This Answer Key is copyrighted property of AIR1CA Career Institute.

Sharing and Circulating it without

permission is punishable offence.

CA FINAL (Nov 2024)

GROUP II – PAPER 4
DIRECT TAX LAWS & INTERNATIONAL TAXATION
SUGGESTED ANSWERS
(Series 3)

PART – I (MCQs)
MCQ – 2 marks each
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.
C C A D A C B B D D C B B D A

PART – II (Descriptive Answers)

1 Implication on conversion of company into LLP

Transfer of capital asset or intangible asset by a private company or unlisted public

company to a LLP or any transfer of share held by shareholder to LLP in a conversion of
private company into an LLP is not regarded as transfer under section 47 provided the
conditions specified therein are satisfied.

Accordingly, transfer of capital asset by Binu Ltd., Delhi to M/s Soumya LLP is not
regarded as transfer since the conditions specified in section 47(xiiib) as stated in the
question stand satisfied and fulfilled.

Computation of Total Income in the hands of M/s Soumya LLP

Particulars Amount (₹)

Profits and gains of business and profession

Net profit as per the profit and loss account 25,40,000

Add: Items debited but to be considered

separately or to be disallowed

(i) Salary to Binu, working partner (to be 6.60,000

considered separately) [₹ 55,000 x 12]

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Page 1
(ii) Salary paid to Mr. Ayushman, an _
employee

[Under section 40A(3), disallowance is attracted

in respect of expenditure for which cash payment
exceeding ₹ 10,000 is made on a day to a person.
Payment of ₹ 3,45,000 to Mr. Ayushman, an
employee, is covered by exception under Rule
6DD since, TDS has been deducted, employee is
temporarily posted in Mumbai and does not have
a bank account in Mumbai. Since the same has been
debited to profit and loss account, no adjustment is
required]

(iii) Penalty for non-fulfilment of delivery _

conditions of a contract for sale
[Penalty for non-fulfilment of delivery conditions
of a contract for sale is not on account of infraction
of law. Penalty for breach of contract is busines or
commercial loss and would be allowable expenditure
under section 37. Since the same has been debited to
profit and loss account, no adjustment is required]
(iv) Provision for wages payable to workers _
[The provision is based on fair estimate of wages and
reasonable certainty of revision, and thus is
allowable as deduction, as ICDS-X requires
‘reasonable certainty for recognition of a provision,
which is present in this case. As the provision has
been debited toprofit and loss account, no adjustment
is required while computing business income]
(v) Depreciation as per books of account 5,40,000

(vi) Provision for gratuity 2,50,000

[Provision of ₹ 6,50,000 for gratuity based on actuarial
valuation is not allowable as deduction as per
section 40A(7). However, actual gratuity of ₹
4,00,000 paid is allowable as deduction. Hence, the
difference is to be added back being of ₹
2,50,000 (₹ 6,50,000 – ₹ 4,00,000)]
(viii) Repair to plant and machinery given on 59,000
lease
[Lease rent from factory building along with plant and
machinery and furniture is chargeable to tax under the
head income from other sources, since the main
business of the M/s Soumya LLP is manufacturing of
metro rail seats and not letting out the properties.
Therefore, repairs to such plant and machinery to be
deducted from lease income taxable under the head
“Income from Other Sources. Since the same has
been debited to profit and loss account, it has to be
added back]
(ix) Factory licence fee paid 15,000
[Factory licence fee in respect of leased out factory
building is to be deducted from lease income taxable
under the head “Income from Other Sources”. Since
the same has been debited to profit and loss account,
it has to be added back]

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Page 2
(x) Legal fee to advocate for drafting and 26,000
registering lease agreement
[Legal fee to advocate for drafting and registering
lease agreement to be deducted from lease income
taxable under the head “Income from Other
Sources”. Since the same has been debited to profit
and loss, it has to be added back]

Add: Amount taxable but not credited to profit

and loss account
AI(4) Profit on sale of import entitlements 1,50,000

[Profit on sale of import entitlements is

chargeable to tax under the head “Profits and
gains from business and profession” under
section 28. Since the same has not been credited
to profit and loss account,it has to be added]
17,00,000

42,40,000

Less: Items credited to profit and loss

account, but not includible inbusiness
income / permissible expenditure and
allowances

