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Test Series: October, 2022

MOCK TEST PAPER 2

FINAL COURSE: GROUP – II
PAPER – 7: DIRECT TAX LAWS & INTERNATIONAL TAXATION
SOLUTIONS
Division A – Multiple Choice Questions
MCQ No. Most Appropriate Answer MCQ No. Most Appropriate Answer
1. (b) 9. (c)
2. (b) 10. (d)
3. (c) 11. (d)
4. (c) 12. (b)
5. (d) 13. (a)
6. (c) 14. (a)
7. (d) 15. (c)
8. (b)
Division B – Descriptive Questions
1. (a) Computation of Business Income of S Ltd. for the A.Y.2022-23
Particulars Amount (`)
Profits and gains of business and profession
Net profit as per the statement of profit and loss 5,60,00,000
Add: Items debited but to be considered separately or to be
disallowed
(a) Depreciation as per Companies Act 52,00,000
(c) Contribution to National Laboratory -
[Contribution to National laboratory for scientific research
qualifies for 100% deduction u/s 35(2AA).
Since 100% has been debited to the statement of profit and
loss, no adjustment required to be made while computing
business income]
(e) Payment to transporter -
[No tax is required to be deducted at source u/s 194C on
payment to a transporter declaring income under section
44AE, who has furnished a declaration to that effect along
with PAN. Therefore, disallowance@30% of payment for
non-deduction at source u/s 40(a)(ia) would not be
attracted in respect of payment of ` 3.50 lakhs to M/s. BP
Transport]
(f) Interest on loan for purchase of plant and machinery 5,00,000
[Interest on loan taken for purchase of plant and machinery
for use in business is allowable as deduction u/s 36(1)(iii)
for the period after the date the asset is first put to use.
Hence, such interest for the period upto the date the asset
is first put to use is not allowable as deduction.

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Accordingly, out of ` 15 lakhs paid towards such interest,
only ` 10 lakhs is allowable as deduction. ` 5 lakhs, being
interest paid upto the the date till such machinery was
commissioned has to be added back while computing
business income]
(g) Bad debts written off -
[No adjustment is required in respect of debt of ` 20 lakhs
written off owing to insolvency of the debtor, since bad
debts written off in the books of account is fully allowable
as deduction u/s 36(1)(vii).
Since the said amount has already been debited to the
statement of profit and loss, no further adjustment is
required]
(i) Payment for online advertisement services 5,00,000
[Since the payment for online advertisement services is
made to a non-resident not having PE in India, equalization
levy@6% has to be deducted. Since the same has not been
deducted, disallowance@100% of the payment would be
attracted u/s 40(a)(ib)]
(j) Expenses on foreign travel of two directors for a 2,00,000
collaboration agreement which failed to materialize
[Where expenditure is incurred for a project not related to
the existing business and the project was abandoned
without creating a new asset, the expenses are capital in
nature.1
Since the amount has been debited to the statement of
profit and loss, the same has to be added back]
AI(iv) Purchase of cotton at a price higher than the FMV 4,00,000
[Since the purchase is from a related party, a firm in which
majority of the directors of the company are partners, at a
price higher than the fair market value, the difference
between the purchase price (` 5,000 per bale) and the fair
market value (` 4,600 per bale) multiplied by the quantity
purchased (1000 bales) has to be added back] 68,00,000
6,28,00,000
Less: Items credited to statement of profit and loss, but not
includible in business income/ permissible
expenditure and allowances
(b) Industrial power tariff concession received from State -
Government
[Any assistance in the form of, inter alia, concession
received from the Central or State Government would be
treated as income. Since the same has been credited to
statement of profit and loss, no adjustment is required]
(d) Profit on sale of plot of land 8,00,000

1 Mc Gaw-Ravindra Laboratories (India) Ltd. v. CIT (1994) 210 ITR 1002 (Guj).

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[Short-term capital gains arise on sale of plot of land held
for less than 24 months. However, in this case, since the
transfer is to a 100% subsidiary company, which is an
Indian company, the same would not constitute a transfer
for levy of capital gains tax as per section 47(iv).
Since the same has been credited to the statement of
profit and loss, the same has to be reduced while
computing business income]
(h) Additional compensation received from State 5,00,000
Government in respect of land
[Since the additional compensation has been received
pursuant to an interim order of the Court, the same would be
deemed as income chargeable to tax under the head
“Capital Gains” in the year of final order as per section
45(5).
Since the compensation has been credited to the
statement of profit and loss, the same has to be deducted
while computing business income”]
AI(i) Depreciation as per Income-tax Rules, 1962 71,75,000

