Mock Test Paper -4(Additional MCQ)

Topics:- Transfer Pricing & International Taxation(NR), GAAR

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Part A Part B

1. A notified infrastructure debt fund eligible for exemption under section 10(47) of the Income-tax
Act, 1961 pays interest of Rs. 5 lakhs to a company incorporated in a foreign country. The foreign
company incurred expenditure of Rs. 12,000 for earning such interest. The fund also pays interest
of Rs. 3 lakhs to Mr. Frank, who is a resident of Country A, a notified jurisdictional area. Which of
the following statements are correct?
(a) No tax deduction at source is required in respect of both the payments.
(b) No TDS is required in respect of payment of Rs. 5 lakhs to the foreign company. However
payment of interest to Frank attracts TDS@31.2%
(c) TDS@5.20% is attracted on Rs. 4,88,000 to the foreign company. TDS@31.2% is attracted
on interest payment of Rs. 3 lakhs to Mr. Frank
(d) TDS@5.20% is attracted on interest payment of Rs. 5 lakhs to the foreign company.
TDS@31.2% is attracted on interest payment of Rs. 3 lakhs to Mr. Frank.
Reason:

As per provisions of Section 194LB: Where any income by way of interest is payable to a non-
resident or to a foreign company, by an infrastructure debt fund referred to in section 10(47), it
shall, at the time of credit of such income to the account of the payee or at the time of payment
thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct
income-tax thereon at the rate of 5%.
Further:
 Surcharge shall be added if applicable.
 Education cess or SHEC shall be added to the above rates plus surcharge if applicable.
 The provisions of section 206AA shall not apply to a non-resident, not being a company,
or to a foreign company, in respect of payment of such interest subject to such
conditions as may be prescribed.

Under Section 94A, the central government is empowered to notify any area as a notified
jurisdictional area.

Section 94A(2): If an assessee enters into a transaction where one of the parties to the
transaction is a person located in NJA, the TDS rate applicable shall be HIGHER OF :
 Rates in force under finance act/ DTAA

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  Rate specified under the act (u/s 194LB - 5% plus surcharge, if applicable and cess)
 30%
As per provisions of 94A(2), rate will be taken as 30% and as per section 194LB, surcharge, if
applicable and Cess shall be levied on the prescribed rate.

2. Interest income earned by a non-resident during the P.Y. 2020-21 on bonds, issued by ABC Ltd.,
an Indian company, under a scheme notified by the Central Government, which were purchased
by him in convertible foreign currency, is –
(a) Taxable @10%
(b) Taxable @15%
(c) Taxable @20%
(d) Not taxable
Reason:
Section 115AC Contemplates that if a non-residents earned interest income by subscribing the
Foreign Currency convertible bonds in Foreign Currencies which is notified by the Central
government, then interest income shall be chargeable @ 10 %. However, it is interesting to note
that, if such Securities is notified and covered us 194LC/194LD, then such Rate shall be
substituted with “5%”.
3. Mr. Ganesh, a citizen of India, is employed in the Indian embassy in the USA. He is a non-resident
for A.Y.2021-22. He received salary and allowances in the USA from the Government of India for
the year ended 31.3.2021 for services rendered by him in the USA. In addition, he was allowed
perquisites by the Government. Which of the following statements are correct?
(a) Salary, allowances and perquisites received outside India are not taxable in the hands of
Mr. Ganesh, since he is a non-resident.
(b) Salary, allowances and perquisites received outside India by Mr. Ganesh is taxable in
India since they are deemed to accrue or arise in India.
(c) Salary received by Mr. Ganesh is taxable in India but allowances and perquisites are
exempt.
(d) Salary received by Mr. Ganesh is exempt but allowances and perquisites are taxable
Reason:

As per Section 9(1)(iii): Salary is deemed to accrue or arise in India if the salary is payable by
government to CITIZEN OF INDIA, for services rendered outside India.
Hence it shall be taxable.

Exemption u/s 10(7): Allowance/ Perquisites paid or allowed to Govt. employees serving outside
India shall be exempt from tax u/s 10(7).

4. Ms. Aparna and Ms. Dimple, Indian citizens residing in California since the year 2010, visit India
for 60 days every year. On 1.3.2021, Ms. Aparna transferred to Ms. Dimple in California, for
consideration of dollar equivalent to Rs. 15 lakhs, rupee denominated bonds (issued outside
India) of X Ltd., a company incorporated in India, which were acquired by her on 1.3.2018 for a
price of dollar equivalent to Rs. 10 lakhs. What are the capital gains tax implications of such
transfer in the hands of Ms. Aparna?
(a) Ms. Aparna is liable to capital gains tax on long-term capital gains arising on transfer of
rupee denominated bonds; indexation benefit is not available
(b) Ms. Aparna is liable to capital gains tax on long-term capital gains arising on transfer of
rupee denominated bonds; indexation benefit is available
(c) Ms. Aparna is liable to capital gains tax on short-term capital gains arising on transfer of

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 rupee denominated bonds
(d) There is no capital gains tax implication in the hands of Ms. Aparna in respect of this
transaction
Reason:

According to provision of section 47, Anything contained in section 45 shall not apply.
Section 47(viiaa) encompasses any transfer of a capital asset, being bonds or shares referred to
in sub- section (1) of section 115AC, made outside India by a non- resident to another non-
resident.

Therefore, by virtue of section 47(viiaa), capital gains in hands of Ms Aparna shall not taxed.

5. Mr. X, a Non Resident is due to receive interest of ₹ 5 lakhs during March, 21 from a notified
infrastructure debt fund eligible for exemption u/s 10(47). He incurred expenditure of 10,000 for
earning such income. Assuming Mr.X is a resident of notified jurisdictional area, determine IT
payable by Mr. X and tax to be deducted at source by fund:
(a) ₹ 26,000, TDS @ 31.2%
(b) ₹ 25,000, TDS @ 5%
(c) ₹ 50,000, TDS @ 5.2%
(d) ₹ 52,000, TDS @ 10%
Reason:
As per provisions of Section 94A(2):
The benefit of basic exemption limit shall not be applicable to a person residing in NJA.
Any expenses incurred by such person shall be disallowed.
Accordingly, tax payable by such person is calculated as under:

Income = Rs.5,00,000
Tax Rate for individual up to Rs.5,00,000: 5%
Cess Applicable is 4%
Net rate: 5.2%
Tax Payable: 5,00,000*5.2% = Rs.26,000.

