in hands of unit holder and STCG is taxable in
hands of REIT but exempted in hands of unit holder as per section 10(23FD)
11. He is not entitled for deduction as it will be granted to him after construction as 1/5
under Sec 24
80EEA is not allowed as SDV is 45 Lakhs or more.
80C is not allowed as the property is under construction.
12. Under section 264, the Commissioner can revise the order pending before the
Commissioner (Appeals), if the revision pertains to a matter, other than the matter(s)
covered in the appeal before Commissioner (Appeals)
13. Section 11(7) - Where a trust or an institution has been granted registration under
section 12AA and the said registration is in force for any previous year, then, nothing
contained in section 10 other than [clause (1), clause (23C) and clause (46)] thereof
shall operate to exclude any income derived from the property held under trust from
the total income of the
person in receipt thereof for that previous year.
14. DDT is scrapped from FY 2020-21. Further, dividend income is taxable in hands of
recipient at slab rate.
15. Section 165A of Finance Act 2016 - (1) On and from the 1st day of April, 2020, there
shall be charged an equalisation levy at the rate of two per cent, of 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-—

172 MCQ Booklet
S. No. Explanations
(iv) to a person resident in India; or
(v) to a non-resident in the specified circumstances as referred to in sub-section (3); or
(vi) to a person who buys such goods or services or both using internet protocol address
located in India.
(2) The equalisation levy under sub-section (1) shall not be charged—
(iv) where the e-commerce operator making or providing or facilitating e-commerce
supply or services has a permanent establishment in India and such e-commerce
supply or services is effectively connected with such permanent establishment;
(v) where the equalisation levy is leviable under section 165; or
(vi) sales, turnover or gross receipts, as the case may be, of the e-commerce operator
from the e-commerce supply or services made or provided or facilitated as referred
to in sub-section (1) is less than two crore rupees during the previous year.
(3) For the purposes of this section, "specified circumstances" mean—
(iii) sale of advertisement, which targets a customer, who is resident in India or a
customer who accesses the advertisement though internet protocol address located
in India; and
(iv) sale of data, collected from a person who is resident in India or from a person who
uses internet protocol address located in India.]
(i) Therefore, Ujay International is required to charge equalisation levy of 2% since Mr.
Alex accessed the advertisement though internet protocol address located in India.
(ii) Section 166A of Finance Act 2016 - Equalisation levy collected in March is required
to be deposited till 31st March.
(iii) Considering section 165A of Finance Act, 2016 mentioned above, e commerce
operator having no PE in India providing services to person resident in India is liable
for collecting equalisation levy.
(iv) Considering the specified circumstances mentioned in section 165A of Finance Act,
2016, equalisation levy of 2000 is deductible and payable by Y tourism Ltd since the
data relates to Indian customers.
16. (i) As per section 6(1), a person is treated as resident in India if He stays in India for 182
days or more in PY
Or
Stay in India for 60 days or more in PY and 365 days in Last 4 PY's.
As per section 6(6), a person will be treated as ordinary resident if he satisfies both
conditions-
Resident for 2 PY or more in Last 10 PYs And
Stay in India for 730 days or more in Last 7 PYs.

MCQ Booklet 173
S. No. Explanations
I n t h e given case, his stay i n India during PY is = 30+31+30+31+20+12+9+10+6 = 179
days. He does not satisfy 1 st condition. However, since he is staying i n India since
2009. He will satisfy t h e 2 n d condition of section 6(1) and both t h e conditions of
section 6(6).
Therefore, he is considered as resident and ordinary resident.
(ii) Since, entire salary is paid by Indian company and will therefore will be liable for TDS
deduction after reducing standard deduction of 50,000.
(iii) Cost of acquisition is-

Lower of Sale value o r FMV as o n 31.01.2018 (say A) And higher of COA o r A.
Therefore, i n our case:
Sale value = ? 81,250 (325*250 shares)
FMV as o n 31.01.2018 = ? 90,000 (360*250 shares)
Actual COA = ? 75,000 (150*500 shares)
Therefore, COA for computation of capital gains = ? 81,250.
(iv) IFHP
Particulars Amount Rate Amount ?

