CA Final May 2024 Suggested Answers Paper 4 Direct Tax Laws and International Taxation

FOR CA FINAL EXAM PREPARATION

CA Final 2024
Suggested Answers ·
Paper 4 Direct Tax
Laws and International
Taxation
EXAM YEAR TYPE

CA Final 2024 Suggested Answers
SUBJECT DATE

Paper 4 Direct Tax Laws and International Taxation May 2024

Notes · Sample Papers · Previous Year Papers · Mock Tests

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PAPER – 4: DIRECT TAX LAWS &
INTERNATIONAL TAXATION
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Part - II

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Question No.1 is compulsory.
Answer any four questions out of the remaining five questions.
Working notes should form part of the answer.
All questions relate to Assessment Year 2024-25, unless stated otherwise in the
question.
Question 1
Orient Pharmaceuticals Private Limited is an Indian Company, engaged in the

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business of manufacturing and providing access to affordable and innovative

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medicines and healthcare solutions. The company is incorporated in the year

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2009. The company shows a Net Profit of ` 95 lakhs as per the Statement of
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Profit and Loss for the year ended March 31, 2024.

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Net Profit has been arrived at after
(1) Depreciation as per the Companies Act claimed in the Statement of Profit
and Loss - ` 11.90 lakh.
(2) The amount of employee benefits includes a sum of ` 13,00,000 in respect
of bonus payable to employees. In the previous year 2023-24, the company
and its employee’s union had a dispute over payment of bonus. In order to
avoid late payment of bonus, the company formed a trust and transferred

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the amount of bonus payable to employees to the said trust. The dispute

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was settled in the month of August, 2024 and the trust paid the amount of

c. o bonus to the employees on 31st August, 2024.
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(as prescribed by Medical Council of India) of manufacturing

a ` 9.50 lakhs.
(4) An amount of ` 45,000 was paid as late fees to Government for company’s
failure in performance of a contract within the stipulated time. There was a

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FINAL EXAMINATION: MAY 2024

delay of 5 months and according to the agreement, the company had to
pay a late fees of ` 9,000 per month to the Government.
(5) The company earned a profit of ` 7.50 lakhs on sale of plot of land on
25.08.2023 to Sudhakar Private Ltd., a domestic Company, the entire shares
of which are held by the assessee company. The plot was acquired by Orient
Pharmaceuticals Pvt. Ltd. on 20.12.2022. This profit is included in the
income of the assessee company.
(6) The company earned a profit of ` 4.50 lakhs on sale of 2500 shares of
M/s Stadel Ltd., a listed Indian company. These shares were sold on
08.11.2023 for ` 280 per share. The highest trading price of Stadel Ltd.
quoted on the stock exchange as on 31.01.2018 was ` 175 per share and
the Lowest Trading price quoted on the stock exchange was ` 165 per share.
The said shares were acquired for ` 100 per share on 11.07.2016. STT paid
both at the time of purchase and sale of shares.
(7) Bank guarantee was given by the company towards disputed tax liabilities -
` 11 lakhs.
(8) Company debited an interest of ` 7.50 lakh which the company remitted as
interest to a company incorporated in USA on a loan taken 3 years ago. Tax
deducted under section 195 from such interest has been deducted in March
2024, but deposited by the company on 14th July, 2024.
(9) The company has contributed ` 65,000 to an electoral trust by account
payee cheque and the same is debited to Statement of Profit and Loss.
Following Additional information is provided by the company for P.Y 2023-24:
(1) Closing Stock includes 1200 pieces of imported machinery spares at its
landed cost as on the date of import at US$ 25 per piece. Exchange rate on
the date of import i.e. 15.09.2023 was 1 US$ = ` 82.88 (rounded off).
Exchange rate on 31.3.2024 was 1 US$ = ` 83. The market value per pieces
as on 31.3.2024 was US$ 27 per piece.
(2) The depreciation charged in the Statement of Profit and Loss of ` 11.90 lacs
includes the depreciation calculated on following assets:
(i) It incudes an amount of depreciation of ` 95,000 in respect of fire
fighting equipments installed in the office premises and factories of the
assesssee. During the year, there was no incidence of fire and hence the
equipments were no used.
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(ii) A new machinery which was installed and put to use on 14.05.2023
valuing ` 75 lakhs.

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(iii) A machinery which was sold to a domestic company in 2016 at its
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WDV for ` 35 lakhs was re-acquired on July 5, 2023 for ` 65 lakhs.

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There is no other fixed asset included by the company’s accountant for
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calculation of depreciation except above these three assets mentioned above.
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Youlare required to compute total income of the company as per Income-taxa
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aAct,g 1961 for the Assessment Year 2024-25 indicating reasons for treatment of
each item, assuming that the company has not opted for special provisions
under section 115BAA or 115BAB. (14 Marks)
Answer
Computation of Total Income of Orient Pharmaceutical Pvt. Ltd. for
the A.Y. 2024-25

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Particulars Amount (in `)
I Profits and gains of business

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profession
Net profit as per statement a
g l of profit and 95,00,000
loss
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Add: Items debited but to be considered
separately or to be disallowed
(1) Depreciation as per Companies Act 11,90,000
(2) Bonus transferred to the trust for --/Nil
making payment to the employees
after settlement of the dispute

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[The bonus would be allowable as

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deduction u/s 36(1)(ii), even though
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the amount of bonus payable was

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the purpose of avoiding late payment

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bonus made to the employees is
31st August, 2024 i.e., on or before due
date of filing return of income. Since

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FINAL EXAMINATION: MAY 2024

the same has been already debited to
the statement of profit and loss, no
further adjustment is required]
(3) Regularization fee for violating a law 9,50,000
[Regularization fee paid for violating a
law as prescribed by Medical Council of
India is a payment to compound an
offence. Such expenditure is
considered to be the expenses
prohibited by the law. Hence, it does
not qualify for deduction u/s 37. As the
same has been debited to the
statement of profit and loss, it has to
be added back]
(4) Late fees to Government for failure --/Nil
in performance of a contract
[Late fees of ` 45,000 paid for non-
fulfilment of a contract within the
stipulated time is not for the breach of
law but was paid for breach of
contractual obligations and therefore,
is an allowable expense. Since it is
already debited in statement of profit
and loss, no further adjustment is
required]
(7) Bank guarantee towards disputed 11,00,000
tax liabilities
[As per section 43B any tax, duty, cess
or fee is allowed as deduction if they
are actually paid on or before the due
date of filing return of income under
section 139(1). Mere furnishing of bank
guarantee by the assessee towards tax
liabilities does not mean actual
payment of taxes. Hence, it is not
treated as payment to be eligible for