Section 94A(2): If an assessee enters into a transaction where one of the parties to the
transaction is a person located in NJA, the TDS rate applicable shall be HIGHER OF :
 Rates in force under finance act/ DTAA
 Rate specified under the act (u/s 194LB - 5% plus surcharge, if applicable and cess)
 30%
As per provisions of 94A(2), rate will be taken as 30% and as per section 194LB, surcharge, if
applicable and Cess shall be levied on the prescribed rate.
Therefore, applicable TDS Rate: 30%*4%= 31.2%

Case Study:
Rio Grande Inc, a notified Foreign Institutional Investor (FII), derived the following incomes for the
financial year 2020-21:-
(1) Interest received on investment in Rupee Denominated Bonds of Cauvery Ltd., an Indian
company issued in March, 2019 – Rs. 4,70,000
(2) Dividend from listed equity shares of Indian companies – Rs. 2,80,000
(3) Interest on securities – Rs. 15,48,000 (Expenses of Rs. 13,000 has been incurred to earn such

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 income)
(4) Income from sale of securities and shares:
(i) Bonds of Vaigai Ltd.
[Date of purchase 7th July 2017; Date of sale 5th February, 2021]
Sale proceeds Rs. 58,00,000
Cost of purchase Rs. 29,00,000
Cost Inflation Index: F.Y.2017-18:272; F.Y.2020-21:301
(ii) Listed equity shares of Mahanadi Ltd.
[Date of purchase – 5th June, 2020; Date of sale – 4th January, 2021]
Sale Consideration Rs. 14,50,000
Purchase cost Rs. 6,00,000
[STT paid both at the time of purchase and sale]
(iii) Unlisted equity shares of Godavari Ltd.
[Date of purchase – 2nd August, 2020; Date of sale – 29th March, 2021]
Sale Consideration Rs. 7,80,000
Purchase cost Rs. 2,65,000
Zara Ltd. is a company resident in Country A. It had set-up a liaison office at Calcutta to receive trade
inquiries from customers in India. The work of the liaison office is not only restricted to forwarding
of the trade inquiries to Zara Ltd. but the liaison office also negotiates and enters into contracts on
behalf of Zara Ltd. with the customers in India. Zara Ltd.
From the information given above, choose the most appropriate answer to questions
6. In respect of interest payable to Rio Grande Inc. on Rupee Denominated Bonds issued outside
India by Cauvery Ltd.
(a) tax is deductible at source at the rates in force under section 195
(b) tax is deductible at source@5.2%.
(c) tax is deductible at source@20.8%
(d) no tax is deductible at source.

Reason:
As per section 194LC, The Indian paying interest income to a non-resident, not being a company,
or to a foreign company is liable to deduct TDS @ 5%. In addition to the same, the Cess @ 4%
shall be levied.

7. If we assume that Rupee Denominated Bonds were issued outside India by Cauvery Ltd. in
March, 2019 and Zara Ltd. has also subscribed to such bonds, then, in respect of interest
payable to Zara Ltd. on such rupee denominated bonds,
(a) tax is deductible at source at the rates in force under section 195
(b) tax is deductible at source@5.2%.
(c) tax is deductible at source@10.4%
(d) no tax is deductible at source.
Reason:
Incomes which do not form part of the total Income for the Non-resident under the Act
Sec. 10(4C)-Interest payable by an Indian company or business trust in respect of moneys
borrowed from a source outside India by way of issue of rupee denominated bond during the
period from 17.9.2018 to 31.3.2019
8. If we assume that Rio Grande Inc. had purchased listed shares of Vaigai Ltd. (STT paid) and not
bonds, the date of purchase and sale remaining the same as given in respect of bonds, the
entire capital gains arising on sale of such shares would be;

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 (a) Exempt from tax
(b) taxable@20% with indexation benefit.
(c) taxable@10% without indexation benefit.
(d) None of the above.
Reason:
Long-term capital gains on the transfer of equity shares in a company acquired on or after 1
October 2004 shall be exempted only if STT was paid at the time of acquisition. This exemption
stands withdrawn from 1 April 2018. Post such withdrawal of Section 10(38), Section 112A was
introduced, according to which the long-term capital gains exceeding Rs.100,000 will be taxed
at the rate of 10% (plus surcharge and health and education cess). The benefit of adjustment
of cost of inflation index will not be available. In addition, the benefit of computation of long-
term capital gains in foreign currency in the case of a non-resident will not be allowed.

9. If the liaison office set up in India by Zara Ltd. does not conclude contracts in India but
habitually plays the principal role leading to conclusion of service contracts, then, the activities
of the liaison office;
(a) would not constitute business connection for attracting deemed accrual provisions
under section 9(1)(i), since it does not actually conclude contracts.
(b) would not constitute business connection for attracting deemed accrual provisions
under section 9(1)(i), since contract is for provision of services by Zara Ltd. and not
purchase and sale of goods.
(c) would not constitute business connection due to reasons states in (a) and (b) above.
(d) constitutes business connection for attracting deemed accrual provisions under section
9(1)(i).
Reason:

Liaison office maintained solely for carrying on preparatory and auxiliary services does not
constitute business connection in India.
However, if the liaison office
 habitually plays the principal role leading to conclusion of service contracts and
 such contracts are for the provision of services by Non-resident,
it shall be specifically included in Business Connection in India u/s 9(1)(i).

10. What are the provisions which have been incorporated in Indian tax laws in line with BEPS
Action 1 (The same must be relevant for A.Y. 2021-22)?
(a) Expansion of scope of business connection to include activities of an agent who
habitually plays a principal role leading to conclusion of contracts.
(b) Expansion of scope of business connection to include activities which constitute
significant economic presence.
(c) Introduction of equalization levy.
(d) All the above.
Reason:

‘Solving" the digital issue — specifically identifying appropriate tax rules to deal with digital
business — has been designated the number-one action in the BEPS Action Plan. Introduction of
Equalisation levy is in line with BEPS Action 1, as it is a levied on prescribed digital transactions
u/s 165 and 165A.

