Topic wise Test Papers of CA FINAL - Direct Tax – MAY/NOV - 24 Exams

Paper - 8
Topic: VDA, DTAA & TP
Total Marks: 44 Marks
Time Allowed: 80 minute

Questions:

Part-A Multiple Choice Questions

[Total 20 Marks – 2 Marks for each MCQ]

Question:1
Mr. Hari (aged 42 years) is a resident Indian who is a salaried employee. His salary income
(computed) for the P.Y.2023-24 is ` 17,50,000. His brother Mr. Rajesh (aged 45 years) is a resident
Indian carrying on retail trade business in which he incurred a loss of ` 5,25,000 (computed) for the
P.Y.2023-24. He also trades in Virtual Digital Assets. The details of assets transferred by Mr. Hari
and Mr. Rajesh during the P.Y.2023-24 are given hereunder:
Particulars Mr. Hari Mr. Rajesh
Land and building ` `
Date of acquisition 1.4.2022
Cost of acquisition 20,00,000
Date of transfer 28.2.2024
Expenses on transfer 1,00,000
Sale consideration 30,00,000
Virtual Digital Asset
Number of units 40 50
Date of acquisition 1.4.2021 31.5.2021
Cost of acquisition (of 40 units/50 5,20,000 2,50,000
units, respectively)
Date of transfer 1.9.2023 1.3.2024
Expenses on transfer 2,000 1,000
Sale consideration (of 40 units/50 4,90,000 3,50,000
units, respectively)
FMV on the date of transfer (of 40 5,10,000 4,10,000
units/50 units, respectively)

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 2 Test Papers of CA Final - Direct Tax - MAY/NOV-24 Exams — Questions

Person to whom Mr. Ganesh (who Mr. Vallish

transferred is engaged in the (who is engaged
business of trading in the business
in foodgrains) of trading
in furniture)
Turnover of the transferee ` 90 lakh ` 15 lakh
(Mr. Ganesh and Mr. Vallish) in
the F.Y.2022-23
Turnover of the transferee ` 110 lakh ` 22 lakh
(Mr. Ganesh and Mr. Vallish) in
the F.Y.2023-24
During the P.Y.2023-24, Mr. Hari has dividend income of ` 10 lakh from shares of Indian companies.
He has paid interest of ` 4 lakh on loan borrowed for investment in shares. Both Mr. Hari and Mr.
Rajesh have deposited ` 1,50,000 in PPF. Mr. Hari has interest on savings account of ` 22,000 while
Mr. Rajesh has income from fixed deposits of ` 50,000.
CII for F.Y.2021-22 – 317; F.Y. 2022-23 – 331 and F.Y.2023-24 – 348.

(i) What is the tax treatment of loss from transfer of virtual digital asset by Mr. Hari?
(a) It is a long-term capital loss which cannot be set-off against capital gains on transfer of land
and building; it has to be carried forward for set-off against long-term capital gains of the
subsequent year.
(b) It is a short-term capital loss which can be set-off against capital gains on transfer of land
and building.
(c) Such loss cannot be set-off against any other source of income in the P.Y.2022-23 but can
be carried forward for set-off against income from transfer of virtual digital asset in the
subsequent year
(d) Such loss can neither be set-off against any other source of income in the P.Y. 202223 nor
can it be carried forward to the subsequent year for set-off against income from same
source.
(ii) What is the income includible in the total income of Mr. Rajesh on account of transfer of virtual
digital asset?
(a) ` 99,000
(b) ` 1,00,000
(c) ` 1,59,000
(d) ` 1,60,000

(iii) What is the amount of tax deductible by Mr. Ganesh and Mr. Vallish under section 194S from
consideration paid to Mr. Hari and Mr. Rajesh for transfer of virtual digital asset?
(a) Nil, in both cases, since their turnover of P.Y.2022-23 does not exceed ` 100 lakhs