(i) Profit on sale of shares of M/s ToyoLtd. 1,27,500

[Taxable under the head “Capital Gains”. Since the

same has been credited toprofit and loss
account, it has to be reduced from business income]

AI(a)Voluntary Retirement Schemeexpenditure 4,00,000

[₹ 20 lakh/5]

[One fifth deduction is available in respect of

payment for voluntary retirement scheme for five
years. Where a private company or unlisted
company is succeeded by a LLP fulfilling the
conditions laid down in section 47(xiiib), then,
deduction in respect of voluntary retirement scheme
is available to the LLP for the balance years from the
year of succession. Hence, deduction of ₹ 4,00,000 is
allowable in P.Y. 2023-24 to M/s Soumya LLP being for
3rd year]

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Page 3
 AI(1) Interest paid during the year 3,00,000

[Conversion of unpaid interest into loan shall not

be construed as payment ofinterest for the
purpose of section 43B. The amount of unpaid
interest converted into a new loan will be
allowable as deduction only in the year in which
such converted loan is actually paid. Since ₹ 3 lakhs
has been paid in the P.Y. 2023-24, the same is
allowable as deduction]

AI(2) Depreciation on motor car exclusively 15,000

used for business purpose

[Depreciation on motor car bought and used

exclusively for the purposes of business is
allowable though not registered in the name of the
firm.]

AI(3) Depreciation as per Income-tax Rules[₹ 7,20,000

8,10,000 – ₹ 90,000]
[Depreciation on leased out asset to be
deducted from lease income taxable under the
head “Income from Other Sources. Since the same
has been included in depreciationof ₹ 8,10,000, it
has to be reduced from it]
15,62,500

Book Profit 26,77,500

Less: Remuneration to Mr. Binu, a working

partner [Subject to limit specified in section
6,60,000
40(b)

[On first ₹ 3,00,000 of book profit, 90% of book

profit or ₹ 1,50,000, whichever is higher and on
the balance of book profit, 60% of balance book
profit] [₹ 16,96,500 (2,70,000, being 90% of
₹ 3,00,000 + ₹14,26,500, being 60% of ₹
23,77,500) restricted to actual remuneration
paid to Binu.
Profits and gains from business and 20,17,500
profession

Capital Gains

Sale consideration [150 x ₹ 2,750 per share] 4,12,500

Less: Cost of acquisition [150 x ₹ 2,500 per share]

[Indexation benefit would not beavailable]
[Higher of 3,75,000
(i) ₹ 1,900, actual cost, being the cost of
acquisition to Binu Ltd. as per section 49]
(ii) ₹ 2,500, being the lower of

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Page 4
 - Fair market value as on 31.1.2018 [₹ 2,500
per share]
- Full value of consideration [₹ 2,750 per
share]
Long term Capital gains since shares held for more 37,500
than 12 months [Period of holding of Binu Ltd. is also
included]

Income from Other Sources

Lease rent [₹ 50,000 x 12] 6,00,000

Less: Deduction under section 57

Repair of leased out plant and machinery 59,000

Factory licence fee in respect of leasedout factory

building
15,000
Legal fee for drafting and registeringlease
agreement 26,000
Depreciation of assets given on lease 90,000

4,10,000

Gross Total Income/ Total Income 24,65,000

2 (a) Computation of total income and tax payable in the hands of Mr. Rajesh
Particulars ₹
(i) Dividend income from GPL Ltd. (SPV) -
As per section 10(23FD), the component of dividend income
distributed to unitholders is not taxable in the hands of unitholders,
since GPL Ltd. (SPV) has not exercised the option u/s 115BAA.
Accordingly, ₹ 18 lakhs (10% of ₹ 1.80 crore, being 90% of ₹ 2 crore),
being the dividend component of income received by Mr. Rajesh
from Shipra Ltd. is not taxable in his hands.
(ii) Interest income from GPL Ltd. (SPV) 27,00,000
As per section 115UA(3), interest income distributed to unit holders
would be deemed as income of the unit holders. Accordingly, ₹ 27
lakhs [i.e., 10% of ₹ 2.7 crores (90% of ₹ 3 crores)], being the interest
component of income distributed to Mr. Rajesh, is taxable in the
hands of the Mr. Rajesh.
(iii) Short-term capital gain on sale of development properties by -
Shipra Ltd.
As per section 115UA(2), STCG on sale of development properties is
taxable at maximum marginal rate of 42.744% in the hands of the
REIT. No tax liability arises in hands of Mr. Rajesh on ₹ 9 lakh (10%
of ₹ 90 lakh, being 90% of ₹ 1 crore), being capital gain component of
income distributed to him, by virtue of section 10(23FD).

