VG STUDY HUB CS PROFESSIONAL MOCK TEST CA VIVEK GABA

CS – PROFESSIONAL
MOCK TEST – 1
CHAPTER – DTAA, Transfer Pricing, GAAR , Tax Planning & MAT
Question 1
Examine with reasons whether the two enterprises referred to in the independent
situations given below can be deemed to be associated enterprises under the Indian
transfer pricing regulations:

(i) PQR Inc, a US company having its place of effective management also in the
USA, has advanced a loan equivalent to ` 170 crores to Mahanadi Ltd., an Indian
company on 10-4-2023. The total book value of assets of Mahanadi Ltd. is `
300 crores. The market value of the assets, however, is ` 320 crores. Mahanadi
Ltd. repaid ` 30 crores before 31-3-2024.

(ii) Queenland plc., a French company having its place of effective management also
in the France, has the power to appoint 3 of the directors of Godavari Ltd, an
Indian company,whose total number of directors in the Board is 8.

(iii) Total value of raw materials and consumables of Saraswati Ltd., an Indian
company, is 900 crores. Of this, supplies to the tune of ` 830 crores are by Zoel
GmbH, a German company having its place of effective management in Germany,
at prices and terms decided by the German company.

Question 2

NP Ltd., an Indian Company has borrowed ` 80 crores on 01-04-2023 from M/s. TL

Inc, a Company incorporated in London, at an interest rate of 10% p.a. The said loan
is repayable over a period of 5 years. Further, loan is guaranteed by M/s ST Inc.
incorporated in UK. M/s. Tweed Inc, a non-resident, holds shares carrying 40% of
voting power both in M/s NP Ltd. and M/s ST Inc.

Net profit of M/s. NP Ltd. for P.Y. 2023-24 was ` 7 crores after debiting the above
interest, depreciation of ` 6 crores and income-tax of ` 4 crores. Calculate the
amount of interest to be disallowed under the head “Profits and gains of business
or profession” in the computation of M/s NP Ltd., giving appropriate reasons.
 VG STUDY HUB CS PROFESSIONAL MOCK TEST CA VIVEK GABA

Question 3

Hyper Ltd., engaged in diversified activities, earned a profit of ` 14,25,000

after debit/credit of the following items to its statement of profit and loss for
the year ended on 31.3.2024:

(a) Items debited to Statement of Profit and Loss `

Provision for loss of subsidiary 85,000
Provision for income-tax demand 1,05,000
Depreciation 3,60,000
Interest on deposit credited to buyers on 31.3.2024 for 1,00,000
advance received from them, on which tax was deducted in April
2024 and was deposited on 31.7.2024
(b) Items credited to Statement of Profit and Loss
Long term capital gain on sale of equity shares on which 3,60,000
Securities transaction tax was paid at the time of acquisition
and sale
Income from units of UTI (Gross) 75,000

The company provides the following additional information:

(i) Depreciation includes ` 1,50,000 on account of revaluation of fixed assets.
(ii) Depreciation allowable as per Income-tax Rules is ` 2,80,000.
(iii) Brought forward Business Loss/Unabsorbed Depreciation:

F.Y. Amount as per books Amount as per Income-tax

Loss Depreciati Loss Depreciation
` on ` `
`
2018-19 2,50,000 3,00,000 2,00,000 2,50,000
2019-20 Nil 2,70,000 1,00,000 1,80,000
2020-21 3,50,000 3,15,000 1,20,000 2,10,000

You are required to:

(i) compute the total income of the company for the assessment year 2022-
23 giving the reasons for treatment of items and
(ii) examine the applicability of section 115JB of the Income-tax Act, 1961,
and compute book profit and the tax credit to be carried forward.
Assume the tax rate applicable to Hyder Ltd for the P.Y. 2023-24 is 30%. Ignore
the provisions of section 115BAA.
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Question 4
Examine the doctrine of form and substance in the context of tax planning.

Question 5

M/s Global Architects Inc is a company incorporated in country F1. It is engaged in

the business of providing architectural design services all over the world. It
receives an offer from Lovely Resorts Pvt Ltd, an Indian company, for design and
development of resorts all over India.

India-F1 tax treaty provides that architectural services are technical services and
payment for the same to a company may be taxed in India. However, if such
professional services are provided by a firm or individual, then payment for such
services are taxable only if the firm has a fixed base in India or stay of partners/
employees in India exceed 180 days. Limitation of benefit clause does not exist in
tax treaty between India-F1.

M/s Global Architects Inc forms a partnership firm with a third party (director of
the company) having only a nominal share in the F1. The firm enters into an agreement
to carry out the services in India. The company seconded its trained manpower to
the firm.

Thus, the partnership firm claimed the treaty benefit and no tax was paid in India.
Can such an arrangement be examined under GAAR?

Question 6
Specify with reason, whether the following acts can be considered as (i) Tax
planning; or (ii) Tax management; or (iii) Tax evasion.
(i) Mr. P deposits ` 1,00,000 in PPF account so as to reduce his total
income from
` 5,90,000 to ` 4,90,000.
(ii) SQL Ltd. maintains register of tax deduction at source effected by it to
enable timely compliance.
(iii) An individual tax payer making tax saver deposit of ` 1,00,000 in a nationalised
bank.
(iv) A partnership firm obtaining declaration from lenders/depositors in Form No.
15G/15H and forwarding the same to income-tax authorities.
(v) A company installed an air-conditioner costing ` 75,000 at the residence of a
director as per terms of his appointment but treats it as fitted in quality
control section in the factory. This is with the objective to treat it as plant
for the purpose of computing depreciation.
(vi) RR Ltd. issued a credit note for ` 80,000 as brokerage payable to Mr. Ramana
who is theson of the managing director of the company. The purpose
 VG STUDY HUB CS PROFESSIONAL MOCK TEST CA VIVEK GABA

is to increase the total income of Mr. Ramana from ` 4,20,000 to ` 5,00,000

and reduce the income of RR Ltd. correspondingly.
(vii) A company remitted provident fund contribution of both its own contribution
and employees' contribution on monthly basis before due date.

Question 7

Mr. Kamesh, an individual resident in India aged 52 years, furnishes you the following
particulars of income earned in India, Country "X" and Country "Y" for the previous
year 2023-24. India has not entered into double taxation avoidance agreement with
these two countries.

Particulars `
Income from profession carried on in India 7,50,000
Agricultural income in Country "X" (gross) 50,000
Dividend from a company incorporated in Country "Y" (gross) 1,50,000
Royalty income from a literary book from Country "X" (gross) 6,00,000
Expenses incurred for earning royalty 50,000
Business loss in Country "Y" (Proprietary business) 65,000
Rent from a house situated in Country "Y" (gross) 2,40,000
Municipal tax paid in respect of the above house in Country 10,000
“Y” (not allowedas deduction in country “Y”)

Note: Business loss in Country "Y" not eligible for set off against other incomes
as per law of that country.

The rates of tax in Country "X" and Country "Y" are 10% and 20%, respectively.
Compute total income and tax payable by Mr. Kamesh in India for Assessment Year
2023-24, assuming that he does not opt for section 115BAC.