Kalpesh Classes

Chapter XII Special rates of taxes

Question (ID 02) (Royalty Technical Fees)

Massy incorporated in Switzerland, a foreign company furnishes the​​ following data for the previous year. Massy does not have any branch offices in India.

Question A

Determine the total income of the foreign company and the tax payable by it.​​ 

Question B

What​​ would be the total income and the tax payable, if the donation was Rs. 4,00,000 instead of Rs. 6,00,000

Question C

What would be the total income and the tax payable, if the donation was Rs. 4,00,000 instead of Rs. 6,00,000 and DTAA between India and Switzerland provides for tax rate on royalty as 5 % and Interest income as 25 %.

Question D

What would be total income and tax payable if the donation is 100,000 instead of 600,000 and Massy have branch office in India for providing to services to Indian concern in form of royalty.

Question E

Determine the total income of the foreign company and the tax payable by it in question D above if the place of effective management of the company is in India.​​ 

Question (ID 05) (NR / NC sports person)​​ 

Brian Lara,​​ a well know cricketer, as a member of the West Indian touring team, received a sum of Rs. 5 lakhs for participation in matches in India. He also received a sum of Rs. 1 lakh for an advertisement of a product on TV. He contributed articles in a newspaper for which he received Rs. 10,000. During the tour of India, he attended horse racing in Bombay and won a prize of Rs. 10,000.​​ 

• What will be his tax liability, if he as come to India for the first time on 15-Feb of PY?

• What will be the TDS obligation of the​​ cricket council while making payment of 5 lakhs to Brian Lara?

• What will be TDS liability if the payment made Rs. 5 lakhs is net of taxes as per the terms of contract?

• Whether he is required to file return of income India, advice.

Chapter XII Special rates​​ of taxes Full computation

Question (ID 51)

An Indian company Ximc Private Limited (The Company) profit and loss as per books of account is 30.25 lakhs. Following amounts have been debited and credited to its profit and loss account. Company equity shares​​ consist of 10,00,000 shares of fully paid face value 10 each issued for premium of 30 per share.

• Ximc Private Limited has entered in to contract with Alpha Limited 2 years for providing continuous supply of chemical H2SO4. In the month of July there was​​ modification on terms of contract and as result Ximc Limited has received 2 Lakhs compensation.

• Ximc Private Limited has loss on Agriculture commodities derivatives transaction to the tune of 3 lakhs. No CTT have been paid on such transactions.

• The Company owns a flat at Chennai for re-sale. It has entered in to agreement to sale it on 10th​​ June when the stamp duty guidance value was 100 lakhs. At time of entering in to agreement in June advance was received Rs. 10 Lakhs by means of account payee cheque.​​ The Registration of sale was done on 12th​​ Feb when the stamp duty paid was @ 5 % Rs. 5.5 Lakhs. Actual consideration received as result of sale is 98 Lakhs. The sale price was credited to Flat account in balance sheet.

• The Company is operating 2 heavy goods vehicle for its transport division. Un-laden weight of vehicle is 13 tons and 16 tons. The company has gross receipt from operation of both the trucks 2.5 lakhs and expense to operate the same is 1 lakh.

• Profit on sale of listed shares listed on NSE is​​ 6 lakhs. STT have been duly paid.

• The Company is entitled to export incentive. Company has made claim of 200,000 with the appropriate authorities with all the supporting documents and evidences in January. However the claim is received after 15 days of the end of the financial year.

• The Company has also been dealing in to interest swaps, and marked to market loss accounted is 1.5 lakhs.

• The Company is providing BPO services. It has entered in to contract with Sihan Limited to provide services from 1st​​ of March for 60 days. As per the terms of contract entire contract value is to be paid after 7 days of completion of services. Value of services contract is 6 lakhs for 60 days. Expense incurred to provide the services is 2 lakhs during the year.​​ 

• The Company has borrowed from Anonymous Lender 10 lakhs. Name and address of the lender is not available. The amount is credited to liability account in balance sheet. The foreign travelling expense for travel of one of the directors for business purpose is 10,000​​ however officer has considered reasonable air fare and hotel stay for 10 days at 2,10,000. The assessing officer is of the view that it is bogus transactions and requires additions to income.