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deduction under section 43B. As the
same has been debited to the
statement of profit and loss, it has to
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be added back]
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(8) Payment of Interest to a company --/Nil
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incorporated in USA
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March, 2024 and deposited by the
company on 14.7.2024 i.e., on or before
due date of filing return of income, no
disallowance would be attracted under
section 40(a)(i). Since the interest has
been already debited to the statement
of profit and loss, no further
adjustment is required]

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(9) Contribution to electoral trust 65,000
[Contribution to electoral trust is not
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allowable as deduction
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while
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computing business income of the
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company. Since the contribution has
been debited to statement of profit
and loss, the same has to be added
back while computing business
income]
33,05,000
1,28,05,000

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Less: Items credited but not taxable or

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chargeable to tax under another
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head
7,50,000 se
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(5) Profit on sale of plot of land to 100%

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land is taxable under the head “Capital
Gains”. Since the profit on sale of plot
of land has been credited to the

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FINAL EXAMINATION: MAY 2024

statement of profit and loss, the same
has to be deducted while computing
business income]
(6) Profit on sale of shares of M/s Stadel 4,50,000
Ltd.
[Capital Gain arising on sale of shares
of M/s Stadel Ltd. is taxable under the
head “Capital Gains”. Since the profit
on sale of shares has been credited to
the statement of profit and loss, the
same has to be deducted while
computing business income]
AI(1) Cost of machinery spares --/Nil
included in closing stock
[The cost of imported machinery
spares is to be capitalised as per ICDS
V. Since cost of machinery spares is
included in purchases as well as forms
part of closing stock, no adjustment is
required to be made. Therefore, the
cost of machinery spares has to be
added to the machinery cost and
depreciation has to be allowed
thereunder.]
[Note – The cost of imported machinery
spares is capitalised as per ICDS V
considering such spares can only be used in
connection with a tangible fixed asset and
their use is expected to be irregular.
Accordingly, normal depreciation and
additional depreciation has been provided.
However, it is possible to assume that the use
of such machinery spares are regular in
which case it will be dealt with as per ICDS II
(Inventories). As per ICDS II, inventories shall
be valued at $25 per piece, being lower of

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cost of $ 25 per piece or NRV as on
31.3.2024 of $ 27 per piece. As per ICDS VI,
non-monetary items being inventory shall be
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converted into the reporting currency by
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using the exchange rate on the transaction
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date i.e., on 15.9.2023 being the date of
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purchase. In such a case, no adjustment is
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required to be made for closing stock while
computing business income and no
depreciation/ additional depreciation would
be provided. Accordingly, the business
income and total income would be
` 83,60,000 and ` 85,57,500, respectively].
12,00,000
1,16,05,000

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Less: Depreciation as per Income-tax Act,
1961
.
Normal depreciation
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On fire-fighting equipment’s 1 [Eligible 95,000
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for depreciation even though such
equipment’s were not used during the
previous year.]
- On new machinery [` 75,00,000 x 15% 11,25,000
since it is put to use for more than 180
days]
- On machinery sold and reacquired 5,25,000

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[15% of actual cost of `35,00,000, being

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acquisition (i.e., ` 65 lakhs)

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3,72,960

ag added to cost of machinery as per ICDS

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Assuming depreciation of ` 95,000 is computed applying the depreciation rate similar to
the rate specified in the Income-tax Rule, 1962.
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FINAL EXAMINATION: MAY 2024

V) [` 24,86,400 (1200 x $25 x 82.88) x
15%]
Additional depreciation
- On new machinery [` 75,00,000 x 20%] 15,00,000
- On imported machinery spares 4,97,280
[` 24,86,400 x 20%]
41,15,240
74,89,760
II Capital Gains
Profit on sale of plot of land to 100% --/Nil
subsidiary
[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 and the
subsidiary company is an Indian company,
the same would not constitute a transfer for
levy of capital gains tax]
Long term capital gain on sale of shares of
M/s. Stadel Ltd. [Since shares were held for
more than 12 months]
[Full value of consideration 7,00,000
(2,500 x ` 280)]
Less: Cost of acquisition - 4,37,500
Higher of (i) and (ii)
2,62,500 2,62,500
(i) Actual cost of acquisition (2,500 x `100)
` 2,50,000
(ii) ` 4,37,500, being lower of fair market
value as on 31.1.2018 (i.e., ` 4,37,500, being
2,500 x 175) and sale consideration (i.e.,
` 7,00,000)
Gross Total Income 77,52,260

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Less: Deduction under Chapter VI-A 65,000
Under section 80GGB [Contribution by a
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company to an electoral trust is allowable
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as deduction, since payment is made

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otherwise than by cash]

s emIncome
Total 76,87,260
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a(a) (i) Mrs. Seema Aggarwal, aged 56 years, a resident individual acquired a
Question

residential house at Ayodhya on 01.04.1993 for ` 45,00,000. The Fair
market value of the property as on 01.04.2001 was ` 1,20,00,000 and
the stamp duty value as on 01.04.2001 was ` 1,02,00,000.
Mrs. Seema Aggarwal sold her residential house located at Ayodhya to
Mr. Shiv Kumar on 15.10.2023 for ` 15,50,00,000. The value determined

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by the Stamp Duty Authority on 15.10.2023 was ` 17,00,00,000.

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Mr. Shiv Kumar was handed over the possession of the property on
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15.10.2023 and the registration process was completed on the same

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date. He paid the sale proceeds in full on the date of registration.

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After recovering the sale proceeds from Shiv Kumar, Mrs. Seema
Aggarwal purchased one residential plot at Amritsar for ` 8 crores on
18.02.2024. She also deposited ` 3 crores in a Saving account opened
with State Bank of India, Amritsar under Capital gain account scheme
on 31.03.2024 for the construction of the residential house on above
plot.
You are required to calculate the taxable capital gain in the hands of
Mrs. Seema Aggarwal for the A.Y. 2024-25 as per the provisions of

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Income-tax Act, 1961. Cost Inflation Index for F.Y. 2001-02: 100 and

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c. o (ii) Mr. Manjoo Menon, an assessee from Coimbatorem has 20%
s e (P) Ltd. The
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Itlwas let out to the
shareholding in a Private Limited company Aurelia Exports
assessee has immovable property in Coimbatore. g
gla a the company to
a said company on monthly rent. The assessee permitted
provide the said property as collateral security to ABC Bank in order to
enable the said company to obtain loan from the said bank.