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 Test Papers of CA Final - Direct Tax - MAY/NOV-24 Exams — Questions 3
(b) ` 4,900 and Nil, respectively. Tax is deductible by Ganesh since his turnover for P.Y.2023-
24 exceeds ` 100 lakhs. No tax is deductible by Mr. Vallish since his turnover does not
exceed ` 100 lakhs.
(c) ` 5,100 and ` 4,100, respectively. Tax is deductible@1% of higher of actual consideration
and fair market value of virtual digital assets.
(d) ` 4,900 and ` 3,500, respectively. Tax is deductible@1% of sale consideration, since the
same is in excess of the prescribed threshold limits.
(iv) What is the income includible in the total income of Mr. Ganesh and Mr. Vallish on receipt of
virtual digital asset for inadequate consideration? (a)
(a) ` 20,000 and Nil, respectively
(b) Nil, in both cases.

(c) ` 20,000 and ` 60,000, respectively.

(d) Nil and ` 60,000, respectively.

(v) What is the total income (rounded off) of Mr. Hari for A.Y.2024-25? Assume that he has not
opted for section 115BAC.
(a) ` 32,23,670

(b) ` 32,82,000

(c) ` 33,02,000

(d) ` 33,12,000

(vi) What would be the tax payable (rounded off) by Mr. Rajesh for A.Y.2024-25? What is the
amount of business loss, if any, to be carried forward to A.Y.2025-26? Assume that he has not
opted for section 115BAC.
(a) Tax payable Nil; business loss to be carried forward ` 3,75,000
(b) Tax payable ` 30,890; business loss to be carried forward ` 4,75,000
(c) Tax payable ` 27,700; business loss to be carried forward ` 4,75,000
(d) Tax payable ` 45,820; business loss to be carried forward ` 4,75,000

Que. 2 2 Marks
Samraat, a resident Indian, has earned an income of US dollars equivalent to ₹ 4 lakh in the P.Y.2023-24
by way of lump sum consideration for copyright of a book, being a work of literary nature, from a
publisher in Country E, with which India does not have a DTAA. The same has been taxed at a flat rate of
5% in Country E. The amount has been remitted to India in March, 2024. His gross total income as per
the Income-tax Act, 1961 for A.Y.2024-25 is ₹ 7 lakhs. The deduction available under section 91 for
A.Y.2024-25 would be -
(a) ₹ 20,000 (b) ₹ 7,725
(c) ₹ 1,950 (d) Nil
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4 Test Papers of CA Final - Direct Tax - MAY/NOV-24 Exams — Questions

Que. 3 2 Marks
ABC Ltd., an Indian company, paid Interest on loan taken from a wholly owned subsidiary Pix Inc., UK for
₹ 25 million. The TPO identified the following uncontrolled observations to arrive at this ALP:
Observation Interest rate
1 5%
2 8%
3 14%
4 6%
5 12%
6 17%
What are the values (percentages) in the dataset to be selected by the TPO while computing the arm’s
length interest rate applying the range concept as per Rule 10CA?
(a) 35th percentile – 8%, Median – 10%, 65th percentile – 12%
(b) 35th percentile – 14%, Median – 10%, 65th percentile – 6%
(c) 35th percentile – 4.9%, Median – 10%, 65th percentile – 11.05%
(d) Arithmetic mean – 10.33%

Que. 4 2 Marks
Under which of the following cases, will arm’s length price be determined by considering the median of
the dataset?
Does the price at which the transaction is undertaken
Most Appropriate No. of entries in fall within the arm’s length range beginning from the
Case
Method the dataset 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

Que. 5 Transfer Pricing

Under which of the following methods, arm’s length price shall be the arithmetical mean of all values
included in the dataset, irrespective of the number of entries in the dataset. It may be assumed that the
variation between the arm’s length price computed and the transaction price is 15%.
(a) Profit split method (b) Resale price method
(c) Cost plus method (d) Transactional net margin method

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 Test Papers of CA Final - Direct Tax - MAY/NOV-24 Exams — Questions 5
Part-B Descriptive Questions

