Taxmann's Direct Tax Laws & International Taxation (DT) | A.Y. 2023-24

Chapter-Wise Comparison With Study Material

TAXMANN ® Chapter No. Name of Chapter Study Material Lesson No. Part I - Direct Tax Laws

I-13

TAXMANN ® Chapter No. Name of Chapter Study Material Lesson No. Part II - International Taxation I-14

TAXMANN ® Chapter-wise Marks Distribution I-5 Previous Exams Trend Analysis I-7 Chapter-wise Comparison With Study Material I-13 PART I DIRECT TAX LAWS (70 MARKS) Chapter 1 INCOME FROM SALARIES 1.3 Chapter 2 INCOME FROM HOUSE PROPERTY 2.1 Chapter 3 PROFITS AND GAINS OF BUSINESS OR PROFESSION 3.1 Chapter 4 CAPITAL GAINS 4.1 Chapter 5 INCOME FROM OTHER SOURCES 5.1 Chapter 6 TAX ON CONVERSION OF UNACCOUNTED MONEY 6.1 Chapter 7 INCOME OF OTHER PERSONS, INCLUDED IN ASSESSEE’S TOTAL INCOME (CLUBBING OF INCOME) 7.1 PAGE I-15 Contents

TAXMANN ® Chapter 8 SET-OFF OF LOSSES OR CARRY FORWARD AND SET-OFF OF LOSSES 8.1 Chapter 9 DEDUCTIONS FROM GROSS TOTAL INCOME 9.1 Chapter 10 TAXATION OF CO-OPERATIVE SOCIETIES 10.1 Chapter 11 DEDUCTION FOR SPECIAL ECONOMIC ZONE 11.1 Chapter 12 EXPENDITURE ON EXEMPT INCOME 12.1 Chapter 13 TAXATION OF POLITICAL PARTIES & ELECTORAL TRUST 13.1 Chapter 14 TAXATION OF CHARITABLE/ RELIGIOUS TRUSTS 14.1 Chapter 15 TAXATION OF MUTUAL CONCERNS 15.1 Chapter 16 MINIMUM ALTERNATE TAX (MAT) 16.1 Chapter 17 TAXATION OF FIRMS, LLP AND AOP/BOI 17.1 Chapter 18 ALTERNATE MINIMUM TAX (AMT) 18.1 Chapter 19 TAXATION OF BUSINESS TRUSTS (REITs, InvITs) 19.1 Chapter 20 APPLICATION v. DIVERSION OF INCOME 20.1 Chapter 21 ASSESSMENT PROCEDURES 21.1 Chapter 22 APPEALS AND REVISIONS 22.1 PAGE I-16

PART

TAXMANN ® Chapter 23 SURVEY, SEARCH AND SEIZURE 23.1 Chapter 24 PENALTIES AND PROSECUTIONS 24.1 Chapter 25 SETTLEMENT OF CASES 25.1 Chapter 26 LIABILITY IN SPECIAL CASES 26.1 Chapter 27 ASSESSMENT OF HUF 27.1 Chapter 28 TAX DEDUCTION AND COLLECTION AT SOURCE 28.1 Chapter 29 COLLECTION AND RECOVERY OF TAX 29.1 Chapter 30 INTEREST 30.1 Chapter 31 MISCELLANEOUS TOPICS, STT/ CTT AND IFSC 31.1 Chapter 32 TAX PLANNING, TAX AVOIDANCE AND TAX EVASION (INCLUDING GAAR) 32.1

II INTERNATIONAL TAXATION (30 MARKS) Chapter 33 TAX INCIDENCE IN INDIA 33.3 Chapter 34 TAXATION OF NON-RESIDENTS 34.1 Chapter 35 DOUBLE TAXATION RELIEF 35.1 PAGE I-17

TAXMANN ® Chapter 36 TRANSFER PRICING 36.1 Chapter 37 ADVANCE RULINGS 37.1 Chapter 38 EQUALISATION LEVY 38.1 Chapter 39 OVERVIEW OF MODEL TAX CONVENTIONS 39.1 Chapter 40 APPLICATION AND INTERPRETATION OF TAX TREATIES 40.1 Chapter 41 FUNDAMENTALS OF BEPS 41.1 Solved Paper : Nov. 2022 (Suggested Answers) P.1 Solved Paper : May 2023 (Suggested Answers) P.25 PAGE I-18

4

Q1. On 25-11-2022, A gave power of attorney and possession to B in respect of a vacant land acquired 10 years ago. The sale deed was executed in April, 2023. In which assessment year, the capital gain is chargeable to tax?