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FINAL EXAMINATION: MAY 2024

Consequently, the property was mortgaged to the bank in 2013. That time
Board of Directors passed a resolution authorizing the assessee to obtain
from the company interest- free deposit/advance upto ` 20 lakhs as and
when required for making available the said property as collateral security
to the bank for the loan facility enjoyed by the company.
In June, 2023 Mr. Menon asked for advance rent and he received a sum of
` 15 lakhs from the company as advance rent in June 2023 which was to
be adjusted against the rent payable to the assessee by the said company.
After such adjustment for the year ended March 31, 2024, the amount of
advance rent stood reduced to ` 8,00,000. The accumulated profits of the
company as on 01.04.2023 amounted to ` 10,00,000.
The Assessing Officer in the assessment order for the assessment year
2024-25 sought to treat the said sum of ` 8,00,000 as deemed dividend
under section 2(22)(e) of the Income-tax Act.
Can the advance rent given to Mr. Manjoo Menon by the company be
deemed as dividend under section 2(22)(e) as per Income-tax Act, 1961?
(4 Marks)
(b) Miles Inc., a company incorporated in US, is engaged in development of
infrastructure and providing consultancy in the same field. During the
Financial Year 2023-24, its shareholders met in India for three times. The first
two meetings were held to discuss the modification of rights attached to
various classes of shares and the third meeting was held to discuss and
decide about sale of companies' assets situated in India. The meetings of
Board of Directors are held in Chicago, USA where management and
commercial decisions necessary for conduct of company's business are taken.
It provides the following additional information pertaining to Financial Year
2023-24:
(i) Dividend received ` 5,50,000 (Net of TDS) on Global Depository
Receipts of Z Ltd., an Indian company, issued under a scheme of Central
Government against the initial issue of shares of the company and
purchased by Miles Inc. in foreign currency through an approved
intermediary.
(ii) Fees for technical services received from Government of India:
` 5,55,000. The Government of India utilised such technical services for
a development project carried out by it in Nepal.
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You are required to determine the residential status of Miles Inc. and
compute the total income of Miles Inc. for the assessment year 2024-25
briefly explaining the relevant provisions of the Income-tax Act, 1961.
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Answer
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(a) (i)
l a s Computation of taxable Capital gain in the hands of
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Mrs. Seema Aggarwal for A.Y.2024-25

Particulars `
Full value of consideration 15,50,00,000
As per section 50C, the full value of consideration would
be actual sales consideration since the stamp duty value
as on 15.10.2023 of ` 17,00,00,000 does not exceed
110% of actual consideration of ` 15,50,00,000.

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Less: Indexed cost of acquisition 3,54,96,000

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[` 1,02,00,000 (higher of actual cost of ` 45,00,000 and

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Fair market value as on 1.4.2001 of ` 1,20,00,000, but

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restricted to stamp duty value as on 1.4.2001 of
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` 1,02,00,000) x 348 / 100]
a g 11,95,04,000
Less: Exemption under section 54 10,00,00,000
[Purchase of one residential plot of ` 8 crores on
18.2.2024 and deposit of ` 3 crores in Capital Gain
Account Scheme on 31.3.2024 (before the date of filing
of return of income) provided that the construction
thereon is completed within the stipulated time of three
years 2, but restricted to maximum of ` 10 crores]
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Taxable long term capital gains 1,95,04,000

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construed to mean those advances or loans which a shareholder enjoys

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simply on account of being a person who is the beneficial
a holding not less than 10% of the voting power.

2
Vide Circular No. 667 dated 18.10.1993, the CBDT has clarified that the cost of the land is
an integral part of the cost of the residential house, whether purchased or built.
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FINAL EXAMINATION: MAY 2024

In case such loan or advance is given to such shareholder as a
consequence of any further consideration received from such a
shareholder which is beneficial to the company, such advance or loan
cannot be a deemed dividend within the meaning of the Act.
Gratuitous loan or advance given by a company to a shareholder, who is
the beneficial owner of shares holding not less than 10% of the voting
power, would come within the purview of section 2(22)(e) to the extent of
accumulated profits of the company but not the cases where the loan or
advance is given in return for an advantage conferred upon the company
by such shareholder.
In the present case, advance of ` 15 lakh was given by Aurelia Exports (P)
Ltd. to Mr. Manjoo Menon holding 20% shareholding as advance rent for
the property let out by him to the company and out of which ` 7 lakhs
was adjusted against rent payable of F.Y. 2023-24. The advance was given
by the company since Mr. Menon mortgaged his personal property
thereby enabling the company to obtain the loan from bank in 2013.
Therefore, such advance of ` 8 lakhs outstanding as on 31.3.2024 cannot
be brought within the purview of section 2(22)(e), since it was not in the
nature of gratuitous advance but was given as advance rent and to
protect the interest of the company.
Note – The facts of the case are similar to the facts in Pradip Kumar
Malhotra v. CIT (2011) 338 ITR 538, wherein the above issue came up
before the Calcutta High Court. The above answer is based on the rationale
of the Calcutta High Court in the said case.
(b) Miles Inc., a foreign company, would be resident in India in P.Y. 2023-24 if
its POEM, in that year, is in India. Since the meeting of Board of Directors
are held outside India i.e., in Chicago, USA where management and
commercial decisions necessary for conduct of company’s business are
taken, its POEM during the A.Y. 2024-25 would be outside India. Hence,
Miles Inc. is a non-resident during the P.Y. 2023-24.
The decisions made by shareholders in India on modification of the rights
attaching to various classes of shares and sale of company’s assets
situated in India are not relevant for determination of Miles Inc.’s place of
effective management.