Additional Information

The Company acquired for 25 lakhs one​​ flat at Baroda, Gujarat for the purpose of Re-sale. However company has decided to give it to one of its directors Mr. Bhardwaj to stay and now it does not have any intention to sale it. Company has converted it in to capital asset on 15th​​ March. FMV of the flat on 15th​​ March is 35 lakhs. However Broker in Baroda has indicated that its Market value on 31st​​ of March is 36 Lakhs.

The company advanced loan of Rs. 28 lakhs to one of its director Mr. Amit Shah on 12 October (holding 25 % shares in company). The​​ accumulated profits on that date is 16 lakhs. The company has not declared any dividends during the year. The loan to the tune of 25 Lakhs have been paid off up to 15 Feb.

The company is habitually executing contract on behalf of Foreign company DIER Inc. The company is duly authorised by DIER Inc for such execution of contract. The income of DIER Inc is Rs. 200,000 out of the execution of such contract through the company.

Question A

You are required to compute (ignore the provision of MAT)​​ 

• Tax Liability of Ximc Limited.

• Tax liability of Mr. Amit Assuming that he has dividend income of 15,00,000 from other Indian companies.

Question B

Assuming that pursuant to resolution plan approved under the Insolvency and Bankruptcy Code, 2016 and considering following additional information you are also required to compute the tax liability of the company. One of the shareholder Mr. Nimish holding 60 % shares in the company has sold his shares to Mr. Jain during the year.

Brought forward loss – as per books of​​ accounts 4 lakhs

Brought forward depreciation – as per books of accounts 3 lakhs

Brought forward business loss from 2 years back – as per income tax act – 60 lakhs

You are required to compute (applying the provision of MAT)​​ 

• Total Tax Liability of Ximc Limited.

Question C

Assuming company has declared dividend of Rs. 2 each on equity shares on 15 Feb and accumulated profits are 250 lakhs. You are required to calculate dividend tax liability. The company has adjusted the dividend of Rs. 2 payable to Mr. Amit against the loan remain unpaid on 15 Feb.

Question (ID 52)

Arnold Ltd. (incorporated in UK) has a branch office (PE) in India. The Net profit of the Branch as per the statement of profit and loss for the year was Rs. 83 lakhs. It includes the​​ following:

• • Dividend from Indian companies (listed) Rs. 8,00,000.

  • Dividend from Indian companies (unlisted) Rs. 4,00,000.

  • Interest received from MMS Ltd. of Mumbai Rs. 7,00,000. The amount was received by the Indian company MMS Ltd. in foreign currency as per loan agreement dated 01.04.2014 (section 194LC applicable).

  • Fee for technical services received from Barun Co. Ltd., Kolkata Rs. 25,00,000. The agreement was made on 10.08.2007 and was approved by Central Government Expenditure incurred for providing technical service amount to Rs. 6,00,000.

  • Income out of trading in market at its prevailing market price of Carbon Credit Rs. 700,000.

  • Royalty income out of patents registered in India 12,00,000.

  • Arnold Ltd is member of an AOP M/s Flingo an in India. Arnold​​ ​​ Ltd has 60% share. Total Income of AOP is 10,00,000 Rupees.

Additional Information :

Total income chargeable to tax as per regular provisions of the Income-tax Act, 1961 (Act) is Rs. 20,00,000 (without considering the items (1) to (7) above). You are required to compute the book profit tax under section 115JB of the Act and also the total income-tax liability of the assessee.

Your working should be supported by notes.

Question (ID 53)

SDK Ltd. is engaged in the manufacture of textile since 01-04-2010.​​ The company has issued 20,00,000 shares of face value 10 each fully paid up at premium of 20 each. One of the shareholder Mr. Rajesh is holding 500,000 shares in the company. New Pension System Trust covered by 10(44) is holding 100,000 shares in SDK Ltd.​​ Accumulated Reserves of the company is 250 Lakhs. Its Statement of profit and loss for the previous year ended 31st​​ March, shows a profit of Rs. 600 lakhs after debiting or crediting the following items:

• Depreciation charged on the basis of useful life of assets as per Companies Act is Rs. 62 lakhs.

