Kalpesh Classes

Part – A1

Deemed to accrue or arise in India

Question 1 (ID 026) (Revision / Home work)

The assessee, which was a part of the Department of Space in the Government of​​ India, had the objective of developing satellite technology and application of space technology for socio-economic development and space research. It entered into a contract with Inmarsat Global of the U. K. for leasing of the Inmarsat navigation transponder capacity for its GAGAN TDS project, under which it had taken on lease the space segment capacity of L1 and L5 transponder centered on an Inmarsat 4th generation satellite, making an orbit at 36,000 km altitude above the earth’s atmosphere. The capacity​​ was utilized through data commands sent from a ground station set up by the applicant to that transponder out of many which was for navigation purposes which dispatched signals in space on two specified frequencies. The corrected or augmented data sent from the satellite and transmitted by the transponder were used for better navigational accuracies. The applicant paid a fixed annual charge regardless of the actual use of transponder capacity. On these you are required to answer (i) whether the payment to Inmarsat Global of the U. K. for leasing of transponder was not royalty; and (ii) whether the applicant had to deduct tax at source under section 195 of the Income-tax Act, 1961, in respect of the lease amount.

Question 2 (ID 027) (Revision / Home work)

The assessee, a non-resident Australian company, was engaged in the business of providing professional services to the energy and resource industries. It was awarded a contract for providing (i) engineering and procurement services, (ii) project management​​ services, and (iii) construction advisory and commissioning advisory services, to Reliance, an Indian company, for laying cross-country pipelines for transportation of hydro-carbons from Jamnagar to Bhopal and from Goa to Hyderabad, in India. The assessee​​ ​​ was provided with office space in the office of the local engineering contractor of Reliance in Mumbai. Under an engineering and procurement services agreement, the assessee received substantial amounts : Australian dollars 2,229,794 for the Jamnagar to Bhopal project and Australian dollars 1,232,994 for the Goa to Hyderabad project. According to the applicant, 80 per cent. of the activities concerning basic engineering services were primarily carried out in Perth in Australia, the procurement functions were essentially performed in India and some work relating to project management services was also carried out in India. The assessee employees were present in India for 127 days during the financial year and 241 days during the next year. On these facts your advise is sought on the following questions :

• whether the assessee formed a permanent establishment in India due to its activities and services rendered in India;​​ 

• whether the services were in the nature of "royalty” and​​ 

• whether the the receipts of the​​ assessee were not taxable in India.

Question 3 (ID 028) (Revision / Home work)

A private company registered in India, was a part of the Dell group of companies. It was mainly engaged in the business of providing call centre, data processing and information technology support services to the Dell group companies. The applicant’s parent company had entered into an agreement with BT, a non-resident company formed and registered in the USA, under which BT, the non-resident company, provided the company with​​ two way transmission of voice and data through telecom bandwidth. While BT was to provide the international half-circuit from the USA/Ireland, the Indian half-circuit was provided by VSNL, an Indian telecom company. Apart from installation charges payable​​ initially, fixed monthly recurring charges for the circuit between the USA and Ireland and for the circuit between Ireland and India were payable by the applicant to BT, and this was net of Indian taxes. BT raised its invoice directly on the applicant and​​ the applicant made the payment directly to BT. The company was paying tax in India in relation to the recurring charges in accordance with section 195 of the Income-tax Act, 1961. There was no equipment of BT in the applicant’s premises and the applicant had no right over any equipment held by BT for providing the bandwidth. Fibre link cables and other equipment were used for all customers including the company. The bandwidth was provided through a huge network of optical fibre cables laid under seas across​​ several countries of which BT used only a small fraction. There was no dedicated machinery or equipment identified or allowed to be used in the hands of the company; a ​​ common infrastructure was being utilised by various operators to provide service to various service recipients and the company was one among them receiving the service. The landing site was at Mumbai, and the Indian leg thereof to Bangalore, including the last mile connectivity to the premises of the company, was catered to by Bharti Telecom. On these facts the company sought your advise on questions relating to the tax liability of ​​ BT and the companies duty to deduct tax at source. You are required to offer your comments.

Question 4 (ID 029) (Revision / Home work)

Company incorporated in​​ Canada, was a contract research organization providing clinical and bio-analytical services to assist pharmaceutical companies around the world in the development of new drugs or generic copies of drugs already being marketed. It evaluated on behalf of its clients the bio-equivalence and/or comparative bio-availability of the new generic drug vis-a-vis the reference drug which was already available in the market, by devising various methods/protocols in conformity with international regulations. The reports produced by the company were acceptable to the regulatory authorities. Neither the methods/protocols developed, which were product specific, nor the specimens, were given to the clients. Only the final reports/conclusions of the evaluation were given to​​ the clients. The client seeking approval of regulatory authorities for marketing of a new generic drug would enclose the test report provided by the applicant along with its application. The applicant entered into agreements with Indian pharmaceutical companies, viz., Sandoz and Ranbaxy, for rendering such services. The clients paid a fee to the applicant for these services. You are required to give your comments on taxability of above transaction.

