DT RTP Nov

PAPER 7: DIRECT TAX LAWS & INTERNATIONAL TAXATION
SECTION – A: STATUTORY UPDATE
The direct tax laws, as amended by the Finance Act, 2019, the Finance (No.2) Act, 2019 and
Taxation Laws (Amendment) Act, 2019, including significant notifications and circulars issued
upto 30th April, 2020 are applicable for November, 2020 examination. The relevant assessment
year for November, 2020 examination is A.Y.2020-21. The amendments made by the Taxation
Laws (Amendment) Act, 2019 and significant notifications/circulars issued upto 30 th April, 2020,
relevant for November, 2020 examination but not covered in the October, 2019 edition of the
Study Material, are given hereunder:
PART – I : DIRECT TAX LAWS
Chapter 7: Capital Gains

Central Government notifies “specified securities” for the purposes of section
47(viiab)(d) [Notification No. 16/2020, dated 05-03-2020]
Section 47(viiab)(a)/(b)/(c) provides that any transfer of a capital asset, being bond or Global
Depository Receipt referred to in section 115AC(1) or rupee denominated bond of an Indian
company or a derivative, made by a non-resident on a recognised stock exchange located in
any International Financial Services Centre (IFSC) would not be considered as transfer for
attracting capital gains tax, where the consideration for such transfer is paid or payable in foreign
currency.
Further, section 47(viiab)(d) provides that any transfer of a capital asset, being such other
securities as may be notified by the Central Government in this behalf, made by a non-resident
on a recognised stock exchange located in any IFSC would not be considered as transfer for
attracting capital gains tax, where the consideration for such transfer is paid or payable in foreign
currency.
Accordingly, the Central Government has, vide this notification, specified the following securities:
(i) foreign currency denominated bond;
(ii) unit of a Mutual Fund;
(iii) unit of a business trust;
(iv) foreign currency denominated equity share of a company;
(v) unit of Alternative Investment Fund,
which are listed on a recognised stock exchange located in any International Financial Services
Centre in accordance with the regulations made by the SEBI under the Securities and Exchange
Board of India Act 1992 or the International Financial Services Centres Authority under the
International Financial Services Centres Authority Act 2019, as the case may be.
© The Institute of Chartered Accountants of India

2 FINAL (NEW) EXAMINATION: NOVEMBER, 2020
Chapter 8: Income from Other Sources

Notification of class of persons, receipt of immovable property from whom would not attract
the provisions of section 56(2)(x) [Notification No. 96/2019 dated 11.11.2019]
Section 56(2)(x) brings to tax under the head “Income from other sources”, any sum of money
received without consideration, if the aggregate value exceeds ` 50,000 or value of immovable
property being land or building or both, received without consideration, if the stamp duty value
exceeds ` 50,000. It also brings to tax, in a case where immovable property is received for
inadequate consideration, the difference between the stamp duty value and actual sale
consideration, if the stamp duty value exceeds such consideration and such excess amount is
more than higher of ` 50,000 and 5% of sale consideration.
The proviso to section 56(2)(x), however, lists out the circumstances under which any sum of
money or value of property would not be chargeable to tax under the head “Income from other
sources”. The Finance (No.2) Act, 2019 has inserted clause (XI) to the proviso to provide that
any sum of money or value of property would not be chargeable to tax in the hands of the
recipient if it is received from such class of persons and subject to such conditions, as may be
prescribed.
Accordingly, the Central Government has, vide this notification, inserted Rule 11UAC to provide
that the provisions of section 56(2)(x) shall not apply to any immovable property, being land or
building or both, received by a resident of an unauthorised colony in the National Capital
Territory of Delhi, where the Central Government by notification in the Official Gazette,
regularised the transactions of such immovable property based on the latest Power of Attorney,
Agreement to Sale, Will, possession letter and other documents including documents evidencing
payment of consideration for conferring or recognising right of ownership or transfer or mortgage
in regard to such immovable property in favour of such resident.
Meaning of the terms “Resident” and “Unauthorised colony”:
Term Meaning
Resident A person having physical possession of property on the basis of a
registered sale deed or latest set of Power of Attorney, Agreement to Sale,
Will, possession letter and other documents including documents
evidencing payment of consideration in respect of a property in
unauthorised colonies and includes their legal heirs but does not include
tenant, licensee or permissive user;
Unauthorised A colony or development comprising of a contiguous area, where no
colony permission has been obtained for approval of layout plan or building plans
and has been identified for regularisation of such colony in pursuance to
the notification number S.O. 683(E), dated the 24 th March, 2008, of the
Delhi Development Authority.

PAPER – 7 : DIRECT TAX LAWS AND INTERNATIONAL TAXATION 3
Chapter 12: Assessment of Various Entities
The October, 2019 edition of the Study Material incorporates the amendments made by the
Taxation Laws (Amendment) Ordinance, 2019, promulgated by the President of India on
20.9.2019. The same has been subsequently approved by the Cabinet, consequent to whi ch,
the Taxation Laws (Amendment) Bill, 2019, with certain further changes, was introduced in the
Parliament. The same has been passed by both Houses of the Parliament and has received
the assent of the President of India on 11.12.2019. This Act shall be deemed to have come into
force on 20.9.2019.
On account of the subsequent amendments brought in through the Taxation Laws (Amendment)
Bill, 2019 introduced in the Parliament, students are advised to ignore Annexures 1, 2 and
3 of Chapter 12 in the printed copy of Module 2 of the October 2019 edition and instead,
read the Annexures given hereunder:
Annexure 1
Insertion of new sections 115BAB and 115BAA providing for concessional rate of tax in
respect of certain domestic companies
New sections 115BAB and 115BAA have been inserted by the Taxation Laws (Amendment) Act,
2019, providing for concessional rates of tax and exemption from minimum alternate tax (MAT)
in respect of certain domestic companies with effect from A.Y.2020-21. The provisions of these
two new sections are tabulated hereunder -
(1) (2) (3) (4)
Particulars Section 115BAB Section 115BAA
(1) Applicability Domestic manufacturing Any domestic
company company
(2) Rate of tax 15% 22%
(3) Rate of surcharge 10% 10%
(4) Effective rate of tax (including 17.16% 25.168%
surcharge & HEC) [Tax@15% (+) [Tax@22% (+)
Surcharge@10% (+) Surcharge@10%
HEC@4%] (+)
HEC@4%]
(5) Applicability of MAT Not applicable Not applicable
(6) Manner of computation of tax liability
Income on which concessional The rate of tax (i.e., 17.16%) is The rate of tax
rate of tax is applicable applicable in respect of (i.e., 25.168%) is
income derived from or notwithstanding
incidental to manufacturing or anything

production of an article or contained in the

thing. Income-tax Act,
[Read with point no.11 1961, but subject
below, wherein the rate of to the provisions
34.32% (i.e., Tax@30% + of Chapter XII,
surcharge@10% + other than section
HEC@4%) would be 115BA and
applicable in specified 115BAB.
circumstance]
Rate of tax on income covered Such income would be subject Such income
under Chapter XII [for example, to tax at the rates mentioned would be subject
long-term capital gains in the said sections in Chapter to tax at the rates
chargeable to tax u/s 112 and XII. Surcharge@10% would mentioned in the
112A, short-term capital gains be levied on tax computed on said sections in
chargeable to tax u/s 111A] such income. HEC@4% Chapter XII.
would be levied on the Surcharge@10%
income-tax plus surcharge. is leviable on tax
computed on such
income.
HEC@4% would
be levied on the
income-tax plus
surcharge.
Rate of tax on other income in The applicable tax rate is The applicable tax
respect of which no specific 25.168% (i.e., tax@22%, rate is 25.168%
rate of tax is provided in plus surcharge @10% plus (i.e., tax@22%
Chapter XII HEC@4%), if such income plus
has neither been derived from surcharge@10%
nor is incidental to plus HEC@4%).
manufacturing or production There is,
of an article or thing (For however, no
example, income from house restriction
property and income from regarding claim
other sources). of any deduction
In respect of such income, no or allowance
deduction or allowance in permissible under
respect of any expenditure the relevant
or allowance shall be allowed provisions of the
in computing such income. Act.
Rate of tax on STCG derived The applicable rate of tax is The applicable
from transfer of a capital asset 25.168% (i.e., tax@22%, rate of tax is
25.168% i.e., tax

on which no depreciation is plus surcharge@10% plus @22%, plus

allowable under the Act HEC@4%). surcharge @10%
There is, however, no plus cess@4%.
restriction regarding claiming There is no
of deduction or allowance in restriction
this regard. regarding
claiming of
deduction or
allowance in this
regard.
(7) Conditions to be fulfilled for availing concessional rate of tax and exemption
from MAT
Particulars Section 115BAB Section
115BAA
Conditions to be fulfilled for (i) The company should be set-up No time limit
availing concessional rate of and registered on or after specified.
tax and exemption from 1.10.2019. Both existing
MAT companies
and new
companies
can avail
benefit.
(ii) It should commence Need not be a
manufacturing or production of manufacturing
an article or thing on or before or a
31.3.2023. production
company
(iii) It should not be formed by No similar
splitting up or the condition has
reconstruction of a business been
already in existence (except in prescribed
case of a company, business of
which is formed as a result of the
re-establishment, reconstruction
or revival by the person of the
business of any undertaking
referred to in section 33B in the
circumstances and within the
period specified therein)

(iv) It does not use any machinery or No similar

plant previously used for any condition has
purpose [Refer Note at the end] been
prescribed
(v) It does not use any building No similar
previously used as a hotel or a condition has
convention centre [meanings been
assigned in section 80-ID(6)] in prescribed
respect of which deduction u/s 80-
ID has been claimed and allowed.
(vi) It should not be engaged in any No similar
business other than the business condition has
of manufacture or production of been
any article or thing and research in prescribed
relation to, or distribution of, such
article or thing manufactured or
produced by it.
Note – Business of manufacture or
production of any article or thing
does not include business of –
(1) Development of computer
software in any form or in
any media
(2) Mining
(3) Conversion of marble blocks
or similar items into slabs
(4) Bottling of gas into cylinder
(5) Printing of books or product-
ion of cinematograph films
(6) Any other business as may be
notified by the Central Govt. in
this behalf.
Note - If difficulty arises regarding
fulfilment of conditions listed in (iv) to (vi)
above, the CBDT may, with the approval
of the Central Government, issue
guidelines for the purpose of removing
difficulty and to promote manufacturing
or production of article or thing using
new plant and machinery.