11. Mr. X, a foreign national and citizen of USA, working with M Inc., a US based company, came to
India during the P.Y. 2020-21 for rendering services on behalf of the employer. He wishes to claim
his salary income earned during his stay in India as exempt. Which of the following is not a

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 condition to be fulfilled to claim such remuneration as exempt income under the Income-tax Act,
1961?
(a) M Inc. should not be engaged in any trade or business in India.
(b) Mr. X should not be engaged in any trade or business in India
(c) Mr. X’s stay in India should not exceed 90 days in aggregate during the P.Y. 2020-21
(d) Remuneration received by Mr. X should not liable to be deducted from M Inc.'s income
chargeable to tax under the Income-tax Act, 1961

Reason:

Remuneration received by Non-Resident Individual, not being a citizen of India, as employee of

a foreign enterprise for services rendered by him during his stay in India, if:
 Foreign enterprise is not engaged in any trade or business in India;
 His stay in India does not exceed in aggregate a period of 90 days in such previous year
(P.Y. 2020-21); and
 Such remuneration is not liable to be deducted from the income of employer chargeable
under this Act.
Hence, there is no restriction on Mr. X for engaging in any trade or business in India.

12. Ms. X & Co and Ms. Y & Co are non-resident firms in receipt of fees for technical services of Rs.
20 lakhs each in the P.Y.2020-21 from an Indian company, A Ltd. in pursuance of an agreement
with A Ltd. approved by the Central Government. M/s. X & Co. does not have any fixed place of
profession in India whereas M/s. Y & Co. has a fixed place of profession in India and the contract
is effectively connected with such fixed place of profession. The revenue expenditure incurred
by X & Co. to earn FTS is Rs. 2 lakhs. The following are the details pertaining to Y & Co.-
Particulars Amount
Revenue expenditure incurred to earn FTS 3.50 lakhs
Expenditure wholly and exclusively connected with fixed place of profession in 3 lakhs
India (Out of the above amount)
Amount paid by fixed place of profession to Head Office otherwise than towards 1 lakh
reimbursement of actual expenses (not included in above amounts)
Books of account maintained u/s 44AA Yes
Books of account audited and audit report furnished with return of income Yes
What is the tax liability in India of M/s. X & Co. and M/s. Y & Co. for P.Y.2020-21 in respect of fees
for technical services?
(a) Rs. 5,61,600 and Rs. 4,99,200
(b) Rs. 1,87,200 and Rs. 5,30,400
(c) Rs. 2,08,000 and Rs. 5,30,400
(d) Rs. 1,87,200 and Rs. 1,76,800

Reason:

Section 115A shall be applicable in respect of fees for technical services received by non-resident
person, when such person does not have a Permeant establishment in India. Such income shall
be taxed at the rate 10% on gross basis (i.e. no deductions shall be allowed), surcharge, if
applicable and cess shall be levied.

Tax u/s 115A shall be applicable to Ms.X & Co.

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 Income: Rs.20Lakhs
Tax @ 10% (on gross basis) : 20,00,000*10.8% = Rs.2,08,000.

Section 44DA shall be applicable in respect of fees for technical services received by non-resident
person, when such person have a Permeant establishment in India. Such income shall be taxed
at the rate of 40% on net basis (i.e after allowing expenditures incurred to earn such income).
Such income shall be taxed under head PGBP and normal rates of tax would apply if:
 Books of Accounts are maintained u/s 44A,
 Books of Accounts are audited and audit report is furnished along with return of income.
 No Deduction of expenditure shal be allowed for amount not wholly and exclusively
incurred for PE,
 No deduction for amount paid (other than reimbursements of actual expenses) by PE to
Head office.

Tax u/s 44DA shall be applicable for Ms.Y & Co. and normal rates would apply.
Income Under head PGBP Amount (Rs.)
Fees from Technical Services 20,00,000
Less:
Expenditure incurred wholly & exclusively in connection with PE (3,00,000)
Reimbursements otherwise than actual expenditure to Head Office NIL
Income 17,00,000

Tax payable @ 31.2% (17,00,000*31.2%) 5,30,400

13. M Ltd. and N Ltd. are Indian companies which have to pay interest of Rs. 2 lakhs and Rs. 1 lakh
outside India to Mr. P, a non-resident, during the P.Y.2020-21 on rupee denominated bonds
issued in January, 2019 and April, 2019, respectively. Which of the following statements are
correct relating to liability of M Ltd. and N Ltd. to deduct tax at source on such interest payable
to Mr. P?
(a) Both M Ltd. and N Ltd. do not have to deduct tax at source on such interest
(b) Both M Ltd. and N Ltd. have to deduct tax at source @5.2%
(c) M Ltd. does not have to deduct tax at source but N Ltd. has to deduct tax at
source@5.2%
(d) N Ltd. does not have to deduct tax at source but M Ltd. has to deduct tax at source@
5.2%
Reason:
Incomes which do not form part of the total Income for the Non-resident under the Act
Sec. 10(4C)-Interest payable by an Indian company or business trust in respect of moneys
borrowed from a source outside India by way of issue of rupee denominated bond during the
period from 17.9.2018 to 31.3.2019
14. Mr. Akhilesh, a non-resident Indian citizen, is an enthusiastic sports person and is keen on
contributing an article on a game of Hockey in a leading newspaper in India. He approaches you
to enquire on taxability of such income for A.Y. 2021-22. As per the provisions of Income-tax Act,
1961, such income shall be taxable in his hands at –
(a) 5%
(b) 10%
(c) 20%
(d) Normal Tax Slab Rates
Reason:

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 Section 115BBA(1)(a) states that provision of concessional tax rate u/s 115BBA shall apply to a
sportsman (including an athlete), who is not a citizen of India and is a non- resident, having any
income received or receivable as prescribed under the said section.
Hence, income of non-resident Indian Citizen (NRI) sports person, shall be taxable under normal
tax slab rates.
15. Mr. Sam (aged 40 years), a US football match referee, has earned income from football
tournaments in India for A.Y. 2021-22. What are the TDS provisions applicable while making
payment to him?
(a) TDS @20.8% as per section 194E
(b) TDS @5.2% as per section 194E
(c) TDS under section 195
(d) No tax is deductible at source
Reason:
Non-resident sportsman does not include umpires and match referees [Indcom v CIT (TDS) (2011)
(Cal HC)]. TDS on payment to such non-resident will be deducted as per the provision of section
195.
16. Samraat, resident in India, has earned an income of Rs. 4 lakh by way of lump sum consideration
for copyright of a book, being a work on literary from a publisher in Country E, with which India
does not have a DTAA. The same has been taxed at a flat rate of 5% in Country E. In India, his
gross total income is Rs. 7 lakhs. The double taxation relief available is:
(a) Rs. 20,000
(b) Rs. 7,725
(c) Rs. 1,950
(d) Nil
Reason:
GTI =7lakhs
less :deduction chapter VI A u/s 80QQB (3 lakes)
Net income =4 Lakhs

Income tax liability =7800

less rebate 87A =(7800)
Net tax liability =0
Average rate of tax in India =0/700000=0%
Rebate(5% or 0% whichever is lower) =4lkahs *0%=0
17. Mr. Harry and Mr. Sujoy, resident and Indian citizens, have been appointed as senior officials of
County A embassy and County B embassy, respectively, in India in October, 2020. Mr. Harry and
Mr. Sujoy are subjects of Country A and County B, respectively, and are not engaged in any other
business or profession in India. The remuneration received by Indian officials working in Indian
embassy in County A is exempt but in County B is taxable. The tax treatment of remuneration
received by Mr. Harry and Mr. Sujoy from embassies of Country A and Country B, respectively, in
India for the P.Y. 2020-21 is:
(a) Exempt from income-tax under section 10
(b) Taxable under the Income-tax Act, 1961
(c) Remuneration received by Mr. Harry is exempt but remuneration received by Mr. Sujoy
is taxable
(d) Remuneration received by Mr. Sujoy is exempt but remuneration received by Mr. Harry
is taxable
Reason:

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 As per provision of section 10(6)(ii) Individual (not being a citizen of India) remuneration received
by Foreign Diplomats/ Consulate and their staff (Subject to conditions) then the income shall not
form part of total income. In the given case both are Indian citizen hence the exemption u/s 10(6)
not applicable.
18. The rate of deduction of tax from interest payable to a foreign company (located in a country
with which there is no DTAA) by an Indian company on borrowing made by it from the said foreign
company by way of issue of rupee denominated bonds on 31.03.2019 is:
(a) Nil
(b) 5% + HEC
(c) 5% + Surcharge (if applicable) + HEC
(d) 20% + HEC
Reason:
As per the provision of section 10(4C) Interest payable by an Indian company or business trust
in respect of moneys borrowed from a source outside India by way of issue of rupee
denominated bond during the period from 17.9.2018 to 31.3.2019 to A non-corporate non-
resident or foreign company exempt from tax.
19. Which of the following person would not be entitled to the benefit of India-USA DTAA:
(a) Mr. Patel, a tax resident of India
(b) RIL an Indian Company
(c) Z PLC, a U.K. incorporated company but a resident of USA, due to its POEM in USA.
(d) M/s Charlee LLP a fiscally transparent entity incorporated in USA & resident of USA, all
of whose partners are tax residents of UK
20. Any term used in a DTAA with a foreign country and not defined in the agreement or the Act but
assigned a meaning in the notification issued by the Central Government in the Official Gazette,
shall have the meaning assigned in such notification and shall be effective from the –
(a) Date on which the said DTAA came into force
(b) Date on which the said notification became effective
(c) Date on which the said notification published in the Official Gazette
(d) Date on which the said DTAA was signed
21. Equalisation levy shall not be charged when:
(a) Payment is made to Resident Person
(b) The non-resident providing advertisement service has a PE in India & the advertisement
service are effectively connected with such PE
(c) Both A & B
(d) None of the above
Reason:
Equalisation levy shall be charged when Service Provider: Non-resident not having PE in India
(eg Google Inc) and Service Recipient:
i) Non-resident having PE
Resident carrying on Business/ Profession(eg Infosys)
22. An Indian Company would be liable to deduct Equalisation levy when it has to make payment of:
(a) Rs. 99,000 each for online advertisement to 10 Foreign Companies
(b) Rs. 2,00,000 each for online advertisement to 5 Foreign Companies
(c) Rs. 50,000 each for online advertisement to 10 Foreign Companies
(d) All of above
Reason:
Equalisation levy shall not be charged when Aggregate Consideration <Rs.1 Lakh in PY.
23. ABC India Pvt. Ltd and XYZ India Pvt. Ltd are related parties, as defined u/s 40A(2)(b), who have

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 entered into a transaction for purchase of goods for Rs. 25 lacs on 2nd April, 2020. The Arm Length
Price for such goods is Rs. 15 lacs. Aggregate value of such transactions in the previous year 2020-
21 is Rs. 22.5 crores. Can the transaction be considered as a specified domestic transaction to
attract transfer pricing provisions?
(a) Yes, as the aggregate transaction value exceeds Rs. 20 crores
(b) Yes, as parties are related parties.
(c) No, transfer pricing provisions are not applicable in this case
(d) Yes, since parties are related parties and the aggregate transaction value exceeds Rs. 20
crore
24. A Ltd. filed its return of income for A.Y. 2019-20 disclosing total income of Rs. 15 crore. During
the course of assessment, the Assessing Officer made a primary adjustment of Rs. 2 crore and
passed an order on 1.6.2020 in respect of an international transaction denominated in Indian
rupees, consequent to which the total income of A.Y. 2019-20 has increased to Rs. 17 crore. The
excess money of Rs. 2 crore has not been repatriated till date. What are the consequences of the
primary adjustment made and non-repatriation of excess money in computation of total income
of A.Y. 2021-22, if it is assumed that A Ltd. has opted to pay additional income-tax @ 20.9664%
on Rs. 1 crore on 1.12.2020? Assume that the one year marginal cost of fund lending of SBI as on
1.4.2020 is 8.5% and as on 1.4.2021 is 9%.
(a) Interest of Rs. 9,79,167 to be included in total income of A.Y.2021-22.
(b) Interest of Rs. 10,20,833 to be included in total income of A.Y.2021-22.
(c) Interest of Rs. 15,66,667 to be included in total income of A.Y.2021-22.
(d) Interest of Rs. 16,33,333 to be included in total income of A.Y.2021-22.
Reason:

Time limit Rule 10CB(1) which prescribes the time limit for repatriation of excess money or part
for thereof i.e., on or before 90 days from the specified date. The 90 days period is to be
repatriation reckoned from the date specified in column (2) in the cases mentioned in column (1)
of the table below. Further, the date from which interest is chargeable on the excess
of excess
money or part thereof which is not repatriated in the cases mentioned in column (1)
money or is given in column (3) in the table below:
part thereof Case Time limit for Date from which
repatriation of interest is chargeable
excess money or part on the non-
thereof: Within 90 repatriated excess
days from money or part thereof
within the specified
time limit
(1) (2) (3)
(i) If primary adjustments to the date of the said the date of the said
transfer price as determined in order order
the order of the Assessing Officer
or the appellate authority has
been accepted by the assessee
The imputed (i) at the 1 year marginal cost of fund lending rate of SBI as on 1 st of April of
per annum the relevant PY + 325 basis points in the cases where the international
interest transaction is denominated in Indian rupee; or
income on (ii) at 6 month LIBOR as on 30th September of the relevant PY + 300 basis points
excess in the cases where the international transaction is denominated in foreign
money currency.
which is not
repatriated
within the

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 time limit
shall be
computed,—

Amount need to repatriate within 90 days from Date of A.O. order 01/06/2020 +90 days
Interest from 1st June 20 till 30th November20= Rs.2 crores*11.75%{LIBOR+3.25%}*6/12
= Rs.11,75,000
Interest from 1st December 2020 till 31st March 2021= Rs.1 crores*11.75%*4/12=Rs.3,91,667
Total Interest= Rs.11,75,000+ Rs.3,91,667=Rs.15,66,667/-
25. A Ltd., an Indian company, borrowed money from B Inc. in Country B, C Ltd. in Country C, D Inc.
in Country D and E Ltd. in Country E, the details of which are given hereunder-
Lender Amount borrowed by Interest paid in the Is it an Associated
A Ltd. P.Y. 2020-21 Enterprise of A Ltd.?
B Inc. Rs. 15 crores Rs. 1.50 crores Yes
C Ltd. Rs. 25 crores Rs. 2.50 crores No
D Inc. Rs. 25 crores Rs. 2.50 crores Yes
E Ltd. Rs. 15 crores Rs. 1.50 crores No
B Inc. has provided guarantee of loan taken by A Ltd. from C Ltd. D Inc. has deposited Rs. 15
crores with E Ltd. Earnings before Interest, Tax and Depreciation of A Ltd. for A.Y.2021-22 is Rs.
10 crores. What is the interest to be disallowed under section 94B for A.Y. 2021-22?
(a) Rs. 1 crore
(b) Rs. 3 crores
(c) Rs. 4 crores
(d) Rs. 5 crores
Reason:
A) Excess Interest= 8 crores -10crores *30%
= 5 crores

B) Interest paid on Debt borrowed from AE= 8 crore

Lower of A or B= 5 crores
interest to be disallowed under section 94B=Rs. 5crores
26. Under which of the following cases, will arm’s length price be determined by considering the
median of the dataset?
Case Most No. of Does the price at which the transaction is
Appropriate entries in undertaken fall within the arm’s length range
Method the beginning from the 35th percentile of the
dataset dataset and ending on the 65th percentile of
the dataset?
I CUP 5 -
II RPM 6 Yes
III TNMM 7 Yes
IV Cost Plus 8 No
(a) II and III
(b) I and IV
(c) Only IV
(d) Only I
Reason:
If the dataset does not fall within the arm’s length range beginning from the 35th percentile of
the dataset and ending on the 65th percentile of the dataset, then the median of the dataset will

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 be applicable, therefore in above case (iv) median of the dataset applicable.
27. Kaveri Ltd.is an Indian Company in which Andes Inc., a Country A company holds 30%
shareholding and voting power. During the previous year 2017-18, the Indian company supplied
computers to the Country A based company @CAD 2200 per piece. The price of computer
supplied to other unrelated parties in Country A is @CAD 2500 per piece. During the course of
assessment proceedings relating to A.Y.2018-19, the Assessing Officer carried out primary
adjustments and added a sum of Rs. 138 lakhs, being the difference between actual price of
computer and arm's length price for 500 pieces and it was duly accepted by the assessee. The
Assessing Officer passed the order, in which the primary adjustments were made, on 1.7.2020.
On account of this adjustment, the excess money of Rs. 138 lakhs is available with Andes Inc,
Country A. What would be the effect of this transaction while computing the total income of
Kaveri Ltd. for the assessment year 2021-22, assuming that –
(i) Kaveri Ltd. declared an income of Rs. 220 lakhs;
(ii) the excess money is still lying with Andes Inc. till today,
(iii) Kaveri Ltd. has not opted to pay additional income-tax on such excess money not
repatriated; and
(iv) the rate of exchange is 1 CAD = Rs. 92 and the six-month LIBOR as on 30.9.2020 is 10%.
[CAD stands for Country A Dollars, which is the currency of Country A] –
(a) Interest of Rs. 13.80 lakhs would be added to the total income of Kaveri Ltd
(b) Interest of Rs. 13.455 lakhs would be added to the total income of Kaveri Ltd.
(c) Interest of Rs. 10.35 lakhs would be added to the total income of Kaveri Ltd.
(d) Interest of Rs. 8.97 lakhs would be added to the total income of Kaveri Ltd.