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Page 5
 (iv) Business Income of PQR Ltd. -
Business income of an investment fund is taxable in hands of
investment fund. Consequently, as per section 10(23FBB), business
income accruing or arising to or received by a unitholder of
investment fund is not taxable in his hands.
(v) Long-term capital loss of PQR Ltd. -
Long-term capital loss of ₹ 2,70,000 (10% of ₹ 27 lakhs) can be
carried forward and set-off by Mr. Rajesh, since he holds such units
for more than 12 months, against income from long-term capital
gains arising in the subsequent years, since there is no long-term
capital gain in the current year. It can be carried forward for a
maximum of 8 assessment years.
(vi) Interest income of PQR Ltd. 5,20,000
As per section 10(23FBA), interest income would be exempt in the
hands of Investment fund. As per section 115UB, ₹ 5,20,000 lakhs
(10% of ₹ 52 lakhs) would be taxable as income from other sources
in the hands of Mr. Rajesh.
Even if investment fund distributed only 90% of its income to the
unit holders during the year, remaining 10% of income would be
deemed to be credited to account of each unitholder on the last day
of previous year i.e., 31.03.2024.
Total income 32,20,000

Computation of tax payable by Mr. Rajesh

Particulars ₹ ₹
Upto ₹ 3,00,000 Nil
₹ 3,00,001 – ₹ 6,00,000 @5% 15,000
₹ 6,00,001 – ₹9,00,000 @10% 30,000
₹ 9,00,001 – ₹12,00,000 @15% 45,000
₹12,00,001 – ₹15,00,000 @20% 60,000
₹ 15,00,001 – ₹ 32,20,000@30% 5,16,000 6,66,000
Add: Health and education cess @4% 26,640
Tax liability 6,92,640
Less: Tax deducted at source
- under section 194LBA @ 10% by Shipra Ltd. in 2,70,000
respect of interest income from SPV
- under section 194LBB @10% by PQR Ltd. 52,000 3,22,000
Net Tax payable 3,70,640

2 (b) (i) If a Liaison Office is maintained solely for the purpose of carrying out activities which
are preparatory or auxiliary in character, and such activities are approved by the
Reserve Bank of India, then, no business connection is established.
In this case, had the liaison office’s activities been restricted to forwarding of trade
inquiries to ABC Ltd., a Dubai based company, its activities would not have constituted
business connection. However, the activities of the liaison office extends to also

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Page 6
 negotiating and entering into contracts on behalf of ABC Ltd. with the customers in
India, on account of which business connection is established.
(ii) As per the opening sentence in Explanation 2, to section 9(1)(i) “business connection”
shall include any business activity carried out through a person in India acting on
behalf of the non-resident. Accordingly, in this case, since the branch office is
carrying out a business activity by purchasing raw materials in India for XYZ Inc.
and selling finished product manufactured by XYZ Inc. to customers in India and
providing sales related services to them on behalf of XYZ Inc., business connection is
established.
It may be noted that as per clause (a) of Explanation 2, in the case of a non-resident, no
business connection would be established if the activities of the person acting on
behalf of the non-resident were limited to the purchase of goods or merchandise for
the non-resident.
In the present case, however, business connection would be established, since
the branch set up at Hyderabad by XYZ Inc. is not solely engaged in purchase of raw
materials for XYZ Inc. for manufacturing its products but is also engaged in selling such
manufactured products to customers in India and providing sales related services to
them on behalf of XYZ Inc.
(iii) ‘Business connection’ shall include any business activity carried out through a person
acting on behalf of the non-resident. For a business connection to be established, the
person acting on behalf of the non-resident –
a. must have an authority which is habitually exercised in India to conclude
contracts on behalf of the non-resident or;
b. in a case where he has no such authority, but habitually maintains in India a
stock of goods or merchandise from which he regularly delivers goods or
merchandise on behalf of the non-resident, or
c. habitually secures orders in India, mainly or wholly for the non-resident.
In the present case, business connection would not be established, since Mr. Rajesh
does not have the authority to accept or conclude orders in India on behalf of PQR Inc.
Moreover, all the orders were directly received, accepted and after receipt of the
price/value, the delivery of goods was also given by PQR Inc. outside India. Hence, no
business connection is established in this case.

