Answer to MTP_Final_Syllabus 2016_Dec 2023_Set 1

Paper 16 - Direct Tax Laws and

International Taxation

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 Answer to MTP_Final_Syllabus 2016_Dec 2023_Set 1

Paper 16 - Direct Tax Laws and International Taxation

Full Marks: 100 Time allowed: 3 hours

The figures in the margin on the right side indicate full marks.
Working notes should form part of the answer.
All questions relate to the Income Tax Act 1961 and pertains to Assessment Year 2023-24,
unless otherwise stated in the questions.

Section - A

1. Choose the correct alternative and also provide your justification: [10×2=20]

(i) Every assessee or ecommerce operator, who fails to credit adequate equalisation
levy to the account of the Central Government within specified period, shall pay
interest:
(a) Equal to the amount of equalisation levy
(b) ` 100 for every day during which the failure continues
(c) ` 100 for every day during which the failure continues subject to maximum
of amount failed to pay
(d) 1% of such levy for every month or part of a month by which such crediting
of the tax is delayed

(ii) As per sec. 94B, interest expenses claimed by an entity to its associated
enterprises shall be restricted to _____ of its earnings before interest, taxes,
depreciation and amortization (EBITDA) or interest paid or payable to
associated enterprise, whichever is less :
(a) 30%
(b) 25%
(c) 20%
(d) 50%

(iii) MAT Credit can be carried forward and set off for:
(a) 10 years
(b) 15 years
(c) 5 years
(d) Not available for carried forward

(iv) In the context of Double Taxation Avoidance Agreements, the term “permanent
establishment” means a fixed place of business through which the business of an
enterprise is wholly or partly carried on. The term “permanent establishment”
does not include:
(a) a mine, an oil or gas well, a quarry or any other place of extraction of natural
resources
(b) a workshop

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(c) the maintenance of a fixed place of business solely for the purpose of
advertising, for the supply of information, for scientific research, or for
similar activities which have a preparatory or auxiliary character, for the
enterprise.
(d) a farm, plantation or other place where agricultural, pastoral, forestry or
plantation activities are carried on.

(v) X Marine Lines Inc., a Singapore company engaged in shipping business

collected ₹ 150 lakh towards carrying goods from Chennai Port. Its presumptive
income chargeable to tax in India would be ₹ :
(a) 15 lakhs
(b) 11.25 lakhs
(c) 12 lakhs
(d) Nil

(vi) As per section 35DD of the Income-tax Act, the quantum of deduction of
expenses incurred in case of amalgamation or demerger will be:
(a) 1/3rd of expenses so incurred for a period of 3 years commencing from the
year in which amalgamation or demerger takes places.
(b) 1/5th of expenses so incurred for a period of 5 years commencing from the
year in which amalgamation or demerger takes places.
(c) 1/10th of expenses so incurred for a period of 10 years commencing from the
year in which amalgamation or demerger takes places.
(d) 100% of expenses so incurred for a period of 5 years commencing from the
year in which amalgamation or demerger takes places.

(vii) Anonymous donation is taxable in excess of specified limit. The specified limit is
higher of:
(a) 5% of the total donations received or ` 50,000
(b) 1% of the total donations received or ` 1,00,000
(c) 5% of the total donations received or ` 1,00,000
(d) 1% of the total donations received or ` 50,000

(viii) Which of the following can be corrected while processing the return of income
under section 143(1)?
(a) any arithmetical error in the return
(b) any error in the return of income
(c) any mistake in the return of income
(d) any claim by the taxpayer which is against law

(ix) In case of an application made by the assessee u/s 154, the income-tax authority
shall rectify the order/ refuse the rectification within __________ from the end
of the month in which the application is received by the authority:

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(a) 4 years
(b) 2 years
(c) 1 year
(d) 6 months

(x) Principal Commissioner or Commissioner of Income-tax is empowered to grant

relief from penalty to taxpayers in genuine cases. Such power is granted under
section 273A and section _______:
(a) 273B
(b) 273AA
(c) 273
(d) 274