Every guideline issued by the CBDT has

to be laid before each House of
Parliament, and shall be binding on the
person, and the income-tax authorities
subordinate to it.
(8) Common In case of a company opting for either section 115BAA or 115BAB, the
conditions for total income should be computed -
both sections (i) without providing for deduction under any of the following sections:
for availing
the Section Provision
concessional 10AA Exemption of profits and gains derived from export
rate of tax of articles or things or from services by an
and assessee, being an entrepreneur from his Unit in
exemption SEZ.
from MAT
32(1)(iia) Additional depreciation @20% or 35%, as the case
may be, of actual cost of new plant and machinery
acquired and installed by manufacturing
undertakings.
32AD Deduction@15% of actual cost of new plant and
machinery acquired and installed by an assessee
in a manufacturing undertaking located in the
notified backward areas of Andhra Pradesh,
Telengana, Bihar and West Bengal.
33AB Deduction@40% of profits and gains of business
of growing and manufacturing tea, coffee or
rubber in India, to the extent deposited with
NABARD in accordance with scheme approved
by the Tea/Coffee/ Rubber Board.
33ABA Deduction@20% of the profits of a business of
prospecting for, or extraction or production of,
petroleum or natural gas or both in India, to the
extent deposited with SBI in an approved scheme
or deposited in Site Restoration Account.
35(1)(ii)/ Deduction/weighted deduction for payment to
(iia)/(iii) any research association, company, university
etc. for undertaking scientific research or social
science or statistical research.
35(2AA) Weighted deduction@150% of payment to a
National Laboratory or University or IIT or
approved specified person for scientific research

35(2AB) Weighted deduction@150% of in-house scientific

research expenditure incurred by a company
engaged in the business of bio-technology or in the
business of manufacture or production of an article
or thing.
35AD Investment-linked tax deduction for specified
businesses.
35CCC Weighted deduction@150% of expenditure
incurred on notified agricultural extension project
35CCD Weighted deduction@150% of expenditure
incurred by a company on notified skill
development project.
80-IA to Deductions from gross total income under
80RRB Chapter VI-A under the heading “C- Deductions
in respect of certain incomes” other than the
provisions of section 80JJAA.
(ii) without set-off of any loss or allowance for unabsorbed
depreciation deemed so u/s 72A, where such loss or
depreciation is attributable to any of the deductions listed in (i)
above [Such loss and depreciation would be deemed to have
been already given effect to and no further deduction for such
loss shall be allowed for any subsequent year]
(iii) by claiming depreciation u/s 32 determined in the prescribed
manner. However, additional depreciation u/s 32(1)(iia)
cannot be claimed.
Note – Additional points relevant in the context of section
115BAA:
(1) In case of a company opting for section 115BAA, total income
should be computed without set-off of any loss carried forward or
depreciation from any earlier assessment year, where such loss or
depreciation is attributable to any of the deductions listed in (i)
above [Such loss and depreciation would be deemed to have been
already given effect to and no further deduction for such loss or
depreciation shall be allowed for any subsequent year]
(2) In the case of a person having a Unit in the IFSC, referred to
in section 80LA(1A), which has exercised option for section
115BAA, deduction u/s 80LA would be allowed subject to fulfilment
of the conditions specified in that section.
(3) Where there is a depreciation allowance in respect of a block
of asset which has not been given full effect to prior to A.Y.2020-21,

corresponding adjustment shall be made to the WDV of such block

of assets as on 1.4.2019 in the prescribed manner, if option for
section 115BAA is exercised for P.Y.2019-20 relevant to A.Y.2020-
21.[For example, in case of an asset acquired and put to use for less
than 180 days in P.Y. 2018-19, the effect of balance additional
depreciation to be allowed in P.Y. 2019-20 will be made in the WDV
of the block as on 1.4.2019, if option for section 115BAA is exercised
for P.Y.2019-20 relevant to A.Y.2020-21]
(4) Since there is no time line within which option under section
115BAA can be exercised, a domestic company having brought
forward losses and depreciation on account of deductions listed in
(i) above may, if it so desires, postpone exercise the option under
section 115BAA to a later assessment year, after set off of the
losses and depreciation so accumulated.
(9) Failure to On failure to satisfy the conditions mentioned On failure to satisfy the
satisfy in point no. (7) and (8) above in any P.Y., the conditions mentioned
conditions option exercised would be invalid in respect in point no.(8) above in
of the assessment year relevant to that any P.Y., the option
previous year and subsequent assessment exercised would be
years; invalid in respect of
Consequently, the other provisions of the the assessment year
Act would apply to the person as if the option relevant to that
had not been exercised for the assessment previous year and
year relevant to that previous year and subsequent
subsequent assessment years. assessment years;
Note – Where option exercised under Consequently, the
section 115BAB is rendered invalid due to other provisions of the
violation of conditions stipulated in point Act would apply to the
no.7 [(iv) to (vi)] above, such person may person as if the option
exercise option under section 115BAA. had not been
exercised for the
assessment year
relevant to that
previous year and
subsequent
assessment years.
(10) Availability of Since it is a new company, there would be Brought forward MAT
set-off of no brought forward MAT credit credit cannot be set-off
MAT credit against income u/s

brought 115BAA.
forward from Note - If a company
earlier years has b/f MAT credit, it
can first exhaust the
MAT credit, and
thereafter opt for
section 115BAA in a
subsequent previous
year.
(11) Adjustments If the Assessing Officer opines that the No such requirement
for course of business between the company to make any
transactions and any other person having close adjustment
with persons connection therewith is so arranged that the
having close business transacted between them
connection produces more than the ordinary profits to
the company, he is empowered to take into
account the amount of profits as may be
reasonably deemed to have been derived
therefrom, while computing profits and gains
of such company.
In case the arrangement referred above
involves a specified domestic transaction
referred to in section 92BA, then, the amount
of profits from such transaction would be
determined by considering the arm’s length
price (ALP).
The amount, being profits in excess of the
amount of the profits determined by the
Assessing Officer, shall be deemed to be
the income of the person.
The income-tax on the income so deemed
shall be subject to tax@34.32%(i.e.,
tax@30% + surcharge @10% +HEC@4%).
Note – The scope of “specified domestic
transaction” referred to in section 92BA has
been expanded to include within its ambit,
any business transacted between such
persons with close connection, where one
such person is a company claiming benefit
under section 115BAB.


(12) Exercise of The beneficial provisions of this section The beneficial provisions
option by the would apply only if option is exercised in the of this section would
company prescribed manner on or before the due apply if option is
within the date u/s 139(1) for furnishing the first of the exercised in the
prescribed returns of income for any previous year prescribed manner on or
time relevant to A.Y.2020-21 or any subsequent before the due date u/s
assessment year. 139(1) for furnishing the
Such option, once exercised, would apply to return of income for any
subsequent assessment years. previous year relevant to
A.Y.2020-21 or any
Further, once the option has been exercised subsequent A.Y..
for any previous year, it cannot be
Such option, once
subsequently withdrawn for the same or
exercised, would apply
any other previous year.
to subsequent
Notes – (1) The option has to be exercised assessment years.
at the time of furnishing the first of the
Further, once the option
returns of income for any previous year. If
has been exercised for
a person fails to so exercise such option, it any previous year, it
cannot be exercised thereafter for any cannot be
subsequent previous year.
subsequently
(2) In case of amalgamation, the option withdrawn for the same
exercised u/s 115BAB shall remain valid in or any other previous
the case of the amalgamated company only year.
and if the conditions mentioned in point Note – The option can
no.(7) and (8) are continued to be satisfied be exercised even in a
by such company. later year, but once
exercised, cannot be
withdrawn subsequently.
Further, where the
person exercises option
under section 115BAA,
the option under section
115BA may be
withdrawn.
Note - For the purpose of point no.7(iv) in column (3) of the above table in relation to a company
exercising option under section 115BAB, any machinery or plant which was used outside India by
any other person shall not be regarded as machinery or plant previously used for any purpose, if all
the following conditions are fulfilled, namely:—
(a) such machinery or plant was not, at any time previous to the date of the installation, used
in India;

(b) such machinery or plant is imported into India from any country outside India;
(c) no deduction on account of depreciation in respect of such machinery or plant has been
allowed or is allowable under the provisions of the Income-tax Act, 1961 in computing the
total income of any person for any period prior to the date of installation of the mach inery
or plant by the person.
Further, where in the case of a person, any machinery or plant or any part thereof previously
used for any purpose is put to use by the company and the total value of the machinery or plant
or part so transferred does not exceed 20% of the total value of the machinery or plant used by
the company, then, the condition specified that the company does not use any machinery or
plant previously used for any purpose would be deemed to have been complied with.
Note - Students are advised to ignore the last paragraph in page no.1.38 and the first
paragraph in page no. 1.39 given in italics in Chapter 1: Basic Concepts of the printed copy
of Module 1 of the October, 2019 Edition of the Study Material, which incorporates the provision
relating to surcharge as inserted by the Taxation Laws (Amendment) Ordinance, 2019
promulgated on 20.9.2019. Consequent to the amendment effected by the Taxation Laws
(Amendment) Act, 2019 as assented by the President of India on 11.12.2019 , surcharge of
10% would be leviable on the income-tax computed on the total income of a company
opting for the provisions of section 115BAA or 115BAB.
Annexure 2
Rates of Surcharge applicable to Individuals/HUF/AOPs/BOIs/Artificial Juridical Persons
for A.Y.2020-21
Rate of Example
Particulars surcharge
Components of total Applicable rate
on income-
income of surcharge
tax
(i) Where the total 10% • STCG u/s 111A Surcharge would
income (including ` 30 lakhs; be levied@10% on
income u/s 111A and • LTCG u/s 112A income-tax
112A) > ` 50 lakhs ` 25 lakhs; and computed on total
income of ` 95
but ≤ ` 1 crore • Other income ` 40 lakhs.
lakhs
(ii) Where total income 15% • STCG u/s 111A Surcharge would
(including income u/s ` 60 lakhs; be levied@15% on
111A and 112A) • LTCG u/s 112A income-tax
exceeds ` 1 crore but ` 65 lakhs; and computed on total
does not exceed ` 2 income of ` 1.75
crore • Other income ` 50 crores.
lakhs

(iii) Where total income 25% • STCG u/s 111A Surcharge would
(excluding income u/s ` 54 lakh; be levied @15%
111A and 112A) • LTCG u/s 112A on income-tax on:
exceeds ` 2 crore but ` 55 lakh; and • STCG of ` 54
does not exceed ` 5 lakhs
crore • Other income ` 3
crores chargeable to
tax u/s 111A;
The rate of surcharge Not and
on the income-tax exceeding • LTCG of ` 55
payable on the portion 15% lakhs
of income chargeable chargeable to
to tax u/s 111A and tax u/s 112A.
112A
Surcharge@25%
would be leviable
on income-tax
computed on other
income of ` 3
crores included in
total income
(iv) Where total income 37% • STCG u/s 111A Surcharge@15% is
(excluding income u/s ` 50 lakhs; leviable on income-
111A and 112A) • LTCG u/s 112A ` 65 tax on:
exceeds ` 5 crore lakhs; and • STCG of ` 50
Rate of surcharge on Not • Other income ` 6 lakhs
the income-tax exceeding crore chargeable to
payable on the portion 15% tax u/s 111A;
of income chargeable and
to tax u/s 111A and • LTCG of ` 65
112A lakhs
chargeable to
tax u/s 112A.
Surcharge@37%
is leviable on the
income-tax
computed on other
income of ` 6
crores included in
total income.
(v) Where total income 15% • STCG u/s 111A Surcharge would
(including income u/s ` 60 lakhs; be levied@15% on

111A and 112A) • LTCG u/s 112A ` 55 income-tax

exceeds ` 2 crore in lakhs; and computed on total
cases not covered • Other income income of ` 2.25
under (iii) & (iv) above ` 1.10 crore crore.
Note – Students are advised to ignore the table containing rates of surcharge for
individuals/HUF/AOP/BOI and Artificial Juridical Persons given in pages 1.35-1.36 of Chapter
1 in Module 1 of the printed copy of the October, 2019 Edition of the Study Material and
instead, read the contents of the above table.
Annexure 3
Rates of Surcharge applicable on tax on total income of Individuals/AOPs/BOIs/Artificial
Juridical Persons (having any income under section 115AD) for payment of advance
tax for A.Y.2020-21
Rate of Example
Particulars surcharge
on income- Components of total Applicable rate of
tax income surcharge
(i) Where the total income 10% • Capital gains on Surcharge would
> ` 50 lakhs but ≤ ` 1 securities referred be levied@10% on
crore to in section income-tax
115AD(1)(b) ` 60 computed on total
lakhs; and income of ` 95
• Other income ` 35 lakhs.
lakhs;
(ii) Where total income > 15% • Capital gains on Surcharge would
` 1 crore but ≤ ` 2 securities referred be levied@15% on
crore to in section income-tax
115AD(1)(b) computed on total
` 1.20 crore; and income of ` 1.80
• Other income ` 60 crore.
lakhs;
(iii) Where total income 25% • Capital gains on Surcharge would
[excluding STCG/ securities referred be levied:
LTCG on securities to in section @15% on income-
referred to in 115AD(1)(b) tax leviable on
section115AD(1)(b)] > ` 1.20 crore; and capital gains of
` 2 crore but ≤ ` 1.20 crore referred
` 5 crore