[` 71,00,000, being normal depreciation on book assets

+ ` 75,000, being 15% of ` 5,00,000, being the interest
on loan taken for acquiring plant and machinery upto the
date of commissioning]
AI(ii) Discount on issue of debentures 9,00,000

[Allowable as deduction over the tenure of debentures i.e.,

5 years Hence, 1/5 th allowable as deduction in P.Y.2021-
22 (1/5th of ` 45 lakhs, being 3% of ` 1500 lakhs)]
AI(iii) Purchases omitted to be recorded in the books of 3,00,000
account
Since the purchase is made in March, 2022 (i.e., P.Y.
2021-22), in respect of which bill of ` 3 lakhs received in
March, 2022, which has been omitted to be recorded in
the books in this year, it has to be deducted to compute
the business income 2 It is logical to assume that the
company is following mercantile system of accounting 96,75,000

Profits and gains from business and profession 5,31,25,000

2. (a) Computation of book profit for levy of MAT under section 115JB for A.Y. 2022-23
Particulars ` `
Net Profit as per Statement of Profit and Loss 95,00,000
Add: Net Profit to be increased by the followings amounts as per
Explanation 1 below section 115JB(2)
- Depreciation 10,00,000

2 Kedarnath Jute Manufacturing Company Ltd. v. CIT (1971) 82 ITR 363 (SC)

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- Provision for doubtful debts i.e. provision for diminution in
value of asset i.e. debtors 2,00,000
- Reserve for currency fluctuation reserve 1,25,000
13,25,000
1,08,25,000
Less: Net Profit to be decreased by the followings amounts as per
Explanation 1 below section 115JB(2)
- Net agricultural income 5,00,000
Net agricultural income is to be reduced, since it is exempt
under section 10(1)]
- Depreciation other than deprecation on revaluation of assets 8,10,000
is to be reduced while computing book profit [10,00,000 –
1,90,000] 13,10,000
Book profit under section 115JB 95,15,000

Computation of Minimum Alternate Tax under section 115JB

Particulars `
15% of book profit (` 95,15,000 x 15%) 14,27,250
Add: Health & Education cess@4% 57,090
Minimum Alternate Tax under section 115JB 14,84,340

Notes:
(1) Only the specified items mentioned under Explanation 1 below section 115JB(2) can be added
back or deducted to the net profit as per the Statement of Profit and Loss prepared as per the
Companies Act for computing book profit for levy of MAT. Since the following items are not
specified in the said Explanation 1, the same cannot be added back or deducted for computing
book profit:
• Penalty for infraction of law
• Unpaid interest to financial institutions
• Profits from a new industrial undertaking eligible for deduction under section 80 -IA
(2) For computing the book profit, since provisions for GST is an ascertain liability, it is not added
back.
(3) No adjustment is required in respect of interest on borrowed capital of ` 1,00,000 payable to
Y, not debited to statement of profit and loss, since the net profit as per the Statement of Profit
and Loss prepared as per the Companies Act and the items specified for exclusion/inclusion
under section 115JB alone have to be considered while computing the book profit for levy of
MAT.
(4) Depreciation as per Income-tax Act, 1961 is not relevant for computing book profit for levy of
MAT.
(b) (i) International transaction is a transaction between associated enterprises, either or both of
whom are non-residents, in the nature of, inter alia, purchase, sale of tangible or intangible
property. Transfer pricing provisions under the Income-tax Act, 1961 would get attracted in
respect of an international transaction. In this case, one of the enterprises, i.e ., ABC Inc., a

