Kalpesh Classes

Questions 3-6 mark types

Question: ​​ 1 (ID 12)​​ 

Quipro Ltd is an Indian Company engaged in the business of developing and manufacturing industry components.​​ Its Canadian Subsidiary Techpro Inc. supplies technical information and offers technical support to Quipro for manufacturing goods, for a consideration of Euro 80,000 per year.

Income of Quipro Ltd is Rs. 70 Lakhs. Determine the Taxable Income of Quipro​​ Ltd if Techpro charges Euro 1,00,000 per year to other entities in India. What will be the answer if Techpro charges Euro 50,000 per year to other entities. (Rate per Euro may be taken at Rs. 50.)

Question ​​ 2 (ID 06)

X Ltd., an Indian company is engaged in manufacturing electronic components. 4 % of shares with differential voting rights (DVR) in X Ltd. are held by Y Inc., incorporated in Kazakhstan. X Ltd. has borrowed funds from Y Inc. at London Inter-Bank Offer Rate (LIBOR) plus 150 points. The LIBOR prevalent at the time of borrowing is 4 percent of US$. The borrowings allowed under the External Commercial Borrowings (ECB) guidelines issued under Foreign Exchange Management Act (FEMA) are LIBOR plus 200 points. Kazakhstan is notified by government of India u/s 94A. Discuss whether the borrowings made by X Ltd. is at arm’s length.

Question: ​​ 3 (ID 11)  ​​​​ 

Doc Solutions Inc. a US Company, sells Laser Printer Cartridge Drums to its Indian Subsidiary Quality Printing Ltd at $ 10 per drum. Doc Solutions Inc.​​ has other takers in India for its Cartridge Drums, for whom the price is $ 15 per drum. During the year, Doc Solutions had supplied 10,000 Cartridge Drums to Quality Printing Ltd. Determine the Arm’s Length Price and taxable income of Quality Printing Ltd​​ if its income after considering the above is Rs. 35,00,000. Compliance with TDS provisions may be assumed and Rate per USD is Rs. 45.​​ 

Question 5 (ID 04) ​​ (Revision ​​ / Home work)

A Ltd., an Indian company, sells computer monitor to its 100 per cent subsidiary X Ltd. in United States @ $ 50 per piece. A Ltd. also sells its computer monitor to another company Y Ltd. in United States @ $ 80 per piece. Total income of A Ltd. for the assessment year is Rs. 12,00,000 which includes sales made for 100 computer​​ monitors @ 50 to X Ltd. Compute the arm’s length price and taxable income of A Ltd. The rate of one dollar may be assumed to be equivalent to Rs. 49 for the sake of simplicity.​​ 

Question ​​ 6 (ID 05) (Revision ​​ / Home work)

I Ltd., an Indian company, supplies billets to its holding United Kingdom company, U Ltd. during the previous year. I Ltd. also supplies the some product to another UK based company. V Ltd., an unrelated entity. The transactions with U Ltd. are Euro 500 per MT (FOB), whereas the transactions with V Ltd. are priced at Euro 700 per MT (CIF). Insurance and freight amounts to Euro 200 per MT. Compute the arm’s length price for the transaction with U Ltd.​​ 

Notified Jurisdictional Area

Question: ​​ (ID 14)​​ 

A Ltd. an Indian company, provides​​ technical services to a company, XYZ Inc., located in a NJA for a consideration of 40 Iakhs in October. It charges ​​ 42 Iakhs for similar services rendered to PQR Inc., which is not located in a NJA. PQR Inc. is not an associated enterpnse of A Ltd. Discuss​​ the tax implications under section 94A read with section 92C in respect of the above transaction of provision of technical services by A Ltd. to XYZ Inc.

Question: ​​ (ID 15)

Mr. X, a non-resident individual, is due to receive interest of 5 Iakhs a notified infrastructure debt fund eligible for exemption under section 10(47). He incurred expenditure amounting to 10,000 for earning such income. Assuming that Mr. X is a resident of a NJA. Discuss the tax implications under section 94A read with sections 11M and 194LB.​​ 

Questions 7-12 mark types

Question: 1 (ID 07)

Kio Japan and AB Ltd, an Indian Company are associated enterprises. AB Ltd manufactures Cellule Phones and sells them to Kio Japan and Geel, a Company based at Beijing, During the year AB Ltd​​ supplied 2,50,000 Cellular Phones to Kio Japan at a price of Rs. 3,000 per unit and 35,000 units Geel at a price of Rs. 4,800 per unit. The transactions of AB Ltd with Kio and Geel are comparable subject to the following considerations​​ 

• Sales to Kio is on​​ FOB basis, sales to Geel are CIF basis. The freight and insurance paid by Kio for each unit is Rs. 700.