3 (a) Computation of total income of Asma Rani Public Charitable Trust

Particulars ₹ ₹
Gross receipts from Hospital (other than voluntary contribution 5,40,00,000
of ₹ 20 lakhs)
Gross receipts from Rehabilitation Centre 2,20,00,000
Grant received from State Govt. 7,50,000
Fees not realized from patients as at 31.3.2024 (not includible, -
since trust follows cash system of accounting)
7,67,50,000
Add: Voluntary contributions other than corpus donations of ₹ 10,00,000
10 lacs
7,77,50,000

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Page 7
Add: Anonymous donations [to the extent not chargeable to 1,40,000
tax@30% u/s 115BBC(1)(i)] [₹ 1,40,000, being 5% of total
donations of ₹ 28,00,000 or ₹ 1,00,000, whichever is
higher]
7,78,90,000
Less: 15% of income eligible for being set apart without any 1,16,83,500
condition
6,62,06,500
Less: Amount applied for charitable purposes
- On revenue account – Administrative expenses:
For Hospital (Out of ₹ 335 lakhs, ₹ 3.6 lakhs, being 30% of 3,31,40,00
12 lakhs, would be disallowed, since tax is not deducted 0
u/s 192 & 194C on such amount paid to resident doctors
& contractors)
For Rehabilitation Centre 1,38,00,00
0
- On capital account – Land & Building 1,50,00,00
0
[Section 56(2)(x) is not attracted in respect of value of
property received by a trust or institution registered u/s
12AB]
- Donation to Jan Kalyan Trust registered u/s 12AB 5,10,000
(₹ 6 lakhs x 85%)
[Allowable to the extent of 85%, even though the objects
of the trust are different. Only corpus donations are not
permissible to other trusts registered u/s 12AB. Thus, out
of ₹ 11 lakhs, ₹ 5 lakhs towards corpus are not allowable
as deduction.]
- Repayment of loan taken for construction of Rehab. 6,65,000 6,31,15,000
Centre
30,91,500
Less: Amount set apart for acquiring another table & equipment 15,00,000
for OT ₹ 15 lakhs would be treated as application for the
previous year 2023-24
Total income [other than anonymous donation taxable@30% 15,91,500
under section 115BBC(1)(i)]
Add: Anonymous donation taxable @30% u/s 115BBC(1)(i)
[8,00,000 – 1,40,000] 6,60,000
Total Income of trust (including anonymous donation 22,51,500
taxable@30%)

Computation of tax liability of the trust

Particulars ₹
Tax on total income [Excluding anonymous donations] 2,89,950
[₹ 5,91,500 x 30% + ₹ 1,12,500]
Tax on anonymous donations taxable@30% [₹ 6,60,000 x 30%] 1,98,000

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Page 8
 4,87,950
Add: Health and education cess @4% 19,518
Total tax liability 5,07,468
Total tax liability (rounded off) 5,07,470

3 (b) MNO Ltd., an Indian company and ABC Inc., a Country A based company are associated
enterprises as per section 92A, since ABC Inc. is a parent company of MNO Ltd. Thus, the
transaction of purchase of mobile handsets by MNO Ltd. from ABC Inc. would be an
international transaction. The value of international transaction is to be worked out on the
basis of Arm’s Length Price (ALP).
ABC Inc. is selling mobile phones to unrelated customers, which would be the comparable
uncontrolled transaction in this case. The purchase price for unrelated customers has to be
adjusted by taking into consideration the functional differences existing between the
transactions of ABC Inc. with associated enterprise (MNO Ltd.) and other unrelated parties.
Accordingly, the arm’s length price for purchase of mobile phones has to be computed for
working out the impact on assessable value as per CUP method.
Computation of Arm’s Length Price