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London based company, is a non-resident. The transaction in question is the transfer of
engravings, i.e., transfer is of an intangible property.
However, two enterprises would be deemed as associated enterprises if one enterprise holds,
directly or indirectly, shares carrying not less than 26% voting power in the other enterprise.
In this case, ABC Inc. indirectly holds only 24% voting power / (32% of 75%) in Beta Ltd., an
Indian company. Hence, ABC Inc. and Beta Ltd. are not associated enterprises.
Since the transaction of transfer of engravings is not between associated enterprises, it would
not fall within the meaning of international transaction. Hence, transfer pricing provisions
would not be attracted in this case.
(ii) Tikku Infra 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, Tikku Trading is not engaged in any “eligible business”. Since
Tikku Trading has transferred construction materials to Tikku Infra 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.
This transaction would fall within the meaning of “specified domestic transaction” to attract
transfer pricing provisions, only if the aggregate value of such transactions during the year
exceeds a sum of ` 20 crore.
In this case, however, the aggregate value of transactions between Tikku Infra and Tikku
Trading does not exceed ` 20 crore. Hence, the transaction is not a specified domestic
transaction to attract transfer pricing provisions under the Income-tax Act, 1961. Accordingly,
transfer pricing provisions would not be attracted in respect of this transaction.
Note - In the absence of information in the question, it is assumed that there are no other
such transactions during the year falling within the scope of section 92BA.
(iii) Where a company eligible for benefit under section 115BAB enters into a transaction with any
other person with whom it has close connection, and the transactions between them are
arranged in a manner resulting in more than ordinary profits arising to the company eligible
for benefit u/s 115BAB, then, such transactions would fall within the scope of “specified
domestic transaction” under section 92BA, if the aggregate value of such transactions (listed
out in section 92BA) entered into by the company in the previous year exceeds ` 20 crore.
In this case, A Ltd. is a company eligible for deduction under section 115BAB which has
entered into a transaction with B Ltd., a company in which Mr. X (a person who has controlling
interest in A Ltd.) has controlling interest. Further, the said transaction for supply of cables by
B Ltd. to A Ltd. result in more than ordinary profits to A Ltd. (on account of the supply being
made by B Ltd. to A Ltd. at a lower rate than the arm’s length ra te).
Also, the aggregate value of such transactions entered into by the two companies exceed
` 20 crore. Consequently, the said transactions between A Ltd. and B Ltd. are “specified
domestic transactions” under section 92BA and transfer pricing provisions under the Income-
tax Act,1961 would be attracted.
3. (a) (i) The contention of the institution is not correct. Since the institution has receipts from a
university specified under section 10(23C)(iiiad) and a hospital specified under section
10(23C)(iiiae), and the combined receipts of ` 6.1 crore exceed the threshold receipt of ` 5
crore, the institution would not be eligible for exemption under sections 10(23C)(iiiad) and
10(23C)(iiiae). The institution has to make an application to the Principal Commissioner or
Commissioner within the prescribed time limit for grant of approval for claiming exemption
under section 10(23C)(vi) and (via).

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(ii) The proposed action of the trust is not correct. As per Explanation 5 to section 11(1), with
effect from A.Y.2022-23, no set off or deduction or allowance of any excess application of any
of the year preceding the previous year shall be made in computation of income required to
be applied or accumulated during the previous year. Accordingly, excess application of `27
lakhs in the P.Y.2020-21 cannot be set-off while computing income required to be applied or
accumulated during the P.Y.2021-22.
(iii) The proposed claim of the trust is not correct. As per clause (ii) of Explanation 4 to section
11(1), application for charitable purposes from a loan or borrowing shall not be treated as
application of income for charitable purposes. However, the amount not so treated as
application, or part thereof, would be treated as application for charitable purposes in the
previous year in which the loan is repaid from the income of that year and to the extent of
such repayment.
Accordingly, the trust cannot claim ` 38 lakhs as application of income of A.Y.2022-23, since
the amount is spent out of loan taken from Canara Bank. However, it can treat the amount of
` 2.8 lakhs repaid during the P.Y.2021-22 as application of income in that year.
(b) (i) Computation of tax payable in case where there is a DTAA with the foreign country
The DTAA with the foreign country provides that the income would be taxable in country where
it is earned and not in other country, but it would be included for computation of tax rate in
such other country.
Thus, business income of ` 21,00,000 in foreign country would not be taxable in India in the
hands of Ms. Radha, however, such income has to be included in the total income to
determine the effective rate of tax applicable on Indian income chargeable to tax in India.
Computation of tax payable of Ms. Radha for A.Y.2022-23
Particulars `
Business Income
- Foreign country 21,00,000
- In India 8,75,000
Gross Total Income 29,75,000
Less: Deduction under Chapter VI-A
Section 80D – Medical insurance premium of ` 35,000 allowable to the
extent of ` 25,000 [Since her mother aged 63 years is a non-resident] 25,000
Total Income 29,50,000
Tax on total income [30% of ` 19,50,000 + ` 1,12,500] 6,97,500
Add: Health and education cess@4% 27,900
Tax Liability 7,25,400
Tax rate [` 7,25,400 / ` 29,50,000 x 100] 24.59%
Tax payable = 24.59% x ` 8,50,000 [` 8,75,000 – ` 25,000] 2,09,015
Tax payable (rounded off) 2,09,020
(ii) Computation of tax payable in case where there is no DTAA with the foreign country
In such case, Ms. Radha would be allowed deduction under section 91, since she has satisfied
the following conditions:-
(a) She is a resident in India during the relevant previous year i.e., P.Y.2021-22.