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Computation of total income of Miles Inc. for the A.Y. 2024-25

Particulars Amount (`)
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Dividend received on GDR of an Indian company 6,13,839
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[Taxable, since income is from any asset or source of
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income is in India. Tax @10.4% would have been
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deducted on dividend of GDR] [` 5,50,000 / 89.6%]
l Fees for technical services received from Government of ag
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a India [Taxable, since it is deemed to accrue or arise in
7,00,758

India on account of being received from Government of
India even though services are utilised for development
project carried out outside India. Tax @20.8% would
have been deducted on FTS received from Government]
[5,55,000/79.2%]
Note – Since, the word “received” is mentioned after fees
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for technical services, the solution has been worked out
considering the FTS amount as net of TDS and
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accordingly grossing up has been done. However, on

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account of using the word “Net of TDS” after dividend
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amount but not after FTS amount, it is possible to
assume the FTS amount of ` 5,55,000 as gross amount.
In such a case, total income would be ` 11,68,839.
Total Income 13,14,597

Question 3
(a) Please answer the following independent questions with regard to
provisions applicable to Charitable Trust as per the Income-tax Act, 1961.
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(i) Devayani Trust is a registered charitable trust under section 12AB.
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During the previous year 2023-2024, the trust had applied ` 4,50,000/-

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for the benefit of the trustee and ` 2,50,000/- for the benefit of
la se
las Mr. Sujan Dave, who has donated ` 3,75,000/- to the trust up to
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31.3.2024. Also, an amount of ` 2,50,000/- set apart in the P.Y.
a 2021-2022 by the trust for charitable purposes under section 11(2) has
been utilized in the P.Y. 2023-2024 for making donation to another
registered charitable trust with similar object as Devayani Trust.

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FINAL EXAMINATION: MAY 2024

What is the amount of 'specified income' liable to tax @30% under
section 115BBI for assessment year 2024-2025? Explain with reasons.
(ii) Parivartan, a public charitable trust has been incorporated on
01.06.2022 and immediately commenced its activities of providing
"Relief of Poor". During the previous year 2022-23, it failed to file
application for Provisional registration under section 12A(1)(ac).
However, on 1.1.2024, it applied for the final registration as per section
12AB read with section 12A(1)(ac) in prescribed Form to avail
exemption under section 11 for A.Y. 2024-25.
Is the action of the trust justified? Can a trust apply for Final
registration before applying for Provisional registration? If yes, what is
the time period upto which the Principal Commissioner or
Commissioner will have to pass the order granting or rejecting the
registration? The registration, if granted will be applicable from which
assessment year? Explain your answer based on the latest Income tax
provisions. (4 x 2 = 8 Marks)
(b) Following are the particulars of income earned by Mr. Kumar Saurav, a
resident Indian aged 56 years in India and from Country P for the
assessment year 2024-2025
Income from India Amount in `
Income from Profession in India 10,75,000
Interest on Fixed Deposit with XYZ Bank 95,000
Interest on Savings Bank Account 47,000
Income from Country P
Rate of Tax is 16%
Agricultural Income in Country P (Gross) 65,000
Royalty Income form literary book from Country P 4,50,000
Expenses incurred for earning royalty 35,000
Dividend from a company incorporated in Country P 1,59,000
Rent from a house situated in Country P (Gross) 1,92,000
Municipal Tax paid in respect of the above house 9,500
(not allowed as deduction in Country P)

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You are required to compute the total income and net tax liability of
Mr. Kumar Saurav in India for the assessment year 2024-25 assuming that
India has not entered into double taxation avoidance agreement with
m
Country P.
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Assume that Mr. Kumar Saurav pays tax under the default tax regime under
s em
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section 115BAC. (6 Marks)
l a
a s
l(i) “Specified income” under section 115BBI includes the following: ag
g
Answer

a
(a)
- income which has been applied for the benefit of prohibited
persons u/s 13(3)
- deemed income under section 11(3) on account of violation of
certain conditions stipulated for accumulation of income.
Specified income of Devyani Trust liable to tax@30% under

m
section 115BBI for A.Y. 2024-25

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em
Particulars Amount

s
(`)

g l a
Amount applied for the benefit of the trustee 4,50,000
a
[Trustee of the trust is one of the persons specified
u/s 13(3)]
Amount applied for the benefit of Mr. Sujan Dave 2,50,000
[Since Mr. Sujan Dave’s total contribution to the trust
upto 31.3.2024 is more than ` 50,000, he is a person
specified u/s 13(3)]
Donation made to another trust out of 2,50,000

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accumulated income of P.Y. 2021-22 [Donation to

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another charitable trust out of accumulated income is
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c. o one of the violations of condition specified for
se
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em la
accumulation of income – section 11(3)]

las Specified income liable to tax @30% under section
a g 9,50,000

ag 115BBI

(ii) Since Parivartan trust has already commenced its activities and has
not availed exemption under section 11 for any P.Y. ending on or

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FINAL EXAMINATION: MAY 2024

before 1.1.2024, (being the date of application) it need not first apply
for provisional registration.
It can at any time after the commencement of such activities directly
apply for final registration under section 12AB 3.
Thus, the action of trust for applying for the final registration as per
section 12AB before applying for provisional registration for
exemption under section 11 is valid.
The Principal Commissioner or Commissioner has to pass the order
granting or rejecting the registration before expiry of 6 months from
the end of the month in which application is received i.e., by
31.07.2024.
Exemption under section 11 and 12 would be applicable from the
assessment year immediately following the financial year in which
such application is made i.e., from A.Y. 2024-25 (PY 2023-24).
(b) Computation of total income and net tax liability of Mr. Kumar
Saurav for A.Y.2024-25 under the default tax regime

Particulars ` `

Income from house property
Gross Annual Value 4 of property in Country 1,92,000
‘P’
Less: Municipal taxes paid in Country ‘P’ 9,500
Net Annual Value 1,82,500
Less: Deduction under section 24 – 30% of 54,750
NAV
1,27,750
Profits and Gains of Business or Profession
Income from profession in India 10,75,000

3
Read with section 12A(1)(vi)(B), w.e.f. 1.10.2023
4
Rental income has been taken as GAV in the absence of other information relating to
fair rent, municipal value etc.
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Royalty income from literary book from 4,15,000
Country ‘P’ (after deducting expenses of

m
c. o
` 35,000)

o m m
c
14,90,000
Income. from Other Sources e
em on Fixed deposit with XYZ Bank l a s
s
laInterest on savings bank account
Interest 95,000
ag
ag 47,000
Agriculture income in Country ‘P’ 65,000
Dividend from a company incorporated in 1,59,000
Country ‘P’
3,66,000
Gross Total Income 19,83,750

m
c. o
Less: Deductions under Chapter VI-A [Not Nil

em
available under default tax regime]
Total Income
l a s 19,83,750

a g
Tax liability on `19,83,750
Tax on total income [30% of ` 4,83,750 + 2,95,125
` 1,50,000]
Add: Health and Education cess@4% 11,805
3,06,930
Less: Deduction u/s 91 (See Working Note 1,18,632

m
below)

m Net Tax Liability
c. o
1,88,298

c. o Net Tax Liability (Rounded off)
se
m1,88,300
s em g la
la a
Working Note: Calculation of deduction under section 91

ag Particulars `
Doubly Taxed Income – Country P
Income from house property 1,27,750