(March)
Rent 3300 GBP 93.07 307131
Less: 30% 92139.3

deduction
Taxable 214991.7
TTBR o n last day of PY is used to convert foreign currency amount for HP income.
N o deduction i n respect of interest is allowed for self-occupied property if assessee has
opted to pay tax as per section 115BAC.
17. (i) Interest is allowed o n due o r paid basis. Therefore, full 40 lakhs will b e allowed.
Interest o n under-construction property is allowed w h e n t h e construction gets
complete. Limit of 2 Lakhs is only applied i n case of Self Occupied House Property.
(ii) 80C - 1,50,000 (repayment of principal to t h e extent of 1.5 lakh) 80EEB (Interest o n
Electric Vehicle loan) - 1,50,000
80E (Interest o n education l o a n ) - 50,000 80D (Medical p r e m i u m ) - 20,000
Total = 3,70,000
(iii) N o such enabling provision i n Income from house property, therefore not
chargeable to tax.

174 MCQ Booklet
S. No. Explanations
(iv) Section 163. (1) For the purposes of this Act, "agent", in relation to a non-resident,
includes any person in India—
(a) who is employed by or on behalf of the non-resident; or
(b) who has any business connection with the non-resident; or
(c) from or through whom the non-resident is in receipt of any income, whether
directly or indirectly; or
(d) who is the trustee of the non-resident;
and includes also any other person who, whether a resident or non-resident, has
acquired by means of a transfer, a capital asset in India.
Therefore, Mr. David can be treated as an Agent.
(v) Section 64(1A) - Income of minor child is taxable in hands of parent whose income
is more before clubbing minor's income.
18. (i) As per sec 35AD Assets on which deduction claimed u/s 35AD should be exclusively
used for specified business for minimum 8 years from the year of acquisition. If it is
used for non- specified business within 8 years then following shall be taxable under
PGBP i.e., Amount of tax claimed u/s 35AD earlier less depreciation that would have
been allowable if sec 35AD not there.
Actual cost of assets for computing depreciation would be Actual cost less
depreciation claimed as per Explanation 14 to Section 43(1).
Particulars Amount
Deduction claimed u/s 35AD (purchase on 31.10.2018) 30,00,000
Less:Depreciation for PY 2018-19 @ 7.5% 2,25,000
WDV as on 01.04.2019 27,75,000
Less: Depreciation for PY 2019-20 @15% 4,16,250
WDV as on 01.04.2020 23,58,750
Less:Depreciation for PY 2020-21 @15% (Depreciation for PY 3,53,813

21-22 has not been taken since asset transferred in PY 21-22)
PGBP Income 20,04,937
Actual cost of plant & machinery for computing depreciation

for P.Y.2021-22 would be ? 20,04,937.

MCQ Booklet 175
S. No. llilif IlllSlilJlif IfIlillOllllfliSiiSllli Explanations

(ii) Calculation of Cost of acquisition (net worth) for t h e purpose of capital gain
Item Amount Remarks

■
Plant & Machinery 20,04,937 WDV as per income tax is
(Depreciable Asset) considered
Land 50,00,000 Revaluation to be ignored (160-

110)
Other FA 90,00,000 280,00,000-160,00,000-

30,00,000
Debtors 175,00,000
Inventories 100,00,000
(A) 435,04,937
Bank Loan 80,50,000 115,00,000*70%
Trade Creditors 126,00,000 280,00,000*45%
Cost of acquisition/ Net 228,54,937

worth
(iii) Calculation of capital gain and tax payable o n slump sale
Calculation of Capital
Gain
Sale Value 415,00,000
Less: transfer expense 10,50,000
Less: Cost of acquisition 228,54,937
Long t e r m Capital Gain 175,95,063 POH is m o r e than 3 years
Calculation of tax payable
Rate of tax 22%+4% As per section 115BAA

cess
Tax payable 40,25,750 175, 95,0 6 3 * 2 2 % * l .04
(iv) As per section 50B(3), Every assessee, i n t h e case of slump sale, shall furnish i n t h e
prescribed form a report of an accountant as defined in t h e Explanation below sub-