Rate of surcharge on Not • Other income ` 3 to in section 115AD;

the income-tax payable exceeding crores; and
on the portion of 15% @25% on income-
income chargeable to tax computed on
tax u/s 115AD(1)(b) other income of
` 3 crores included
in total income
(iv) Where total income 37% • Capital gains on Surcharge would
[excluding STCG/ securities referred be levied -
LTCG on securities to in section @15% on income-
referred to in section 115AD(1)(b) tax leviable on
115AD(1)(b)] > ` 5 ` 1.70 crore; and capital gains of
crore • Other income ` 6 ` 1.70 crore
crore referred to in
Rate of surcharge on Not section 115AD;
the income-tax payable exceeding and
on the portion of 15% @37% on income-
income chargeable to tax computed on
tax u/s 115AD(1)(b) other income of
` 6 crore included
in total income
(v) Where total income 15% • Capital gains on Surcharge would
[including STCG/ securities referred be levied@15% on
LTCG on securities to in section tax on total income
referred to in 115AD(1)(b) of ` 2.70 crore.
115AD(1)(b)] > ` 2 ` 1.10 crore; and
crore in cases not • Other income
covered under (iii) and ` 1.60 crore;
(iv) above
Chapter 13: Assessment of Charitable or Religious Trusts or Institutions, Political Parties

and Electoral Trusts
Amendment in Rule 17C to include investment made by National Payments Corporation
of India in its subsidiary companies as a permissible form of investment by a charitable
trust [Notification No. 15/2020, dated 05-03-2020]
Section 11 permits accumulation of 15% of income indefinitely by a charitable trust or institution.
However, the remaining 85% of income can be accumulated for a period not exceeding 5 years
subject to the condition that the money so accumulated or set apart is invested in forms and
modes specified under section 11(5). Clauses (i) to (xi) of section 11(5) enlists the permissible
investments and deposits. Clause (xii) is the residual clause permitting any other form or mode
of investment or deposit as may be prescribed. Accordingly, Rule 17C prescribes the other

permissible forms or modes of investment or deposits by a charitable or religious trust or

institution.
The CBDT has, vide this notification, inserted clause (va) in Rule 17C to include, within its
scope, investment made by a person, authorised under section 4 of the Payment and Settlement
Systems Act, 2007, in the equity share capital or bonds or debentures of a company —
(A) which is engaged in operations of retail payments system or digital payments settlement
or similar activities in India and abroad and is approved by the Reserve Bank of India for
this purpose; and
(B) in which at least 51% of equity shares are held by National Payments Corporation of India.
Chapter 15: Deduction, Collection and Recovery of Tax
Clarification as to the applicability of section 194N and manner of computing the

threshold limit of ` 1 crore thereunder, where cash withdrawals have taken place prior to
1.9.2019 [Press Release dated 30.8.2019]
The Finance (No. 2) Act, 2019 has inserted section 194N, w.e.f. 1.9.2019 to require every
person, being a banking company, a co-operative society engaged in carrying on the business
of banking or a post office who is responsible for paying, in cash, any sum or aggregate of sums
exceeding ` 1 crore during the previous year to any person from one or more accounts
maintained by such recipient-person with it, to deduct tax at source@2% of sum exceeding ` 1
crore. The deduction is to be made at the time of payment of such sum.
The CBDT has, vide Press Release dated 30.8.2019, clarified that section 194N is to come into
effect from 1st September,2019. Hence, any cash withdrawal prior to 1st September, 2019 will
not be subjected to the TDS under section 194N. However, since the threshold of ` 1 crore is
with respect to the previous year 2019-20, calculation of amount of cash withdrawal for triggering
deduction under section 194N shall be counted from 1st April, 2019. Hence, if a person has
already withdrawn ` 1 crore or more in cash upto 31st August, 2019 from one or more accounts
maintained with a banking company or a cooperative bank or a post office, TDS@2% shall apply
on all subsequent cash withdrawals.
No tax is required to be deducted at source under section 194N on cash withdrawals by
persons or class of persons as notified by the Central Government [Notification No. 80/2019,
dated 15.10.2019]
The proviso to section 194N provides that no tax is, however, required to be deducted at source
on payments made to inter alia such other person or class of persons as notified by the Central
Government.
Accordingly, the Central Government has, vide this notification, after consultation with the
Reserve Bank of India (RBI), specified -
(a) the authorised dealer and its franchise agent and sub-agent; and
(b) Full-Fledged Money Changer (FFMC) licensed by the RBI and its franchise agent;

Such persons should maintain a separate bank account from which withdrawal is made only for the
purposes of -
(i) purchase of foreign currency from foreign tourists or non-residents visiting India or from
resident Indians on their return to India, in cash as per the directions or guidelines issued
by RBI; or
(ii) disbursement of inward remittances to the recipient beneficiaries in India in cash under
Money Transfer Service Scheme (MTSS) of the RBI;
The exemption from the requirement to deduct tax u/s 194N would be available only if a
certificate is furnished by the authorised dealers and their franchise agent and sub -agent, and
the Full-Fledged Money Changers (FFMC) and their franchise agent to the bank that withdrawal
is only for the purposes specified above and the directions or guidelines issued by the RBI have
been adhered to.
“Authorised dealer” means any person who is authorised by the RBI as an authorised dealer to
deal in foreign exchange [Section 10(1) of the Foreign Exchange Management Act, 1999].
Information to be furnished where tax is not deductible or deductible at lower rate under
section 194N [Notification No. 98/2019, dated 18.11.2019]
The proviso to section 194N provides that no tax is, however, required to be deducted at source
on any payment made to -
(i) the Government
(ii) any banking company or co-operative society engaged in carrying on the business of
banking or a post-office
(iii) any business correspondent of a banking company or co-operative society engaged in
carrying on the business of banking, in accordance with the RBI guidelines.
(iv) any white label ATM operator of a banking company or co-operative society engaged in
carrying on the business of banking, in accordance with the authorisation issued by the
RBI under the Payment and Settlement Systems Act, 2007.
(v) such other person or class of persons notified by the Central Government in consultation
with the RBI.
Accordingly, the CBDT has, vide this notification, inserted clause (ix) in Rule 31A(4) to provide
that the deductor, at the time of preparing statement of tax deducted at source, shall furnish the
particulars of amount paid or credited on which tax was not deducted in view of the exemption
provided in point no. (iii) or (iv) above or in view of the Notification No. 80/2019, dated
15.10.2019 issued under point (v) above.

Time limit, form and manner of depositing tax deducted at source under section 194M
prescribed [Notification No. 98/2019, dated 18.11.2019]
Section 194M, inserted with effect from 1.9.2019, provides for deduction of tax at source @5% by
an individual or a HUF responsible for paying any sum during the financial year to any resident –
(i) for carrying out any work (including supply of labour for carrying out any work) in pursuance
of a contract; or
(ii) by way of commission (not being insurance commission referred to in section 194D) or
brokerage; or
(iii) by way of fees for professional services.
Only individuals and HUFs (other than those who are required to deduct income-tax as per the
provisions of section 194C or 194H or 194J) are required to deduct tax in respect of the above
sums payable during the financial year to a resident, if the aggregate of s uch sums, credited or
paid, exceed ` 50 lakhs.
Consequent to insertion of section 194M, the CBDT has, vide this notification, amended Rule
30, 31 and 31A in the following manner to specify the time limit for depositing the tax deducted
at source, challan-cum- statement, certificate for deduction of tax at source:
Rule No. Provision
Rule Time limit and prescribed form for remittance of TDS
30(2C) Any sum deducted under section 194M shall be paid to the credit of the Central
Government within a period of thirty days from the end of the month in which
the deduction is made and shall be accompanied by a challan-cum statement
in Form No. 26QD.
Rule Manner of remittance of TDS
30(6C) Where tax deducted is to be deposited accompanied by a challan-cum-
statement in Form No.26QD, the amount of tax so deducted shall be deposited
to the credit of the Central Government by remitting it electronically within
thirty days from the end of the month in which the deduction is made into the
Reserve Bank of India or the State Bank of India or any authorised bank.
Rule Certificate for deduction of tax at source and time limit for furnishing
31(3C) such certificate to the payee
Every person responsible for deduction of tax under section 194M shall furnish
the certificate of deduction of tax at source in Form No.16D to the payee
within fifteen days from the due date for furnishing the challan-cum-
statement in Form No.26QD under rule 31A after generating and downloading
the same from the web portal specified by the Principal Director General of
Income-tax (Systems) or the Director General of Income-tax (Systems) or the
person authorised by him.

Rule Time limit and manner of submission of Challan-cum Statement

31A(4C) Every person responsible for deduction of tax at source under section 194M
shall furnish to the Principal Director General of Income-tax (Systems) or
Director General of Income-tax (System) or the person authorised by the
Principal Director General of Income-tax (Systems) or the Director General of
Income-tax (Systems) a challan-cum statement in Form No.26QD
electronically in accordance with the procedures, formats and standards
specified under Rule 31A(5) within thirty days from the end of the month in
which the deduction is made.
Chapter 17: Assessment Procedure

Date for intimation of Aadhaar number to the prescribed authority extended [Notification
No. 107/2019, dated 30.12.2019]
As per section 139AA(2), every person who has been allotted Permanent Account Number
(PAN) as on 1st July, 2017, and who is eligible to obtain Aadhaar Number, shall intimate his
Aadhaar Number to prescribed authority on or before a date as may be notified by the Central
Government.
Accordingly, the Central Government has, vide Notification No.31/2019, dated 31.03.2019,
notified that every person who has been allotted PAN as on 1 st July, 2017, and who is eligible
to obtain Aadhaar number, shall intimate his Aadhaar number to the Principal DGIT (Systems)
or Principal Director of Income-tax (Systems) on or before 30th September, 2019.
The Central Government has, vide Notification No. 75/2019, dated 28.9.2019 further extended
the date from 30 th September 2019 to 31st December 2019. This date has further been extended
by the Central Government, vide this notification, from 31st December 2019 to 31 st March 2020.
Note – Subsequently, this date has been further extended to 31st March, 2021.
Notwithstanding the last date of intimating/linking of Aadhaar Number with PAN being 31.03.2021,
it is clarified that w.e.f. 01.04.2019, it is mandatory to quote and link Aadhaar number while filing
the return of income, either manually or electronically, unless specifically exempted.
Chapter 23: Miscellaneous Provisions
Permissible electronic modes of payment for the purpose of section 269SU prescribed
[Notification No. 105/2019, dated 30.12.2019]
Every person, carrying on business, if his total sales, turnover or gross receipts, as the case
may be, in business exceeds fifty crore rupees during the immediately preceding previous year
shall provide facility for accepting payment through prescribed electronic modes, in addition to
the facility for other electronic modes of payment, if any, being provided by such person.