Particulars ₹ in crores
Purchase price of mobile phones by unrelated parties from ABC Inc. 2,400
Adjustments for functional differences
Add: Royalty payable by MNO Ltd. [₹ 100 per mobile phone x10,00,000] 10
Cost of capital for 1 month credit which is not given to unrelated party 20
[10% x₹ 200 crore (monthly average sales i.e., ₹ 2,400 crore /12 months]
Arm’s Length Price of 10,00,000 mobile phones (A) 2430
Purchase price of mobile phone by MNO Ltd. from ABC Inc., its parent 2600
company (associated enterprise) (B)
Amount to be added to its total income (B) – (A) 170

Note – In case it is assumed that ₹ 10 crores is not included in the price of ₹ 2600 crores, the
adjustment of royalty of ₹ 10 crores paid/payable is not required. The ALP in such a case
would be ₹ 2,420 crores. The amount to be added to the total income would be ₹ 180 crores.

4 (a) (i) For the payment in question, since the payment has been made to a non-resident,
applicability of TDS will have to be considered as per the provisions of section 195.
The obligation to deduct tax at source u/s 195 arises only in respect of any sum
chargeable to tax in India.
As per Explanation 4 to section 9(1)(vi) of the Income-tax Act, 1961, “royalty”
includes transfer of all or any right for use or right to use a computer software.
Hence, royalty payable by a resident in India to a non-resident company based in USA
for the purposes of importing computer software for reselling to end users in India
would be deemed to accrue or arise in India in the hands of the non-resident company,
and hence, would be chargeable to tax in India in its hands. There being income
chargeable to tax in India, TEL is required to deduct tax at source u/s 195 at the rates
in force as per the provisions of the Income-tax Act, 1961.
However, as per India-USA DTAA, since Tam Electronics Ltd. (TEL) resells the

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Page 9
 computer software purchased from Jam Electronics Inc. to resident Indian end-users
without modification, the amount paid by Tam Electronics Ltd. to Jam Electronics Inc.
for purchase of computer software is not royalty, due to absence of provision akin to
Explanation 4 to section 9(1)(vi) in the DTAA including such payment within the
definition of royalty. It was so held by the Supreme Court in Engineering Analysis
Centre of Excellence P. Ltd v. CIT and Another (2021) ITR 471.
As per section 90(2), where India has entered into a DTAA with a country outside
India, the provisions of the Income-tax Act, 1961 will apply only to the extent they are
more beneficial to the assessee. In this case, since the DTAA provisions are more
beneficial to TEL, the same will prevail over the provisions of the Income-tax Act,
1961. Accordingly, there being no income chargeable to tax in India, TEL is not
required to deduct tax at source.
(ii) The relationship between the DEHP Ltd., a public sector bank, and M/s NFGS Ltd., is
not of an agency but that of two independent parties on principal-to-principal
basis. Therefore, TDS provisions under section 194H would not be attracted on
commission payment made by DEHP Ltd., a public sector bank to M/s NFGS Ltd. for
ATM network services provided by it. It was so held in CIT and another vs. Corporation
Bank (2021) 431 ITR 554 (Kar).
Also, section 194J will not apply is case of provision of ATM network services. since the
same takes place without manual or human intervention.
(iii) Tax is required to be deducted under section 194C by PQR Ltd. on payment for
stitching of T-shirts to Mr. A,
• since the supply of t-shirts is as per specification of PQR Ltd. and the cloth is
purchased from Fashion Ltd., which is an associate of PQR Ltd, specified under
section 40A(2), and
• Since a consolidated invoice has been raised, tax would be deducted on the
entire amount, including the cost of purchases.
Tax rate would be deducted@1% under section 194C since the contractor is an
individual. Therefore, tax to be deducted = ₹ 40,00,000 x 1% = ₹ 40,000.
(iv) Tax is to be deducted under section 194E at 20% on amount payable to a non-
resident sportsman who is not a citizen of India for participation in matches and
honorarium for writing an article related to sport for a sports magazine.
Further, since Mr. David, a Canadian citizen, is a non-resident, health and education
cess@4% on TDS should also be added. Thus the effective TDS rate will be 20.8%
Tax to be deducted = (₹ 4,58,000 + ₹ 1,25,000) x 20.80% = ₹ 95,264 + ₹ 26,000 = ₹
1,21,264.

