Taxation - Income TaxQuestion 5645 of 146
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Question 2 (a) Mr. Madan, a citizen of India and the Karta of an HUF, is employed in M/s. PCS Pvt. Ltd. He is drawing monthly salary of ` 65,500 in India. On June 1, 2023 he purchased one residential house property in Mumbai for ` 18,00,000 in his individual capacity. The market value of the property is ` 32,00,000 and value for the purpose of charging stamp duty is ` 23,00,000. On August 31st, 2023 he was transferred to the branch office of M/s. PCS Pvt. Ltd. in U.S.A. and he left India on September 1st, 2023. The overseas branch paid him a salary of 2,500permonthinUSA.HemanagedbusinessofHUFfromUSAwhenhewasnotinIndia.HehadalsogoneoutofIndiafor99daysand201daysinpreviousyears2022−23and2021−22,respectively.HehadnevergoneoutofIndiapriortothat.HevisitedIndiafromJanuary1,2024toJanuary15,2024fortrainingonaprojectandreceived15dayssalaryinIndiaasperhisIndianmonthlysalarybeforebeingtransferred.Mr.Rajeev,oneofhisfriends,giftedhimasculptureinIndiaonAugust10,2023.Themarketvalueis‘45,100.DeterminetheresidentialstatusofMr.MadanandhisHUFandcomputegrosstotalincomeofMr.Madanfortheassessmentyear2024−25assumingheoptedoutofthedefaulttaxregime.ThevalueofoneUSD(\displaystyle 2,500 per month in USA. He managed business of HUF from USA when he was not in India. He had also gone out of India for 99 days and 201 days in previous years 2022-23 and 2021-22, respectively. He had never gone out of India prior to that. He visited India from January 1, 2024 to January 15, 2024 for training on a project and received 15 days salary in India as per his Indian monthly salary before being transferred. Mr. Rajeev, one of his friends, gifted him a sculpture in India on August 10, 2023. The market value is ` 45,100. Determine the residential status of Mr. Madan and his HUF and compute gross total income of Mr. Madan for the assessment year 2024-25 assuming he opted out of the default tax regime. The value of one USD () may be taken as ` 70. (4 Marks) (b) Answer the following: (i) M/s. PQR & Co., a proprietary firm of Mr. Yogesh, paid an amount of ` 30,500 to Mr. Amit, a resident individual aged 45 years, on June 1, 2023 towards fees for professional services. Subsequently, another payment of ` 60,000 was due to Mr. Amit on January 30, 2024. Tax was not deducted from both the transactions. Mr. Amit has filed his return of income for assessment year 2024-25 on May 2,2024, taking into account professional fees from M/s. PQR & Co. and paid the taxes due on the income declared in the return of income. What are the tax obligations in the hands of M/s. PQR & Co. on the assumption that the accounts of the firm are audited under section 44AB of the Income-tax Act 1961? (ii) M/s. Fastest Ltd. is an Indian car manufacturer. During the F.Y. 2023- 24, it sold cars for ` 150 lakhs to M/s. Race LLP, a distributor of cars where the sale price of each car was ` 7.5 lakhs. The turnover for the F.Y. 2022-23 of M/s. Fastest Ltd. was ` 15 crores and M/s. Race LLP was 8 crores. What shall be the TCS/TDS implications on M/s. Fastest Ltd. and M/s. Race LLP? (6 Marks)

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Detailed Solution & Explanation

(a) Residential Status of Mr. Madan for P.Y. 2023-24

Mr. Madan, an Indian citizen, left India on 1st September 2023 for the purpose of employment in USA.

Days in India during P.Y. 2023-24:
April (30) + May (31) + June (30) + July (31) + August (31) + 1 Sep (0, left on 1st Sep) + 15 days in January 2024 = 30+31+30+31+31+1+15 = 169 days.

Since 169 days < 182 days, Mr. Madan is a Non-Resident in India for P.Y. 2023-24.

Residential Status of HUF:

Since Mr. Madan managed HUF affairs partly from India (before leaving), control and management is situated partly in India. Hence, the HUF is Resident in India.

For the HUF to be Resident and Ordinarily Resident (ROR), the Karta must satisfy:
(1) Resident in at least 2 out of 10 preceding previous years, AND
(2) Stay in India \u2265 730 days in 7 preceding previous years.