Accordingly, the CBDT has, vide this notification, inserted Rule 119AA to prescribe the following
electronic modes payment, namely -
(i) Debit Card powered by RuPay;
(ii) Unified Payments Interface (UPI) (BHIM-UPI); and
(iii) Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR Code).
Permissible “Other electronic modes” prescribed for the purpose of certain sections
[Notification No. 8/2020, dated 29.01.2020]
The following sections have been amended by the Finance (No.2) Act, 2019 to permit
payment/receipt referred to therein by other electronic modes to be prescribed, in addition to
account payee cheque/bank draft and Electronic Clearing System (ECS) through bank account.
Section Description of payment/receipt Study Material
Page no.
Chapter 6: Profits and Gains of business or profession
35AD(8) Mode of payment of an amount exceeding ` 10,000 in a day 6.76
for capital expenditure in respect of specified business
40A(3)/ Mode of payment or aggregate of payments exceeding 6.130/6.131
(3A) ` 10,000 in a day towards any expenditure (exceeding
` 35,000 in a day, in case of payment to transport operator)
43(1) Mode of payment or aggregate of payments exceeding 6.40
` 10,000 in a day to a person for acquisition of asset (for
inclusion in actual cost for computing depreciation)
44AD(1) Receipts, included in “turnover/gross receipts”, qualifying for 6.155
computation of presumptive income @ concessional rate of 6%
43CA Mode of payment of part or whole of consideration for transfer of 6.144
stock-in trade, being land or building or both, on or before the
date of agreement for considering stamp duty value on the date
of agreement for the purpose of determining full value of
consideration for computing profits and gains from business or
profession
Chapter 7: Capital Gains
50C Mode of payment of part or whole of consideration for transfer 7.70
of capital asset, being land or building or both, on or before
the date of agreement for considering stamp duty value on the
date of agreement for the purpose of determining full value of
consideration for computing capital gains
56(2)(x) Mode of receipt of part or whole of consideration for transfer 8.15
of immovable property, being land or building or both, on or

before the date of agreement for considering stamp duty value

on the date of agreement for the purpose of computing income
under the head “Income from other sources”.
Chapter 11: Deductions from Gross Total Income
80JJAA Mode of payment of emoluments to additional employees 11.74
employed during the previous year to qualify for deduction
Chapter 13: Assessment of Charitable and Religious Trusts and
Institutions, Political Parties and Electoral Trusts
13A Mode of receipt of donation exceeding ` 2,000 by a registered 13.53
political party
Chapter 23: Miscellaneous Provisions
269SS Mode of receipt of loan/deposit/specified sum of an amount or 23.2
aggregate of amount of ` 20,000 or more
269ST Mode of receipt of ` 2,00,000 or more - 23.3
(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
269T Mode of repayment of loan or deposit or specified advance of 23.6
an amount of ` 20,000 or more (including interest payable
thereon) or if the aggregate amount of loans or deposits held
or specified advance received on the date of repayment
(together with interest, if any, payable thereon) is ` 20,000 or
more
Accordingly, the CBDT has, vide this notification, inserted Rule 6ABBA to prescribe the following
electronic modes through which payment can be made or money can be received, for the
purposes of above sections cited in the above table -
(a) Credit Card;
(b) Debit Card;
(c) Net Banking;
(d) IMPS (Immediate Payment Service);
(e) UPI (Unified Payment Interface);
(f) RTGS (Real Time Gross Settlement);
(g) NEFT (National Electronic Funds Transfer), and
(h) BHIM (Bharat Interface for Money) Aadhar Pay.

Note – Consequent to insertion of Rule 6ABBA, Rule 6DD which specifies the cases and
circumstances where disallowance under section 40A(3) would not be attracted, has been
amended w.e.f. 29.1.2020 to omit clause (j) thereof providing for exclusion of payment required
to be made on a day on which the banks were closed either on account of holiday or strike from
the purview of section 40A(3). Accordingly, w.e.f. 29.1.2020, payment in excess of the
prescribed limit made otherwise than by prescribed modes on a day on which the banks are
closed on account of holiday or strike would attract disallowance under section 40A(3).
PART - II: INTERNATIONAL TAXATION
Chapter 1: Transfer Pricing & Other Anti-avoidance Measures
Time limit for repatriation of excess money or part thereof and manner of computation of
interest on excess money not repatriated prescribed [Notification No. 76/2019, dated
30.9.2019]
Section 92CE(2) requires repatriation, within the prescribed time, of the excess money or part
thereof, as the case may be, which is available with the associated enterprise, in a case where,
as a result of primary adjustment to the transfer price, there is an increase in the total income
or reduction in the loss, as the case may be, of the assessee. If the excess money or part
thereof is not repatriated to India within the prescribed time, it shall be deemed to be an advance
made by the assessee to such associated enterprise and the interest on such advance, shall be
computed in the prescribed manner.
The CBDT has, vide this notification, amended Rule 10CB(1) which prescribes the time limit for
repatriation of excess money or part thereof i.e., on or before 90 days from the specified date.
The 90 days period is to be reckoned from the date specified in column (2) in the cases
mentioned in column (1) of the table below. Further, the date from which interest is chargeable
on the excess money or part thereof which is not repatriated in the cases mentioned in column
(1) is given in column (3) in the table below:
Time limit for Date from which interest is
repatriation of chargeable on the non-
Case excess money or repatriated excess money or
part thereof: Within part thereof within the
90 days from specified time limit
(1) (2) (3)
(i) Where primary adjustments to the due date of filing of the due date of filing of return
transfer price have been made return u/s 139(1) u/s 139(1)
suo-motu by the assessee in
his return of income
(ii) If primary adjustments to the date of the said the date of the said order
transfer price as determined in order

the order of the Assessing

Officer or the appellate
authority has been accepted
by the assessee
(iii) Where primary adjustment to
transfer price is determined by
an advance pricing agreement
(APA) entered into by the
assessee u/s 92CC in respect
of a previous year -
• If the APA has been the date of filing of the due date of filing of return
entered into on or before return u/s 139(1) u/s 139(1)
the due date of filing of
return for the relevant
P.Y.
• If the APA has been the end of the month in the end of the month in which
entered into on or after which the APA has the APA has been entered into
the due date of filing of been entered into
return for the relevant
P.Y.
(iv) Where option has been the due date of filing of the due date of filing of return
exercised by the assessee return u/s 139(1) u/s 139(1)
as per the safe harbour rules
u/s 92CB
(v) Where the primary adjustment the date of giving effect the date of giving effect by the
to the transfer price is by the A.O. under Rule A.O. under Rule 44H to such
determined by a resolution 44H to such resolution resolution
arrived at under Mutual
Agreement Procedure under
a DTAA has been entered into
u/s 90 or 90A
Rule 10CB(2) prescribes the rate at which the per annum interest income shall be computed in
case of failure to repatriate the excess money or part thereof within the above time limit. The
interest would be computed inter alia at six month London Interbank Offered Rate (LIBOR) as
on 30th September of the relevant previous year + 3.00%, where the international transaction
is denominated in foreign currency.
Rate of exchange for the calculation of the value in rupees of the international transaction
denominated in foreign currency shall be the telegraphic transfer buying rate of such currency
on the last day of the previous year in which such international transaction was undertaken.

Amendment in Rule 10DA consequent to substitution of section 92D [Notificatio n No.

3/2020, dated 6.1.2020]
The Finance (No.2) Act, 2019 substituted section 92D to provide, inter alia, that every person,
being a constituent entity of an international group, has to keep and maintain the prescribed
information and document in respect of the international group. Thus, the constituent entity has
to keep and maintain such prescribed information and document irrespective of the fact whether
or not any international transaction is undertaken by such constituent entity. The constitue nt
entity has to furnish the prescribed information and document to the authority prescribed under
section 286(1), in the prescribed manner, on or before the prescribed date.
Consequent to this amendment, the CBDT has, vide this notification, amended Rule 10DA,
which now provides for “Maintenance and furnishing of information and documents by certain
persons” under section 92D.
The provisions of Rule 10DA are as follows:
Rule Provision
10DA(1) Specification of threshold limits for the constituent entity of an
international group to keep and maintain the information and documents
of the international group:
Every person, being a constituent entity of an international group shall –
(i) if the consolidated group revenue of the international group, of which such
person is a constituent entity, as reflected in the consolidated financial
statement of the international group for the accounting year, exceeds
` 500 crore; and
(ii) the aggregate value of international transactions –
(A) during the accounting year, as per the books of accounts, exceeds
` 50 crore, or
(B) in respect of purchase, sale, transfer, lease or use of intangible
property during the accounting year, as per the books of accounts,
exceeds ` 10 crore
keep and maintain information and documents of the international group.
Note – The rate of exchange for the calculation of the value in rupees of the
consolidated group revenue in foreign currency shall be the telegraphic
transfer buying rate (TTBR) of such currency on the last day of the accounting
year. [Rule 10DA(7)].
Part A of Form No. 3CEAA (Master File), however, shall be furnished by every
person, being a constituent entity of an international group, whether or not the
above conditions are satisfied [Rule 10DA(3)].

Information and documents of the international group required to be kept

and maintained by the Constituent Entity:
The constituent entity shall keep and maintain the following information and
documents of the international group, namely:-
(a) a list of all entities of the international group along with their addresses;
(b) a chart depicting the legal status of the constituent entity and ownership
structure of the entire international group;
(c) a description of the business of international group during the accounting
year including,-
(I) the nature of the business or businesses;
(II) the important drivers of profits of such business or businesses;
(III) a description of the supply chain for the five largest products or
services of the international group in terms of revenue and any other
products including services amounting to more than five per cent. of
consolidated group revenue;
(IV) a list and brief description of important service arrangements made
among members of the international group, other than those for
research and development services;
(V) a description of the capabilities of the main service providers within
the international group;
(VI) details about the transfer pricing policies for allocating service costs
and determining prices to be paid for intra-group services;
(VII) a list and description of the major geographical markets for the
products and services offered by the international group;
(VIII) a description of the functions performed, assets employed and risks
assumed by the constituent entities of the international group that
contribute at least ten per cent. of the revenues or assets or profits
of such group; and
(IX) a description of the important business restructuring transactions,
acquisitions and divestments;
(d) a description of the overall strategy of the international group for the
development, ownership and exploitation of intangible property, including
location of principal research and development facilities and their
management;
(e) a list of all entities of the international group engaged in development and
management of intangible property along with their addresses;
(f) a list of all the important intangible property or groups of intangible
property owned by the international group along with the names and
addresses of the group entities that legally own such intangible property;

(g) a list and brief description of important agreements among members of

the international group related to intangible property, including cost
contribution arrangements, principal research service agreements and
license agreements;
(h) a detailed description of the transfer pricing policies of the international
group related to research and development and intangible property;
(i) a description of important transfers of interest in intangible property, if
any, among entities of the international group, including the name and
address of the selling and buying entities and the compensation paid for
such transfers;
(j) a detailed description of the financing arrangements of the international
group, including the names and addresses of the top ten unrelated
lenders;
(k) a list of group entities that provide central financing functions, including
their place of operation and of effective management;
(l) a detailed description of the transfer pricing policies of the international
group related to financing arrangements among group entities;
(m) a copy of the annual consolidated financial statement of the international
group; and
(n) a list and brief description of the existing unilateral advance pricing
agreements and other tax rulings in respect of the international group for
allocation of income among countries.
10DA(2) Due date for furnishing report:
The information and document shall be furnished in Form No. 3CEAA to the
Joint Commissioner as may be designated by the Director General of Income-
tax (Risk Assessment) and it shall be furnished on or before the due date for
furnishing the return of income specified under section 139(1).
10DA(4)/ Furnishing of report in case of more than one constituent entity:
(5) Where there are more than one constituent entities resident in India of an
international group, then, the Form No 3CEAA may be furnished by any one
constituent entity, if, -
(a) the international group has designated such entity for this purpose and
(b) the information has been conveyed to the Joint Commissioner in Form No.
3CEAB, in this behalf at least 30 days before the due date of furnishing
the Form No. 3CEAA.