4 (b) Computation of total income of Miss Sapna

Particulars ₹ ₹
Salaries [Indian Income]
Basic Salary (₹ 45,000 x 12 months) 5,40,000
Dearness Allowance (10% of basic salary of ₹ 5,40,000) 54,000
Transport Allowance (₹ 8,000 x 12) [Fully taxable] 96,000
Medical Allowance (₹ 3,500 x 12) [Fully taxable] 42,000

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Page 10
 Gross Salary 7,32,000
Less: Standard deduction u/s 16
Lower of actual salary or ₹ 50,000 50,000
Net Salary 6,82,000
Income from Other Sources [Foreign Income]
Income from lectures in foreign university [₹ 7,92,000 plus tax
deducted at source of ₹ 1,08,000] 9,00,000
Gross Total Income 15,82,000
Less: Deduction under Chapter VIA
Under section 80CCC – Contribution to approved 15,000
Pension Fund of LIC
Under section 80D – Medical insurance premium of her
father, being a resident senior citizen, ₹ 35,000 [being
1/5th of the lumpsum premium of ₹ 1,75,000 paid for 5
years] fully allowable, even though he is not dependent
on her, since the same does not exceed ₹ 50,000 35,000 50,000
Total Income 15,32,000

Computation of tax liability of Miss. Sapna

Particulars ₹
Tax on total income [₹ 1,59,600 (i.e., 30% of ₹ 5,32,000) plus ₹ 2,72,100
1,12,500 (Tax on income of ₹ 10 lakh)]
Add: Health and education cess @4% 10,884
Tax Liability 2,82,984
Average rate of tax in India [i.e., ₹ 2,82,984/₹ 15,32,000 x 100] 18.472%
Tax rate in foreign country [1,08,000/9,00,000] x 100 12%
Deduction under section 91 on ₹ 9,00,000, being the doubly
taxed income@ 12% [being the lower of Indian rate of tax
(18.472%) and foreign tax rate (12%)] 1,08,000
Tax Payable 1,74,984
Tax Payable (rounded off) 1,74,980

5 (a) (i) Section 144C requires the eligible assessee, Mr. Rakesh, to file his objections
within 30 days of the receipt of draft assessment order from the Assessing Officer
with the DRP and the Assessing Officer.
If he fails to do so, the Assessing Officer will proceed to complete the
assessment on the basis of the draft order.
The CBDT has clarified that the assessee has a choice whether to file an objection
before the DRP against the draft assessment order or not to exercise this
option and file an appeal later before CIT (Appeals) against the final
assessment order passed by the Assessing Officer.
Therefore, Mr. Rakesh can choose to file an appeal before Commissioner
(Appeals) against the final assessment order instead of filing objection before the
DRP against the draft assessment order passed by the Assessing Officer.

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Page 11
 In case Mr. Rakesh files objection before the DRP, then, he has the right to
appeal to Appellate Tribunal, if he is aggrieved by the final order passed by the
Assessing Officer in pursuance of the directions of the DRP.

(ii) 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.
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.
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 the complete absence of notice itself.
Accordingly, 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.
In the present case, since the assessment of R & Sons HUF was completed u/s 143(3)
without issuing notice u/s 143(2), the assessment is bad in law and not a curable
defect u/s 292BB. Therefore, the contention of R & Sons HUF, is valid and the
contention of the Assessing Officer is not valid in spite of the fact that R & Sons
HUF participated in the assessment proceedings.