Reason:

Time limit Rule 10CB(1) which prescribes the time limit for repatriation of excess money or part
for thereof i.e., on or before 90 days from the specified date. The 90 days period is to be
repatriation reckoned from the date specified in column (2) in the cases mentioned in column (1)
of the table below. Further, the date from which interest is chargeable on the excess
of excess
money or part thereof which is not repatriated in the cases mentioned in column (1)
money or
is given in column (3) in the table below:
part thereof Case Time limit for Date from which
repatriation of interest is chargeable
excess money or part on the non-
thereof: Within 90 repatriated excess
days from money or part thereof
within the specified
time limit
(1) (2) (3)
(i) If primary adjustments to the date of the said the date of the said
transfer price as determined in order order
the order of the Assessing Officer
or the appellate authority has
been accepted by the assessee
The imputed (i) at the 1 year marginal cost of fund lending rate of SBI as on 1 st of April of
per annum the relevant PY + 325 basis points in the cases where the international
interest transaction is denominated in Indian rupee; or
income on (ii) at 6 month LIBOR as on 30th September of the relevant PY + 300 basis points
excess in the cases where the international transaction is denominated in foreign
money currency.
which is not
repatriated

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 within the
time limit
shall be
computed,—

Amount need to repatriate within 90 days from Date of A.O. order 01/07/2020 +90 days
Interest from 1st July 2020 till 30th November 2020= Rs.1.38 crores*13%{LIBOR+3%}*9/12
= Rs.13.455 lakhs
28. An APA application seeks to cover 5 years starting from A.Y.2021-22 to A.Y.2025-26. The
International transaction is of continuing nature. For P.Y.2020-21 it undertook the International
Transaction on 01/12/2020. The Application for APA shall be made before:
(a) 01/04/2021
(b) 01/12/2020
(c) 01/04/2020
(d) 01/04/2022
Reason:
As per the provision of Rule 10-I The application may be filed at any time -before the first day
of the previous year relevant to the first assessment year for which the application is made, in
respect of transactions which are of a continuing nature from dealings that are already
occurring; or
before undertaking the transaction in respect of remaining transactions.
29. Which of the following statement is correct:
The Constituent Entity of the International Group shall be required to maintain Local file as per
Sec. 92D if:
(a) It has entered International Transaction; or
(b) If the aggregate value of International transaction exceeds Rs. 1 Crore; or
(c) It is irrelevant whether it has entered the International Transaction during the previous
year or not; or
(d) It is not required to maintain information and document as per section 92D if it has filed
CBCR for the relevant tax year
30. If Country A is a notified jurisdictional area (NJA), then, the rate at which interest receivable from
a infrastructure debt fund notified u/s 10(47) is taxable in the hands of Mr. Ram, a resident of
Country A, and the rate at which tax has to be deducted at source on such income are,
respectively,-
(a) 30% and 5%
(b) 5% and 5%
(c) 30% and 30%
(d) 5% and 30%

Reason:
As per section 194LB, tax would be deductible @ 5% on gross interest paid/credited by a notified
infrastructure debt fund, eligible for exemption under section 10(47), to a foreign company.
However, in case the notified infrastructure debt fund pays interest to a person who is a resident
of a notified jurisdictional area, section 94A will apply. Accordingly, tax would be deductible
@30% (plus health & education cess @4%) under section 94A, even though section 194LB
provides for deduction of tax at a concessional rate of 5%.
31. If ABC Ltd. has two Units, Unit 1 is engaged in power generation business and Unit 2 is engaged
in manufacture of wires. Both the units were set up in Karnataka in the year 2014. In the year
2020-21, 20 lakh metres of wire are transferred from Unit 2 to Unit 1 at Rs. 125 per metre when

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 the market price per metre was Rs. 180. Which of the following statements is correct?
(a) Transfer pricing provisions would be attracted in this case
(b) Transfer pricing provisions would not be attracted in this case since Unit 1 and Unit 2
belong to the same company and are not associated enterprises.
(c) Transfer pricing provisions would not be attracted in this case as it is not an international
transaction since both Units are in India. However, for the purpose of Chapter VIA
deduction, the profits of power generation business shall, however, be computed as if
the transfer has been made at the market value of Rs. 180 per MT.
(d) Transfer pricing provisions would not be attracted in this case due to reasons mentioned
in both (b) and (c) above.
Reason:
Unit 1 is claiming deduction u/s 80-IA. Unit 2 has transferred the goods to Unit 1 at a price lower
than FMV. Transaction between Unit 1 and Unit 2 [inter unit transfer of goods where one of the
unit is claiming deduction u/s 80-IA] shall be considered as Specified Domestic Transaction.
Accordingly, TP adjustment of Rs.11 crores [(180 – 125)*20lakhs] would be required.

32. XYZ Ltd. has failed to report an international transaction entered by it with PQR Inc., which is a
specified foreign company in relation to XYZ Ltd. What would be the penalty leviable in this case?
(i) 2% of the value of transaction
(ii) 50% of tax payable on under-reported income
(iii) 200% of tax payable on under reported income
Choose the correct option:
(a) Only (i)
(b) Only (iii)
(c) (i) & (ii)
(d) (i) &(iii)
Reason:
Failure to report any international transaction or any transaction, deemed to be an international
transaction or any specified domestic transaction, to which the provisions of Chapter X applies,
would attract penalty @ 200% of the amount of tax payable since it is a case of misreporting of
income referred under section 270A(9) read with section 270A(8).

33. Alpha Ltd’s total income of A.Y.2021-22 has increased by Rs. 34 lakhs due to application of arm’s
length price by the Assessing Officer on transactions of purchase of goods from its foreign holding
company in respect of a retail trade business carried on by it, and the same has been accepted
by Alpha Ltd., then,—
(a) business loss of A.Y.2017-18 cannot be set-off against the enhanced income
(b) deductions under Chapter VI-A cannot be claimed in respect of the enhanced income
(c) unabsorbed depreciation of A.Y.2012-13 cannot be set-off against the enhanced income
(d) Business loss referred to in (a), deductions referred to in (b) and unabsorbed
depreciation referred to in (c) cannot be set-off against the enhanced income
Reason:
In case AO makes adjustment to ALP, the following consequences shall follow:
a. NO DEDUCTION U/S 10AA OR CHAPTER VIA SHALL BE ALLOWED FOR THE ENHANCED
INCOME.
b. NO CORRESPONDING ADJUSTMENT WOULD BE MADE TO TOTAL INCOME OF THE
OTHER AE on account of increase in the total income of the assessee on the basis of
ALP so computed.
34. In respect of any payment made to a person located in a Notified Jurisdictional Area (NJA), tax is
deductible at higher of the rate specified in the Income-tax Act, 1961 or rates in force or–