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(b) The business income of ` 21,00,000 accrues or arises to her outside India and such
income is not deemed to accrue or arise in India during the previous year.
(c) Such business income has been subjected to tax in the foreign country@18%3
Computation of tax payable of Ms. Radha for A.Y.2022-23
Particulars `
Tax Liability (computed above would remain same) 7,25,400
Less: Rebate under section 91 (See Working Note below) 3,78,000
Tax Payable 3,47,400
Working Note:
Calculation of Rebate under section 91
Average rate of tax in India [` 7,25,400/` 29,50,000 x 24.59%
100]
Average rate of tax in Foreign Country 18%
Doubly taxed income (Business income in foreign ` 21,00,000
country)
Rebate u/s 91 on ` 21,00,000 @18% [being the lower of average Indian 3,78,000
tax rate (24.59%) and foreign tax rate (18%)]

4. (a) (i) Section 206C(1G) provides for collection of tax@ 5% by every person, being a seller of an
overseas tour programme package, who receives any amount from the buyer who purchases
the package. The threshold limit of ` 7 lakh is not applicable in case of collection of tax at
source by a seller of an overseas tour programme package from a buyer who purchases such
package. Hence, tax has to be collected@5% of the amount received by the seller of an
overseas tour programme package from a buyer even if the amount is less than ` 7 lakh.
However, as per Notification No. 20/2022 dated 30.3.2022, TCS u/s 206C(1G) would not be
applicable, if the buyer is an individual who is not a resident in India in terms of section 6(1)
and (1A); and who is visiting India.
Mr. Aryan, an Indian citizen living in Australia, came on a visit to India during the
P.Y. 2021-22. He does not have any source of income in India. During that previous year, he
stayed in India for only 21 days (4 days in February + 17 days in March). Since his stay in
India during the P.Y.2021-22 is less than 182 days, he is non-resident in India for the said
previous year.
Accordingly, in this case, since Mr. Aryan is a non-resident who is visiting India,
M/s. Satya Travels, the tour package operator, is not required to collect tax at source under
section 206C(1G) on the amount of ` 5.2 lakh received from him for purchase of tour
programme package to Malaysia.
(ii) For the provisions of section 194Q to be attracted, a buyer is required to have a total sales or
gross receipts or turnover from the business carried on by it exceeding ` 10 crore during the
financial year immediately preceding the financial year in which the purchase of goods is
carried out. The CBDT has, vide Circular No. 13/2021, dated 30.6.2021, clarified that since
this condition would not be satisfied in the year of incorporation, the provisions of section
194Q shall not apply in the year of incorporation. Since Shristi Ltd. is incorporated in the P.Y.