5 (b) Computation of “Book Profit” for levy of MAT under section 115JB
Particulars ₹ ₹
Net Profit as per Statement of Profit and Loss 83,00,000
Less: Net profit to be decreased by the following amounts
as per Explanation 1 to section 115JB:
Dividend income from listed and unlisted Indian Nil
companies, credited to statement of profit and loss
[Dividend income from listed and unlisted Indian
companies is Taxable u/s 115A @20% in the hands of a
foreign company. No adjustment is required]
Interest income from an Indian company as per 7,00,000
loan agreement, where the loan is given in foreign
currency
[Since income by way of interest chargeable @5% u/s
115A, being a rate lower than 15%, credited to
statement of profit and loss, same has to be reduced to
arrive at book profit]
Fees for technical services under an agreement Nil

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Page 12
 approved by the Central Government
[No adjustment is required since the foreign company
carries on business through a permanent establishment
i.e., a branch in India. Such income, being effectively
connected with the branch in India, is taxable@40%
under section 44DA. Since the income is not taxable at a
7,00,000
rate less than 15% it should not be reduced for
determining book profit]
Book Profit 76,00,000

Computation of tax liability

Particulars ₹ ₹
Minimum Alternate Tax on book profit under section 115JB
= 15% of ₹ 76,00,000 11,40,000
Add: Education cess @4% 45,600 11,85,600
Income-tax computed as per the regular provisions of the Act
- 40% [since Arnold Ltd. is a foreign company] of total 15,60,000
income of ₹ 20 lakhs plus fees for technical services ₹ 19
lakhs (₹ 25 lakhs – ₹ 6 lakhs)]
- Tax@ 20% on dividend of ₹ 12 lakhs from Indian 2,40,000
Companies
- Tax@ 5% on interest of ₹ 7 lakhs from MMS Ltd. as per
loan agreement, the loan being given in foreign currency 35,000
18,35,000
Add: Education cess @4% 73,400 19,08,400
Since income-tax computed as per regular provisions of the
Income-tax Act, 1961, is higher than MAT liability, income-tax
payable would be computed as per the regular provisions of
the Income-tax Act,1961:
Total income-tax liability 19,08,400

6 (a) (i) Interest for delayed remittance of equalization levy

Equalisation levy = 6% of ₹ 5 lakh = ₹ 30,000
The equalization levy deducted on 15.3.2024 has to be paid to the credit of the
Central Government by 7.4.2024 (i.e., 7th of the succeeding month).
However, in this case, Sun Ltd. remitted the same only on 15.4.2024. The delay in
this case is 8 days.
Simple interest@1% is leviable per month or part of month by which crediting of tax
is delayed.
Accordingly, interest would be 1% of ₹ 30,000 = ₹ 300
(ii) Circumstances under which penalty cannot be imposed
No penalty for failure to deduct or pay equalisation levy shall be imposable, if Sun Ltd.
proves to the satisfaction of the Assessing Officer that there was reasonable cause for
the said failure.

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Page 13
 Further, no order imposing a penalty shall be made unless Sun Ltd. has been given a
reasonable opportunity of being heard.
(iii) Time limit for filing appeal
If Sun Ltd. is aggrieved by the order imposing penalty, it may appeal to
Commissioner (Appeals) within a period of 30 days from the date of receipt of the
order of the Assessing Officer imposing the penalty.

6 (b) Although Mr. Harshit is a non-resident in A.Y.2024-25 (since he stayed in India only for 48
days in the P.Y.2023-24), he is a resident in the P.Y. 2013-14 in which the undisclosed
asset located in Country A was acquired. Hence, he is an assessee under the Black Money
(Undisclosed Foreign Income and Assets) Imposition of Tax Act, 2015.
If the value of the house property in the year 2023-24 is ₹ 120 lakh, the amount chargeable
to tax shall be X-Y=Z where,
X = ₹ 120 lakh,
Y = ₹ 120 lakh x 55/80 = ₹ 82.50 lakh,
Z = ₹ 120 lakh – ₹ 82.50 lakh = ₹ 37.50 lakh.
₹ 37.50 lakh chargeable to tax in the hands of Mr. Harshit in the A.Y.2024-25.

6 (c) Article 2 of Vienna Convention on Law of Treaties, 1969 defines “treaty” as an international
agreement concluded between States in written form and governed by international
law, whether embodied in a single instrument or in two or more related instruments
and whatever its particular designation
Treaties (Double Tax Avoidance Agreements) come into play to mitigate hardship caused by
subjecting the same income to double taxation.
Tax Treaties attempt to eliminate double taxation and try to achieve balance and equity.
They aim at sharing of tax revenues by the concerned States on a rational basis.

MOCK TEST SERIES – By CA Atul & Ajay Agarwal (AIR-1)

AIR1CA Career Institute (ACI)
Page 14