Answer:

(i) (d) Every assessee or ecommerce operator, who fails to credit adequate
equalisation levy to the account of the Central Government within
specified period, shall pay simple interest @ 1% of such levy for every
month or part of a month by which such crediting of the tax is delayed
as per section. 170
(ii) (a) As per sec. 94B, interest expenses claimed by an entity to its associated
enterprises shall be restricted to 30% of its earnings before interest,
taxes, depreciation and amortization (EBITDA) or interest paid or
payable to associated enterprise, whichever is less. This provision is
applicable to Indian company, or a permanent establishment of a foreign
company in India, being the borrower.
(iii) (b) MAT credit that is equivalent to the tax paid in excess of MAT over
normal tax liability can be carried forward up to a period of 15
assessment years from the year MAT credit was generated.
(iv) (d) What is permanent establishment in double taxation?
For the purposes of this Convention, the term "permanent establishment"
means a fixed place of business through which the business of an
enterprise is wholly or partly carried on. a farm, plantation or other place
where agricultural, forestry, plantation or related activities are carried
on.
(v) (b) ` 150 lakh × 7.5% = `11.25 lakhs
(vi) (b) Where an assessee, being an Indian company, incurs any expenditure,
on or after the 1st day of April, 1999, wholly and exclusively for the
purposes of amalgamation or demerger of an undertaking, the assessee
shall be allowed a deduction of an amount equal to one-fifth of such
expenditure for each of the five successive previous years beginning
with the previous year in which the amalgamation or demerger takes
place.
(vii) (c) In the case of wholly charitable institutions, anonymous donations shall
be taxable only to the extent such donations exceed 5 percent of total

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donations received by such trust or institution or a sum of `. 1 lakh,

whichever is more.
(viii) (a) The process of examining the return filed by the taxpayer by the
Income tax department is termed as assessment. The IT department
carries out a preliminary assessment of all the returns filed and informs
taxpayers of the result of such preliminary assessment. This assessment
primarily includes arithmetical errors, internal inconsistencies, tax
calculation and verification of tax payment. The preliminary evaluation
process is fully computerised (automated), and is delegated to the
Central Processing Centre (CPC).
(ix) (a) No order of rectification can be passed after the expiry of 4 years from
the end of the financial year in which order sought to be rectified was
passed. The period of 4 years is from the date of order sought to be
rectified and not 4 years from original order.
(x) (b) Apart from enacting penalty provisions, the Income-tax Act also
designed provisions empowering the Principal Commissioner of
Income-tax or Commissioner of Income-tax to grant relief from
penalty to taxpayers in genuine cases. Such power is granted under
section 273A and section 273AA.

Section – B
(Answer any five questions out of seven questions given)

2.(a) Determine the amount of interest u/s 234A in the following cases:
Name of the assessee A A Ltd. B
Due date of furnishing return 31st July 31st October 31st July
Date of filing return 4th 28th Not filed
December December
Date of completion of assessment 1st March 15th April 15th
February
Income as per return ₹ 5,80,000 ₹ 5,00,000 —
Assessed Income ₹ 6,10,000 ₹ 5,50,000 ₹ 12,00,000
Advance tax paid ₹ 10,000 ₹ 25,000 ₹ 80,000
Tax deducted at source ₹ 10,000 ₹ 15,000 ₹ 80,000
Tax paid along with return ₹ 6,000 ₹ 1,50,000 —
Also state interest payable u/s 234A for the purpose of sec.140A. Ignore interest
under any other section. [8]

(b) “Fund can be obtained from various sources have different characteristics in terms of
risk, cost and control.” — Write about the tax planning in relation to capital structure
and lease or buy decision in this context. [8]

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 Answer to MTP_Final_Syllabus 2016_Dec 2023_Set 1

Answer:

2. (a)
Computation of interest u/s 234A
Particulars Code A A Ltd. B
5 months 2 months 7 months
Period of default A# (Aug. to (Nov. to (Aug. to
Dec.) Dec.) Feb.)
Assessed Income B ₹6,10,000 ₹5,50,000 ₹12,00,000
Tax rate C Slab-rate 30% Slab rate
Tax liability before surcharge D=B×C ₹34,500 ₹1,65,000 ₹1,72,500
Rate of Surcharge E Nil Nil Nil
Surcharge F=D×E Nil Nil Nil
Tax and surcharge payable G=D+F ₹34,500 ₹1,65,000 ₹1,72,500
Health & Education cess H=G×4% ₹1,380 ₹6,600 ₹6,900
Tax liability on assessed income I=G+H ₹35,880 ₹1,71,600 ₹1,79,400
Less: Advance tax paid & tax deducted at
J ₹20,000 ₹40,000 ₹1,60,000
source
Shortfall K=I-J ₹15,880 ₹1,31,600 ₹19,400
Rounded off L ₹15,800 ₹1,31,600 ₹19,400
Interest (1% × A × L) ₹790 ₹2,632 ₹1,358
Note: Tax paid along with return shall not be reduced while computing interest u/s 234A

Computation of interest u/s 234A for the purpose of Sec.140A

Name of the assessee Code A A Ltd.
5 months 2 months
Period of default A# (Aug. to (Nov. to
Dec.) Dec.)
Returned Income B ₹5,80,000 ₹5,00,000
Tax rate C Slab-rate 30%
Tax liability before surcharge D=B×C ₹28,500 ₹1,50,000
Rate of Surcharge E Nil Nil
Surcharge F=D×E Nil Nil
Tax & surcharge on above G=D+F ₹28,500 ₹1,50,000
Health & Education cess H=G×4% ₹1,140 ₹6,000
Tax liability on assessed income I=G+H ₹29,640 ₹1,56,000
Less: Advance tax paid & tax deducted at
J ₹20,000 ₹40,000
source
Shortfall K=I-J ₹9,640 ₹1,16,000
Rounded off L ₹9,600 ₹1,16,000
Interest (1% × A × L) ₹480 ₹2,320

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# It is to be noted that when interest is calculated on monthly basis, any fraction of the month
shall be taken as full month.
Note: In case of B, return has not been filed, hence interest payable u/s 234A at the time of
self-assessment cannot be computed.

2.(b)

Fund can be obtained from various sources thus their procurement is always considered as a
complex problem by a business organisation. Fund procured from different sources have
different characteristics in terms of risk, cost and control.

 Capital Structure — the optimum capital structure is a mix of equity capital and debt funds.
Following should be considered in this regard:

1. Interest on debt fund is allowed as deduction as it is a business expenditure. Therefore, it

may increase the rate of return on owner’s equity.
2. Dividend on equity fund is not allowed as deduction as it is the appropriation of profit.
Further, the company declaring the dividend shall be liable to pay dividend distribution
tax.

3. The cost of raising owner’s fund is treated as capital expenditure therefore not allowed as
deduction. However, if conditions of sec. 35D is satisfied then such cost can also be
amortized.

4. The cost of raising debt fund is treated as revenue expenditure.

 Lease or Buy — when a person needs an asset for his business purposes, he has to decide
whether the asset should be purchased or taken on lease. Following should be considered
in this regard:
1. Lease rental can be claimed as deduction as revenue expenditure. However, depreciation
on leases asset is not allowed.

2. Depreciation on depreciable assets can be claimed as deduction u/s 32.

3. In case, the asset is purchased from the amount taken on loan, interest paid for the period
after the asset is first put to use, the deduction on account of interest shall be claimed as
revenue expenditure. However, interest paid for the period before the asset is first put to
use shall be capitalized.

4. Any gain on transfer of capital asset is subject to capital gain. In this regard, it is to be
noted that in case of depreciable asset, asset shall be merged in the respective block of
asset.