3 It is presumed that she has paid tax on such income in that country.

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2021-22, it would not qualify as a “buyer” for the purpose of section 194Q for the said previous
year, inspite of its turnover exceeding ` 10 crores in the said previous year.
However, since Filip & Co.’s turnover for the F.Y. 2020-21 exceeds ` 10 crores and its receipts
from Shristi Ltd. exceed ` 50 lakhs, TCS provisions under section 206C(1H) would be
attracted in its hands. TCS would be attracted at the time of receipt of consideration (i.e., in
respect of receipts in excess of sale consideration of ` 50 lakhs).
No tax is to be collected u/s 206C(1H) on 1.9.2021, since the aggregate receipts till that date
i.e., ` 32 lakhs, has not exceeded the threshold of ` 50 lakhs.
Tax of ` 1300 (i.e., 0.1% of ` 13 lakhs) has to be collected u/s 206C(1H) by M/s Filip & Co.
on 18.10.2021 (` 31 lakh – ` 18 lakhs, being the balance unexhausted threshold limit).
Tax of ` 1,800 (i.e., 0.1% of ` 18 lakhs) has to be collected u/s 206C(1H) by M/s. Filip & Co.
on 18.12.2021.
(iii) In a case where sale of goods of an e-commerce participant (Mr. Adheer) is facilitated by an
e-commerce operator (WINKLE) through its e-commerce website, section 194-O requires the
e-commerce operator to deduct tax at source@1% on ` 52 lakhs, being the gross amount of
sales facilitated through the e-commerce website.
As per section 206AA, in case where the deductee has not furnished his PAN, tax is required
to deducted at source at higher of 1% or 5%. Accordingly, tax has to be deducted at source
@5% of ` 52 lakhs = ` 2.6 lakhs.
(b) (i) Where Turnip Inc. and Sam Inc. have no permanent establishment in India
Equalisation levy would not be attracted in the present case since Turnip Inc., a non-resident
service recipient does not have a permanent establishment in India. Therefore, the Turnip Inc. is
not required to deduct equalisation levy @ 6% on ` 5 lakhs, being the amount paid towards online
advertisement services to Sam Inc.
However, equalisation levy @2% under section 165A is attracted on ` 5 lakhs, being the amount
of consideration received by Sam Inc, an e-commerce operator from e-commerce services
provided by it to Turnip Inc., a non-resident in the specified circumstance, namely, sale of
advertisement, which targets a customer, who is resident in India, since the gross receipt of Sam
Inc. in the P.Y. 2021-22 exceeds ` 2 crores.
(ii) Where Turnip Inc. has a permanent establishment in India but Sam Inc. does not have a
permanent establishment in India
In the present case, equalisation levy @6% is chargeable on the amount of ` 5,00,000 received
by Sam Inc., a non-resident not having a PE in India from Turnip Inc., a non-resident having a PE
in India. Accordingly, Turnip Inc. is required to deduct equalisation levy of ` 30,000 i.e., @6% of `
5 lakhs, being the amount paid towards online advertisement services provided by Sam Inc., a non-
resident having no permanent establishment in India. Non-deduction of equalisation levy would
attract disallowance under section 40(a)(ib) of 100% of the amount paid while computing business
income.
Since, equalisation levy is attracted on the amount of ` 5 lakhs, the said amount is exempt from
income-tax by virtue of section 10(50) of the Income-tax Act, 1961.
(iii) Where Sam Inc. has a permanent establishment in India and the advertisement services are
effectively connected with such PE
Equalisation levy would not be attracted where the non-resident service provider (Sam Inc., in this case)
has a permanent establishment in India and the service is effectively connected to the permanent
establishment in India. Therefore, Turnip Inc. is not required to deduct equalisation levy on ` 5 lakhs,
being the amount paid towards online advertisement services to Sam Inc, in this case.