10DA(6) Period for which such information and document to be kept or

maintained:
The information and documents shall be kept and maintained for a period of
eight years from the end of the relevant assessment year.
Amendment in Rule 10DB

Section 286 contains the provisions for furnishing of report in respect of international group to
the prescribed authority, in the prescribed form and manner, on or before the date as may be
prescribed. Rule 10DB, for this purpose, prescribes the income-tax authority, Form No. and the
due date for furnishing of report of the international group.
The CBDT has, vide this notification, amended Rule 10DB, w.e.f. 6.1.2020. Rule 10DB(1) now
provides that the prescribed income-tax authority for the purposes of section 286 shall be the
Joint Commissioner as may be designated by the Director General of Income -tax (Risk
Assessment).
Rule 10DB(2) provides that the notification under section 286(1) shall be made in Form No.
3CEAC two months prior to the due date for furnishing of report as specified under section
286(2) (i.e., two months prior to the period of 12 months from the end of the relevant reporting
year).
The proviso to section 286(4) provides that where there are more than one such constituent
entities of the group, resident in India, the report has to be furnished by the constituent entity
so designated by the international group, if the information has been conveyed in writing on
behalf of the group to the prescribed authority.
Accordingly, sub-rule (5) to Rule 10DB has been substituted to provide that the information
required to be conveyed under proviso to section 286(4) regarding the designated constituent
entity shall be furnished in Form No. 3CEAE.
Note – (1) Extension of dates/due dates and other relaxations vide PIB Press Release
dated 24.3.2020/Notification No. 35/2020 dated 24.6.2020 on account of COVID 19
pandemic are not applicable for November, 2020 examinations. Further, CBDT Circular
No.11/2020 dated 8.5.2020 providing relaxation of residency conditions for P.Y.2019-20 for
individuals stranded in India due to COVID-19 lockdown is not applicable.
(2) Direct Tax Vivad se Vishwas Act, 2020 and Rules, 2020 are not applicable for November,
2020 examination.

SECTION – B: QUESTIONS AND ANSWERS
OBJECTIVE TYPE QUESTIONS
From the options (a), (b), (c) and (d) given in each question, choose the most appropriate
option.
1. The following are the details relating to four resident entities, AB & Co, LM & Co, PQ & Co
and XY & Co. for P.Y.2019-20 –
Particulars AB & Co. LM & Co. PQ & Co. XY & Co.
(Firm) (Firm) (LLP) (Firm)
(1) Nature of business/ Retail Business of Wholesale Interior
profession trading plying, hiring trading decoration
or leasing
goods
carriages
(2) System of Mercantile Cash Mercantile Cash
accounting
(3) Turnover/Gross ` 200 lakhs ` 101 lakhs ` 100 lakhs ` 50 lakhs
receipts
(4) Amount received by ` 150 lakhs ` 80 lakhs ` 70 lakhs ` 45 lakhs
way of RTGS/NEFT
in the P.Y.2019-20
[included in (3)
above]
(5) Amount received by ` 30 lakhs ` 21 lakhs ` 10 lakhs ` 5 lakhs
way of cash in the
P.Y.2019-20
[included in (3)
above]
(6) Amount received by ` 20 lakhs - ` 20 lakhs -
way of RTGS/NEFT
between 1.4.2020
and 31.7.2020
(7) Working partners’ ` 5 lakhs ` 1.50 lakhs ` 3 lakhs ` 5 lakhs
salary
(8) Interest on ` 1 lakhs ` 0.50 lakhs - ` 2 lakhs
capital@12% paid to
partners

(9) Profit as per books ` 5.60 lakhs ` 4.10 lakhs ` 4.50 lakhs ` 20 lakhs
of account
maintained as per
section 44AA [after
deducting working
partners’ salary and
interest on capital]
(10) No. of vehicles - 10 (See Note - -
owned 2 below for
details)
Notes – (1) It may be assumed that partners’ salary and interest are authorised by the
partnership deed, relates to a period after the partnership deed and is within the
permissible limits laid down under section 40(b).
(2) The details of vehicles owned by M/s. LM & Co. are as follows –
Gross Vehicle Number Date of purchase Date when first put
Weight (in kgs) to use
(1) 8,000 3 28.5.2019 1.6.2019
(2) 9,000 2 31.7.2019 1.8.2019
(3) 10,000 1 17.8.2019 20.8.2019
(4) 11,000 1 30.9.2019 1.10.2019
(5) 12,000 1 11.11.2019 13.11.2019
(6) 13,000 2 31.12.2019 1.1.2020
From the details given above, choose the most appropriate option to the questions given below:
(i) Which of the four entities are eligible to declare income on presumptive basis under
the Income-tax Act, 1961 for A.Y.2020-21?
(a) Only AB & Co and LM & Co
(b) Only AB & Co and XY & Co.
(c) AB & Co, PQ & Co and XY & Co.
(d) AB & Co, LM & Co and XY & Co.
(ii) What is the business income to be declared by AB & Co. and PQ & Co. for A.Y.2020-
21, assuming that the entities wish to make maximum tax savings without 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) What is the business income to be declared by LM & Co. for A.Y.2020-21, assuming
that the firm wishes to make maximum tax savings without getting its books of
account audited?
(a) ` 4,48,000
(b) ` 3,65,500
(c) ` 4,36,500
(d) ` 4,10,000
(iv) What is the income to be declared by XY & Co. under the head “Profits and gains of
business or profession” for A.Y.2020-21, assuming that the firm wishes to make
maximum tax savings, without getting its books of accounts audited?
(a) ` 18 lakhs
(b) ` 20 lakhs
(c) ` 25 lakhs
(d) ` 22.50 lakhs
(v) Would your answer to sub-parts (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 sub-part (iii) or sub-part (iv)
(b) Yes, there would be change in answer to both sub-parts (iii) and (iv)
(c) There would be a change in the answer to sub-part (iii) but not in the answer to
sub-part (iv)
(d) There would be a change in the answer to sub-part (iv) but not in the answer
to sub-part (iii)
2. 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 1.1.2020, when the
stamp duty value was ` 120 lakh. The agreement was, however, entered into on 1.9.2019
when the stamp duty value was ` 105 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 12.7.2018.
Mr. Ravi, a retail trader sold a residential house to Mr. Vallish, a wholesale trader for ` 50
lakh on 1.2.2020, when the stamp duty value was ` 70 lakh. The agreement was, however,
entered into on 1.8.2019 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 17.8.2018.
Based on the above facts, choose the most appropriate option to the questions given below–

(i) What is the amount of income chargeable to tax in the hands of Mr. Hari in respect
of the above transaction and under which head is it taxable?
(a) ` 70 lakh is taxable as his business income
(b) ` 55 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”
(c) ` 5 lakh is taxable ünder the head “Income from Other Sources”
(d) ` 5 lakh is taxable as his business income.
(iii) What is the amount of income chargeable to tax in the hands of Mr. Ravi in respect
of the above transaction 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) ` 38 lakh is taxable as short-term capital gains
(iv) Is any amount taxable in the hands of Mr. Vallish 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. Vallish
(b) ` 20 lakh is taxable under the head “Income from Other Sources”
(c) ` 5 lakh is taxable ünder the head “Income from Other Sources”
(v) Is tax deductible by Mr. Rajesh and Mr. Vallish on making payment to the seller?
(a) Yes, tax is deductible at source by both Mr. Rajesh and Mr. Vallish
(b) No, tax is not deductible at source by either Mr. Rajesh or Mr. Vallish
(c) Tax is deductible at source by Mr. Rajesh but not by Mr. Vallish
(d) Tax is deductible at source by Mr. Vallish but not Mr. Rajesh
3. The following are the 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 1.9.2019 1.11.2019
Main object Manufacture of steel Manufacture of apparel
Place Madhya Pradesh Warangal in Telengana
Value of new plant and machinery ` 10 crore ` 4 crore
installed and put to use on the date of
setting up of the company
Gross Total Income of P.Y.2019-20 ` 4.90 crore ` 2.80 crore
Particulars of new employees
employed during the P.Y.2019-20
No. of new employees employed on 1000 1000
the date of setting up of the company
Monthly emoluments to employees
by account 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
Main object Trading of leather Trading of food grains
goods
Place Tamil Nadu Karnataka
Turnover of P.Y.2015-16 ` 347 crore ` 201 crore
Details of income returned &
assessed for A.Y.2020-21
As per return of income filed ` 14 crores ` 17 crores
Income determined u/s 143(1)(a) ` 16 crores ` 20 crores
Income assessed u/s 143(3) ` 20 crores ` 22 crores
From the above details choose the most appropriate answer to the following questions –

(i) What would be the tax liability of B Ltd. for A.Y.2020-21, if it avails the beneficial tax
rates under the special provisions inserted by the Taxation Laws (Amendment) Act,
2019 in the Income-tax Act, 1961 by fulfilling the conditions specified thereunder?
Assume that the gross total income reflects the computation under the special
provisions.
(a) ` 70,47,040
(b) ` 22,88,000
(c) ` 25,16,800
(d) ` 17,16,000
(ii) What would be the tax liability of A Ltd. for A.Y.2020-21, if it avails the beneficial tax
rates under the special provisions inserted by the Taxation Laws (Amendment) Act,
2019 in the Income-tax Act, 1961 by fulfilling the conditions specified thereunder?
Assume that the gross total income reflects the computation under the special
provisions.
(a) ` 1,23,32,320
(b) ` 40,84,040
(c) ` 59,89,984
(d) ` 84,08,000
(iii) What would be the tax liability of A Ltd. and B Ltd. for A.Y.2020-21, if they do not
opt for the special provisions inserted by the Taxation Laws (Amendment) Act, 2019
in the Income-tax Act, 1961? Assume that the gross total income reflects the
computation under the special provisions. Ignore MAT.
(a) ` 9,88,000; ` 7,80,000
(b) ` 11,85,600; ` 9,36,000
(c) ` 96,81,360; ` 9,36,000
(d) ` 96,81,360; Nil
(iv) What would be the quantum of penalty payable by C Ltd. under section 270A,
assuming that the under-reporting of income is not due to mis-reporting and none
of the additions made in the assessment qualifies under section 270A(6)? Assume
that C Ltd. has not opted for the special provisions inserted by the Taxation Laws
(Amendment) Act, 2019.
(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 mis-reporting? 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
4. A Ltd., an Indian company, bought back its listed shares from its shareholders and B Ltd.,
an Indian company, bought back its unlisted shares from its shareholders in the month of
March, 2020. What are the tax consequences of such buyback in the hands of A Ltd., B
Ltd. and the shareholders?
(a) Additional income-tax @23.296% of the distributed income is leviable in the hands
of A Ltd. and B 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 of A Ltd. and B Ltd.
(c) Additional income-tax @23.296% of the distributed income is leviable in the hands
of A Ltd.; income arising to shareholders of B Ltd. is taxable in their individual hands
(d) Additional income-tax @23.296% of the distributed income is leviable in the hands
of B Ltd.; income arising to shareholders of A Ltd. is taxable in their individual hands
5. Mr. Ganesh and Mr. Rajesh, resident Indians aged 60 years and 80 years, respectively,
have not furnished their returns of income for the P.Y.2019-20. 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.
6. Ms. X & Co and Ms. Y & Co are non-resident firms in receipt of fees for technical services
of ` 20 lakhs each in the P.Y.2019-20 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 X & Co. to earn FTS is ` 2 lakhs. The following are the
details pertaining to Y & Co.-

Particulars Amount (`)