176 MCQ Booklet
S. No. Explanations
section (2) of section 288 before the specified date referred to in section 44AB
indicating the computation of the net worth of the undertaking or division, as the
case may be, and certifying that the net worth of the undertaking or division, as the
case may be, has been correctly arrived at in accordance with the provisions of this
section.
As per section 44AB "specified date", in relation to the accounts of the assessee of
the previous year relevant to an assessment year, means date one month prior to
the due date for furnishing the return of income under sub-section (1) of section
139.
Since, due date for filing of return for companies is 31 st October of the assessment
year.
Above report has to be furnished up to 30.09.2022.
(v) As per section 47, no capital gain will arise in hands of company as well a
shareholders.
19. As per section 270A(9), failure to report any international transaction or any transaction
deemed to be an international transaction or any specified domestic transaction, to
which the provisions of Chapter X apply shall be treated as mis reporting of income and
penalty would be 200% of amount of the tax payable.
As per section 271AA, failure to report any international transaction attracts penalty of
2% of the value of such transaction.
20. As per section 92C(4) - Where an arm's length price is determined by the Assessing
Officer under this section, the Assessing Officer may compute the total income of the
assessee having regard to the arm's length price so determined
Further, no deduction under section 10A or section 10AA or section 10B or under
Chapter Vl-A shall be allowed in respect of the amount of income by which the total
income of the assessee is enhanced after computation of income under this sub-
section.

MCQ Booklet 177
Test Series 7
S. Explanations
Hili
1. Section 44AD is applicable for Resident Individual/HUF and Resident Firm (excluding
LLP) if Turnover o r gross receipts of business is u p t o ?2 Crores.
Section 44ADA is applicable for resident professionals (Individuals, HUF and partnership
firms except LLP) if gross receipt of Profession is upto 5 0 lacs,
Section 44AE is applicable if assessee, being a person engaged i n plying, leasing o r hiring
of goods carriages does n o t own m o r e t h a n 10 vehicles at any t i m e during t h e P.Y.
Hence, Case (i) and (iii)-Eligible for 44AD; Case (iv)- Eligible for 44ADA;
Case (v)-Eligible for 44AE;
Case (ii) not eligible for 44ADA as receipts exceed 50 Lakhs.
Particulars Amount
LTCG 5,00,000
STCG 2,00,000
Income from Lottery 1,00,000
Saving bank interest 30,000
Gross Total Income 8,30,000
Less: 80TTA 10,000
Less: 80C - PPF (to t h e extent of normal 20,000

income-interest)
Calculation of Tax
Lottery @ 30% 30,000
STCG @ 15% 30,000
LTCG (500000-250000*) @20% 50,000
1,10,000
Add - 4% 4,400
1,14,400
*Basic exemption

178 MCQ. Booklet
s. Explanations
No.
3. As per section 64(l)(iv), where assets transferred by an individual to his/her spouse are
invested by the transferee in the business, then proportionate income is to be included
in total income of transferor. Share of profit is exempted in hands of partners but
interest income 300000/500000 * 60000 = 36000 will be clubbed in hands of Mr. Sunder
and 200000/500000 * 60000 =24000 is taxable in hands of Mrs. Kavitha.
Clubbing shall be applicable only if gifted money is included in opening capital.
4. Marginal relief concept will apply -

Tax on 10 crores @25% plus 7% surcharge Add: 100000
Add: 4% cess
Answer - 27924000
5. 40% (foreign company)

Plus 5% surcharge (foreign company)
Plus 4% Health and education cess
6. Mr. Akhilesh is a Non-Resident and Indian Citizen and hence Section 194E will not be
applicable. In this case, TDS will be deducted under section 195 at normal tax slab rates.
Such Income will be taxable at slab rate.
7. Income 7 Lakhs - deduction 300000 (u/s 80QQB) = 4 Lakhs

Since NTI is below 5 Lakhs, Tax will be nil due to rebate u/s 87A
8. Section 194J is applicable to Mr. Ganesh because his last year T/o exceed lcr (Turnover
threshold is checked and not tax audit for applicability of TDS deduction).
If tax is deducted then required to deposit 7th of next month for April to Feb and 30th
April of next F.Y. for March month
9. As per section 269T a person should not repay loan/deposit/advance in relation to

immovable property including interest in cash for an amount of 20000 or more.
On violation of Section 269T, penalty shall be levied @100% of such loan/ deposit/
advance repayment (excluding interest) under Section 271E.
10. Sec 194E is applicable on NR sportsmen/Association/Entertainer & not on match

referee.
Hence, section 195 is applicable in this case on payments made to Non-Resident.
11. As per sec 80D, medical claim insurance (20000+6000) + preventive health check-up
(maximum upto 5000) + medical expenditure for senior citizen 32000 is allowed under
Chapter VIA