Question 5 (ID 030) (Revision / Home work)

A private​​ company an assessee engaged in the business of prospecting and mining for diamonds and other minerals, had been granted licences by the State Governments of Karnataka, Andhra Pradesh and Chattisgarh for mineral reconnaissance activities. Reconnaisance is the early stage of exploration. During the early stage various techniques are employed like collection of steam samples, geophysical survey like airborne multispectral scanner survey, electro-magnetic survey. Exploration has various stages like the early stage, initially for a period of 3 to 5 years, the advanced stage for a period of 5 to10 years and the feasibility stage of 5 to10 years. On an average the time taken from a discovery to production is eight years. For the purposes of carrying out geophysical​​ survey, the assessee-company entered into an agreement with F of the Netherlands which had a team of experts who specialised in performing airborne geophysical services for clients, process the data acquired during the survey and provide necessary reports. The services of F were engaged to conduct the airborne survey for providing high quality, high resolution, geophysical data suitable for selecting probable kimberlite targets. F conducted the airborne survey using its specialised equipment, but the helicopter for the survey was hired by the assessee. All the logistics of the survey, such as flight schedule, re-flights survey lines, control lines, positioning, etc. were set by F and F deputed technical personnel for conducting the survey. The data collected from the survey was provided to the assessee in a particular format called the acquisition and processing report. The Assessing Officer treated the consideration paid to F under the agreement as falling within the definition of “fees for technical services” You are required to give your comments on taxability of above transaction.

Question 1 (ID 08) (Revision ​​ / Home work)

Mr. Ravi citizen of India and a non-resident purchased the Savings Certificate issued by the Central Government from out of Dollars remitted from USA on 11.07 on which the interest for the year was Rs. 3 lakhs.

Question 2 (ID 09 and 16) (Deemed to accrue or arise in India)

Thomo, a South Korean company, a non-resident under the Income-tax Act, 1961, had the following receipts of royalty during the previous year. Indicate whether these will be taxable in India. Give reasons for your answer :

• Rs. 1,50,000 from the Government of India under an agreement approved by the governments of South Korea and India.

• Rs. 70,000 from an Indian company for import of technical know-how for use in business in India.​​ 

• Rs. 86,000 from an Indian organization for import of drawings for use in its business in Singapore and Malaysia.

• Rs. 50,000 from X, a non-resident under the Indian income-tax law, for use of​​ a formula for a business at NOIDA (UP).

• Rs. 92,000 from X, an Indian non-resident, for use of drawings and technical know-how, for a business in U.K.

OR

X, a non-resident lent Rs.5 Lakhs to Y, a resident in India. Y used the money borrowed by him for purposes of business in India. Y paid an interest of Rs. 75,000 during the year ended 31st​​ March ​​ to X in the United Kingdom. Discuss the tax liability of such interest in the hands of X in India.

Question 3 (ID 10 and 15) (Deemed to accrue or arise in​​ India)​​ 

Joel Ltd., a foreign company, owns a property in Mumbai. It is given on rent (rent being 5,000 US dollar per month) to Peter Ltd., another foreign company. The two companies are non-residents in India. The agreement is made outside India. Rent is payable in foreign currency outside India. As per agreement, rent is accrued outside India. Discuss whether the rental income of Joel Ltd. is chargeable to tax in India under the Income-tax Act, 1961.

OR

R, a non resident and not an Indian citizen, holds 5000 equity shares in X Ltd., an Indian Company. The share certificates are lying with R, in UK where he normally resides. R sold these shares to G by handing over to G in UK, the duly executed share transfer form and the relevant share certificates. The purchase consideration is received in UK in sterling currency. Discuss giving reasons whether the above transaction will give rise to income which will be deemed to accrue or arise in India.

Question: 4 (ID 17 and 18 and 35 and 23) (Foreign collaboration​​ contracts)

A Foreign Company has entered into an agreement with an Indian Company on 1.6.PY ​​ under which industrial equipment belonging to the firm has been leased to the latter on lump sum payment of $50,000. How will the lease rent be taxed in the hands​​ of the Foreign Company ?

