Taxation - Income TaxSubjectiveQuestion 6114 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 $ 2,500 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 Mr. Madan, an Indian citizen who left India on 1st September 2023 for the purpose of employment to USA, would be non-resident in India, since he stayed in India for 169 days (30+31+30+31+31+1+15) only during the P.Y. 2023-24 which is less than 182 days. TAXATION Residential Status of HUF Since Mr. Madan is managing the HUF for part of the year from India, control and management of its affairs is situated partly in India. Hence, the HUF would be resident in India for the P.Y. 2023-24. A HUF is said to be “Resident and ordinarily resident” in India during the previous year 2023-24, if Karta (Mr. Madan, in this case) satisfies both the following conditions: - He is a resident in at least 2 out of 10 previous years preceding the relevant previous year; and - His stay in India in the last 7 years preceding the relevant previous year is 730 days or more. Mr. Madan has satisfied both the above conditions as he had never gone out of India except for 99 days and 201 days in the P.Y. 2022-23 and P.Y. 2021-22, respectively, the HUF would be ROR in India. Computation of Gross Total Income of Mr. Madan for the A.Y. 2024-25 Amount in ` Income under the head “Salaries” Salary earned in India: [₹ 65,500 x 5 + ₹ 65,500 x15/31] 3,59,194 Salary paid in USA: [Not taxable as Mr. Madan is a non- resident and such income does not accrue or arise or received in India] Nil Less: Standard Deduction 50,000 3,09,194 Income from other sources Difference between the consideration of ₹ 18 lakhs and stamp duty value of ₹ 23 lakhs of the residential property acquired [Taxable, since the difference of ₹ 5 lakhs exceed ₹ 1,80,000, being the higher of 10% of the consideration and ₹ 50,000] 5,00,000 Sculpture received as gift from Rajeev, his friend in India [Not taxable as the value does not exceed ₹ 50,000] Nil Gross Total Income 8,09,914 (b) (i) M/s PQR & Co. is required to deduct tax at source under section 194J @10% on the professional fees paid to Mr. Amit of ₹ 30,500 and ₹ 60,000 on 1st June 2023 and 30th January 2024, respectively, assuming M/s PQR & Co. turnover/gross receipts exceeds the prescribed threshold limit1. However, M/s PQR & Co. has not deducted the tax at source during the P.Y. 2023-24, disallowance of ₹ 27,150, being 30% of ₹ 90,500 would be attracted u/s 40(a)(ia) though Mr. Amit has filed his return of income considering the professional fees from M/s PQR & Co. and paid taxes on the same. In such a case, M/s PQR & Co. would not be deemed as assessee in default by virtue of the first proviso to section 201(1) and the amount disallowed i.e., 27,150 would be allowed as deduction in A.Y. 2025-26. For non-deduction of tax at source, interest @1% would be leviable under section 201(1A)(i) for every month or part of the month on the amount of tax from the date on which such tax was deductible to the date such tax was paid by the payee i.e., 2.5.2024. Interest @1% on ₹ 3,050 (10% of ₹ 30,500) from June 2023 to May 2024 = ₹ 366 and on ₹ 6,000 (10% of ₹ 60,000) from January, 2024 to May 2024 = ₹ 300 is payable by M/s PQR & Co. (ii) M/s. Fastest Ltd. is not required to collect tax at source u/s 206C(1F) on sale of cars of ₹ 150 lakhs to M/s. Race LLP, since such sale is to a distributor and sale price of each car does not exceed ₹ 10 lakhs. M/s. Race LLP is also not required to deduct tax at source u/s 194Q, since its turnover, being a buyer in the P.Y. 2022-23 does not exceed ₹ 10 crores. However, M/s Fastest Ltd. is required to collect tax at source u/s 206C(1H) @0.1% on the sale consideration exceeding ₹ 50 lakhs i.e. on 1 since firm is required to get its books of accounts audited TAXATION ₹ 100 lakhs since turnover of M/s Fastest Ltd. exceeds ₹ 10 crores and TCS u/s 206C(1F) and TDS u/s 194Q is not applicable.

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