Ans.

[CA Final May 2010] [4 Marks]

in the previous year in which transfer took place.

47 inter alia

Explanation 2 to section 50C “assessable assessable

Q2. Can reference be made to the Valuation Officer u/s 55A where the A.O. is of the view that in the context of computation of capital gains, the value of asset as on 1-4-2001 adopted by the assessee is more than the FMV?

[CA Final May 2010] [4 Marks]

TAXMANN ®

CAPITAL GAINS CHAPTER 4.1

Ans.

the value so claimed is at variance with the FMV of the asset. variance

Q3. A sold a house to his friend B on 1-11-2022, for a consideration of ` 25,00,000. The Sub-Registrar refused to register the document for the said value, as according to him, Stamp Duty had to be paid of ` 45,00,000 which was the Government Guideline Value. Mr. A preferred an appeal to the Revenue Divisional Officer, who fixed the value of the house as ` 32,00,000 (` 22,00,000 for Land, balance for Building portion). The differential Stamp Duty was paid, accepting the said value determined. Assuming that the FMV is ` 32,00,000, what are the tax implications in the hands of Mr. A and Mr. B for the A.Y. 2023-24? Mr. A had purchased the Land on 1-6-2018 for ` 5,19,000 & completed the construction of house on 1-12-2020 for ` 14,00,000.

CII: FY 2017-18: 272, FY 2018-19: 280, FY 2019-20: 289, FY 2021-22: 317, FY 2022-23: 331 [CA Final May 2010] [4 Marks]

Ans.

Computation of Capital Gains for A.Y. 2023-24 Land (`) Building (`)

Note: i.e. `

16,05,574 (4,00,000)

TAXMANN ®

` `

4.2

Tax Implication:

Mr. A:

Mr. B: i.e.

Q4. A resident woman (individual) sold a house property on 16-1-2023. On the said transaction, she earned a long-term capital gain of ` 1,01,50,000. She invested a sum of ` 50,00,000 in capital gains bonds specified in section 54EC on 5-3-2023. She further invested a sum of ` 50,00,000 in the same bonds on 5-5-2023. Her other income for the financial year 2022-23 was ` 56,000. Compute the tax payable by her for the A.Y. 2023-24. Assume the assessee has not opted for Sec. 115BAC. [CA Final Nov. 2010] [6 Marks

Ans.

TAXMANN ®

` ` `

` x ` ` `

]

of taxable income for the A.Y. 2023-24 `

Computation

` ` ` ` 4.3

Computation of Income-Tax payable:

4.4

Q5. Hari has acquired a residential house property in Delhi on 1st April, 2010 for ` 10,00,000 and decided to sell the same on 3rd May, 2012 to Ms. Pari and an advance of ` 25,000 was taken from her. The balance money was not paid by Ms. Pari and Hari has forfeited the entire advance sum. On 3rd June, 2022, he sold this house to Mr. Suri for ` 35,00,000. In the meantime, on 4th April, 2022, he had purchased a residential house in Delhi for ` 8,00,000, where he was staying with his family on rent for the last 5 years and paid the full amount as per the purchase agreement. However, Hari does not possess any legal title till 31st March, 2023, as such transfer was not registered with the registration authority.

Hari has purchased another old house in Surat on 14th October, 2022 from Mr. X, an Indian resident, by paying ` 5,00,000 and the purchase was registered with the appropriate authority. Determine the taxable capital gain arising from above transactions in the hands of Hari for A.Y. 2023-24. [CA Final Nov. 2010] [5 Marks]

Ans. Computation of taxable capital gain of Mr. Hari for the A.Y. 2023-24

Notes:

Less:

TAXMANN ® ` ` `

two residential house properties

for the purpose of claiming exemption under section 54, holding of legal title is not necessary.

Q6. “Any transfer of a capital asset or intangible asset by a private company or unlisted public company to a LLP or any transfer of share or shares held in a company by a shareholder on conversion of a company into a LLP in accordance with section 56 and section 57 of the Limited Liability Partnership Act, 2008, shall not be regarded as a transfer for the purposes of levy of capital gains tax under section 45 subject to fulfilment of certain conditions”. Explain in the context of the provisions contained in the Act.