Question:1
The following are the particulars of income earned by Miss Vivitha, a resident Indian aged 25, for the
assessment year 2024-25:
Particulars ` In lacs
Income from playing snooker matches in country L 12.00
Tax paid in country L 1.80
Income from playing snooker tournaments in India 19.20
Life Insurance Premium paid 1.10
Medical Insurance Premium paid for her father aged 62 years (paid through credit card) 0.30
Compute her total income and tax liability for the assessment year 2024-25. There is no Double
Taxation Avoidance Agreement between India and country L. Ignore the provisions of section
115BAC. [6 Marks]

Question:2
Smt. Laxmi (age 70), a resident individual furnishes you the following particulars for the previous
year 2023-24:
Particulars `
Income from business in India (computed) 6,00,000
Loss from let out property at Chennai 4,40,000
Dividend Income from a domestic company 2,00,000
Business income in country “B” (tax paid thereon at 20%) 4,00,000
Rental income from property at Mumbai (computed) 1,80,000
Note: Assume that there is no double taxation avoidance agreement between India and country “B”.
Compute the total income and tax payable by Smt. Laxmi for the A.Y.2024-25. Ignore the provisions
of section 115BAC. [6 Marks]

Question:3
Amar P Ltd., Bangalore is engaged in IT Enabled services. It is the subsidiary of ABC Inc in US. It
also provides similar services to a company SAK Ltd. at Singapore. Its billings and other information
is as given hereunder:
(i) Billings per month to ABC Inc. - USD 85000
(ii) Billings per month to SAK Ltd. - USD 70000
(iii) ABC Inc has provided a loan of USD 100000 to Amar P Ltd. towards purchase of hardware for
executing its project. Rate of interest charged for the said loan is at 3% p.a.
(iv) Direct and indirect cost incurred are USD 100 and USD 200 per hour, respectively.
(v) Amar P Ltd. works 9 hours per day for 15 days to execute the projects for ABC Inc and 8 hours
per day for 15 days to execute projects for SAK Ltd. Service was provided by the company to

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6 Test Papers of CA Final - Direct Tax - MAY/NOV-24 Exams — Questions
both its customers throughout the year.
(vi) Warranty was provided to SAK Ltd. for a period of 2 years. Cost of warranty is calculated at 1%
of direct cost incurred. The cost of warranty is neither included in the direct nor indirect cost.
Assume conversion rate 1 USD = ` 64. Compute Arm’s Length Price as per the cost-plus method and
the amount to be added, if any, to the income of Amar P Ltd. [6 Marks]

Question:4
ABC Ltd., Canada holds 35% shares in LMN Ltd., India. LMN Ltd. develops software and does both
onsite and offsite consultancy services for the customers. LMN Ltd. during the year billed ABC Ltd.
Canada for 120 man-hours at the rate of ` 1,800 per man hour. The total cost (direct and indirect) for
executing this work amounted to ` 2,25,000.
However, LMN Ltd. billed XYZ Ltd., India at the rate of ` 2,800 per man hour for the similar level
of manpower and earned a Gross Profit of 50% on its cost.
The transactions of LMN Ltd. with ABC Ltd. and XYZ Ltd. are comparable, subject to the following
differences:
• While LMN Ltd. derives technology support from the ABC Ltd., there is no such support
from XYZ Ltd. The value of technology support received from ABC Ltd. may be put at
18% of normal gross profits.
• As ABC Ltd. gives business in large volumes, LMN Ltd. offered to ABC Ltd., a quantity
discount which may be valued at 10% of normal gross profits.
• In the case of rendering services to ABC Ltd., LMN Ltd. neither runs any risk nor incurs
any marketing costs. On the other hand, in the case of services to XYZ Ltd., LMN Ltd. has
to assume all the risk and costs associated with the marketing function which may be
estimated at 12% of the normal gross profits.
• LMN Ltd. offered one month credit to ABC Ltd. The cost of providing such credit may be
valued at 2% of the gross profits. No such credit was given to XYZ Ltd.
Compute the Arm's Length Price along with income to be increased under the Cost Plus Method.
[6 Marks]

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