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3. Apple Industries Ltd. provides the following information for the financial year 2022-
23:
Net profit as per statement of profit and loss after ₹ 120 lakh
debiting/crediting the following:
Proposed dividend ₹ 30 lakh
Profit from unit established in SEZ ₹ 20 lakh
Provision for income-tax ₹ 18 lakh
Provision for deferred tax ₹ 10 lakh
Provision for permanent diminution in value of investments ₹ 3 lakh
Depreciation debited to statement of profit and loss ₹ 10 lakh ₹ 1 lakh
includes depreciation on revaluation of assets to the tune of

Bought forward losses and unabsorbed depreciation as per books of the company are
as follows:
(Amount in ₹ Lakhs)
Previous Year Brought Forward Unabsorbed Depreciation
Losses
2019 – 20 1 4

2020 – 21 1 1

2021 – 22 10 5
Compute the book profit of the company as per section 115JB for the assessment year
2023-24. [16]

Answer:

3.
Computation of Book Profit of Apple Industries Ltd. for the A.Y.2023-24
(₹ In lakhs)
Particulars Details Amount
Net profit as per books of accounts 120
Add:
Proposed Dividend 30
Provision for income tax 18
Provision for deferred-tax 10
Provision for permanent diminution in value of investments 3
Depreciation 10 71
191
Less:
Depreciation (ignoring depreciation on revaluation) 9
Lower of brought forward loss and unabsorbed depreciation 10 19

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Book Profit 172

4.(a) State the provisions regarding Appealable Orders for making an appeal to the
Commissioner (Appeal). [8]

(b) M/s. QQ Trading Co. a sole proprietary concern, was converted into a company
w.e.f 01-09-2022. Before the conversion, the sole proprietary concern had a block of
Plant & Machinery (15%), whose WDV as on 1-4-2022 was ` 3,00,000. On 1st April
itself, a new plant of the same block was purchased for ` 1,20,000. After the conversion,
the company has purchased the same type of plant on 1-1-2023 for ` 1,60,000. Compute
the depreciation that would be allocated between the concern & the company. [8]

Answer:

4.(a)
Provision regarding appeal to the Commissioner (Appeal) are enumerated below:

Appealable U/s 246A

Orders  Order passed by a Joint Commissioner u/s 115VP(3)(ii);
 Order against the assessee, where the assessee denies his liability to
be assessed under this Act;
 Intimation u/s 143(1) or 143(1B) or 200A(1) or 206CB(1) or Order of
assessment u/s 143(3) [Scrutiny assessment] [except an order passed
in pursuance of directions of the Dispute Resolution Panel or an order
referred to in sec. 144BA(12)] or u/s 144 [Best judgment assessment]
in respect of income assessed or tax determined or loss computed or
residential status;
 Order of assessment, reassessment or recomputation u/s 147 [(except
an order passed in pursuance of directions of the Dispute Resolution
Panel or an order referred to in sec. 144BA(12)], 150 & 153A [except
an order passed in pursuance of directions of the Dispute Resolution
Panel or an order referred to in sec. 144BA(12)];
 Order u/s 154 (Rectification of Mistake) or u/s 155 (other
amendments) having the effect of enhancing the assessment or
reducing a refund or an order refusing to allow the claim made by the
assessee [except where it is in respect of an order referred to in sec.
144BA(12)]
 Order u/s 92CD(3)
 Order u/s 163 treating assessee as an agent of a non-resident;
 Order u/s 170 relating to assessment on succession;
 Order u/s 171 refusing to recognize partition of an HUF;
 Order u/s 201 or 206C(6A) for default of provisions of TDS/TCS;

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 Order u/s 237 relating to refunds or sec. 239A;

 Order relating to Penalty;
 Order imposing penalty under chapter XXI;
 An order of penalty imposed under chapter XXI or an order of
imposing or enhancing penalty u/s 275(1A)
 Any order made by an Assessing Officer other than a Joint
Commissioner, as the Board may direct.
Notes:
a) Even when reassessment proceedings have been initiated u/s 147, an
appeal can still be filed against the original assessment order passed u/s
143(3)
b) Assessee has the right to appeal against an order of the Assessing
Officer which is passed while giving effect to the decision of the
appellate authority.