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FINAL EXAMINATION: MAY 2024

Royalty Income [` 4,50,000 – ` 35,000 (Expenses)] 4,15,000
Agricultural income 65,000
Dividend 1,59,000
7,66,750
Rate of tax in Country P = 16%
Indian rate of tax = 3,06,930/19,83,750 x 100 = 15.472%
Lower of the above = 15.472%
Deduction u/s 91 [15.472% x ` 7,66,750] 1,18,632

Question 4
(a) Examine the applicability of Tax Deducted at source/Tax Collected at source
and calculate the amount of TDS/TCS in the following independent cases as
per the provisions applicable for A.Y. 2024-25:
(i) Raj Keshri Hotels and Resorts Limited is engaged in business of owning,
operating and managing hotels during the previous year 2023-24. The
tips are paid by the guests by way of charge to the Credit Cards, UPI or
Net Banking in the bills. The company disburse the same to the
employees at periodic intervals. Explain with reason whether the
company is responsible for deducting tax at source from disbursement
of tips to its employees. (3 Marks)
(ii) Lalit, an individual whose total sales in business during the year ended
31.3.2023 was ` 1.50 crores, opted to compute income under section
44AD for A.Y. 2023-24. He paid ` 5,00,000 by cheque on 1.2.2024 to a
contractor (an individual), for construction of his factory building. No
amount was credited earlier to the account of the contractor in the
books of Lalit. The turnover of Mr. Lalit for previous year 2023-24 is
` 95 Lacs.
He also pays a monthly rent starting from 1stApril, 2023 to 31st March,
2024 of ` 16,000 p.m. for the office premises to Mr. Hemant, the owner
of building. Besides, he also pays service charges of ` 5,500 per month
to Mr. Hemant towards the use of furniture, fixtures and vacant land
appurtenant to office. Examine the obligation of the tax deducted at
source for A.Y. 2024-25. (3 Marks)

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(iii) XY and Co., a partnership firm selling its products 'R' through the
digital facility provided by ABC Limited (an E-commerce Operator). On
28th February, 2024, ABC Limited credited in its books of account, the
m
m
account of XY and Co. with a sum of ` 4,90,000 for the online sale of
o c. o
c
The .company released a payment of ` 4,30,000 on 6 March 2024 to
products 'R' made during the month of February-2024.
e m
eXYmand Co. out of above sales made during February. Mr. Rai, who gla s th

s
la purchases products 'R' through the digital facility of ABC Limited madea
g
a payment of ` 60,000 directly to XY and Co. on 15 March, 2024. th

(2 Marks)
(b) Yalin Ltd. is located in Country X, a notified jurisdictional area (NJA). Armo
Ltd., a domestic company (the assessee) sold goods to Yalin Ltd. on
15.01.2024 for ` 11.75 crore.
During the current financial year, Armo Ltd. sold identical goods to KB Inc.,

m
of Edinburgh, U.K. for ` 13 crore. KB Inc. is neither situated in any NJA nor
it is associated person of Armo Ltd.
c o
. the sale to Yalin Ltd. was on FOB
m
e insurance amounting to ` 25 Lakhs on
While sales to KB Inc., were on CIF basis,
basis, which paid ocean freightsand
a
l has a double taxation avoidance agreement
aga policy of providing after sales support service to
purchases from Armo Ltd. India
with UK. The assessee has
the tune of ` 19 lakhs to all customers except Yalin Ltd. which procured the
same locally at a cost of ` 23 lakhs.
Whether Yalin Ltd. and Armo Ltd. are Associated Enterprises. If yes, compute
the Arm's Length Price for the sales made to Yalin Ltd. and the amount of
consequent adjustment, if any, in the profits of Armo Ltd., the assessee
company for A.Y. 2024-25. Explain with reasons. (6 Marks)

o m
c
Answer
m . and
c. o (a) (i) Indistributed m
e paying the
respect of tips collected by the company from the guests
s
em a namely the
to the employees, the person responsible for
l
las g
employee was not the employer at all, but a third person,
a
ag guest.
The payments of collected tips included and paid by way of a credit
cards, UPI or Net Banking in the bills by guest, would not be
payments made “by or on behalf of” an employer.

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FINAL EXAMINATION: MAY 2024

The contract of employment not being the proximate cause for the
receipt of tips by the employee from a guest, such payments would
be outside the scope of sections 15 and 17.
There is no employer-employee relationship between customers and
the employees of Raj Keshri Hotels and Resorts Ltd. and therefore
such payments do not fall in the nature of salary.
On account of such tips being received from guests and not from the
employer, section 192 would not get attracted at all in the hands of
Raj Keshri Hotels and Resorts Ltd. 5 Thus, the company is not
responsible for deducting tax at source from disbursement of tips to
its employees.
(ii) Lalit is required to deduct TDS under section 194C for contract
payments and under section 194-I for rent paid for office premises
during the previous year 2023-24 since Lalit’s turnover for the
previous year 2022-23 exceeded ` 1 crore.
Thus, tax deduction under section 194C would be ` 5,000 6, being 1%
of ` 5 lakhs.
Mr. Lalit is also required to deduct tax at source @10% u/s 194-I on the
rent paid for office premises and for furniture, fixtures and vacant land
appurtenant to office to Mr. Hemant, since aggregate of rent i.e.,
` 2,58,000 [(16,000 + ` 5,500) x 12] paid during the P.Y. 2023-24
exceeds the threshold limit of ` 2,40,000.
The tax deduction under section 194-I would be ` 25,800, being 10%
of ` 2,58,000.
(iii) As per section 194-O, ABC Limited, an e-commerce operator is
required to deduct tax at source @1% on ` 4,90,000, being the gross
amount of sale of products ‘R’ of XY and Co., a partnership firm, an
e-commerce participant, since such sale of goods is facilitated by ABC
Limited through its digital facility.
ABC Ltd. is also required to deduct tax @1% on the payment of
` 60,000 directly made to XY and Co., since such amount is deemed
to be amount credited or paid by ABC Ltd. to XY and Co.