Ans.

[CA Final May 2011] [6 Marks]

TAXMANN ®

` ` `

i.e.

s a b

4.5

Q7. Mr. X transferred his residential house to Y for ` 11 lakh on 1st April, 2022. The value of the said house as per Stamp Valuation Authority was ` 16 lakh. Mr. Y is a childhood friend of Mr. X.

Mr. X gifted a plot of land (purchased by him on 1st August, 2019) to Mr. Y on 1st July, 2022. The value as per Stamp Valuation Authority is ` 8 lakh. Mr. Y sold the land on 1st March, 2023 at ` 14 lakh. Compute the income of Mr. Y chargeable under the heads “Capital Gains” and “Income from other sources” for Assessment Year 2023-24.

[CA Final Nov 2011] [5 Marks]

Ans. Computation of income of Mr. Y for A.Y. 2023-24

TAXMANN ® c d e ` ea ` f

` Capital Gains x Income from other sources x Total Income 19,00,000 4.6

Q8. What are the consequences if the amount deposited in Capital Gains Account Scheme to avail exemption from capital gains is not utilised within the stipulated time? Is there any difference in the tax treatment in the event of death of the assessee before the stipulated time?

amount shall be chargeable as capital gain in the previous year in which the specified period of two years or three years, as the case may be, expires. The nature of the capital gain shall be same

Circular No.743 dated 6-5-1996

TAXMANN ® Notes: x ` ` i.e. ` ` ` ` ` 5,00,000 i.e. ` ` chargeable to tax x ` ` ` ` x x x `

[

] Ans. i.e., unutilized

CA Final May 2012] [3 Marks

4.7

Q9. State the cases where the benefit of indexation of cost is not available for determination of capital gains. [CA Final May 2012] [7 Marks] Ans.

Q10. PQR Ltd. has two units–one engaged in manufacture of Computer Hardware and the other involved in developing Software. As a restructuring drive, the Company has decided to sell its Software Unit as a going concern by way of slump sale for ` 385 Lakhs to a new Company called S Ltd., in which it holds 74% Equity Shares. The FMV of the capital assets of the unit on the date of transfer calculated as per Rule 11UAE is ` 400 lakhs. The Balance Sheet of PQR Ltd. as on 31st March 2023, being the date on which software unit has been transferred, is as under:

TAXMANN ®

23D

4.8

4.9

Following additional information are furnished by the Management:

(

i) The Software Unit is in existence since May, 2019.

ii) Fixed Assets of Software Unit includes land which was purchased at ` 40 Lakhs in the year 2016 and revalued at ` 60 Lakhs as on March 31, 2023.

(iii) Fixed Assets of Software Unit mirrored at ` 140 Lakhs (` 200 Lakhs minus land value ` 60 Lakhs) is Written Down Value of Depreciable Assets as per books of account. However, the Written Down Value of these Assets u/s 43(6) of the Income-tax Act is ` 90 Lakhs.

Required:

(

a) Ascertain the tax liability, which would arise from slump sale to PQR Ltd.

(

b) What would be your advice as a Tax Consultant to make the restructuring plan to the Company more tax savvy, without changing the amount of sale consideration?

[CA Final Nov. 2012, May 2011] [10 Marks] Ans.

as appearing in the books of account.

TAXMANN ® Liabilities ` in Lakhs Assets ` in Lakhs Paid-up Share Capital 300 Fixed Assets General Reserve 150 Hardware Unit 170 Share Premium 50 Software Unit 200 Revaluation Reserve 120 Debtors Current Liabilities Hardware Unit 140 Hardware Unit 40 Software Unit 110 Software Unit 90 Inventories Hardware Unit 95 Software Unit 35 750 750

minus

(a)

minus

revaluation of assets shall be ignored

Computation of Tax Liability arising on Slump Sale ` in Lakhs

Note:

1. Net Worth of Software Unit: ` in Lakhs

Total Assets

Less: Liabilities

(b) Modification in the Restructuring Plan Option 1: S Ltd - 100% Subsidiary i.e.