4. (b)
Computation of depreciation on plant and machinery if there were no succession:

Plant &
Particulars Machinery
₹
W.D.V. as on 1/4/2022 3,00,000
Add: Purchase during the year 1,20,000
4,20,000
Less: Sale during the year Nil
4,20,000
Depreciation @ 15% of ₹ 4,20,000 63,000

Allocation of depreciation between sole proprietary concern and the successor company
The depreciation of ₹63,000 is to be allocated in the ratio of number of days the assets were
used by the sole proprietary concern and the successor company.

Calculation of allowable depreciation to sole proprietary concern:

Particulars Amount
₹
Plant & machinery of sole proprietary concern used by the successor company
from 1/9/2022 to 31/3/2023 i.e. 212 days. Depreciation for such period 36,592
(₹ 63,000 x 212/365)
After conversion
Depreciation in respect of assets purchased by the successor company on
1/1/2023 is fully allowable in the hands of successor company [50% of 15% on 12,000
₹ 1,60,000].
Total depreciation 48,592

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5.(a) In course of assessment, the Assessing Officer made addition to assessee’s income u/s
41(1) in respect of cessation / remission of trading liability of various transporters who
transported the minerals for the assessee stating that the assessee had failed to produce
these transporters/trade creditors before the authority, despite the summons issued to
them. Justify. [8]

(b) Voluntary subsidies paid by a holding company, to protect the capital investment,
to its loss-making subsidiary is capital receipt in the hands of the recipient. Justify
with the help of the case law. [8]

Answer:

5. (a)

No cessation of liability even if creditors were untraceable but evidences of payments to

them were produced
In course of assessment, the Assessing Officer made addition to assessee's income u/s
41(1) in respect of cessation / remission of trading liability of various transporters who
transported the minerals for the assessee stating that the assessee had failed to produce
these transporters/trade creditors before the authority, despite the summons issued to
them. On further appeal, the Tribunal completely set aside the additions made by the
revenue. On further appeal, High Court held that in legal parlance, merely because the
creditor could not be traced on the date when the verification was made, same is not a
ground to conclude that there was cessation of the liability.
Cessation of the liability has to be cessation in law, of the debt to be paid by the assessee
to the creditor. The debt is recoverable even if the creditor has expired, by the legal heirs
of the deceased creditor. Under the circumstances, in the present case, it can hardly be
said that the liability had ceased. If the liability had not ceased or the benefit was not taken
by the assessee in respect of such trade liability, the conditions precedent was not satisfied
for invoking sec. 41(1).

Tribunal has clearly recorded the evidence and findings of facts in favour of the
respondent-assessee that the assessee has produced the documentary evidence in the form
of ledger accounts and proof of payments made through bank channel and PAN numbers
also.

Burden of the Revenue to summon such creditors or transporters for establishing that the
liability has ceased could not be shifted upon the respondent-assessee.

There is no perversity in the same so as to give rise to any substantial question of law
arising in the present case, requiring consideration u/s 260A

5. (b)

Voluntary subsidies paid by a holding company, to protect the capital investment, to its
loss-making subsidiary is capital receipt in the hands of the recipient.

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The subvention received by the Assessee - Company from its parent company in Germany
in a situation where the assessee–company was making losses has been treated to be a
revenue receipt by the Assessing Officer. Though the first Appellate Authority and the
ITAT has reversed the said finding. However, the High Court has restored the view taken
by the Assessing Officer referring the decisions of Apex Court in Sahney Steel & Press
Works Ltd., Hyderabad -vs.- CIT (1997) 7 SCC 764 and CIT -vs.- Ponni Sugars and
Chemicals Limited (2008) 9 SCC 337.