5
ITC Ltd v. CIT (2016) 384 ITR 14 (SC)
6
TDS would be ` 5,050, if it is assumed that ` 5,00,000 is the net amount after TDS.
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Thus, ABC Ltd. is required to deduct tax of ` 5,500, being 1% of
` 5,50,000.

m
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Note – Alternatively, it is possible to assume that the gross amount of

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sales is ` 4,90,000 of which ` 4,30,000 was paid to e-commerce

. em
s
operator and the balance of ` 60,000 is directly paid to the XY and Co.,
m e
a partnership firm by one of the buyers (Mr. Rai). In such case, ABC Ltd.
l a
l a s
is required to deduct tax@1% on the entire amount of ` 4,90,000. Thus,
a g
a(b)g Since Armo Ltd. entered into a transaction with Yalin Ltd., in Country X
ABC Ltd. is required to deduct tax of ` 4,900, being 1% of ` 4,90,000.

which is located in a notified jurisdictional area (NJA), Armo Ltd. and Yalin
Ltd. would be deemed as associated enterprises and the transactions
between them would be deemed to be international transactions.
Accordingly, all the provisions of transfer pricing would be attracted in
case of such a transaction.
The transactions of Armo Ltd. with KB Inc., U.K. for sale of identical goods
m
c. o
are comparable uncontrolled international transactions, since it is neither

emPrice (CUP) method can be used to
associated enterprises of Armo Ltd. nor it is situated in NJA.

la s
Hence, Comparable Uncontrolled

g
determine ALP.
a of ALP using CUP method
Computation

Particulars ` in crores
Price charged by KB Inc. (on CIF basis) 13.00
Less: Ocean freight and insurance, has to be reduced 0.25
since the price charged to Yalin Ltd. is on FOB basis
Less: Cost of after-sales support service (has to be 0.19

m
c. o
reduced, since such services are being provided to KB

m
c. o
Inc. but not to Yalin Ltd.)
m 12.56
se 11.75
Arm’s Length Price

s em g
Less: Price at which goods were sold to Yalin Ltd.
la
gla Arm’s length adjustment [increase in profit of a
Armo 0.81
a Ltd.]

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FINAL EXAMINATION: MAY 2024

Question 5
(a) Answer any two out of the following three sub-parts, viz. (i), (ii) and (iii)
Your answer should cover:
(1) Issue involved
(2) Provision Applicable
(3) Analysis and conclusion
(i) Assessee had taken an engine on lease under an agreement with a
foreign company (lessor), a tax resident of the Germany, having no
permanent establishment (PE) in India. The foreign company also does
not have PAN in India. The assessee company deducted tax at source
@10% on lease rental as per the provisions contained under DTAA
between India and Germany.
However, revenue contended that in the absence of furnishing of PAN,
the assessee was under an obligation to deduct tax at a higher rate of
20% following the provisions of section 206AA. In the light of the latest
Supreme Court rulings, discuss whether the contention of Revenue is
correct or not. (4 Marks)
(ii) The Assessing Officer passed an assessment order u/s 143(3) on
20.11.2018 in which the assessee committed the mistake of reducing
the depreciation in computation of Income instead of adding to the
income resulting in double deduction of depreciation. The AO did not
correct the said mistake in his order.
The assessee went up in appeal on other issues to the CIT(A) for the
same Assessment year, who decided the appeal on 28.6.2023. The AO
gave effect to the CIT(A)'s order vide order dated 23.7.2023. The AO
thereafter passed an order u/s 154 dated 26.4.2024 in which he
rectified the mistake of double deduction of depreciation committed in
the order dated 20.11.2018.
Please discuss whether the time limit of 4 years as per section 154(7)
would apply from the date of original assessment order or the order of
the Appellate Authority? (4 Marks)
(iii) ABC Pvt Ltd, a domestic company is engaged in a software
development business at Techno Park, which employed 700 employees,
deducted tax at source (TDS) in respect of salaries, contract payments,

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etc., totalling ` 1.10 crores upto 31.03.2024 for the assessment year
(AY) 2024-25. In March 2024, the assessee deposited part of the TDS
being ` 38 lakhs and balance of ` 72 lakhs was deposited later in July
m
m
2024. However, the Additional Commissioner of Income Tax issued a
c. o
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show cause notice proposing to levy penalty under Section 271C of the
s em
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Income-tax Act 1961 of the amount equal to TDS and also levied penal
l a
l a s interest under section 201(1A) of the Income-tax Act 1961. Feeling
ag
ag
aggrieved and dissatisfied with the levy of interest/penalty under the
Income-tax Act, 1961 on late deposit of TDS, the company has
approached you to seek your advice in the matter. (4 Marks)
(b) (i) Explain the term "Exchange of information" as per Article 26 of Model
Tax Conventions under OECD Model and UN Model and explain
importance of Article 26. (4 Marks)
(ii) What do you understand by "GloBE Rules"? Which entities are covered
under these Rules? (2 Marks)

o m
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Answer

m . consideration is whether the
e which prescribe a higher rate of tax
(a) (i) Issue Involved: The issue under

a s
provisions of section 206AA,
deduction at source inl case of non-furnishing of PAN by a foreign
agDouble Taxation Avoidance Agreement (DTAA)
company, override the
that specify a lower rate of tax.
Provisions Applicable: As per section 206AA, in case of non-
furnishing of PAN by the deductee to the deductor, the tax is
required to be deducted at higher of the rate specified in the relevant
provision or at the rates in force or at the rate of 20%.
Analysis and Conclusion: Section 90(2) provides that the provisions
m
c. o
of the DTAAs would override the provisions of the Act in cases where

m
c. o
the provisions of DTAAs are more beneficial to the assessee.
Even the charging sections 4 and 5 of the Act, which edealm with the
em principle of ascertainment of total income under a
l s
s g
the Act, are also

gla a
subordinate to the principle enshrined in section 90(2).

a Thus, in so far as the applicability of the scope/rate of taxation with
respect to the impugned payments made to the non-residents is
concerned, no fault can be found with the rate of taxation invoked by