MCQ. Booklet 179
s. Explanations
No.
12. As per sec 43B conversion of unpaid interest into loan shall not be considered as
payment of interest so only actual payment of interest ? 100000 is allowed as deduction
13. As per Sec.271AAB, where an assessee during a search admits the undisclosed income
and specify the manner in which such income was earned and pay tax & interest on
such undisclosed income and also furnish the return of income declaring undisclosed
income u/s 139(l)/period specified u/s 147 notice then in such case penalty would be
levied @ 30%.
In other cases, penalty would be 60%
14. As per section 10(6)(ii), in case of an individual who is not a citizen of India
remuneration received by him as an official of an embassy, high commission etc. of a
foreign state or member of the staff of any of that official is exempt from tax only if
corresponding Indian official in that foreign country enjoys a similar exemption.
In the given case, both of them are Indian citizens and hence no exemption shall be
allowed.
15. As per Sec.94B, Interest expenses of similar nature (like guarantee, commission etc.)
incurred by an Indian company or a permanent establishment of a foreign company in
India in respect of any debt issued by a non-resident, being an associated enterprise
shall be disallowed interest, if interest is more than 30 % of EBITDA, while calculating
income under the head PGBP income.
16. Municipal taxes paid for let out/deemed let out properties are allowed as deduction.
Further, assessee can at his option claim max. two properties as self -occupied property.
In given case, there are total 4 properties, 2 in India and 2 outside India.
London property is already let out, so assessee can choose the property having higher
GAV as self-occupied property to save tax, which in our case is Worli and Winchester
property. Therefore, Bandra property will be treated as deemed let out.
(i) Allowable Municipal tax
London property = 1000 pound*?’ 120 = 12000
Bandra Property = 10000
Total = 22000
(ii) Annual rent = Higher of Municipal value or fair rent subject to standard rent.
Calculation of Income from House Property
London Property = ((24000-100) * ? 120) - 30% Std Deduction = 2007600
Bandra Property = (720000-10000) - 30% Std Deduction = 497000
Total = 25,04,600.

180 MCQ Booklet
s. Explanations
NO.
(iii) Since, Winchester property is sold, Assessee can claim both the Indian properties as
self-occupied property.
Therefore, IFHP will only be for London property i.e. 20,07,600.
(iv) Calculation of Capital gain chargeable to tax:
Capital Gain - 2 crores
Less:Exemption u/s 54EC
NHAI bonds - 0.20 crore
RECL bonds - 0.30 crore
Less: Exemption u/s 54 (deduction allowed for 2 properties if capital gain is upto 2
crore) Pune properties - 1 cr. (treated as single house)
Baroda - 0 . 4 0 crore
Chargeable capital gain = 0.10 crore
(v) TDS deductible on sale of property u/s 194IA @1% of 3 Crores = 3 Lakhs TDS
deductible on brokerage u/s 194H @ 5% of 20000 = 1000
No TDS required on interest since it is upto 50,000 (Resident Senior citizen)
No TDS on rent required since it is less than 2,40,000.
17. (i) Section 80E, Deduction is allowed if loan is taken for education of self, spouse,
children and any other student from whom assessee is a legal guardian. (Brother is
not covered)
Sec 2O6C(1G): TCS on remittance outside India or sale of Tour package (Added by FA
20 w.e.f. 01/10/20)
(1) In case of authorised dealer, who receives an amount of more than 7,00,000 in
PY from a buyer who remitting such amount out of India under the Liberalised
Remittance Scheme (LRS) of the RBI then he required to collect TCS @ 5% in
excess of 7,00,000.
Note: If remitted amount is out of Educational Loan taken from Financial
Institution, then TCS rate shall be 0.5% instead of 5%.
(2) In case of sale of an overseas tour program package (OTPP), seller receives any
amount from a buyer required to collect TCS @5%.
So, SBI is required to collect tax at source on the amount remitted to Mr. Ram
@0.5% (plus cess) on ? 28 lakhs, being the amount in excess of 7 lakhs.
(ii) As per Section 206C(lG) - tax @5% will be collected on total amount remitted (6.9
lakh)
(iii) Section 206C(l), TCS @ 1% is collected on sale of scrap. 4% H&EC is applicable if
buyer is foreign company or NR.