• Sales to Geel are under a free warranty for Two Years whereas sales to Kio are without any warranty. The estimated cost of executing such warranty is Rs. 500.

• Since Kio’s order was huge in volume, quantity discount of Rs. 200 per unit was offered to it.

Compute the Arm’s Length Price and the amount of increase in the Total income of AB Ltd, if are due to such Arm’s Length Price. ​​ 

Question: 2 ​​ (ID 08)

Mobeaux LLP of Poland and Vamsi Ltd of India are associated enterprises. Vamsi imports 1000 compressors for Air Conditioners from Mobeaux at Rs. 7,500 per unit and these are sold to Winland cooling Solutions Ltd at a price of Rs. 11,000 per unit. Vamsi had also imported similar products from De-Heat Ltd and sold outside at a Gross Profit of 20% on Sales.

Mobeaux offered a quantity discount of Rs. 1,500 per unit. De-Heat could offer only Rs. 500 per unit as quantity Discount. The freight and customs duty paid​​ for imports from Poland had cost Vamsi Rs. 1,200 a piece. In respect of purchase from De-Heat, Vamsi had to pay Rs. 200 only as freight charges. Determine the Arm’s Length Price and the amount of increase in Total income of Vamsi Ltd.

Question 3 (ID 01)

Anush Motors Ltd., an Indian company declared income of Rs. 300 crores computed in accordance with Chapter IV-D but before making any adjustments in respect of the following transactions for the year:

• 10,000 cars sold to Rida Ltd. Which holds 30% shares in​​ Anush Motors Ltd. At a price which is less by $ 200 each car than the price charged from Shingto Ltd.

• Royalty of $ 1,20,00,000 was paid to Kyoto Ltd. For use of technical know-how in the manufacturing of car. However, Kyoto Ltd. Had provided the same know-how to another Indian company for $ 90,00,000.

• Loan of Euro 1000 crores carrying interest @ 10% p.a. advanced by Dorf ltd., a German company, was outstanding on 31.3. the total book value of assets of Anush Motors Ltd. On the date was Rs.90,000 crores. The said German company had also advanced a loan of similar amount to another Indian company @ 9% p.a. Total interest paid for the year was EURO 100 crores.

Explain in brief the provisions of the Act affecting all these transaction and compute the income of​​ the company to tax keeping in mind that the value of 1$ and of 1 EURO was Rs. 50 and Rs. 55, respectively, throughout the year. ​​ 

Question 4 (ID 02)​​ 

Hotmail, a U.S.A. company holds 30% shares in Staffing Solution Ltd. (India). Staffing Solution Ltd.​​ develops software for various customers including Hotmail. Staffing Solution Ltd during the year billed Hotmail U.S.A. for 2,000 man-hours at the rate of Rs. 400 per man-hour. The total cost (direct and indirect) for executing this work amounted to Rs. 6,​​ 50,000.

Staffing Solution Ltd. billed R Ltd. India at the rate of Rs. 800 per man-hour although the persons who were working for development of the software of R Ltd. were of the same caliber and level that of persons who developed the software for Hotmail​​ U.S.A. Staffing Solution Ltd. earned a Gross Profit of 40% on its sales to R Ltd.

The transactions of Staffing Solution Ltd. with Hotmail U.S.A. and R Ltd are comparable subject to the following differences:

• While Hotmail U.S.A. have given technical know-how to Staffing Solution, there is no such know-how provided by R Ltd. The value of technical know-how received from Hotmail U.S.A. can be taken at 10% of normal gross profit.

• A quantity discount was given by Staffing Solution Ltd. to Hotmail Co. which can​​ be valued at 5% of normal gross profits.

• Staffing Solution Ltd. offered 60 days credit to Hotmail. The cost of providing such credit may be valued at 2.5% of gross profit. No such trade discount was given to R Ltd.

Compute the arm’s length price and the amount of increase in the total income of Staffing Solution Ltd, if any, due to such arm’s length price.

Question 5 (ID 03)

X Ltd. UK received an order from Y Ltd Germany for developing a software product for a sum of US $ 1,00,000. In order to execute the​​ same, X Ltd., Z Ltd. (a company in which X Ltd. holds 50% shares) and S Ltd India (where Z Ltd holds 40% shares) together develop the above software.