TAXMANN ®

` % `

4.10

4.11

Conditions:

Result: iv not attract Capital Gains. Option 2: S Ltd - Demerger

Result: not a transfer vib

Q11. Mr. Shakti purchased a residential house in March, 2011 for ` 22 lakhs. He sold the house on 1st December, 2022 for ` 100 lakhs. He paid brokerage at 2% on sale price. He invested ` 80 lakhs in April, 2023 in equity shares of Shakti Private Limited, an eligible start-up. Mr. Shakti holds 80% of share capital of the company. The company utilised the sum of ` 80 lakhs in the following manner:

(

i) Purchase of new machinery during April, 2023 ` 70 lakhs (including ` 10 lakhs for purchase of computers).

ii) Deposit in specified bank on 25th September, 2023 ` 6 lakhs.

(

iii) Remaining ` 4 lakhs was held as Cash balance. The due date for filing return of income for Mr. Shakti for A.Y. 2023-24 is 31st October, 2023. Assume that he files return on 28.10.2023. Compute the taxable capital gain arising from the above transaction for Assessment Year 2023-24. [CA Final May 2013] [6 Marks]

Ans. Computation of taxable capital gains of Mr. Shakti for A.Y. 2023-24

Less:

Less: ` ×

TAXMANN ®

4.12

Less:

Deemed cost of new plant and machinery for exemption u/s 54GB:

Note:

Q12. Tani purchased a land at a cost of ` 34 lakhs in the financial year 2010-11 and held the same as her capital asset till 31st March, 2019. Tani started her real estate business on 1st April, 2019 and converted the said land into stock-in-trade of her business on the said date, when the fair market value of the land was ` 150 lakhs.

She constructed 20 flats of equal size, quality and dimension. Cost of construction of each flat is ` 8 lakhs. Construction was completed in December, 2022. She sold 15 flats at ` 20 lakhs per flat between Jan., 2023 and March, 2023. Remaining 5 flats were held in stock as on 31-03-2023.

She invested ` 50 lakhs in bonds issued by Rural Electrification Corporation Ltd. on 31st March, 2023.

Compute the amount of chargeable capital gain and business income in the hands of Tani arising from the above transactions for Assessment Year 2023-24 indicating clearly the reasons for treatment for each item.

Cost Inflation Index: FY 2010-11: 167; FY 2019-20: 289; FY 2022-23: 331.

[CA Final May 2013] [10 Marks

TAXMANN ® `

` `

` ×

iii

i ii

]

Ans. Computation of Capital gains and business income of Tani for A.Y. 2023-24

Capital Gains

Less

` Less: Business Income

Less:

Alternate presentation for computation of capital gains

TAXMANN ®

× `

` × × `

` ` × ` × ×

Less Notes:

4.13

Q13. The proprietary firm of ‘Mr. Amolak’ a practicing Chartered Accountant, was converted into partnership on 1-9-2022 when his son joined him in the firm for 50% share. All the assets and liabilities of the erstwhile proprietary firm were transferred into the newly constituted partnership firm.

“Mr. Amolak” was credited and paid an amount of ` 5 lakhs in his account from the firm. Explain as to chargeability of this amount of ` 5 lakhs in the hands of “Mr. Amolak” when it stands paid for:

(

i) transfer of business into partnership;

ii) goodwill by the incoming partner. [CA Final Nov. 2013] [4 Marks] Ans.

(

i) If the amount was paid for transfer of business/profession to partnership:

there is

a transfer of interest in the assets of the proprietor’s business as

TAXMANN ® i.e.,

4.14

4.15

(ii) If the amount is paid by the incoming partner for Goodwill: CIT v. B. C. Srinivasa Setty (1981), not possible to ascertain a

Q14. Mr. X had a leasehold property since 5th May, 2015. The leasehold rights were converted into freehold on 20th May, 2022. The said property was sold on 10th January, 2023. The assessee claimed the capital gain as long-term capital gain. The A.O. contended the same as short-term as the property was acquired by converting the leasehold right into freehold right only on 20th May, 2022. Is Mr. X justified in his claim?

Ans.

Kalia (2013) (All.).

[CA Final May 2015] [4 Marks]

TAXMANN ® `

CIT v. Smt. Rama Rani

4.16

Q15. Mr. Ramesh purchased a plot of land in Chennai in June 2013 for ` 50 lakhs. He decided to sell the property to Mr. Mahesh for ` 80 lakhs and received an advance of ` 2 lakhs in May, 2013. Mr. Mahesh was unable to complete the agreement and hence, the entire advance was forfeited by Mr. Ramesh.