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 (a) 10%
(b) 15%
(c) 20%
(d) 30%
Reason:
In case the notified infrastructure debt fund pays interest to a person who is a resident of a
notified jurisdictional area, section 94A will apply. Accordingly, tax would be deductible @30%
(plus health & education cess @4%) under section 94A, even though section 194LB provides for
deduction of tax at a concessional rate of 5%.
35. Interest paid to Non-Resident Associated Enterprise disallowed under the relevant provision of
the Income-tax Act, 1961, during the A.Y. 2021-22 can be carried forward upto–
(a) A.Y.2025-26
(b) A.Y.2026-27
(c) A.Y.2029-30
(d) Indefinitely
Reason:
Carry forward of disallowed interest expenditure
The provision allows for carry forward of disallowed interest expense for 8 assessment years
immediately succeeding the assessment year for which the disallowance is first made and
deduction against the income computed under the head "Profits and gains of business or
profession" to the extent of maximum allowable interest expenditure.
Carried Forward upto= A.Y.2029-30 (A.Y.2021-22+8 years)
36. Fly Ltd., an Indian company, has to make secondary adjustment in A.Y. 2021-22, if the primary
adjustment to transfer pricing, made by it suo-moto in its return of income, is in respect of–
(a) A.Y. 2016-17 and the amount of primary adjustment is Rs. 2 crores
(b) A.Y. 2019-20 and the amount of primary adjustment is Rs. 1 crore
(c) A.Y. 2019-20 and the amount of primary adjustment is Rs. 1.05 crore
(d) A.Y. 2020-21 and the amount of primary adjustment is Rs. 1 crore
Reason:
When secondary adjustment is not applicable-
If the following two conditions are satisfied, secondary adjustment is NOT REQUIRED—
a. The amount of primary adjustment made in the case of an assessee in any previous year
DOESN’T EXCEED Rs.1 CRORE; OR
b. The primary adjustment is made in respect of the AY 2016-17(or any earlier assessment
year)
37. XYZ Ltd. has entered into a specified domestic transaction during the previous year 2020-21. The
company failed to obtain a report from a Chartered Accountant and furnish such report under
section 92E on or before the due date for furnishing return of income under section 139(1). Is
any penalty imposable on XYZ ltd? If yes, what will be the quantum of penalty?
(a) Penalty is not imposable, as report is to be furnished only in case of an assessee who has
entered into an international transaction.
(b) Penalty of Rs. 1 lakh is imposable
(c) Penalty @2% of the value of specified domestic transaction is imposable
(d) Penalty @2% of the value of transaction or Rs. 1 lakh, whichever is higher, is imposable
Reason:
Failure to furnish report from an accountant as required under section 92E makes it liable for
penalty under section 271BA i.e., a fixed penalty of Rs. 1 Lac.
38. Y is a foreign company having permanent establishment in India namely X. Z, a non-resident
associated enterprise, has invested Rs. 900 crore through debt in X. Earnings before interest,

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 taxes, depreciation and amortization (EBITDA) of X during the financial year was Rs. 150 crore.
Compute the amount of interest allowable in respect of the debt assuming that the debt was
invested on the first day of the financial year and the rate of interest is 10% per annum.
(a) Rs. 45 crore
(b) Rs. 90 crore
(c) Rs. 30 crore
(d) Rs. 15 crore
Reason:
Where the provision of section 94B is applicable, the total interest paid in excess of 30% of
EBITDA shall not be deductible, company shall be allowed to carry forward in the subsequent
years, (upto 8 following A/Ys).
Total Interest allowable = Interest paid (-) 30% of EBITDA
=Rs.90 Crores(900*10%) (-) Rs.45 Crores(30% of Rs.150 Crores)
=Rs.45 Crores

39. If an Indian company has entered into an advance pricing agreement (APA) in respect of its
international transaction with associated enterprise for the P.Y. 2020-21. The company decides
to make an application for roll back of the said APA. However, rollback provision shall not be
available in respect of the said transaction for a rollback year, if –
(i) Such application has the effect of reducing total income declared in the return of income
of the said year
(ii) Determination of the arm’s length price of the said transaction for the said year has been
the subject matter of appeal before Commissioner (Appeals) and the Commissioner
(Appeals) has passed an order disposing of such appeal at any time before signing of the
agreement
(iii) Determination of the arm’s length price of the said transaction for the said year has been
the subject matter of appeal before Appellate Tribunal and the Appellate Tribunal has
passed an order disposing of such appeal at any time before signing of the agreement
(iv) Return of income for the relevant rollback year has been furnished by the company
u/s.139(4).
The most appropriate answer is—
(a) (i) and (ii) above
(b) (i) and (iii) above
(c) (i), (ii) and (iv) above
(d) (i), (iii) and (iv) above
Reason:
Non-Applicability of Roll back provisions:
a. The determination of ALP of the said international transaction for the said year has been
subject matter of an appeal before the Appellate Tribunal and the Appellate Tribunal has
passed an order disposing of such appeal at any time before signing of the agreement.
b. The application of rollback provision has the effect of reducing the total income or increasing
the loss, as the case may be, of the applicant as declared in the return of income of the said
year

Condition for Roll back provisions:

Return of income for the relevant rollback year has been or is furnished by the applicant before
the due date as specified in Explanation 2 of section 139(1).

