Case Study 5 Albert Ltd., Mumbai Albert Ltd., Mumbai is a subsidiary of Pele Ltd. of Country J. Albert Ltd. has been manufacturing semi-finished goods for supply to Pele Ltd. Also, it sold goods to unrelated parties, both in India and world-wide. The annual turnover of Albert Ltd. is ₹500 to ₹600 crores, while the annual turnover of Pele Ltd. was more than ₹7,000 crores. The accounting year of Country J is the same as that of India, that is, 1st April to 31st March. Albert Ltd. is the notified resident constituent entity who furnished the CbC report for the year ended 31st March, 2022 on 9th April, 2023. Albert Ltd. has paid ₹3,00,000 to Hendricks Ltd., UK for procuring online advertisement space up to 31.10.2022 and had to pay ₹4,00,000 being the balance amount for the year ended 31.03.2023. Albert Ltd. has been undertaking supply of goods to its associated enterprises in foreign jurisdictions. It has identified comparable enterprises who have undertaken similar transactions and the data set constructed with the comparable entities is given below for the year ended 31.03.2023: S. No Company Values 1 A Co Ltd. 3.2% 2 B Co Ltd. 7% 3 C Co Ltd. 9.2% 4 D Co Ltd. 10% 5 E Co Ltd. 11.10% 6 F Co Ltd. 12.9% 7 G Co Ltd. 13% The transfer price of the international transaction of Albert Ltd. is computed at 6.8%. The total transaction value by way of supply of goods to the AEs is ₹150 crores for the financial year 2022-23. APA and rollback options Albert Ltd. applied for Advance Pricing Agreement (APA) in June, 2022 and it was entered into on 1st September, 2022. It applied for rollback in November, 2022 and it was entered into on 20th January, 2023. For assessment year 2021-22, the ITR was filed under section 139(4) in March, 2022; For the assessment year 2020-21, there was some dispute about the ALP determination and it was contested before CIT (Appeals) who decided against the assessee in May 2022. For the assessment year 2019-20, against transfer pricing adjustment, appeal was made to the ITAT and it was decided against the assessee by the ITAT in November, 2022. Pele Ltd., Country J Pele Ltd. was already engaged in the supply of mobile handsets directly to customers throughout South East Asia except India. During the financial year 2022-23, it supplied mobile handsets to various customers in India directly, based on their orders procured through internet facility. For the financial year 2022-23, the total direct sale of mobile handsets to customers in India was ₹240 lakhs. It may be noted that the branch of Pele Ltd. at Chennai was not engaged in the supply of such type of mobile handsets in India. The gross profit mark-up was 20% in respect of mobile handsets directly sold by Pele Ltd. to the customers in India. Kishore, CFO of Albert Ltd. Kishore a Chartered Accountant joined Albert Ltd. as CFO on O 1.11.2022 after remaining in employment as General Manager (Finance) of Brita Ltd. of Country K. He is originally a citizen of India who went on employment outside India in April, 2015 and had been visiting India for 40 days in every financial year up to the financial year 2021-22. He returned to India permanently on 1st July, 2022 but was appointed as CFO position by Albert Ltd. w.e.f. 1st November, 2022. Kishore gifted a vacant land at Jaipur to his sister Sujata (non-resident) residing in Singapore, on 05.03.2023. The circle rate (stamp duty valuation) of the vacant land on the date of gift was ₹25 lakhs. On 14th January, 2023, he made a cash gift of ₹9 lakhs through online transfer to his friend Hardik (non-resident) who resides in Dubai on the occasion of Hardik's 50th birthday. Kishore has the following incomes for the financial year 2022-23: Salary from Brita Ltd. up to 30.06.2022 at USD 12,000 per month. House property in Country K was let out throughout the financial year 2022-23 for USD 1,000 p.m. Assume that there is no deduction in Country K similar to section 24 of the Income-tax Act, 1961. Dividend from Indian companies (gross) ₹1,08,000. All the shares were acquired in April, m2014 when he was resident in India. Dividend from companies in Country K (net) received USD 4,000 in March 2023. Assume the rate of TDS on dividend @ 20%. Salary income (computed) from Albert Ltd. ₹15,00,000. Note: TT buying rate on the date of receipt of dividend 1 USD = ₹81; on 28.02.2023 1 USD = ₹80; and on 31.03.2023 1 USD = 82. Kishore paid income-tax in Country K @ 20% and there is no basic exemption limit. He has opted for the provisions of section 115BAC in India, There is no DTAA between India and Country K.
Sub-questions (8)
What would be the quantum of penalty leviable on Albert Ltd. (being the reporting entity of international group by name Pele Ltd.) for the delay in filing the CbC report for the year ended 31st March, 2022?
(A) ₹45,000
(B) ₹1,35,000
(C) ₹50,000
(D) ₹40,000
How much is the amount liable towards tax deduction at source (TDS) or payable by way of equalization levy (EL) by Albert Ltd. for the online advertisement space obtained from Hendricks Ltd., UK?
(A) EL, ₹14,000
(B) TDS ₹72,800
(C) EL ₹42,000
(D) ₹19,600
How much of income is chargeable to tax in the hands of Chennai branch of Pele Ltd. in respect of mobile handsets directly supplied by Pele Ltd. from Country J to the customers in India? Assume that there is DTAA between India and Country J as per UN Model Convention.
(A) No income would be chargeable to tax in the hands of Chennai branch of Pele Ltd. since the supply was made directly from outside India and the branch had no role to play in such supply.
(B) Since the goods supplied directly were not similar to those sold through the Chennai branch, the force of attraction rule would not apply. Therefore, no income arising thereon is chargeable to tax in India.
(C) By applying Force of Attraction Rule, the gross profit mark-up @20% on total supplies of ₹210 lakhs, being ₹42 lakhs, would be deemed to be the income of Pele Ltd. accruing in India and would be taxed in the hands of Chennai branch.
(D) The overall gross profit ratio of Pele Ltd. would be adopted for the purpose of computing the income earned in respect of supplies made in India and it would be chargeable to tax as income of foreign company separately.
How much of the gift received by Sujata and Hardik from Kishore is chargeable to Income-tax in India?
(A) As both the recipients of gift are non-residents, no income would accrue in India.
(B) Sujata being relative of Kishore, no income would accrue in India for the gift of vacant land at Jaipur. In the hands of Hardik, ₹9 lakhs would be chargeable to income-tax in India.
(C) ₹25 lakhs is chargeable to tax as income in the hands of Sujata as the subject matter of gift viz. vacant land is located in India. The cash gift of ₹9 lakhs received by Hardik (from non-relative) is chargeable to tax in India.
(D) ₹25 lakhs is chargeable to tax as income in the hands of Sujata as the subject matter of gift is located in India. The cash gift of ₹9 lakhs received by Hardik though from non-relative is not chargeable to tax as the amount was received through online transfer outside India.
How much will be added to the total income of Albert Ltd. after considering the comparable and data set constructed and furnished in the Case Study?
(A) ₹4.80 crores
(B) ₹3.60 crores
(C) ₹4.485 crores
(D) No addition to the total income is required because of ALP adjustment.
Compute the total income of Kishore for the assessment year 2023-24 after determining his residential status.
State the legal position as to when Albert Ltd. is not obliged to furnish CbC report of the international group in India.
Briefly state the assessment years for which APA and the rollback provisions would apply for Albert Ltd., indicating whether the rollback benefit can be availed for each of such years involved.