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FINAL EXAMINATION: MAY 2024

the assessee based on the DTAAs, which prescribed for a beneficial
rate of taxation.
The provisions of tax withholding, i.e., section 195 of the Act, would
apply only to sums that are otherwise chargeable to tax under the
Act. The provisions of DTAAs, along with sections 4, 5, 9, 90 & 91 of
the Act, are relevant while applying the provisions of tax deduction at
source. Therefore, section 206AA of the Act cannot be understood to
override charging sections 4 and 5 of the Act.
Accordingly, the contention of the revenue that in the absence of
furnishing of PAN, the assessee was under an obligation to deduct tax
at a higher rate of 20% is not correct.
Note – The facts given in the question are similar to the facts in CIT
(International Taxation) v. Air India Ltd. [2023] 456 ITR 139 (SC).
The above answer is based on the rationale of the Supreme Court
ruling in the said case.
(ii) Issue Involved: The issue under consideration is whether the time
limit of 4 years as per section 154(7) would apply from the date of
original assessment order or the order of the Appellate Authority.
Provisions Applicable: As per section 154(7), no amendment under
section 154 shall be made after the expiry of four years from end of
the financial year in which the order sought to be amended was
passed.
Analysis and Conclusion: Once an appeal against the order passed
by an authority is preferred and is decided by the appellate authority,
the order of the Assessing Officer merges with the order of the
appellate authority. After merger, the order of the original authority
ceases to exist and the order of the appellate authority prevails.
The final order passed by the appellate authority was dated 28.6.2023
and acting thereupon the AO passed assessment order, giving appeal
effect thereto, on 23.7.2023. Thus, it is the order passed by the CIT(A)
which remains on record for all intent and purposes as the original
order of assessment has been merged.
Once the matter is viewed from this angle, it does not matter that the
error which is sought to be rectified occurred in the original

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assessment order and was not subject matter of appeal. Obviously, it
was a calculation error which could not have been the subject matter
of appeal.
m
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co
Thus, the period of limitation of 4 years for the purpose of section

. em
s
154(7) has to be counted from the date of the order of the Appellate
m
eNote – The facts given in the question are similar to the facts in CIT v. g
Authority.
l a
a s
l Tony Electronics Limited (2010) 320 ITR 378 (Delhi). The above answera
g
a is based on the rationale of the Delhi High Court ruling in the said
case.
Note – Since concept of partial merger is applicable in case of section
154, the rationale of Supreme Court rulings in case of CIT v.
Alagendran Finance Ltd (2007) 293 ITR 1 or CIT v. Industrial
Development Bank of India Ltd. [2023] 454 ITR 811 which is in relation
to section 263, can be applied in the present case. Accordingly, the

o m
c
analysis and conclusion alternatively would be as follows:

m . an appeal against the order passed
by an authority is preferred eand is decided by the appellate authority,
Analysis and Conclusion: Once

l a s Officer merges with the order of the
aglimited to the subject matter of appeal.
the order of the Assessing
appellate authority but
In the present case, the final order passed by the appellate authority
dated 28.6.2023 was on other issues.
Thus, the period of limitation of 4 years for the purpose of section
154(7) has to be counted from the date of the original order of the
Assessing Officer on matters other than the matter decided by the
Appellate Authority.

m
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(iii) Issue Involved: The issue under consideration is whether penalty u/s
m .
c. o m
271C and interest u/s 201(1A) both are leviable on late deposit of

se
TDS.

s em g la
la
Provisions applicable: Section 271C(1)(a) provides that if any person

g
fails to deduct the whole or any part of the tax as required by ora
a under the provisions of Chapter XVII-B, then, such person is liable to
pay, by way of penalty, a sum equal to the amount of tax which such
person failed to deduct.

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FINAL EXAMINATION: MAY 2024

Section 201(1A) provides that in case a tax has been deducted at
source but is subsequently remitted belatedly, such a person is liable
to pay interest as provided under section 201(1A).
Analysis and Conclusion: On a plain reading of section 271C(1)(a),
no penalty would be leviable on belated remittance of TDS after it is
deducted by the assessee.
Similarly, section 276B speaks about prosecution for failure to pay the
tax deducted at source to the credit of the Central Government within
the prescribed time.
The words “fails to deduct” in section 271C(1)(a) cannot be read as
“failure to deposit/pay the tax deducted”.
Accordingly, no penalty would be leviable under section 271C on
delay in remittance of the tax deducted at source after deducting it
on time.
However, interest u/s 201(1A) for late deposit of TDS is leviable.
Note – The facts given in the question are similar to the facts in US
Technologies International Pvt. Ltd. v. CIT [2023] 453 ITR 644 wherein
the issue came up before the Supreme Court. The above answer is
based on the rationale of the Supreme Court in the said case.
(b) (i) In order to complete tax cases, a country may require certain
information which may be available with the treaty partner.
Article 26 provides for the information which may be exchanged and
the manner in which such a request has to be made.
The OECD and UN Model Conventions are similar with respect to this
Article.
Importance of Article 26:
• facilitates effective exchange of information between Contracting
States.
• curtails cross-border tax evasion and avoidance,
• curtails the capital flight that is often accomplished through tax
evasion & avoidance. This is particularly relevant in the perspective
of developing countries.

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(ii) Pillar Two consists of GloBE Rules which means Global Anti-Base
Erosion rules, through which 15% global minimum tax has been
introduced.
m
m c. o
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The GloBE Rules apply to Constituent Entities that are members of an

. em
s
MNE Group that has annual revenue of EURO 750 million or more in

em
the Consolidated Financial Statements of the Ultimate Parent Entity
l a
l a s (UPE) in at least two of the four Fiscal Years immediately preceding
ag
g
aQuestion 6
the tested Fiscal Year.

(a) (i) Club U Travels Private Limited, engaged in the business of travel
agency remitted substantial amount to Australia as per the information
collected by the Income-tax department from PTU Bank. The
department collected documents from PTU Bank, which include Form
15CB issued by the chartered accountant, list of passengers, copy of

m
their passports, date of travel and invoices raised by the foreign party.

. co
On enquiry from the passengers and verifying their passports, it is

em
found that they did not travel abroad on the dates mentioned in the

a s
documents. On the top of it the passengers also denied there was no
l
a g
transaction with Club U Travels Private Limited.
The Income-tax department concluded that the amounts were remitted
by the company on the basis of false invoices and for wrong reasons. It
led to FEMA violations and Form 15CB issued by the chartered
accountant was a vital document in these transactions. During the six-
month period in question, the chartered accountant had issued 78
certificates in Form 15CB involving remittances of ` 35 crores for Club
U Travels Private Limited.

m
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A representation was given by the concerned CA that he had issued

m .
c. o
Form 15CB based on invoices produced by the company and verifying
m
se
the KYC documents of the signatory to the invoices. His contention was

s em that since he was not the statutory auditor of the company, he did not
g la
la a
examine the books of account before issuing Form 15CB or conduct due

ag diligence of its business activities. He had charged ` 2,500 per
certificate. Mostly, the fees were collected in cash. Some parts of the
fees were credited to his bank account.