Revenue expenditure incurred to earn FTS 3.50 lakhs
Expenditure wholly and exclusively connected with fixed place of 3 lakhs
profession in India (Out of the above amount)
Amount paid by fixed place of profession to Head Office otherwise 1 lakh
than towards reimbursement of actual expenses (not included in
above amounts)
Books of account maintained u/s 44AA Yes
Books of account audited and audit report furnished with return of Yes
income
What is the tax liability in India of M/s. X & Co. and M/s. Y & Co. for P.Y.2019-20 in 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
7. A Ltd., an Indian company, borrowed money from B Inc. in Country B, C Ltd. in Country
C, D Inc. in Country D and E Ltd. in Country E, the details of which are given hereunder-
Lender Amount borrowed Interest paid in Is it an Associated
by A Ltd. the P.Y.2019-20 Enterprise of A Ltd.?
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 with E Ltd. Earnings before Interest, Tax and Depreciation of A Ltd. for
A.Y.2020-21 is ` 10 crores. What is the interest to be disallowed under section 94B for
A.Y.2020-21?
(a) ` 1 crore
(b) ` 3 crores
(c) ` 4 crores
(d) ` 5 crores
8. M Ltd. and N Ltd. are Indian companies which have to pay interest of ` 2 lakhs and ` 1
lakh outside India to Mr. P, a non-resident, during the P.Y.2019-20 on rupee denominated

bonds issued in January, 2019 and April, 2019, respectively. Which of the following
statements are correct relating to liability of M Ltd. and N Ltd. to deduct tax at source on
such interest payable to Mr. P?
(a) Both M Ltd. and N Ltd. do 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 not have to deduct tax at source but N Ltd. has to deduct tax at
source@5.2%
(d) N Ltd. does not have to deduct tax at source but M Ltd. has to deduct tax at
source@5.2%
9. Under which of the following cases, will arm’s length price be determined by considering
the median of the dataset?
Case Most Appropriate No. of entries Does the price at which the
Method in the dataset transaction is undertaken fall
within the arm’s length range
beginning from the 35th percentile
of the dataset and ending on the
65th percentile of the dataset?
I 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
10. Mr. Akash made the following cash withdrawals during the P.Y.2019-20 -
Date Amount From

1.6.2019 ` 70 lakhs Bank of India
1.7.2019 ` 45 lakhs Standard Chartered Bank (SCB)
1.8.2019 ` 50 lakhs Bank of India
1.9.2019 ` 15 lakhs SCB
1.10.2019 ` 60 lakhs Repco Bank (Co-operative Bank)
1.11.2019 ` 10 lakhs SBI

1.12.2019 ` 10 lakhs Repco Bank

2.1.2020 ` 15 lakhs SCB
10.1.2020 ` 15 lakhs SCB
10.2.2020 ` 75 lakhs SBI
20.2.2020 ` 15 lakhs SCB
1.3.2020 ` 15 lakhs SBI
Which of the above payers are required to deduct tax at source on cash withdrawals
made by Mr. Akash in the P.Y.2019-20?
(a) Bank of India & SCB
(b) SCB, SBI & Repco
(c) SCB, Repco & Bank of India
(d) SCB & Repco
11. Which of the following orders are 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 the assessee as an agent of a non-
resident.
(c) An order of assessment passed by the Assessing Officer in 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
12. Which of the following statements are correct in relation to the power of an income-tax
authority to collect information which may be useful for the purposes of the Income-tax
Act, 1961?
(i) The income-tax authority can enter the place of business of the assessee only
after sunrise and before sunset
(ii) The income-tax authority may enter the place of business only during the hours
at which such place is open for conduct of business
(iii) The income-tax authority may impound and retain in his custody for a period not
exceeding 15 days books of account or other documents inspected by him. If
he wishes to retain for a period exceeding 15 days, he has to take the prior
approval of Principal Chief Commissioner or Chief Commissioner.

(iv) 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.
The correct answer is -
(a) (i) and (iii)
(b) (i) and (iv)
(c) (ii) and (iii)
(d) (ii) and (iv)
DESCRIPTIVE QUESTIONS
13. ABC Ltd. had started availing exemption under section 80-IC on setting up of a new
industrial unit in Himachal Pradesh in April, 2011 to manufacture sports equipment. The
company had availed deduction of 100% of profits for a period of 5 years from A.Y.2012-
13 to A.Y.2016-17. For A.Y.2017-18 to A.Y.2021-22, in the normal course, deduction would
be admissible at 30% of the profits and gains. However, in the P.Y.2016-17, ABC Ltd.
carried out substantial expansion of its existing unit by increasing its investment in plant
and machinery by 60% of the book value of plant and machinery as on 1.4.2016. From
A.Y.2017-18, ABC Ltd. claimed deduction at 100% of profits, instead of 30%, on the basis
of the Supreme Court ruling in Pr. CIT v. Aarham Softronics (2019) 412 ITR 623, that
a fresh period of 5 years, qualifying for deduction@100% of profits and gains, would
commence from the year of substantial expansion. Is the claim of ABC Ltd. valid? Discuss.
14. PQR Ltd, a company manufacturing footwear and leather products for the past ten years,
had a net profit of ` 544 lakhs as per the statement of profit and loss for the year ended
31st March, 2020. The company was subject to tax audit under section 44AB. The net
profit is arrived at after debiting or crediting the following amounts:
(i) Depreciation as per Companies Act, 2013 is ` 64 lakhs.
(ii) A sundry creditor whose dues of ` 64 lakhs were outstanding since long time, has
been settled for ` 52 lakhs on 31st March, 2020 based on compromise settlement.
The amount waived has been credited to the statement of profit and loss.
(iii) Employers' contribution of ` 6 lakhs to EPF for the month of March, 2020 was
deposited on 30th June, 2020.
(iv) Interest payments debited ` 60 lakhs (Includes interest on term loan of ` 50 lakhs
availed on 1-4-2019 at interest rate of 12% p.a. towards purchase of machinery during
the year).
(v) Payment of ` 20 lakhs without deduction of tax to XYZ & Co., a sub-contractor, for
processing raw leather supplied by PQR Ltd. is debited to statement of profit & loss.

Additional Information:
(1) The company has not made provision for an amount of ` 24 lakhs being a fair estimate
of the amount as payable to workers towards periodical wage revision once in 3 years
in respect of existing employees. The provision is estimated on a reasonable certainty
of the revision once in 3 years.
(2) The written down values of assets before allowing depreciation as per Income-tax
Rules are as under:
Factory Buildings: ` 360 lakhs;
Plant & Machinery: ` 340 lakhs (inclusive of machinery costing ` 60 lakhs
acquired on 1.4.2019 and put to use on 1.11.2019)
Computers: ` 30 lakhs
It may be noted that the above values have been duly recognised while providing
depreciation in the books of accounts.
(3) During the year 2019-20, the company has employed 24 additional employees
(qualified as "workman" under the Industrial Disputes Act, 1947). All these employees
contribute to a recognized provident fund. 12 out of 24 employees joined on 1.6.201 9
on a salary of ` 23,000 per month, 4 joined on 1.7.2019 on a salary of ` 25,500 per
month, and 8 joined on 1.11.2019 on a salary of ` 20,000 per month. The salaries
of 2 employees who joined on 1.6.2019 are being settled by bearer cheques every
month.
(4) Employees contribution to EPF of ` 3 lakhs recovered from their salaries for the
month of March 2020 and shown in the Balance Sheet under the head Sundry
Creditors was remitted on 31 st July, 2020.
Compute the total income and tax liability of PQR Ltd. for the Assessment Year 2020-21.
The turnover of the company for the year ended 31.3.2018 was ` 251 crores. Ignore the
provisions of MAT. Assume that the company does not opt for the special provisions
inserted by the Taxation Laws (Amendment) Act, 2019.
15. Sowbaghya, a charitable trust, is registered under section 12AA of the Act. On 1.4.2019, it
got merged with M/s. LMN (P) Ltd., which is a company engaged in manufacturing of
furniture. All the assets and liabilities of the erstwhile trust became the assets and liabilities
of M/s. LMN (P) Ltd. which is not entitled for registration under section 12AA. The trust
appointed a registered valuer for the valuation of its assets and liabilities. From the
following particulars (including the valuation report), calculate the tax liability in the hands
of the trust arising as a result of such merger, giving reasons for treatment of each item:
(i) Stamp duty value of land held ` 30 lakhs. However; if this land is sold in the open
market, it would ordinarily fetch ` 34 lakhs. The book value of the land is ` 40 lakhs.

(ii) 75,000 equity shares in XYZ Ltd. traded in National Stock Exchange. The lowest
price per share on 1.4.2019 was ` 150 and the highest price on that day was ` 170.
The book value was ` 134 lakhs.
(iii) 55,000 preference shares held in ABC Ltd. The shares will fetch ` 88 lakhs, if they
are sold in the open market on 1.4.2019. Book value was ` 50 Lakhs.
(iv) Corpus fund as on 1.4.2019 ` 30 Lakhs.
(v) Outside liabilities ` 180 lakhs
(vi) Provision for taxation ` 10 lakhs.
(vii) Liabilities in respect of payment of various utility bills ` 12 lakhs.
16. Mr. Suresh aged 60 years, is a resident and ordinarily resident in India for the A.Y.
2020-21. He owns an apartment in Sharjah, U.A.E., which he purchased on 1.4.2008, and
he also has a bank account in the Bank of Sharjah.
(a) Mr. Suresh contends that since his total income of ` 3,00,000 for the P.Y.2019-20,
comprising of income from house property and bank interest, is less than the basic
exemption limit, he need not file his return of income for A.Y.2020-21.
(b) Mr. Suresh also contends that the notice issued by the Assessing Officer under
section 148 in September, 2019 for A.Y.2009-10 is not valid due to the following
reasons –
(i) There is no escaped income relating to that year; and
(ii) The time period prescribed in section 149 for issuing notice under section 148
for A.Y.2009-10 has since lapsed.
Discuss the correctness of the above contentions of Mr. Suresh.
17. M/s. Himalaya LLP filed its return of income for the A.Y. 2018-19 on 23-07-2018. The
assessment u/s 143(3) was completed on 27 th April, 2019. The Assessing Officer made
two additions to the income of the LLP, namely, ` 20 lakhs towards unexplained investment
u/s 69 and ` 3 lakhs u/s 40(b) due to excess interest paid to partners.
The LLP, being aggrieved, contested the addition of ` 20 lakhs under section 69 and
filed an appeal before the Commissioner (Appeals). The appeal was decided on 12th
February, 2021 against the LLP.
In March, 2021, the LLP approaches you to know whether it should apply for revision to
Principal Commissioner u/s 264 or for rectification u/s 154 to the Assessing Officer as
regards disallowance u/s 40(b). You are required to advise the LLP, keeping in mind the
relevant provisions of income-tax law.
18. Is issue of notice under section 143(2) mandatory for making a regular assessment under
section 143(3)? Can failure on the part of the Assessing Officer to issue notice under
section 143(2) be treated as a defect curable under section 292BB, if the assessee

participates in assessment proceedings? Discuss, with the aid of a recent Supreme Court
ruling.
19. Mr. Hari, a resident aged 42 years is a salaried employee employed with Omega P Ltd. He
received the following components of his salary income during the previous year 2019-20.
Basic Salary ` 60,000 p.m.
Dearness Allowance 12% of basic salary
Transport Allowance ` 10,000 p.m.
Medical Allowance ` 5,000 p.m.
He contributed ` 18,000 to approved Pension Fund of LIC. He also paid ` 2,00,000 by
crossed cheque for mediclaim premium to insure the health of his mother, a resident aged
61 years, who is not dependent on him as a lumpsum payment for 5 years including the
current previous year.
He also delivered guest lecture in a reputed university in Country X during the year. He
received ` 8,00,000 from such university after deduction of tax of ` 2,00,000 in Country X.
India does not have any double taxation avoidance agreement under section 90 of the
Income-tax Act, 1961, with Country X. Compute the tax liability of Mr. Hari for the A.Y.
2020-21.
20. Examine whether transfer pricing provisions under the Income-tax Act, 1961 would be
attracted in respect of the following cases -
(i) Transfer of process patents by Rho Ltd., an Indian company, to ABC Inc., a US
company, which guarantees 12% of the borrowings of Rho Ltd.
(ii) Marketing management services provided by Athena, a Greece company to Alpha
Ltd., an Indian company. Athena is a “specified foreign company” as defined in
section 115BBD, in relation to Alpha Ltd.
(iii) Gamma Ltd., an Indian company, has two units, Delta & Phi. Unit Delta, which
commenced business four years back, is engaged in the development of a highway
project, for which purpose an agreement has been entered into with the Central
Government. Unit Phi is carrying on the business of trading in steel. Unit Phi
transfers 25,000 metric tons of steel of the value of ` 30,000 per MT to Unit Delta for
` 20,000 per MT.
(iv) Purchase of machinery by Beta Ltd., an Indian company, from Huff AG, a German
company. Beta Ltd. is the subsidiary of Huff AG.