40. Under which of the following methods, arm’s length price shall be the arithmetical mean of all
values included in the dataset, irrespective of the number of entries in the dataset. It may be

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 assumed that the variation between the arm’s length price computed and the transaction price
is 15%.
(a) Profit split method
(b) Resale price method
(c) Cost plus method
(d) Transactional net margin method
Reason:
Multiple yr data can be used if method is CPM/RPM/TNMM
UJay International AG is a company incorporated under the laws of Switzerland and is a tax resident of
Switzerland. It operates specific website (i.e. Ujayinternational.com) providing an online platform
for sale of goods, provision of services as well as for facilitating the purchase and sale of goods and
services of third parties to users basedin India and outside India. It does not have any Permanent
Establishment in India during the P.Y. 2020-21.
The modus operandi of the third party transactions undertaken through the such website operated
by the assessee is as under :-
 Any seller is entitled to list its products for sale on such website.At the time of listing, the
seller is required to provide various details regarding the product that is desired to be sold
through the website, such as, photograph, description and price of the product.
 Any buyer can also register himself for buying of the goods through the assessee's website.
While registering, the buyers are required to provide information, such as, their name, age and
address. When the buyer accesses the website, he goes through various products listed by the
sellers. Depending on his requirements, he chooses the product which he wants to purchase
online, out of the variety of products available on website alongwith all the necessary details.
 The buyer is required to choose any of the payment methods for making payment of the
product directly to the seller. Once the buyer clicks 'Buy It Now' button after registering itself
with the website and agreeing to the terms and conditions of sale as displayed by the seller on
the website, an email is sent by the assessee to the seller confirming the sale of his product
listed on the website.
UJay International.com also collects data of potential customers located in different parts of India and
other South-East Asian Countries who are interested in holidaying in different countries of Europe and
Asia from GE Tourism India Pvt. Ltd., an Indian company, and other companies in South East Asia. It
sells these data to different tourism companies and hotels in Europe and Asia and earns revenue
therefrom.
Assume that the gross receipts of UJay International AG from e- commerce supply and services is ` 8
crore during the P.Y. 2020-21.
From the information given above, choose the most appropriate answer to the following questions
–
41. Mr. Alex being a resident of UK, visited India during November 2020 and he ordered certain
apparel of brand Ujay worth ` 10,000 from online website Ujayinternational.com during his
stay in India. His apparels were delivered via readymade garments showroom located in
Connaught Place, Delhi. Which of the following statements is correct?
(a) Mr. Alex is required to withhold equalization levy of ` 200 and deposit the same with
Indian tax authorities
(b) UJay International AG is not required to charge equalization levy on such transaction
since sale is madeto Mr. Alex who is not a resident in India
(c) UJay International AG is not required to charge equalization levy on such transaction

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 since it a non- resident not having any PE in India
(d) Ujay International AG is required to charge equalization levy of ` 200 and deposit the
same with Indian tax authorities
Reason:
The Finance Act, 2020 has introduction Sec.165A as per which, an Equalisation Levy will be
charged @ of 2% of the amount of consideration received or receivable by an E-Commerce
Operator from E-Commerce supply or services provided to-
a) Resident in India,
b) Non-Resident in the specified circumstances &
c) Person who buys such goods or services or both using internet protocol address located in
India.
Therefore, Mr.Alex is required to withhold equalisation levy of Rs. 200 i.e., @2% of Rs.10,000,
being the amount paid towards E-Commerce services provided by UJay International AG.
42. What is the due date for payment of equalization levy charged in the month of March, 2021 by
UJay International AG?
(a) April 7, 2021
(b) April 30, 2021
(c) June 30, 2021
(d) March 31, 2021

Reason:
For Equalisation Levy Sec.165A- To be Paid by the 7th day of the month immediately following the
said Quarter but Jan-March quarter it is 31.03.2021.
43. In which of the following cases, equalisation levy would be chargeable, assuming that the
aggregate turnover of the E- Commerce operator is ` 2 crore during the P.Y. 2020-21?
(a) Where an E-Commerce operator, being a resident in India, sells goods of parties located
in India to overseas customers
(b) Where an E-Commerce operator, being a non-residenthaving PE in India and online sales
is effectivelyconnected with such PE in India
(c) Where a E-Commerce operator, being a non-resident having PE in India, sells goods to
non-resident customers
(d) Where a E-Commerce operator, being a non-resident having no PE in India, provides
access to online movies, TV Shows and other contents to Indian customers via its
electronic platform
Reason:
The Finance Act, 2020 has introduction Sec.165A as per which, an Equalisation Levy will be
charged @ of 2% of the amount of consideration received or receivable by an E-Commerce
Operator from E-Commerce supply or services provided to-
a) Resident in India,
b) Non-Resident in the specified circumstances &
c) Person who buys such goods or services or both using internet protocol address located
in India.
44. UJay International.com collects data of potential customers located in different parts of India
who are interested in holidaying in Singapore from GE Tourism India Pvt. Ltd. During November,
2020, it sells the data to Y Tourism P Ltd., Singapore for Rs.1,00,000. Which of the following
statements is correct?
(a) Equalisation levy of ` 2,000 is payable by Ujay International.com

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 (b) Equalisation levy of ` 2,000 is deductible and payable by Y Tourism P Ltd.
(c) Equalisation levy of ` 6,000 is deductible and payable by Y Tourism P Ltd.
(d) Equalisation levy implications are not attracted in this case, since both UJay
International.com and Y Tourism P Ltd. are non-residents
Reason:
The Finance Act, 2020 has introduction Sec.165A as per which, an Equalisation Levy will be
charged @ of 2% of the amount of consideration received or receivable by an E-Commerce
Operator from E-Commerce supply or services provided to-
a) Resident in India,
b) Non-Resident in the specified circumstances &
c) Person who buys such goods or services or both using internet protocol address located in
India.
Therefore, in given case E-Commerce Operator i.e UJay International.com., is liable to pay
Equalisation levy @2%= Rs.2,000(1,00,000*2%)
45. Mr. Akash and Mr. Manish are partners in AM & Co. They were engaged in business of selling
packaging material in the state of UP. In order to save tax, they sold goods to their respective
HUFs. HUFs further sold goods to their customers. This arrangement led to tax saving of Rs. 2 lac
for A.Y. 2021-22 by AM & Co. Revenue took a stand that this is a case of “Tax Evasion” and issued
notice u/s 148 to the firm AM & Co. On the basis of judicial decisions, what is the correct nature
of this arrangement undertaken by Mr. Akash and Mr. Manish:
(a) Tax Planning
(b) Tax Avoidance
(c) Tax Evasion
(d) Tax Management
Reason:
Tax Avoidance- Minimization of one’s tax liability by taking advantage of legally available tax
planning opportunities.
Tax avoidance may be contrasted with evasion, which entails the reduction of tax liability by using
illegal means.[Black’s Law Dictionary]
The arrangement is entered into solely or primarily for the purpose of obtaining a tax advantage
& does not have any commercial substance.

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