Taxation – Direct and Indirect

1. Mr. Fernandez has a portfolio of equity shares worth Rs. 2 crores by current market valuation. He had inherited the shares from his father 10 years ago. He has become extremely concerned about the introduction of 10% LTCG tax on equity shares in this year’s Union Budget. Not sure about the impact of this newly introduced tax, he is contemplating selling of all the shares before 31st March 2018, and escaping the taxation. He has sought your opinion on this. Prepare a detailed report citing the implications of the LTCG tax, and guide Mr. Fernandez in his decision making.

2. ABC Ltd.’s profit before tax as per P&L account was Rs. 240 crores. The following information was available regarding ABC Ltd on scrutiny:

• During the year, it had paid royalty of Rs. 40 crores to a German company, but TDS was not deposited with the IT department till the time of filing income tax returns.
• For a bill of Rs. 30000, ABC Ltd made cash payment of Rs. 30000 to the vendor on 29th January 2018.

Critically analyze whether the above expenditures will be allowed or disallowed as deductions, with reasons, discussing the applicable sections. What will be the impact of such allowance / disallowance on the computation of Profits and Gains from Business or Profession of ABC Ltd for the AY 2018 – 19?

3. A) Harish, an Indian citizen, leaves India for the first time on May 22, 2015 for London and returns on April 9, 2017, and stays in the country thereafter. Determine the residential status of Harish for the assessment year 2018-19?

3. B) During the assessment year 2018 – 19, Harish (the above mentioned person) had the following details of income:

Compute the taxable income in the hands of Harish for the AY 2018 – 19.

Taxation Direct & Indirect

Question 1 Mr. Chattur, is a citizen of Germany came to India as a tourist in the previous year 2016-17 and stayed in India for a period of 162 days. He liked the south east part of the country and decided to explore all the tourist places there so he stayed in India throughout the year 2015 16. However, in the year 2013-14, 2014-15 he visited India in two International Conferences and his period of stay was 26 days and 18 days respectively. Discuss in the light of the various applicable provisions of Income Tax Act-

• His residential status for AY2017-18 and the necessity to determine his residential status.

Question 2 Mr. Thakkar aged 38 years furnishes the following details with regard to his options exercised for tax planning purpose for the year ending as on 31.03.2017

a) Has taken Life insurance policy as on 30.4.2016 from Bajaj Alliance for a capital sum assured Rs.2.5 lacs, premium paid for the same Rs75000

b) Contribution made by a bearer cheque towards Public Provident Fund account of his father Rs20000

c) Paid Rs85000 to a friend towards housing loan on a property taken, the property is situated at Ratlam.

d) Subscription to units of mutual fund referred under section 10(23D) for Rs130000.

e) Contribution made towards Public Provident Fund account of his spouse Rs90000.

He wants to know about the gross total amount which he can claim as deduction while computing his total income. Are there any provisions available under the Indian Income Tax Act for the same? If yes, then discuss how the relevant provision will be helpful, give adequate reasons supporting the answer and also calculate the amount eligible for deduction under section 80 C.

Question 3 The Assessing officer in the decided case (GE Energy Parts Inc vs. ADIT, ITAT Delhi) examined the taxability of income of GE Overseas under the Act as well as the Double Taxation Avoidance Agreement. He did not accept the contention of the assessee that the sale consideration was not taxable in India as the title in respect of the equipment’s was transferred outside India and the payments were also received outside India. He held that a lot of activities relating to marketing and sales took place in India. Further, the negotiations of prices also took place in India. These facts, in the opinion of the AO, were clear indicators of the GE India securing orders for GE Overseas. He further found that GE Overseas, by remotely sitting in foreign countries, could not make any sales, without the active involvement of GE India. This was held to be a business connection of GE Overseas in India in terms of section 9 of the Act. The AO, therefore, held that all the profits did not accrue or arise to the assessee in the foreign soil, but part of such profits arising in India, corresponding to the activities carried out in India, was chargeable to tax under the Act. Such income accruing or arising was held to be liable to tax as per the provisions of section 5(2) of the Act. Simply put, the AO has made out a case that the GE overseas entities were having business connection under the Act as well as permanent establishment under the DTAA in India in all the years under consideration.

(link: http://itatonline.org/archives/ge-energy-parts-inc-vs-adit-itat-delhi-permanent-establishment-entire-law-explained-on-whether-the-deputation-of-personnel-by-a-foreign-company-to-assist-the-indian-subsidiaries-in-negotiations-mark/)

a) In the context of above mentioned cases, discuss what can be the objectives and importance of framing rules with respect to taxation of a business concern which operates in more than one nation from taxation perspective?

b) Elaborate, why the assessing officer is of the contention to treat GE India as a permanent establishment in the given case?