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Since equalisation levy is not attracted in this case, exemption under section 10(50) of the Income-
tax Act, 1961 would not be available.
It is immaterial whether Turnip Inc. has a PE in India or not for the purpose of equalisation levy
implication of advertisement transaction, as in both the cases, equalisation levy would not be
attracted.
However, since Sam Inc. has a PE in India and advertisement services are effectively connected with
the PE in India, income attributable from such advertisement would be deemed to accrue or arise in
India in the hands of Sam Inc. under section 9(1)(i) and be taxable in the hands of Sam Inc. under
the Income-tax Act, 1961.
5. (a) Dispute Resolution Committee (DRC) would resolve dispute in the case of a person who opts for
dispute resolution under Chapter XIX-AA in respect of dispute arising from any variation in the
specified order in his case and who fulfils the specified conditions. Specified order includes an
assessment order passed under section 143(3), where the aggregate sum of variations made vide
such order does not exceed ` 10 lakh; the total income as per such return furnished by the
assessee for the assessment year relevant to such order does not exceed ` 50 lakhs and such
order is not based on search or requisition or survey or any information under a DTAA.
In the present case, Mr. Sanjay cannot file an application before DRC, since the assessment order
received on 12.12.2022 is not a specified order since total income as per return furnished by Mr.
Sanjay of ` 5,00,000 exceeds the threshold limit of ` 50,00,000 though he satisfies the specified
conditions on account of no order of detention being made and no prosecution proceedings being
initiated or launched against him.
However, Mr. Sanjay, can file an appeal before the Commissioner of Income-tax (Appeals) under
section 246A(1) against such order passed under section 143(3) within 30 days of the date of
service of the notice of demand relating to the assessment. Moreover, in case he does not want
to prefer an appeal, then he can move a revision petition before the Principal Commissioner or
Commissioner of Income-tax under section 264 within a period of one year from the date of on
which the order was communicated to him or the date on which he otherwise came to know of it,
whichever is earlier.
(b) Section 119(2)(b) empowers the CBDT to authorise any income tax authority to admit an
application or claim for any exemption, deduction, refund or any other relief under the Act after
the expiry of the period specified under the Act, to avoid genuine hardship in any case or class of
cases. The claim for carry forward of loss in case of late filing of a return is relatable to a claim
arising under the category of “any other relief available under the Act”. Therefore, the CBDT has
the power to condone delay in filing of such loss return due to genuine reasons.
The facts of the case are similar to the case of Lodhi Property Company Ltd. v. Under Secretary,
(ITA-II), Department of Revenue (2010) 323 ITR 0441, where the Delhi High Court held that the
Board has the power to condone the delay in case of a return which was filed late and where a
claim for carry forward of losses was made. The delay was only one day and the assessee had
shown justifiable reason for the delay of one day in filing the return of income. If the delay is not
condoned, it would cause genuine hardship to the assessee. Therefore, the Court held that the
delay of one day in filing of the return had to be condoned.
The CBDT Circular No. 9/2015 dated 09.06.2015 expressly clarifies that the following authorities
to be approached for this purpose:
Quantum of loss Authority to be approached
Where the loss is upto `10 lakhs The Principal CIT or CIT
Where the loss is above ` 10 lakhs but upto `50 lakhs The Principal CCIT or CCIT
Where the loss is above ` 50 lakhs The CBDT

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Applying the rationale of the above court ruling and the clarification given in CBDT Circular to the
case on hand, the CBDT has the power to condone the delay in filing the return of income of Mr.
Rajesh and permit carry forward of business loss of ` 51 lakhs, since the delay of one hour was
due to a genuine and justifiable reason i.e., network problem while e -filing the return.
Based on the circular mentioned above, if the claim for carry forward of business loss is 48 lakhs,
then, the Principal Chief Commissioner of Income-tax/Chief Commissioner of Income-tax has the
power to condone the delay.
(c) (i) The Model Conventions specify two approaches -
- Exemption method [Article 23A]; and
- Credit method [Article 23B]
Under the exemption method, tax exemption may be available in the Residence State. Under
the credit method, tax credit may be available in the Residence State for taxes deducted in
the Source State. These methods are not mutually exclusive and there may be cases where
a treaty may adopt exemption method for certain types of income and credit method for other
incomes.
(ii) “Juridical double taxation” arises when the same income or capital is taxable in the hands of
the same person by more than one State.
‘Economic double taxation’ happens when the same item of income or capital is taxed in more
than one States in hands of different persons.
(iii) Under Model Conventions, double taxation referred, is juridical double taxation, meaning the
same income or capital is taxable in the hands of the same person by more than one State.
It does not thus, encompass situations of economic double taxation, i.e., whe re two different
persons are taxable in respect of the same income or capital. If two States wish to solve
problems of economic double taxation, they must do so through bilateral negotiations.
6. (a) As per section 269SU, Rupal Ltd. is required to provide facility for accepting payment through the
prescribed electronic modes, in addition to the facility for other electronic modes of payment of
debit card or credit card provided by Rupal Ltd., since its total turnover in business during the
immediately preceding previous year. i.e., P.Y. 2020-21 is ` 51 crores, which exceeds the
prescribed threshold of ` 50 crores.
Prescribed electronic modes are
(1) Debit Card powered by RuPay;
(2) Unified Payments Interface (UPI) (BHIM-UPI); and
(3) Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR Code).
The failure to provide facility for electronic modes of payment prescribed under section 269SU by
Rupal Ltd. would attract a penalty under section 271DB of a sum of ` 5,000, for every day during
which such failure continues.
However, penalty shall not be imposed, if Rupal Ltd. proves that there were good and sufficient
reasons for such failure. Further, any such penalty shall be imposed by the Joint Commissioner.
(b) (i) In the present case, Dweep Ltd., an Indian company has 2 manufacturing units, unit M in the
SEZ and unit N in non-SEZ. Though unit M only does the packaging of goods manufactured
by Unit N, the company, in its books of account, shows the manufacture of goods by Unit N
as manufacture of goods by unit M to enjoy exemption under section 10AA. This is a case of
misrepresentation of facts by showing manufacture of non-SEZ unit as manufacture of SEZ
unit. Hence, this is an arrangement of tax evasion and not tax avoidance.