MOST APPROPRIATE OPTION – OBJECTIVE TYPE QUESTIONS
MCQ Sub- Most Appropriate MCQ No. Most Appropriate

No. part Answer Answer
1. (i) d 4. a
(ii) a 5. d
(iii) c 6. c
(iv) c 7. d
(v) b 8. c
2. (i) c 9. c
(ii) a 10. d
(iii) c 11. c
(iv) b 12. d
(v) a
3. (i) d
(ii) a
(iii) d
(iv) b
(v) a
ANSWERS TO DESCRIPTIVE QUESTIONS

13. Section 80-IC applies to an undertaking or enterprise which has begun or begins to
manufacture any specified article or thing therein by setting up a new factory in special
category States, which includes the State of Himachal Pradesh. As per section 80 -IC(3),
the category of undertakings or enterprises to which the assessees’ belong, is entitled to
deduction@100% of profits and gains for 5 assessment years commencing from the “initial
assessment year” and, thereafter, deduction@25% of profits and gains (30% of profits and
gains in case of a company) for the next 5 assessment years. As per section 80-IC(6), the
total period of deduction is, however, capped at 10 assessment years.
As per sub-clause (v) of section 80-IC(8), “initial assessment year” means the
assessment year relevant to the previous year in which the undertaking or the enterprise:
(1) begins to manufacture or produce articles or things, or
(2) commences operation or
(3) completes substantial expansion.
As per sub-clause (ix) of section 80-IC(8), “Substantial expansion” means increase in the
investment in the plant and machinery by at least 50% of the book value of plant and

machinery (before taking depreciation in any year), as on the first day of the previous year
in which the substantial expansion is undertaken.
Section 80-IC(2)(b)(ii) requires that the undertaking or enterprise should begin to
manufacture or produce any article or thing specified in the Fourteenth Schedule or
commence operation specified in that Schedule and undertake substantial expansion
during the period between 7.1.2003 and 31.3.2012 in the State of Himachal Pradesh.
This issue of whether deduction@100% of profits and gains under section 80-IC can be
claimed for a fresh period where an entity has already claimed deduction@100% of profits
and gains for a period of five years came up before the Supreme Court in Pr. CIT v. Aarham
Softronics [2019] 412 ITR 623. The Apex Court noted that as per the definition of “initial
assessment year”, the first two events i.e., the previous year in which the undertaking or
the enterprise begins to manufacture or produce article or things; or commences operation
are relatable to new units, whereas third incident i.e., completes substantial expansion,
would occur in respect of existing units. The benefit of section 80-IC is, thus, admissible
not only when an undertaking or enterprise sets up new unit and starts manufacturing or
producing article or things. The advantage of this provision also accrues to existing units,
if they carry out "substantial expansion" of their units by investing required capital, in the
assessment year relevant to the previous year.
The Apex Court also observed that the various provisions of section 80-IC should be read
conjointly, i.e., sub-section (2)(b)(ii), sub-section (3)(ii), sub-section (6) and sub-section
(8)(v) and (ix). Sub-section (3) enumerates the deduction, as being 100% of profits and
gains for the first 5 initial assessment years commencing with the initial assessment year
and thereafter, 25% (or 30% where the assessee is a company) of the profits and gains.
The deduction at 25% or 30% for the next 5 years is on the assumption that the new unit
remains static in so far as expansion thereof is concerned. However, the moment
“substantial expansion” takes place, another "initial assessment year" gets triggered. This
new event entitles that unit to start getting deduction at 100% of the profits and gains. At
the same time, new period of 10 years does not start, on account of the cap under sub -
section (6) of section 80-IC. Thus, the total period for which deduction can be allowed is
capped at 10 years, however, there is no cap on quantum.
However, the substantial expansion should have also taken place on or before 31.3.2012
as per section 80-IC(2)(b)(ii), for the entity to be entitled to benefit of 100% deduction for
a fresh period on the basis of such substantial expansion. In this case, however, the
substantial expansion took place after 31.3.2012, in the P.Y.2016-17. Hence, the rationale
of the above Supreme Court ruling cannot be applied to the case on hand, since the
condition laid down in section 80-IC(2)(b)(ii) is not satisfied. The claim of ABC Ltd. is,
therefore, not correct. Accordingly, even though it has undertaken “substantial
expansion” during the P.Y.2016-17, it would be entitled to a deduction of only 30% of
profits and gains from A.Y.2017-18 to A.Y.2021-22.

14. Computation of Total Income of PQR Ltd. for the A.Y. 2020-21
Net profit as per the statement of profit and loss 5,44,00,000
Add: Items debited but to be considered separately
or to be disallowed
(i) Depreciation charged as per Companies Act, 2013 64,00,000
(iii) Employer’s contribution to EPF Nil
[As per section 43B, employers’ contribution to
EPF is allowable as deduction, since the same
has been deposited on or before the ‘due date’ of
filing of return under section 139(1) i.e.,
30.9.2020. Since the same has been debited to
statement of profit and loss, no further adjustment
is necessary]
(iv) Interest on term loan for purchase of plant and 3,50,000
machinery [` 50 lakhs x 12% x 7/12]
[As per the proviso to section 36(1)(iii), interest
paid in respect of capital borrowed for acquisition
of an asset for the period from the date of
borrowing till the date on which such asset is first
put to use shall not be allowed as deduction. Since
the same has been debited to statement of profit
and loss, it has to be added back while computing
business income]
(v) Payment to XYZ & Co., a sub-contractor, without 6,00,000
deduction of tax [30% of ` 20 lakh]
[Under section 40(a)(ia), 30% of any sum paid to
any resident on which tax is deductible is
disallowed if tax is not deducted at source. In this
case, TDS provisions under section 194C are
attracted on payment for processing of raw
material. Since tax has not been deducted on such
payment, 30% of the expenditure shall be
disallowed] 73,50,000
6,17,50,000
Add: Amount taxable but not credited to statement of
profit and loss
AI(5) Employee’s contribution to EPF 3,00,000

[Any sum received by the assessee from his

employees as contribution to any provident fund is
treated as income of the assessee. Since
employees contribution to EPF has not been
deposited on or before the due date under the PF
Act, the same is not allowable as deduction as per
section 36(1)(va) 1.]
6,20,50,000
Less: Items credited to statement of profit and loss,
but not includible in business income / permissible
expenditure and allowances
(ii) Waiver of sundry creditor’s outstanding Nil
amount
[Waiver of ` 12,00,000 from the sundry creditors
is a benefit in respect of a trading-liability by way
of remission or cessation thereof and is, hence,
taxable under section 41(1). Since the amount is
already credited to statement of profit & loss, no
adjustment is necessary]
AI (1) Provision for wages payable to workers
[The provision based on fair estimate of wages
and reasonable certainty of revision is allowable
as deduction, since ICDS X requires ‘reasonable
certainty’ for recognition of a provision, which is
present in this case. As the provision has not
been debited to statement to profit and loss, the
same has to be reduced while computing business
income] 24,00,000 24,00,000
5,96,50,000
1 Employee contribution to PF deposited after the due date under PF Act is not allowable as deduction as per section 36(1)(va).
This view has been affirmed by the Gujarat High Court in CIT v. Gujarat State Road Transport Corporation (2014) 366 ITR 170.
Alternate view that the same is allowable as deduction if deposited on or before the due date of filing of return is possible as
per the Delhi High Court ruling in CIT v. AIMIL (2010) 321 ITR 508 and the Uttrakhand High Court ruling in the case of CIT
v. Kichha Sugar Co. Ltd. (2013) 356 ITR 351.

Less: Depreciation as per Income-tax Rules, 1962

A(2) Depreciation under section 32
Depreciation on factory building [10% of ` 360 lakh] 36,00,000
Depreciation on plant and machinery
- Depreciation@7.5% on ` 63.50 lakhs [` 60 lakh, 4,76,250
being machinery cost + ` 3.50 lakh, being
interest from 1.4.2019 to 31.10.2019] since
machinery is put to use for less than 180 days].
- Depreciation@15% on ` 280 lakh [` 340 lakh – 42,00,000
` 60 lakh]
- Depreciation on computers [40% of ` 30 lakh] 12,00,000
94,76,250
Add: Additional depreciation @10% on ` 63.50 lakh, since
machinery is put to use for less than 180 days 6,35,000 1,01,11,250
Gross Total Income 4,95,38,750
Less: Deduction under Chapter VI-A
Under section 80JJAA [See Working Note below] 9,30,000
Total Income 4,86,08,750
Computation of tax payable by PQR Ltd. for the A.Y. 2020-21
Particulars `
Tax payable on ` 4,86,08,750@25%, since the turnover of the company 1,21,52,188
for the P.Y. 2017-18 does not exceed ` 400 crores
Add: Surcharge@7% (since the total income of the company exceeds 8,50,653
` 1 crore but does not exceed ` 10 crore)
1,30,02,841
Add: Health and education cess@4% 5,20,114
Tax liability 1,35,22,954
Tax liability (Rounded off) 1,35,22,950
Working Note: Computation of deduction under section 80JJAA
PQR Ltd. is eligible for deduction u/s 80JJAA since the company is subject to tax audit
under section 44AB for A.Y.2020-21 and has employed “additional employees” during
the P.Y.2019-20.
Number of additional employees
Total number of employees employed during the year 24

Less: Employees employed on 1.7.2019, since their total monthly 4

emoluments > ` 25,000
Employees employed on 1.6.2019 whose emoluments are paid 2
by bearer cheque
Number of additional employees [10 employees employed on 1.6.2019 18
and 8 employed on 1.11.2019]
Additional employee cost ` 31,00,000
` 23 lakh, being ` 23,000 × 10 ×10 + ` 8 lakh, being ` 20,000 x 5 x 8
Deduction under section 80JJAA [30% of ` 31 lakh] 9,30,000
15. As per section 115TD, the accreted income of “Sowbaghya”, a charitable trust, registered
under section 12AA which is merged with M/s LMN (P) Ltd., an entity not entitled for
registration under section 12AA, would be chargeable to tax at maximum marginal
rate@34.944% [30% plus surcharge @12% plus cess@4%].
Computation of accreted income and tax liability in the hands of the trust arising
as a result of merger with LMN (P) Ltd. for A.Y. 2020-21
Aggregate FMV of total assets as on 1.4.2019, being the specified 2,42,00,000
date (date of merger)
[See Working Note 1]
Less: Total liability computed in accordance with the prescribed method
of valuation 1,92,00,000
[See Working Note 2]
Accreted Income 50,00,000
Tax Liability @ 34.944% of ` 50,00,000 17,47,200
Working Notes:
(1) Aggregate fair market value of total assets on the date of
merger
- Land, being an immovable property 34,00,000
[The fair market value of land would be higher of ` 34 lakhs
i.e., price that the land would ordinarily fetch if sold in the
open market and ` 30 lakhs, being stamp duty value as on
the specified date]
- Quoted equity shares in XYZ Ltd. [75,000 x ` 160 per 1,20,00,000
share] [` 160 per share, being the average of the lowest
(` 150) and highest price (` 170) of such shares on the date
of merger]

- 55,000 preference shares of ABC Ltd.