Taxation Direct & Indirect

Question 1 Mr. Chattur, is a citizen of Germany came to India as a tourist in the previous year 2016-17 and stayed in India for a period of 162 days. He liked the south east part of the country and decided to explore all the tourist places there so he stayed in India throughout the year 2015 16. However, in the year 2013-14, 2014-15 he visited India in two International Conferences and his period of stay was 26 days and 18 days respectively. Discuss in the light of the various applicable provisions of Income Tax Act-

• His residential status for AY2017-18 and the necessity to determine his residential status.

Question 2 Mr. Thakkar aged 38 years furnishes the following details with regard to his options exercised for tax planning purpose for the year ending as on 31.03.2017

a) Has taken Life insurance policy as on 30.4.2016 from Bajaj Alliance for a capital sum assured Rs.2.5 lacs, premium paid for the same Rs75000

b) Contribution made by a bearer cheque towards Public Provident Fund account of his father Rs20000

c) Paid Rs85000 to a friend towards housing loan on a property taken, the property is situated at Ratlam.

d) Subscription to units of mutual fund referred under section 10(23D) for Rs130000.

e) Contribution made towards Public Provident Fund account of his spouse Rs90000.

He wants to know about the gross total amount which he can claim as deduction while computing his total income. Are there any provisions available under the Indian Income Tax Act for the same? If yes, then discuss how the relevant provision will be helpful, give adequate reasons supporting the answer and also calculate the amount eligible for deduction under section 80 C.

Question 3 The Assessing officer in the decided case (GE Energy Parts Inc vs. ADIT, ITAT Delhi) examined the taxability of income of GE Overseas under the Act as well as the Double Taxation Avoidance Agreement. He did not accept the contention of the assessee that the sale consideration was not taxable in India as the title in respect of the equipment’s was transferred outside India and the payments were also received outside India. He held that a lot of activities relating to marketing and sales took place in India. Further, the negotiations of prices also took place in India. These facts, in the opinion of the AO, were clear indicators of the GE India securing orders for GE Overseas. He further found that GE Overseas, by remotely sitting in foreign countries, could not make any sales, without the active involvement of GE India. This was held to be a business connection of GE Overseas in India in terms of section 9 of the Act. The AO, therefore, held that all the profits did not accrue or arise to the assessee in the foreign soil, but part of such profits arising in India, corresponding to the activities carried out in India, was chargeable to tax under the Act. Such income accruing or arising was held to be liable to tax as per the provisions of section 5(2) of the Act. Simply put, the AO has made out a case that the GE overseas entities were having business connection under the Act as well as permanent establishment under the DTAA in India in all the years under consideration.

(link: http://itatonline.org/archives/ge-energy-parts-inc-vs-adit-itat-delhi-permanent-establishment-entire-law-explained-on-whether-the-deputation-of-personnel-by-a-foreign-company-to-assist-the-indian-subsidiaries-in-negotiations-mark/)

a) In the context of above mentioned cases, discuss what can be the objectives and importance of framing rules with respect to taxation of a business concern which operates in more than one nation from taxation perspective?

b) Elaborate, why the assessing officer is of the contention to treat GE India as a permanent establishment in the given case?

Taxation Direct & Indirect

Question 1 Mr. Chattur, is a citizen of Germany came to India as a tourist in the previous year 2016-17 and stayed in India for a period of 162 days. He liked the south east part of the country and decided to explore all the tourist places there so he stayed in India throughout the year 2015 16. However, in the year 2013-14, 2014-15 he visited India in two International Conferences and his period of stay was 26 days and 18 days respectively. Discuss in the light of the various applicable provisions of Income Tax Act-

• His residential status for AY2017-18 and the necessity to determine his residential status.

Question 2 Mr. Thakkar aged 38 years furnishes the following details with regard to his options exercised for tax planning purpose for the year ending as on 31.03.2017

a) Has taken Life insurance policy as on 30.4.2016 from Bajaj Alliance for a capital sum assured Rs.2.5 lacs, premium paid for the same Rs75000

b) Contribution made by a bearer cheque towards Public Provident Fund account of his father Rs20000

c) Paid Rs85000 to a friend towards housing loan on a property taken, the property is situated at Ratlam.

d) Subscription to units of mutual fund referred under section 10(23D) for Rs130000.

e) Contribution made towards Public Provident Fund account of his spouse Rs90000.

He wants to know about the gross total amount which he can claim as deduction while computing his total income. Are there any provisions available under the Indian Income Tax Act for the same? If yes, then discuss how the relevant provision will be helpful, give adequate reasons supporting the answer and also calculate the amount eligible for deduction under section 80 C.