X Ltd. UK pays to Z Ltd and S Ltd. India a sum of US $ 24,000 and $ 27,000 resectively and keeps the balance for itself. In the entire transaction, a profit of $16,000 is earned. S Ltd. India incurred a total cost of $24,000 in the execution of its work relating to the above project. Assume the relative contribution of X Ltd, Z Ltd and S Ltd. is 40%, 25% 35%​​ respectively. Compute the arm’s length price and the amount of increase in the total income of S Ltd., if any due to such arm’s length price. ​​ 

Question: 6 ​​ (ID 09) ​​ (Revision / Home work)

Boulevard Inc., a French Company, holds 40% of Equity in the Indian Company Vista Technologies Ltd (VTL). VTL is engaged in development of software and maintenance of the same for customers of the same for customers across the globe. Its clientele includes Boulevard Inc.

During the year, VTL had spent 2,000 Man Hours for developing and maintaining software for Boulevard inc, with each hour being billed at Rs. 1,250. Cost incurred by VTL for executing work for Boulevard Inc. amount to Rs. 18,00,000.

VTL had also undertaken developing software for Bal Industries Ltd for​​ which VTL had billed at Rs. 2,700 per man Hour. The persons working for Bal industries Ltd and Boulevard were part of the same team and were of matching credentials and caliber. VTL had made a Gross Profit of 50% on the Bal industries work.

VTL’s transactions with Boulevard inc. is comparable to the transactions with Bal industries, subject to the following differences ​​ 

• Boulevard gives technical know how support to VTL which can be valued at 8% of the Normal Gross Profit. Bal industries does not provide any such support.

• Since the work for Boulevard involved huge number of man hours, a quantity discount of 14% of Normal Gross Profits was given.

• VTL had offered 90 Days credit to Boulevard the cost of which is measured at 2% of the Normal Billing Gross profit​​ Rate. No such discount was offered to Bal industries Ltd.

Compute ALP and the amount of increase in Total Income of Vista Technologies Ltd.

Question: 7 (ID 10) ​​ (Revision / Home work)

ABR Medical Equipments Inc. (ABR) of Canada has received an order from​​ a leading UK bast Hospital for development of a hi-tech medical equipment which will integrate the best of software and latest medical examination tool to meet varied requirements. The order was for 2,50,000 Euros. ABR paid to BIL Euro 80,000 for executing the work to the extent assigned to BIL.

To execute the order, ABR joined hands with its subsidiary Precision Components inc. (PCI) of us and Bioinformatics India Ltd (BIL), an India Company. PCI holds 40% of BIL. In the entire transaction, a profit of Euro 50,000 is earned. Bioinformatics India Ltd incurred a Total Cost of Euro 75,000 in execution of its work in the above contract. The relative contribution of ABR, PCI and BIL may be taken at 35%, 25% and 40% respectively.

Compute the Arm’s Length Price and the incremental Total Income of Bioinformatics India Ltd, and due to adopting Arms Length Price determined here under. ​​ 

Question: ​​ 8 (ID 16)

XE Ltd. is en Indian Company in which Zilla Inc., a US company, has 28% shareholding end voting power. Following transactions were effected between these two companies.

(i) XE Ltd. sold 1,00.000 pieces of T-shirts at $ 2 per T-Shirt to Zilla Inc. The identical T-Shirts were sold to unrelated party namely Kennedy Inc. at $ 3 per T-Shirt.

(ii) XE Ltd. borrowed $ 2,00,000 from a foreign lender based on the guarantee of Zille Inc. For this. XE Ltd. paid $ 10,000 as guarantee fee to Zilla Inc. To an unrelated party for the same amount of loan, Zilla Inc. collected $ 7000 as guarantee fee.

(iii) XE Ltd. paid $15,000 to Zilla Inc. for getting various potential customers details to improve its business. Zilla Inc. provided the same service to unrelated parties for $ 10,000.

Assume the rate of exchange as 1 $ = 64

XE Ltd. is located in a Special Economic (SEZ) and its income​​ before transfer pricing adjustments for the year was 1,200 lakhs,

Compute the adjustments to be made to the total income of XE Ltd. State whether it can claim deduction under section 10AA for the income enhanced by applying transfer pricing provisions.

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

Wishing You all the best for exams.​​