• Industrial power tariff concession of ​​ Rs. 3.5 lakhs, received from State Government was credited to P & L Account.

• The company had provided Rs. 25 lakhs being sum fairly estimated as payable with reasonable certainty, to workers on agreement to be entered with the workers union towards periodical wage revision once in every three years.

• Dividend received details are as under​​ 

  • From Zahir Inc Incorporated in Singapore in which SDK Ltd is holding 35 % shares 7 lakhs.

  • From Moxizm Inc Incorporated in Cayman Islands in which SDK ltd is holding 60 % shares 3 lakhs.

  • From Atul Ltd, Domestic company 21 lakhs.

  • From RIMS Ltd, domestic company in which SDK ltd is holding 70 % shares 1 Lakh.​​ 

• Loss Rs. 25 lakhs, due to destruction of a machine worth Rs. 30 lakhs by fire due to short circuit and Rs. 5 lakhs received as scrap value. The insurance company did not admit the claim of the company on charge of gross negligence.

• Provision for gratuity based on actuarial valuation was​​ Rs.400 lakhs. Actual gratuity paid debited to gratuity provision account was Rs. 275 lakhs.

• The company has purchased 500 tons of industrial paper as packing material at a price of ​​ Rs. 30,000 per ton from M/S. Shiv Bramha, a firm in which majority of the​​ directors of SDK Ltd. are partners. The firm’s normal selling price of the same material in market is Rs. 28,000 per ton.

• Advertisement charges Rs. 1.5 lakhs, paid by cheque for advertisement published in the souvenir of a political party registered with the Election Commission of India.

• Long term capital gain Rs. 4.5 lakhs on sale of equity shares on which Securities Transaction Tax (STT) was paid at the time of acquisition and sale.

Additional information:

• Normal depreciation as per Income-tax Rules is​​ Rs. 65 lakhs.

• The GST Rs. 11 Lakhs collected from its customers was paid by the company on the due dates. On an appeal, the High Court directed the sales tax department to refund Rs. 4 Lakhs to the company. The company in turn refunded Rs. 3 lakhs to the​​ customers from whom it was collected and the balance Rs. 1 lakh is still lying under the head “Current Liabilities”.​​ 

• SDK limited has given loan of 25,00,000 on 16th​​ May to M/s Adinath a Registered Firm in which Mr. Rajesh is partner for 40%. ​​ M/s Adinath​​ has repaid Loan to extent of 23,50,000 up to 12 September. SDK limited has declared the dividend to its shareholder at Rs. 1.9 per share on 12 September.​​ 

You are required to:

Compute the total income, tax liability and dividend tax liability of SDK Ltd.​​ by analysing and applying the relevant provisions of income-tax law.

Compute the tax Liability of Mr. Rajesh on the assumption that his total dividend income from domestic companies is Rs. 17,00,000 and he has received loan from Funjik Inc registered in Thailand in which he his holding 35 % of shares Rs. 12,00,000.​​ 

Briefly explain the reasons for treatment of each item. Ignore the provisions relating to Minimum Alternate Tax.​​ 

Question (ID 54)

BG (P) Ltd. is engaged in multiple businesses. The Net Profit as per the statement of profit and loss was Rs. 52 lakhs for the year. Company total issued share capital is 9,00,000 shares at face value of Rs. 10 Each as on 01st ​​​​ April. New Pension system trust covered by 10(44) is holding 150,000 shares in the company. Miss Radha is one of the directors of the company holding 250,000 shares.​​ 

A scrutiny of the statement of profit and loss revealed the following items which were debited / credited therein:

• Share income @ 25% from a partnership firm ABC & Co. of Pune​​ Rs. 9,50,000.

• The company paid Rs. 1 lakh as service charges to a call centre for attending the calls of customers and suppliers. Tax was deducted at source on such payment @ 2%.

• Expenditure incurred Rs. 8 lakhs for digging of wells near the factory for use by public under Corporate Social Responsibility Scheme as per the Companies Act,2013.