Since Mr. Madan had never gone out of India except 99 days in P.Y. 2022-23 and 201 days in P.Y. 2021-22, he satisfies both conditions. Therefore, the HUF is Resident and Ordinarily Resident (ROR) in India.

Computation of Gross Total Income of Mr. Madan for A.Y. 2024-25
(Under Normal Provisions \u2013 opted out of default tax regime)

Income under the head \u201cSalaries\u201d:

Salary earned in India (5 months Apr\u2013Aug + 15 days in January):
= (\u20b965,500 \u00d7 5) + (\u20b965,500 \u00d7 15/31)
= \u20b93,27,500 + \u20b931,694 = \u20b93,59,194

Salary paid in USA: Not taxable as Mr. Madan is a non-resident and such income neither accrues nor arises in India, nor is it received in India = Nil

Less: Standard Deduction u/s 16(ia) = \u20b950,000
Net Salary = \u20b93,09,194

Income from Other Sources:

Property purchased for \u20b918,00,000; Stamp Duty Value = \u20b923,00,000.
Difference = \u20b95,00,000. Since \u20b95,00,000 > higher of (10% of \u20b918,00,000 = \u20b91,80,000 or \u20b950,000), the difference is taxable u/s 56(2)(x) = \u20b95,00,000

Sculpture gifted by friend Rajeev, market value = \u20b945,100. Since \u20b945,100 < \u20b950,000, it is not taxable = Nil

Total Income from Other Sources = \u20b95,00,000

Gross Total Income = \u20b93,09,194 + \u20b95,00,000 = \u20b98,09,194 (approximately \u20b98,09,914 with exact calculation)


(b)(i) Tax Obligations of M/s. PQR & Co. under Section 194J:

M/s. PQR & Co. is required to deduct TDS u/s 194J @ 10% on professional fees paid/payable to Mr. Amit (aggregate = \u20b930,500 + \u20b960,000 = \u20b990,500), since accounts are audited u/s 44AB and aggregate payment exceeds the threshold of \u20b930,000.

Since TDS was not deducted, 30% of \u20b990,500 = \u20b927,150 would be disallowed u/s 40(a)(ia) for P.Y. 2023-24.

However, since Mr. Amit has filed his return of income (on 2.5.2024) declaring this income and paid taxes thereon, M/s. PQR & Co. shall not be treated as assessee-in-default (first proviso to section 201(1)). The disallowed amount of \u20b927,150 shall be allowed as deduction in A.Y. 2025-26.

Interest u/s 201(1A)(i) @ 1% per month (or part thereof) from the date tax was deductible to the date tax was paid by the payee (2.5.2024) is payable:
- On \u20b93,050 (10% of \u20b930,500) from June 2023 to May 2024 = 12 months \u00d7 1% = \u20b9366
- On \u20b96,000 (10% of \u20b960,000) from January 2024 to May 2024 = 5 months \u00d7 1% = \u20b9300

(b)(ii) TCS/TDS Implications:

M/s. Fastest Ltd. (Seller/Manufacturer):
- TCS u/s 206C(1F) on sale of motor vehicles: Not applicable since each car is sold at \u20b97.5 lakhs, which does not exceed \u20b910 lakhs per vehicle.
- TCS u/s 206C(1H): Applicable since turnover of M/s. Fastest Ltd. in F.Y. 2022-23 = \u20b915 crores > \u20b910 crores (threshold). TCS u/s 206C(1H) @ 0.1% on sale proceeds exceeding \u20b950 lakhs, i.e., on (\u20b9150 lakhs \u2212 \u20b950 lakhs) = \u20b9100 lakhs. TCS = \u20b91,00,000 \u00d7 0.1% = \u20b91,000.

M/s. Race LLP (Buyer/Distributor):
- TDS u/s 194Q: Applicable if buyer's turnover in preceding F.Y. exceeds \u20b910 crores. Turnover of M/s. Race LLP in F.Y. 2022-23 = \u20b98 crores < \u20b910 crores. Hence, section 194Q is not applicable to M/s. Race LLP.

Note: Since TCS u/s 206C(1F) is not applicable and TDS u/s 194Q is also not applicable, TCS u/s 206C(1H) by M/s. Fastest Ltd. @ 0.1% on consideration exceeding \u20b950 lakhs applies.

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