[The fair market value which it would fetch if sold in the open
market on the date of merger i.e. FMV on 1.4.2019] 88,00,000
2,42,00,000
(2) Total liability
- Outside liabilities 1,80,00,000
- Corpus Fund of ` 30 lakhs [not includible] -
- Provision for taxation ` 10 lakhs [not includible] -
- Liabilities in respect of payment of various utility bills [since
this liability is an ascertained liability] 12,00,000
1,92,00,000
16. (a) The first contention of Mr. Suresh is not correct.
Section 139(1) requires every resident other than not ordinarily resident, who at any
time during the previous year, holds as a beneficial owner or otherwise, any asset
(including financial interest in any entity) located outside India or has signing authority
in any account located outside India or is a beneficiary of any asset located outside
India, to file a return of income compulsorily whether or not he has income chargeable
to tax.
Mr. Suresh has a house property in Sharjah, UAE and a bank account in the Bank of
Sharjah. Therefore, Mr. Suresh has to file his return of income mandatorily for the
A.Y.2020-21, even though his total income of ` 3,00,000, comprising solely of income
from house property and bank interest, does not exceed the basic exemption limit of
` 3,00,000 applicable to a senior citizen.
(b) Mr. Suresh’s second contention is also not correct.
Income chargeable to tax shall be deemed to have escaped assessment for the
purpose of section 147, where a person is found to have any asset (including financial
interest in any entity) located outside India. Accordingly, the Assessing Officer can
serve a notice under section 148 on such assessee requiring him to furnish a return
of income within the specified period, for the purpose of making an assessment,
reassessment or re-computation under section 147.
Further, section 149 prescribes an extended time limit of sixteen years from the end
of the relevant assessment year for issue of notice under section 148, in case income
in relation to such assets located outside India has escaped assessment.
In this case, since Mr. Suresh has a house property located outside India in the
P.Y.2008-09, income is deemed to have escaped assessment for A.Y.2009-10.
Notice under section 148 issued to Mr. Suresh in September 2019 in respect of

A.Y.2009-10 is valid, since the extended time limit of sixteen years from the end of
the relevant assessment year has not expired.
17. Section 264(4)(c) provides that the Principal Commissioner or Commissioner has no power
to revise any order which has been made the subject matter of an appeal to the
Commissioner (Appeals), even if the relief claimed in the petition is different from the relief
claimed in appeal. The concept of total merger would apply in the case of section 264. It
was so held by the Supreme Court in the case of Hindustan Aeronautics Ltd v. CIT (2000)
243 ITR 898.
Section 154(1A) provides that where any matter had been considered and decided in any
proceeding by way of appeal or revision relating to an order, Assessing Officer may amend
the order for rectification of mistake apparent from the record, in relation to a matter other
than the matter which has been considered and decided. The concept of partial merger
would apply in the case of section 154.
In the present case, since the order passed by the Assessing Officer in respect of the
addition of unexplained investment of ` 20 lakhs became the subject matter of an appeal
to the Commissioner (Appeals), the assessee, M/s. Himalaya LLP, cannot apply for revision
under section 264 even if the subject matter of revision i.e., addition of ` 3 lakhs under
section 40(b) is different from the subject matter of appeal.
However, M/s. Himalaya LLP can apply to the Assessing Officer for rectification of the order
in respect of addition of ` 3 lakh under section 40(b), if the mistake is apparent from the
record, as this matter has not been considered and decided in any proceeding by wa y of
appeal or revision.
In the view of above, the assessee, M/s. Himalaya LLP should seek rectification under
section 154.
18. Issue of notice under section 143(2) is mandatory for making a regular assessment under
section 143(3). Section 292BB is a deeming provision that seeks to cure defects in any
notice issued under any provision of the Income-tax Act, 1961, if the assessee has
participated in the proceedings. Section 292BB provides that where the assessee has
participated in the proceedings, any notice which is required to be served upon him shall
be deemed to have been duly served and the assessee would be precluded from taking
any objection that the notice was (a) not served upon him; or (b) not served upon him in
time; or (c) served upon him in an improper manner.
The issue as to whether the Assessing Officer’s omission to issue notice under section
143(2) is a defect curable under section 292BB if the assessee participates in the
assessment proceedings came up before the Supreme Court in CIT v. Laxman Das
Khandelwal (2019) 417 ITR 325.
The Supreme Court observed that the law on the point as regards applicability of the
requirement of issue of notice under section 143(2) is quite clear. According to section
292BB, if the assessee had participated in the proceedings, by way of legal fiction, notice

issued would be deemed to be valid even if there be infractions as detailed in the said
section. The scope of the provision is to make service of notice having certain infirmities
to be proper and valid if there was requisite participation on the part of the assessee. It is,
however, to be noted that the section does not save complete absence of issue of notice.
For section 292BB to apply, the notice must have emanated from the Department. It
is only the infirmities in the manner of service of notice that the section seeks to cure. The
section is not intended to cure complete absence of notice itself.
The Supreme Court, accordingly, held that non-issuance of notice under section 143(2) is
not a curable defect under section 292BB inspite of participation by the assessee in
assessment proceedings.
19. Computation of total income of Mr. Hari for A.Y.2020-21
Particulars ` `
Salaries [Indian Income]
Basic Salary (` 60,000 x 12 months) 7,20,000
Dearness Allowance (12% of basic salary of ` 7,20,000) 86,400
Transport Allowance (` 10,000 x 12) [Fully taxable] 1,20,000
Medical Allowance (` 5,000 x 12) [Fully taxable] 60,000
Gross Salary 9,86,400
Less: Standard deduction u/s 16(ia) 50,000
Lower of actual salary or ` 50,000
Net Salary 9,36,400
Income from Other Sources [Foreign Income]
Income from lectures in foreign university [` 8,00,000 plus
tax deducted at source of ` 2,00,000] 10,00,000
Gross Total Income 19,36,400
Less: Deduction under Chapter VIA
Under section 80CCC – Contribution to approved 18,000
Pension Fund of LIC
Under section 80D – Medical insurance premium of
mother, being a resident senior citizen for the year
2019-20, ` 40,000 [being 1/5 th of the lumpsum
premium of ` 2,00,000 paid for 5 years] fully
allowable, even though she is not dependent on him,
since the same does not exceed ` 50,000 40,000
58,000
Total Income 18,78,400

Computation of tax liability of Mr. Hari for A.Y.2020-21

Particulars `
Tax on total income [` 2,63,520 (i.e., 30% of ` 8,78,400) plus 3,76,020
` 1,12,500 (Tax on income of ` 10 lakh)]
Add: Health and education cess@4% 15,041
Tax Liability 3,91,061
Average rate of tax in India [i.e., ` 3,91,061 / ` 18,78,400 x 20.82%
100]
Tax rate in Country X [2,00,000 /10,00,000] x 100 20%
Deduction under section 91 on ` 10,00,000, being the
doubly taxed income@ 20% [being the lower of Indian rate of
tax (20.82%) and Country X tax rate (20%)] 2,00,000
Tax Payable 1,91,061
Tax Payable (rounded off) 1,91,060
20. (i) The scope of the term “intangible property” includes, inter alia, process patents, which
is a technology related intangible asset. Transfer of intangible property falls within the
scope of the term “international transaction”. Since ABC Inc., a US company,
guarantees not less than 10% of the borrowings of Rho Ltd., an Indian company, ABC
Inc. and Rho Ltd. are deemed to be associated enterprises under section 92A(2).
Therefore, since transfer of process patents by Rho Ltd., an Indian company, to ABC
Inc., a US company, is an international transaction between associated enterprises,
the provisions of transfer pricing are attracted in this case.
(ii) Clause (i) of Explanation to section 92B amplifies the scope of the term “international
transaction”. According to the said Explanation, international transaction includes,
inter alia, provision of marketing management services. Athena is a specified foreign
company in relation to Alpha Ltd. Therefore, the condition of Alpha Ltd. holding shares
carrying not less than 26% of the voting power in Athena is satisfied, assuming that
all shares carry equal voting rights. Hence, Athena and Alpha Ltd. are deemed to be
associated enterprises under section 92A(2). Since the provision of marketing
management services by Alpha Ltd. to Athena is an “international transaction”
between associated enterprises, transfer pricing provisions are attracted in this case.
(iii) Unit Delta is eligible for deduction@100% of the profits derived from its eligible
business (i.e., the business of developing an infrastructure facility, namely, a highway
project in this case) under section 80-IA. However, Unit Phi is not engaged in any
“eligible business”. Since Unit Phi has transferred steel to Unit Delta at a price lower
than the fair market value, it is an inter-unit transfer of goods between eligible
business and other business, where the consideration for transfer does not
correspond with the market value of goods. Therefore, this transaction would fall

within the meaning of “specified domestic transaction” to attract transfer pricing

provisions, since the aggregate value of such transactions during the year exceeds a
sum of ` 20 crore.
(iv) Purchase of tangible property falls within the scope of “international transaction”.
Tangible property includes machinery. Huff AG and Beta Ltd. are associated
enterprises under section 92A, since Huff AG is a holding company of Beta Ltd.
Therefore, purchase of machinery by Beta Ltd., an Indian company, from Huff AG, a
German company, is an international transaction between associated enterprises,
and consequently, the provisions of transfer pricing are attracted in this case.

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PAPER 7: DIRECT TAX LAWS & INTERNATIONAL TAXATION

SECTION – A: STATUTORY UPDATE

Chapter 7: Capital Gains

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Chapter 8: Income from Other Sources

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Chapter 12: Assessment of Various Entities

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production of an article or contained in the

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on which no depreciation is plus surcharge@10% plus @22%, plus

© The Institute of Chartered Accountants of India

(iv) It does not use any machinery or No similar

© The Institute of Chartered Accountants of India

Every guideline issued by the CBDT has

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35(2AB) Weighted deduction@150% of in-house scientific

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corresponding adjustment shall be made to the WDV of such block

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Particulars Section 115BAB Section 115BAA

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© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

111A and 112A) • LTCG u/s 112A ` 55 income-tax

© The Institute of Chartered Accountants of India

Rate of surcharge on Not • Other income ` 3 to in section 115AD;

Chapter 13: Assessment of Charitable or Religious Trusts or Institutions, Political Parties

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permissible forms or modes of investment or deposits by a charitable or religious trust or

Clarification as to the applicability of section 194N and manner of computing the

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India

Rule Time limit and manner of submission of Challan-cum Statement

Chapter 17: Assessment Procedure

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© The Institute of Chartered Accountants of India

before the date of agreement for considering stamp duty value

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the order of the Assessing

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Amendment in Rule 10DA consequent to substitution of section 92D [Notificatio n No.

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Information and documents of the international group required to be kept

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(g) a list and brief description of important agreements among members of

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10DA(6) Period for which such information and document to be kept or

Amendment in Rule 10DB

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SECTION – B: QUESTIONS AND ANSWERS

OBJECTIVE TYPE QUESTIONS

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© The Institute of Chartered Accountants of India

(d) ` 13 lakhs and ` 6.60 lakhs, respectively