In these cases, the Apex Court has held that unless the grant-in-aid received by an Assessee
is utilized for acquisition of an asset, the same must be understood to be in the nature of a
revenue receipt.

However, the aforesaid view tends to overlook the fact that in both Ponni Sugars and
Sahney Steel the subsidies received were in the nature of grant-in-aid from public funds
and not by way of voluntary contribution by the parent Company as in the present cases.
Further, the voluntary payments made by the parent Company to its loss making Indian
company can also be understood to be payments made in order to protect the capital
investment of the Assessee Company. Thus, it was held that the payments made to the
Assessee Company by the parent Company for Assessment Years in question cannot be
held to be revenue receipts.

Earlier, the same view has also been held in CIT -vs.- Handicrafts and Handlooms Export
Corporation of India Ltd. (Delhi)

6.(a) A Co. Ltd. of Chennai and Sky Inc. of Singapore are associate enterprises. A Co. Ltd.
imported 1000 television sets at ₹ 16,000 per set without any warranty period. A Co.
Ltd. also imports similar TV sets from unrelated party Sign Inc. of Japan. It is
imported at ₹ 15,000 per set with warranty time of 2 years. The cost of warranty in
respect of goods imported from Sky Inc. for a period of 2 years would cost ₹ 2,000.
Compute arm’s length price and the amount of increase in total income of A Co. Ltd.
as per CUP method. [8]

(b) What is Foreign Tax Credit in the context of international taxation? State the
documents which are required for availment of such credit. [4+4=8]

Answer:

6.(a)
(A) Computation of Arm’s Length Price
Particulars Amount
₹
Cost of TV Set acquired from Sign Inc 15,000
Less: Cost of Warranty 2,000
Arm’s Length Gross Profit mark-up 13,000

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(B) Computation of Increase in Total Income

Particulars Amount
₹
Cost of TV Set acquired from Sky Inc [₹ 16,000 * 1,000] 1,60,00,000
Less: Arm’s length Value [₹ 13,000 * 1,000] 1,30,00,000
Therefore, Increase in Total Income 30,00,000

6. (b)
An assessee, being a resident shall be allowed a credit for the amount of any foreign
tax paid by him in a country or specified territory outside India, by way of deduction
or otherwise, in the year in which the income corresponding to such tax has been
offered to tax or assessed to tax in India, in rule 128

Meaning of Foreign Tax

In respect of Foreign Tax
A country or specified territory with Tax covered under the said agreement
which India has entered into an
agreement u/s 90 or 90A
Any other country or specified territory Tax payable under the law of that country
or specified territory in the nature of
income-tax referred to in the Explanation
to sec. 91 (i.e., "income-tax" in relation to
any country includes any excess profits
tax or business profits tax charged on the
profits by the Government of any part of
that country or a local authority in that
country)

Documents Required for Credit

Credit of any foreign tax shall be allowed on furnishing the following documents by
the assessee within due date of furnishing return of income:
 a statement of income from the country or specified territory outside India offered for
tax for the previous year and of foreign tax deducted or paid on such income in Form
No.67 and verified in the manner specified therein;
 certificate or statement specifying the nature of income and the amount of tax deducted
therefrom or paid by the assessee:
a) from the tax authority of the country or the specified territory outside India; or
b) from the person responsible for deduction of such tax; or
c) signed by the assessee:
 The statement furnished and signed by the assessee shall be valid if it is accompanied
by:
A. an acknowledgement of online payment or bank counter foil or challan for
payment of tax where the payment has been made by the assessee;
B. proof of deduction where the tax has been deducted.