MCQ Booklet 181
$. Explanations
No.
(iv) Section 194C, TDS @1% (in case payee is Individual/HUF) is deducted for t h e amount
of contract*.
* l n case of Job work, t h e TDS shall be deducted o n t h e invoice value excluding t h e value
of material, if material value mentioned separately i n Invoice.
18. (i) As per section 2(22)(e), any payment by a company i n which t h e public are n o t
substantially interested by way of loan to a shareholder, w h o is t h e beneficial owner
of shares holding not less t h a n 10% of voting power, is deemed as divided to t h e
extent to which t h e company possesses accumulated profits. Accordingly, i n this
case, ? 8 lakhs would be deemed as dividend u/s 2(22)(e) and taxable i n hands of M r .
Rajat.
(ii) As per Section 194N, TDS @2% is applicable only if payer paying sum o r aggregate of
sum i n cash i n excess of one crore i n PY from one or m o r e accounts maintain by
paye$. TDS applicable only o n excess of amount over one crore.
In this case, withdrawal from ABC bank i n excess of 1 crore will attract TDS.
Withdrawal from co-operative bank does not require TDS deduction since amount
withdrawn is less t h a n 1 crore.
(iii) Section 194N provides t h a t i n case of a recipient w h o has not filed t h e returns of
income for all of t h e three assessment years relevant to t h e three previous years, for
which t h e t i m e limit of file return of income under sub-section (1) of section 139 has
expired, immediately preceding t h e previous year i n which t h e payment of t h e sum
is made to him, t h e provision of this section shall apply w i t h t h e modification that—
(i) t h e sum shall be t h e amount o r t h e aggregate of amounts, as t h e case may be,
i n cash exceeding twenty lakh rupees during t h e previous year; and
(ii) t h e deduction shall be—
(a) an amount equal to two per cent of t h e sum where t h e amount o r
aggregate of amounts, as t h e case may be, being paid i n cash exceeds
twenty lakh rupees during t h e previous year b u t does not exceed one crore
rupees; o r
(b) an amount equal to five per cent of t h e sum where t h e amount o r
aggregate of amounts, as t h e case may be, being paid i n cash exceeds one
crore rupees during t h e previous year:
(iv) & (v)

(lakhs)
PGBP 60 -
Other Source

182 MCQ Booklet
s. Explanations
No.
Dividend 12 Dividends are taxable i n hands of

shareholders
Deemed dividend 8 Deemed dividend u/s 2(22)(e)
Taxable u/s 56(2)(x), since Value

Gift 5 of gift exceeds 50k
Allowed o n due basis, max 2 lakh

House Property -2 i n case of self- occupied property
Total Income 83
Tax Liability
Tax as per Slab Rate 23.025
Add: surcharge at 10% 2.3025
25.3275
Add: 4% H&EC 1.0131
Gross liability 26.34060
19. Rule 46A(1) provides some conditions where CIT(Appeals) can accept t h e additional
evidences such condition is like where A.O. completed assessment w i t h o u t giving
opportunity to assessee to produce such evidence o r where A.O didn't demand t h e
evidences b u t evidence was relevant and assessee could not produce sufficient cause etc.
(2) N o evidence shall be admitted under sub-rule (1) unless t h e appellate authority
records i n writing t h e reasons for its admission.
20. Ganesh
Particulars Normal provisions U/s 115BAC
Salary 1450000 1450000
Interest o n saving bank account 12000 12000
1462000 1462000
Less: Deduction u/s 80C 150000 0

MCQ Booklet 183
s. Explanations
No.
Less: Deduction u/s 80D
Premium for seif 25000 0
Medical exp for father 35000 0
Less: Deduction u/s 80TTA 10000 0
Add: Standard deduction allowed 50000
Total Income 1242000 1512000
Normal Provision
Tax upto 2.5 lakh 0
Tax from 2.5 lakh to 5 lakh @5% 12500
Tax from 5 lakh to 10 lakh @20% 100000
185100
U/s 115BAC
Tax upto 2.5 lakh 0
191100
Add: H&EC @ 4% 7404 7644

184 MCQ Booklet
S. Explanations
No.
He should n o t o p t for Section 115BAC
Rajesh
Particulars Normal provisions U/s 115BAC
Rental Income 1020000 1020000
Less: Standard deduction @30% 306000 306000
714000 714000
Interest on saving bank account 15000 15000
Less: Deduction u/s 80C 50000 0
Less: Deduction u/s 80TTA 10000
Total Income 669000 729000
Normal Provision
Tax u p t o 2.5 lakh 0
Tax f r o m 2.5 lakh to 5 lakh @5% 12500
46300
U/s 115BAC
Tax u p t o 2.5 lakh 0
Tax f r o m 5 lakh to 7.29 lakh @10% 22900
35400
Add: H&EC @ 4% 1852 1416
He should o p t for Section 115BAC