OR

Bharat Mines Ltd., an Indian Company, entered into an agreement with British Mines Ltd., a Company registered in the United Kingdom for rendering technical services in India for exploration and extraction of ores. The consideration fixed was $5,00,000 and was arrived at as follows-

Discuss the taxability of above​​ payments in the hands of British Mines Ltd. (registered in U.K.). ​​ 

OR

“Mingle Engineering Ltd”, a Korean non – resident company, had entered into an agreement for designing, fabricating, hook – up and commissioning of a platform in the Bombay High with​​ “Crude Oil India Ltd.”, an Indian company. The agreement entered into was in two parts, one for the value to be charged for fabrication of structure in Korea for Rs.20 crores (having element of profit in it of Rs.2 crores) and other for the installation and commissioning of the structure in Bombay High for Rs.15 crores (having element of profit in it of Rs.1.5 crores). The Korean company will also be setting up an office in India for the activity of installation and commissioning of the platform which is likely to be completed 9 months. You are required to discuss tax treatment of the same.

OR

An Indian company made 2 agreements with a foreign company for purchase of machines at a consolidated consideration. Foreign Company deputed 2 technicians for supervising​​ installation free of cost. Assessing officer held that Indian Company was agent u/s​​ 163 for the foreign Co. & there was a business connection between the 2 companies. Do you agree ?

Question: 5 (ID 19) (Foreign collaboration contracts)

M/s Kangaru Australia, a Non-Resident Foreign Company had entered into a collaboration agreement on 21.2.2008 with an Indian Company and was in receipt of the following payments during the Previous Year. How do you deal with them for computation, in the case of M/s Kangaroo Australia?

• Interest on 8% Debentures for Rs. 50 Lakhs issued by Indian Company on 1.7 in consideration of providing of technical know-how, manufacturing process and designs.

• Service Charges at 2.5% of the value of Plant and Machinery for Rs.500 Lakhs​​ leased out to Indian Company payable each year before 31st​​ March.

“Key​​ to​​ success​​ is​​ only​​ writing​​ practice.”

CA Kalpesh Sanghavi

Part - A2

Non Residents special computation – 48 Prov 1

Question ​​ 1 (specific computations, Non resident) (CG ID 46)

Mr.​​ N (non resident) purchased shares of Reliance industries on 01-01-2009 by remitting US $. The following data is given.

Cost of acquisition : 5,85,000 (Dated : ​​ 1.1. 2009)

Sale price : 9,00,000 (Dated : ​​ 1.1. PY)

Expense on transfer : 6,600 (Dated : ​​ 28.12. PY)

On 24.04.AY 6,15,000 was invested out of above sale proceeds and it was sold on 18.08.AY for value of 10,50,000.

Question 2 (specific​​ computations, Non resident) (CG ID 47)

X, a non-resident, remits US$ 60,000 to India on August 10, 2009. The amount is partly utilised on August 17, 2009 for purchasing 50,000 shares in Lotus Ltd., an Indian company at the rate of Rs. 6 per share. These shares are sold for Rs. 28 per share on April 10.

Find out the capital gains chargeable to tax for the year on the assumption that telegraphic transfer buying and selling rate of US dollars adopted by the State Bank of India is as follows:

“Key​​ to​​ success​​ is​​ only​​ writing​​ practice.”

CA Kalpesh Sanghavi

Part B

Calculation of Tax Liability

Question (Tax Liability) (ID 51)

Rosy​​ and Mary are sisters, born and brought up at Mumbai. Rosy got married in 1982 and settled at Canada since 1982. Mary got married and settled in Mumbai Both of them are below 60 years. The following are the details of their income for the previous year.​​ 

Compute taxable income and tax liability.

Question (Tax Liability) (ID 52)

Calculate the income-tax liability in the following cases:

Question (Tax Liability) (ID 53)

Mr. Mithun purchased 100 shares of Good money Co. Ltd. on 01-04-2005 at rate of 1,000 per share (FMV as on 31-01-2018 is 600 per share) in public issue of the company by paying securities transaction tax. Company allotted bonus shares in the ratio of 1:1 on 4 years back. He has also received dividend of 10 per share on 01.05.PY. He has sold all the shares on 01.10.PY at the rate of ​​ 4,000 per share through a recognized stock exchange and paid brokerage of 1% and securities transaction tax of 0.02% to celebrate his birthday.​​ 

Compute his capital gains and tax liability.

Question (Tax Liability) (ID 54)

The Gross Total Income of Mr. C a resident in India aged 65 years, was ​​ 8,18,240 which includes long-term capital gain of 2,45,000 and Short-term capital gain of ​​ 58,000. The Gross Total Income also includes interest income of 10,000 from savings bank deposits with banks, Mr C has invested in PPF 1,40,000 and also paid a medical insurance premium 30,000. Mr. C also contributed 50,000 to Public Charitable Trust eligible for deduction under section 80G by way of an account payee cheque.​​ 

Compute the total income and tax thereon.

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

Wishing You all the best for exams.​​