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7.(a) What is International Transaction according to sec. 92B of the Income Tax Act?
Also, specify some transactions which may be considered as Deemed International
Transaction. [4+4=8]

(b) Mr. Ramesh, a resident Indian, has derived the following incomes for the previous
year relevant to the A.Y. 2023-24:

1. Income from profession in India ₹ 2,44,000

2. Income from profession in country A (Tax paid in foreign ₹ 4,50,000
country @ 5%)

Compute Indian tax liability of the assessee assuming that as per treaty between
India and Country A, ₹4,50,000 is taxable in India. However foreign tax can be set
off against Indian tax liability. [8]

Answer:

7. (a)
(1) International transaction means a transaction between two or more associated
enterprises, either or both of whom are non-residents, in the nature of
(i) purchase, sale or lease of tangible or intangible property, or
(ii) provision of services, or
(iii) lending or borrowing money, or
(iv) any other transaction having a bearing on the profits, income, losses or assets of
such enterprises; & shall include a mutual agreement or arrangement between two
or more associated enterprises
a. for the allocation or apportionment of, or
b. any contribution to, any cost or expense incurred or to be incurred in connection
with a benefit, service or facility provided or to be provided to any one or more of
such enterprises [Sec. 92B (1)]

(2) A transaction entered into by an enterprise with a person other than an associated
enterprise shall, be deemed to be an international transaction entered into between two
associated enterprises,
1. if there exists a prior agreement in relation to the relevant transaction between
other person and the associated enterprise; or
2. the terms of the relevant transaction are determined in substance between such
other person and the associated enterprise
where the enterprise or the associated enterprise or both of them are non-residents
irrespective of whether such other person is a non-resident or not [Sec. 92B (2)]

International transaction shall include:

a. the purchase, sale, transfer, lease or use of tangible property including building,
transportation vehicle, machinery, equipment, tools, plant, furniture, commodity
or any other article, product or thing;

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b. the purchase, sale, transfer, lease or use of intangible property1, including the
transfer of ownership or the provision of use of rights regarding land use,
copyrights, patents, trademarks, licences, franchises, customer list, marketing
channel, brand, commercial secret, know-how, industrial property right, exterior
design or practical and new design or any other business or commercial rights of
similar nature;
c. capital financing, including any type of long-term or short-term borrowing,
lending or guarantee, purchase or sale of marketable securities or any type of
advance, payments or deferred payment or receivable or any other debt arising
during the course of business;
d. provision of services, including provision of market research, market
development, marketing management, administration, technical service, repairs,
design, consultation, agency, scientific research, legal or accounting service;
e. a transaction of business restructuring or reorganisation, entered into by an
enterprise with an associated enterprise, irrespective of the fact that it has bearing
on the profit, income, losses or assets of such enterprises at the time of the
transaction or at any future date;

7.(b)
Computation of total income and tax liability of Mr. Ramesh for the A.Y. 2023-24
Particulars Amount
(₹)
Income from profession in India 2,44,000
Income from profession in Country A 4,50,000
Gross Total Income 6,94,000
Less: Deduction u/ch. VIA Nil
Total income 6,94,000
Tax on above 51,300
Add: Health & Education cess 2,052
Tax and cess payable 53,352
Less: Relief u/s 90 [₹ 4,50,000 x 5%] 22,500
Tax payable in India (Rounded off u/s 288B) 30,850

8. Write short note (any four): [4×4=16]

(a) Computation of total undisclosed foreign income and asset as per Black Money and
Imposition of Tax Act.
(b) Comparative study of ICDS II with AS 2.
(c) Tonnage Tax Scheme.
(d) Tax on Income from Patent.
(e) Succession of Income-Tax Authority.