Question 3 The Assessing officer in the decided case (GE Energy Parts Inc vs. ADIT, ITAT Delhi) examined the taxability of income of GE Overseas under the Act as well as the Double Taxation Avoidance Agreement. He did not accept the contention of the assessee that the sale consideration was not taxable in India as the title in respect of the equipment’s was transferred outside India and the payments were also received outside India. He held that a lot of activities relating to marketing and sales took place in India. Further, the negotiations of prices also took place in India. These facts, in the opinion of the AO, were clear indicators of the GE India securing orders for GE Overseas. He further found that GE Overseas, by remotely sitting in foreign countries, could not make any sales, without the active involvement of GE India. This was held to be a business connection of GE Overseas in India in terms of section 9 of the Act. The AO, therefore, held that all the profits did not accrue or arise to the assessee in the foreign soil, but part of such profits arising in India, corresponding to the activities carried out in India, was chargeable to tax under the Act. Such income accruing or arising was held to be liable to tax as per the provisions of section 5(2) of the Act. Simply put, the AO has made out a case that the GE overseas entities were having business connection under the Act as well as permanent establishment under the DTAA in India in all the years under consideration.

(link: http://itatonline.org/archives/ge-energy-parts-inc-vs-adit-itat-delhi-permanent-establishment-entire-law-explained-on-whether-the-deputation-of-personnel-by-a-foreign-company-to-assist-the-indian-subsidiaries-in-negotiations-mark/)

a) In the context of above mentioned cases, discuss what can be the objectives and importance of framing rules with respect to taxation of a business concern which operates in more than one nation from taxation perspective?

b) Elaborate, why the assessing officer is of the contention to treat GE India as a permanent establishment in the given case?

Taxation Direct & Indirect

Question 1 Mr. Chattur, is a citizen of Germany came to India as a tourist in the previous year 2016-17 and stayed in India for a period of 162 days. He liked the south east part of the country and decided to explore all the tourist places there so he stayed in India throughout the year 2015 16. However, in the year 2013-14, 2014-15 he visited India in two International Conferences and his period of stay was 26 days and 18 days respectively. Discuss in the light of the various applicable provisions of Income Tax Act-

• His residential status for AY2017-18 and the necessity to determine his residential status.

Question 2 Mr. Thakkar aged 38 years furnishes the following details with regard to his options exercised for tax planning purpose for the year ending as on 31.03.2017

a) Has taken Life insurance policy as on 30.4.2016 from Bajaj Alliance for a capital sum assured Rs.2.5 lacs, premium paid for the same Rs75000

b) Contribution made by a bearer cheque towards Public Provident Fund account of his father Rs20000

c) Paid Rs85000 to a friend towards housing loan on a property taken, the property is situated at Ratlam.

d) Subscription to units of mutual fund referred under section 10(23D) for Rs130000.

e) Contribution made towards Public Provident Fund account of his spouse Rs90000.

He wants to know about the gross total amount which he can claim as deduction while computing his total income. Are there any provisions available under the Indian Income Tax Act for the same? If yes, then discuss how the relevant provision will be helpful, give adequate reasons supporting the answer and also calculate the amount eligible for deduction under section 80 C.

Question 3 The Assessing officer in the decided case (GE Energy Parts Inc vs. ADIT, ITAT Delhi) examined the taxability of income of GE Overseas under the Act as well as the Double Taxation Avoidance Agreement. He did not accept the contention of the assessee that the sale consideration was not taxable in India as the title in respect of the equipment’s was transferred outside India and the payments were also received outside India. He held that a lot of activities relating to marketing and sales took place in India. Further, the negotiations of prices also took place in India. These facts, in the opinion of the AO, were clear indicators of the GE India securing orders for GE Overseas. He further found that GE Overseas, by remotely sitting in foreign countries, could not make any sales, without the active involvement of GE India. This was held to be a business connection of GE Overseas in India in terms of section 9 of the Act. The AO, therefore, held that all the profits did not accrue or arise to the assessee in the foreign soil, but part of such profits arising in India, corresponding to the activities carried out in India, was chargeable to tax under the Act. Such income accruing or arising was held to be liable to tax as per the provisions of section 5(2) of the Act. Simply put, the AO has made out a case that the GE overseas entities were having business connection under the Act as well as permanent establishment under the DTAA in India in all the years under consideration.

(link: http://itatonline.org/archives/ge-energy-parts-inc-vs-adit-itat-delhi-permanent-establishment-entire-law-explained-on-whether-the-deputation-of-personnel-by-a-foreign-company-to-assist-the-indian-subsidiaries-in-negotiations-mark/)

a) In the context of above mentioned cases, discuss what can be the objectives and importance of framing rules with respect to taxation of a business concern which operates in more than one nation from taxation perspective?

b) Elaborate, why the assessing officer is of the contention to treat GE India as a permanent establishment in the given case?