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Tax evasion, being unlawful, can be dealt with directly by establishing correct facts. GAAR
provisions need not be invoked in such a case.
(ii) In this case, goods manufactured by unit Q, a non-SEZ unit, being a non-eligible business,
are transferred to unit P, a SEZ unit, being an eligible business, at a price significantly lower
than the market value of the goods to claim higher deduction under section 10AA in respect
of unit P.
As there is no misrepresentation of facts or false submissions, it is not a case of tax evasion.
The company has tried to take advantage of tax provisions by diverting profits from non -SEZ
unit to SEZ unit. However, this is not the intention of the legislation.
Such tax avoidance is specifically dealt with through the provisions contained in section
10AA(9), as per which provisions of section 80-IA(8) would get attracted in such a case.
Further, if the aggregate of such transactions entered into in the relevant previous year
exceed the threshold of ` 20 crore, domestic transfer pricing regulations under section 92BA
would be attracted. Hence, the Revenue need not invoke GAAR in such a case, though GAAR
and SAAR can co-exist as per clarification given in the CBDT Circular.
(c) (i) Where XYZ Ltd., a Country P company, does not have a PE in India
In this case, XYZ Ltd. would be eligible for a concessional rate of tax @10% (plus
surcharge@2% and HEC@4%) under section 115A on the fees for technical services of
` 567 lakhs (i.e., ` 265 lakhs plus ` 302 lakhs) received from the Indian companies, Y Ltd.
and G Ltd., since the same are in pursuance of agreements 4 approved by the Central
Government. No deduction, however, would be allowed in respect of expenditure of ` 59 lakhs
(i.e., ` 35 lakhs and ` 24 lakhs) incurred to earn such income.
If tax deductible at source@10.608% has been fully deducted, XYZ Ltd. need not file its return
of income in India under section 139 for A.Y.2022-23.
(ii) Where XYZ Ltd., a Country P company, has a PE in India and the contracts/agreements
are effectively connected with the PE in India.
In this case, XYZ Ltd. has a PE in India, and the agreements with Y Ltd. and G Ltd. are
effectively connected with such PE and such agreements have been entered into in the year
20155. Accordingly, as per section 44DA, the income from rendering technical services shall
be computed under the head “Profits and gains of business or profession” in accordance with
the provisions of the Income-tax Act, 1961; and shall be subject to tax@40% (plus
surcharge@2% and HEC@4%).
Accordingly, expenses of ` 35 lakhs and ` 24 lakhs incurred for earning fees for technical
services of ` 265 lakhs and ` 302 lakhs, respectively, from Y Ltd. and G Ltd., is allowable as
deduction therefrom. Further amount of ` 15.2 lakhs paid by the PE to the HO being in the
nature of reimbursement of actual expenses is allowable as deduction. However, expenditure
of ` 8.2 lakhs which is not incurred wholly and exclusively for the business of the PE and the
amount of ` 14.6 lakhs paid by the PE to the HO, not being in the nature of reimbursement of
actual expenses, are not allowable as deduction.
XYZ Ltd. is required to maintain books of account under section 44AA and get the same
audited under section 44AB and furnish report before the specified date i.e., the date one
month prior to the due date of filing return u/s 139(1) for A.Y. 2022-23.

4 entered into after 31.3.1976,

5 i.e., after 31.3.2003

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