Answer:

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 Answer to MTP_Final_Syllabus 2016_Dec 2023_Set 1

8.
(a) Computation of total undisclosed foreign income and asset as per Black Money
and Imposition of Tax Act [Sec. 5]
 In computing the total undisclosed foreign income and asset of any previous year
of an assessee:
(+) No deduction in respect of any expenditure or allowance or set off of any loss
shall be allowed to the assessee, whether or not it is allowable in accordance with
the provisions of the Income-tax Act.
(+) Any income, —
a. which has been assessed to tax for any assessment year under the Income-tax
Act prior to the assessment year to which this Act applies; or
b. which is assessable or has been assessed to tax for any assessment year under
this Act, shall be reduced from the value of the undisclosed asset located
outside India, if, the assessee furnishes evidence to the satisfaction of the
Assessing Officer that the asset has been acquired from the income which has
been assessed or is assessable, as the case may be, to tax.
 The amount of deduction in case of an immovable property shall be the amount
which bears to the value of the asset as on the first day of the financial year in which
it comes to the notice of the Assessing Officer, the same proportion as the assessable
or assessed foreign income bears to the total cost of the asset.

(b) Comparative study of ICDS II with AS 2.

Basis of
AS 2 ICDS II
difference

Valuation of No specific provision NA

service
inventory

Opening No specific provision  Value of opening inventory

inventory of a business shall be the
same as the value of
inventory at the end of the
immediately preceding
financial year
 In case of commencement
of business, Cost of
inventory on the day of
commencement of business
will be opening inventory

Change in Change permitted if (a) Method of valuation once

method of required by statute; (b) adopted shall not be changed
inventory required for compliance of without “reasonable cause”
valuation AS; (c) change results in
more appropriate presentation
of financial statements

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 Answer to MTP_Final_Syllabus 2016_Dec 2023_Set 1

Inventory No specific provision In case of partnership firm,

valuation in AOP or BOI inventory on the
case of certain date of dissolution shall be
dissolutions valued at NRV, whether or not
business is discontinued

(c) Tonnage Tax Scheme:

To make the Indian shipping industry more competitive, a tonnage tax scheme for
taxation of shipping profits was introduced. Some of the basic features of the tonnage tax
scheme are as follows: -
It is a scheme of presumptive taxation whereby the notional income arising from the
operation of a ship is determined based on the tonnage of the ship.
 The notional income is taxed at the normal corporate rate applicable for the year.
 Tax is payable even if there is a loss in a year.
 A company may opt for the scheme and once such option is exercised, there is a
lock in period of 10 years. If a company opts out, it is debarred from re-entry for
10 years.
 Since this is a preferential regime of taxation, certain conditions like creation of
reserves, training etc. are required to be met.
 A company may be expelled in certain circumstances.

(d) Tax on Income from Patent:

Where the total income of an eligible assessee includes any income by way of royalty in
respect of a patent developed and registered in India, tax @ 10% shall be payable on such
royalty income.

 Eligible Assessee means a person resident in India and who is a patentee;

 Patentee means the person, being the true and first inventor of the invention, whose
name is entered on the patent register as the patentee, in accordance with the Patents
Act, and includes every such person, being the true and first inventor of the invention,
where more than one person is registered as patentee under that Act in respect of that
patent.

 Developed means at least 75% 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

 Royalty, in respect of a patent, means consideration (including any lump sum

consideration but excluding any consideration which would be the income of the
recipient chargeable under the head “Capital gains” or consideration for sale of
product manufactured with the use of patented process or the patented article for
commercial use) for the:
i. transfer of all or any rights (including the granting of a licence) in respect
of a patent; or
ii. imparting of any information concerning the working of, or the use of, a
patent; or

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 Answer to MTP_Final_Syllabus 2016_Dec 2023_Set 1

iii. use of any patent; or iv. rendering of any services in connection with the
activities referred above

 Lump sum includes an advance payment on account of such royalties which is not
returnable.

(e) Succession of Income-Tax Authority.

 Whenever in respect of any proceeding under this Act an income-tax authority
ceases to exercise jurisdiction and another income tax authority exercises
jurisdiction.
 The income-tax authority so succeeding may continue the proceeding from the stage
at which the proceeding was left by his predecessor.

Opportunity of being re-heard

The assessee may demand that before -
 Such succeeding authority reopens previous proceeding or any part thereof; or
 any order of assessment is passed against him, he must be given an opportunity of
being re-heard.

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