Again Mr. Ramesh entered into an agreement to sell the property to Mr. Rakesh for ` 95 lakhs and received advance money of ` 2.50 lakhs in August, 2022. But again the transfer did not materialise due to which the advance money was again forfeited.

On 4th January, 2023, the property was finally sold to Mr. Mukesh for ` 105 lakhs and the stamp duty value on that date was ` 125 lakhs. During financial year 2022-23, Mr. Ramesh earned business income of ` 25 lakhs. He acquired a new residential property for ` 130 lakhs by investing entire sale consideration and his business income. Determine the total income of Mr. Ramesh for the assessment year 2023-24

[CA Final May 2015] [7 Marks]

Ans.

Computation of total income of Mr. Ramesh for the A.Y. 2023-24

` in lakhs ` in lakhs

Business Income Capital Gains

TAXMANN ®

Income from other sources

Notes:

TAXMANN ® ` in lakhs ` in lakhs

`` i.e. Gouli Mahadevappa ITO ` ix

4.17

Q16. SS(P) Ltd., a domestic listed Indian company having two undertakings engaged in manufacture of cement and steel, decided to hive off cement division to RV(P) Ltd., a domestic Indian company, by way of demerger.

The net book value of assets of SS(P) Ltd. before demerger was ` 40 crores. The net book value of assets transferred to RV(P) Ltd. was ` 10 crores. The demerger was made in January 2023. In the scheme of demerger, it was fixed that for each equity share of ` 10 each (fully paid-up) of SS(P) Ltd., two equity shares of ` 10 each (fully paid-up) were to be issued. One Mr. N.K. held 25,000 equity shares in SS(P) Ltd. which were acquired in the F.Y. 2009-10 for ` 6,00,000. Mr. N.K. received 50,000 equity shares from RV(P) Ltd. consequent to demerger in January 2023. He sold all the shares of RV(P) Ltd. for ` 8,00,000 in March, 2023. In this background answer the following:

(

i) Does the transaction of demerger attract any income tax liability in the hands of SS (P) Ltd. and RV(P) Ltd.?

ii) State the conditions in brief, which are to be satisfied under the Act for a demerger.

(iii) Compute the capital gain that could arise in the hands of Mr. N.K. on receipt of shares of RV(P) Ltd.

(

iv) Compute the capital gain that could arise in the hands of Mr. N.K. on sale of shares of RV(P) Ltd.

(

v) Will the sale of shares by Mr. N.K. affect the tax benefits availed by SS(P) Ltd. and/or RV(P) Ltd.?

vi) Is Mr. N.K. eligible to avail any tax exemption under any of the provisions of the Income-tax Act, 1961 on the sale of shares of RV(P) Ltd.? If so, state in brief .

TAXMANN ®

Note: F.Y. Cost inflation index (CII) 2009-10 148 2022-23 331 [CA Final Nov. 2015] [10 Marks] Ans. i vib ii 19AA a 4.18

TAXMANN ® b c Provided d e f g 4.19

Q17. K and Co. (firm) had sold all its assets and liabilities as a slump sale on 31-3-2023 to SVPC & Co. (firm) for a lump sum consideration of ` 580 lakhs. The FMV of the capital assets on the date of transfer computed as per Rule 11UAE is ` 600 lakhs.

TAXMANN ® iii vid transfer or issue of shares by the resulting company i.e. i.e. iv Explanation 1 42A ` ` ` ` Computation of Capital Gains ` ` v vi 38

4.20

DIRECT TAX LAWS & INTERNATIONAL TAXATION (DT) | A.Y. 2023-24 | CRACKER

AUTHOR : RAVI CHHAWCHHARIA

PUBLISHER : TAXMANN

DATE OF PUBLICATION : JUNE 2023

EDITION : 6th Edition

ISBN NO : 9789356224803

NO. OF PAGES : 700

BINDING TYPE : PAPERBACK

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This book is prepared exclusively for the requirements of the Final Level of Chartered Accountancy Examination. It covers the questions & detailed answers strictly as per the new syllabus of ICAI.

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• [590+ Practical Questions & Answers] for self-practice

• [Updated Solutions/Answers] as per Law applicable for A.Y. 2023-24

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