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■0 ; mm

\lAHle BY CA BHANWAR BORANA

The Best Channel For CA Final Students

P u b l i s h e d & Distributed by:

4634/1 P l o t No.19 Ansari Road,

1. Taxation of international transactions and

(ii) Equalisation levy

2. Overview of M o d e l Tax Conventions - OECD & UN

2. 15% » 25% 3. A p p l i c a t i o n a n d interpretation of Tax Treaties

4. F u n d a m e n t a l s of Base Erosion a n d Profit Shifting

# Sec 92 B: International Transactions

Sec 92A : Associated Enterprise

J One enterprise is controlled by individual & other enterprise is controlled by such

Sec 92C: Computation of Arm length Price

(+)/(-) Adj fo r difference between international

Particular No. Amount

2. Resale Price Method (RPM)

(-) Normal G.P.margin in similar transaction (xxx)

CA Bhanwar Borana 05 Compact V-C

Less- Norma) Gross Profit Margin @ 2 5 % 7,50,000 T

) Less: Expenses connected with purchases 3,50,000

Arm' s Length Price 19,00,000

Increase in income of- BB Ltd. (20,00,000-19,00,000) 1,00,000

3. Cost Plus method (CPM)

(+)/(-) Adjustment f o r d i f f erence between international

4 Prof it split method (PSM)

Cost incurred by Assessee xxx

Example i.ixc.QTpQn.aijeddJTXJ.IC-Te.cei.Y.ed £y?jdejT.tcTdL y.e.ljap..jaLSxtttWjar.e. fjQLr....lSlci.nja-

' ■• 06 CA Bhanwar Bora

Cost incurred to develop the software is $1,60,000. Relative contributions by MAA

Solution : Total Profit from Joint Venture ($ 2,00,000 - $ 1,60,000) = $ 40,000

# Sec 92C (2): More than one ALP 1

......... .......... TRANSFER PRICING

In the following cases ALP shall be computed by A.O.

iv) Assessee fads to furnish info & docs required u/s 9 2 b .

Sec 92C(4): Effect of ALP determined by A.O.

b. If jncome of one Associated Enterprise js increased by A.O. then deduction

Rule 10CA : Range concept

Example : 7 x 35%tile = 2.45 we have to select 3rd Value in data set.

Ans: - First arrange all dataset in ascending order

Total entries in data-set = 20

---------- -— - ----• TRANSFER PRICING ...........

S.No Name Yearl Year 2 Year 3 Aggregation of Weighted

From the above, the dataset will be constructed as follows:

Compact \ • 12 CA Bhanwar Borana

Example : The data of the current year is available in respect of enterprises A, C, E, F

S.No Name Yearl Year 2 Year 3 Aggregation o f Weighted

(6urrentYear) O6&OP Avg

1. A OC = 100 06=150 06=225 Total 06 = 475 OP/O6=12%

3. C OC=250 06=230 06=250 Total 0 6 = 7 3 0 OP/O6 = 9 %

5. E 06=100 Total 06 = 100 OP/O6=(-)5%

6. F 06=160 06 = 120 06 = 140 Total 06 = 4 2 0 0 P / 0 6 = 11.9%

7. G 06=150 06=130 06=155 Total 06 = 4 3 5 0 P / 0 6 = 10.57%

From the above, t h e dataset will be constructed as follows:

If during t h e course of assessment proceedings, the data of the current year is

The weighted average and dataset shall be recomputed as under:

S.No Name Yearl Year 2 Year 3 Aggregation of Weighted

1. A O C = 100 O C - 150 OC= 225 Total OC = 475 OP/OC = 1 2 %

2. C OC = 2 5 0 OC- 230 OC= 250 Total O C = 7 3 0 OP/OC = 9 %

3. b OC - 2 2 0 O C = 150 Total O C - 370 OP/OC =11.35%

4. E oc =ioo Total O C = 100 OP/OC = ( - ) 5 %

5. . ....F O C = 160 O C - 120 O C - 140 Total O C = 4 2 0 OP/OC = 1 1 . 9 %

CA Bhanwar Borana 15 a _.__

_ ________________ ..X