• Grant received from State Government for acquisition of generator Rs. 10 lakhs. The generator was acquired on 01.06. for Rs. 35 lakhs. A sum of Rs. 5 lakhs was paid as​​ advance by cash to the supplier of generator. The grant amount received is credited to statement of profit and loss. Depreciation charged on Rs. 35 lakhs@15%.

Note : Assume that the company is not eligible for additional depreciation.

• During the year, the​​ company bought textile goods from local suppliers. Cash payment was made exceeding Rs. 10,000 but below Rs. 20,000 in a day to 15 suppliers aggregating to Rs. 2,00,000.

• Depreciation debited to statement of profit and loss Rs. 10 lakhs (it includes Rs. 8 lakhs being depreciation on assets revalued).

• Provision for deferred tax debited to statement of profit and loss Rs. 6,50,000.

• Trade creditors Rs.5,00,000 were outstanding for more than 5 years and there is no ​​ business relationship with them. The amount was unilaterally transferred to credit of statement of profit and loss.

• Royalty income in respect of patents chargeable under section 115BBF Rs.12,00,000.

• Depreciation eligible under section 32 (before considering adjustment of any of the items described​​ above) Rs.12,25,000.

Additional Information :

• The assessee executed only one civil construction contract of the value of Rs. 15 lakhs. The contractee withheld 20% of the contract amount which would be released only after 2 years. The amount withheld has​​ not been credited to statement of profit and loss.

• On 15 May 1,00,000 equity shares of Rs.10 each was issued for Rs. 25 per share. The fair market value of the shares as per rule 11UA of the Income-tax Rules. 1962 was determined @ Rs. 17 per share.

• During​​ the year, the company advanced Rs. 15,50,000 on 12 November to one of the partnership firm M/s RFG in which Miss Radha is having 30 % share. The Loan is repaid to the extent of 14,00,000 up to 15 Jan. The company has accumulated profit of Rs. 250 lakhs.

• Miss Radha has visited London for personal trip with her friends for 20 days. The expense debited in her books of accounts is 50,000 which is shown as her personal drawings. However assessing officer has ascertained that Fair amount of Air ticket is 50,000​​ and 20 days stay is reasonably 500,000.​​ 

You are required to compute the total income, tax liability and dividend tax liability for the year stating clearly the reasons for treatment for each of the items given above. The company has declared Rs. 1 per share dividend on 15 Jan. Ignore the provisions of minimum alternate tax.

You are also required to compute the tax liability of Miss Radha.​​ 

Chapter XII-A Non Resident Indians

Question (ID 06)​​ 

Ritesh, a Non-Resident Indian remitted USD 75,000 to India in​​ 31.1.1992, part of which is utilized for acquiring 5,000 Shares of Akash Ltd. and Indian Company at Rs. 210 on 15.2.1992. These shares are sold for Rs. 1,760 per share on 28.3.PY. ​​ Ritesh deposited Rs. 50 Lakhs with an Indian Public Company on 1.8.AY ​​ (one day after due date of filing return of income).​​ 

Compute Capital Gains chargeable to tax on the basis of the following TT Rates (as per State Bank of India) ​​ 

If the above shares were sold through a Recognized Stock Exchange, what will be tax incidence?

Question (ID 04)​​ 

The total income of Mr. Narayan non-resident Indian includes:

What will be the tax payable by him on the above income under Chapter XII or Chapter XII-A of the Income-tax Act? Long term capital gains on foreign​​ exchange assets after the application of Prov 1 to 48 shall be assumed as 20,000.

Question (ID 01)

A non- resident Indian has the following sources of income in India. ​​ You are required to compute his total income and determine his tax liability. ​​ Details​​ of your workings, with reasons, should form part of your answer.

The property was acquired partly out of a loan from HDFC. The repayment of loan made during the year amounted to Rs. 20,000. The assessee also claims deduction​​ of Rs. 10,000 by way of donation to the Prime Minister’s Relief Fund and of Rs. 50,000 towards repayment of loan taken for higher education in India before his migration. It shall be assumed that capital gains in (3) above after the exchange fluctuation of​​ Prov 1 to 48 is 82,000.

List of Important Question to be glanced for Revision before exam.

Wishing You all the best for exams.​​