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FINAL EXAMINATION: MAY 2024

Can the chartered accountant be held guilty of professional misconduct
for failure to obtain sufficient information and failure to exercise due
diligence in discharging the professional responsibilities? (6 Marks)
(ii) Specify with reason, whether the following acts can be considered as:
(A) Tax planning; or (B) Tax management; or (C) Tax evasion.
1. Mr. D has FDR with SBI in his name amounting to ` 50 lakhs. He
gifted this sum of ` 50 lakhs to his son, on 10.04.2023, the date on
which he attained 18 years of age. The purpose is to shift interest
income from his hands to his son, so that there may be Zero tax
implication, since his son has no other income and the total
interest would be lower than taxable limits for P.Y. 2023-24.
2. Mr. Ram's Annual income is ` 49.50 lakhs for A.Y. 2024-25
excluding commission receivable from ABC Limited. During March
2024, he earned a commission of ` 6 lakhs from ABC Limited. He
asked ABC Limited to transfer the commission in his wife's
account, who is a housewife. He also asked them to deduct TDS in
her wife's name. He did it so that his total income may not cross
` 50 lakhs and he can save surcharge on taxes applicable on total
income exceeding ` 50 lakhs. His wife has no other income.
(4 Marks)
(b) A Non-resident Foreign Company entered into contracts with several
Indian Companies for installation of mobile telephone system and made an
application to the Board of Advance Rulings, for advance ruling in relation
to the tax liability arising out of such transaction.
One of the above said Indian Companies also made an application to its
Assessing Officer for determination of a question of law with regard to
payments to be made to the said Foreign Company.
The Board of Advance Rulings rejected the application of the Foreign
Company on the ground that the question raised is pending before an
Income Tax Authority. Is the rejection of the application of the Foreign
Company justified in law? (4 Marks)

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Answer
(a) (i) Form 15CB is a certificate of an accountant wherein he certifies that
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he has examined the agreement between the remitter and the
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beneficiary requiring such remittance he has examined also the

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relevant documents and books of account required for ascertaining

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the nature of remittance and for determining the rate of deduction of

l a tax at source.
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ag The Chartered Accountant certifying the Form 15CB undertakes to
have verified the agreement between the remitter and the beneficiary
as well as the relevant documents and books of account to ascertain
the nature of remittance and determine the rate of TDS.
In this case, however, the Chartered Accountant mentioned that he
had only verified KYC of signatory to invoice and the invoices thereof.
He had not only failed to justify as to how verification of invoices was

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considered as sufficient compliance for certifying the forms but also

c o
.basis on which he relied for issuing
failed to bring on record the said invoices.

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e company.
Thus, he failed to provide any

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gl clauses (7) and (8) of Part I of the Second
Form 15CB certificates to the

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On account of such failure,
Schedule to the Chartered Accountants Act, 1949 for failure to
exercise due diligence in discharging his professional responsibilities
and failure to obtain sufficient information may be invoked.
(ii) 1. Tax Planning – Gifting of fixed deposits of ` 50 lakhs by Mr. D to
his son who attained the age of 18 years for the purpose of
shifting interest income from his hands to his son so that there
may be zero tax implication, is a permitted tax planning measure

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under the provisions of income-tax law.
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e from such
Note – It has been assumed that such transfer is irrevocable

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Mr. D does not derive any direct or indirect benefit

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income. In case transfer of fixed deposit is revocable
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the

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interest income on fixed deposits would be included hands of
a Mr. D and hence the same would not be considered as Tax
Planning.

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FINAL EXAMINATION: MAY 2024

2. Tax Evasion – Mr. Ram’s annual income is ` 49.50 lakhs for the
A.Y. 2024-25. He also earned commission of ` 6 lakhs from ABC
Limited. Accordingly, his total income would be ` 55.50 lakhs
which exceeds ` 50 lakhs and hence surcharge is applicable on
tax on total income.
However, for the purpose of saving tax, he instructed ABC Ltd. to
transfer the commission in his wife’s account. This is the case of
application of income and not of diversion of income by
overriding title, since such transfer of commission is not under
any obligation but to evade tax.
This is tax evasion.
(b) Application for Advance Ruling
As per section 245R, the Board for Advance Rulings (BAR), after examining
the application and the records called for, may either allow or reject an
application. However, the Board shall not allow an application where the
question raised in the application is already pending before any income-
tax authority, or Appellate Tribunal or any court.
In the present case, the question raised by a non-resident foreign
company with respect to tax liability on income arising from installation of
mobile telephone system is already pending before the Assessing Officer
on account of application made by one of the Indian Companies for
determination of question of law with regard to the payments made to
the said foreign company.
Since such question is already pending before the Income-tax Authority,
the rejection of application of the foreign company by the BAR is justified
in law.
Alternate Answer
However, as per the Explanatory Memorandum to the Finance Bill, 2020
(See Note below) the BAR shall not allow the application only if the
question raised is already pending in the applicant’s case before any
income-tax authority.
Accordingly, based on this view, the rejection of application by the BAR is
not justified in law, since the question raised in the application made by
the foreign company is pending before the Assessing Officer in the case
of one of the Indian Companies, and not in the applicant’s case.

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Note - The first proviso to section 245R(2) has been substituted by the
Finance Act, 2000 with effect from 1.6.2000. Clause (i) of the first proviso,
prior to and post amendment, reads as follows:
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Prior to 1.6.2000 On or After 1.6.2000

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Provided that the Authority shall not
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Provided that the Authority
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allow the application except in the case shall not allow the application
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of a resident applicant where the where the question raised in
question raised in the application is the application is already
already pending in the applicant’s case pending before any income-
before any income-tax authority, the tax authority or Appellate
Appellate Tribunal or any court; Tribunal or any court.

The words “except in the case of a resident applicant” and “in the
applicant’s case” has been removed in clause (i) of the first proviso with
effect from 1.6.2000. However, the Explanatory Memorandum to the

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Finance Act, 2000, explaining the impact of the substitution, reads as
o
follows:
c
. to provide that the Authority shall
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ethe question raised is already pending in
s
“It is proposed to substitute the proviso
not allow the application when
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the applicant’s case before
or any court in regard to a non-resident applicant and resident applicant in
relation to a transaction with a non-resident”.
Therefore, according to the intent expressed in the Explanatory
Memorandum, the AAR shall not allow the application both in the case of
resident and non-resident applicant if the question raised is already
pending in the applicant’s case before any income-tax authority.

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Thus, as per the Explanatory Memorandum, it is possible to take a view that

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even post-amendment, the Authority shall not allow the application only
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where a question is pending in the applicant’s case before any income-tax

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authority.
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