Sachin, a citizen and resident of India, holds 50% shares of NL Co, a company in the Netherlands, which is engaged in the business of facilitating sale of specialised industrial equipment and licensed proprietary software for total automation of such specialised industrial equipment. The balance shares of NL held by Aagam, Sachin's son who is an Indian Citizen but resident of Netherlands, Sachin also owns 75% of the shares of I Co, an Indian company, which renders research and development services to NL Co. The balance 25% of the shares of I Co is held by Kajal, Sachin's wife. Kajal is a citizen and resident of India. NL Co has subsidiaries in different countries as under: (a) In Country B, a wholly owned subsidiary, B Co, it identifies and promotes manufactures who are willing to sell products through Chemo.com. (b) In France, a wholly owned subsidiary, F Co, it purchases the industrial equipment from NL Co and sells them in Paris. (c) Similarly, another wholly owned subsidiary, HK Co in Hong Kong, which purchases the industrial equipment from NL Co and sells them to buyers located in Hong Kong. The directors of NL Co are Sachin, Kajal and Aagam. The meeting of the Board of Directors takes place in the Netherlands, wherein Sachin and Kajal travel to the Netherlands, Aagam is the person who takes the critical decisions in the Netherlands and such decisions are generally ratified by the Board. The industrial equipment is sold by placing orders on the portal Chemo.com, a website, owned and operated by NL Co. The website is an e-commerce platform wherein products tangible such as goods as well as intangibles such as software (which are to be downloaded with a key received after purchase) are sold. The licensed proprietary software used to be sold off-the-shelf in CD disks earlier. However, now, such software can be downloaded from the 'Chemo.com”. The terms of use of the proprietary software clearly specify that the person who has downloaded the software is licensed to use the software but cannot make copies of the same. NL Co has also appointed a 3rd party in India, D Co, as its exclusive distributer for sale of software in India, D Co distributes other softwares as well. The total value of goods (including software) sold on Chemo.com to Indian residents during FY 22-23 is INR 125 crores. In order to fulfil the orders at the earliest, NL Co has a dedicated space in a warehouse in India. NL Co is considering shutting down its warehouse operations in India and sale its goods in India through the website of Aus Co, a third party in Australia, which only runs the e-commerce platform and does not have any warehouse or storage space in India. Details of receipts of NL Co during AY 2023-24 is as follows: NL Co had acquired 5% of the shares in List Co, an Indian Company, listed on the National Stock Exchange in India. During the financial year relevant to the AY 2023-24, List Co has declared and paid dividends. (a) Dividend income received from investments in Europe INR 30 crores (b) Rental income from properties INR 40 crores (c) Income from sale of goods INR 100 crores Further, NL Co has 8 employees on its payroll. 5 employees are working from home and are based in India. 3 employees are working from the Netherlands. The net worth of NL Co is as follows: ParticularsAmount (in INR crores) Share capital50 Reserve and Surplus (Profit and Loss Account)150 Net worth200 I Co is undertaking some ground-breaking research, for which a substantial amount of capital outlay was required. In order to provide a short-term funding, during AY 2023-24, NL Co and Sachin provided a loan of INR 40 crores and INR 10,00,000, respectively to I Co. The interest payable on the loan provided by NL Co is 5% p.a., whereas the interest payable on the loan provided by Sachin is 12% p.a. Accordingly, for the relevant AY 2023-24, I Co paid INR 2 crores as interest on the loan to NL Co and INR 1,20,000 as interest to Sachin. I Co has a branch in Country A and another branch in Country B, carrying out R&D activities for customers of that country. I Co has opted for the new regime of taxation under section 115BAA of the Act and accordingly, its income is taxed at the rate of 22% plus applicable surcharge and education cess. During the year, I Co has rendered research and development services to all the subsidiaries of NL Co. i.e. B Co, F Co and HK Co and charged management fees for the services rendered. For the purpose of determining the price to be charged to the entities, the proportionate costs incurred by I Co towards rendering of the services are cross-charged with a 15% mark-up. The details of foreign receipts of I Co during AY 2023-24 is as follows: Nature of incomeAmount (in INR crores)Taxes paid/ withheld in the respective country (other than India) (in INR crores)Rate of tax at which taxes paid in respective country Profits (loss) of branch in Country A1003030% Profit /(loss) of branch in Country B(150)0NA Management fees from B Co1201210% Management fees from F Co18000% Management fees from HK Co8000% Receipts from conduct of R&D for other parties1,0000NA The profit & loss of I Co. for AY 2023-24 is as follows: ParticularsAmount (in INR crores) Receipts from operations (gross)1,500 Management Fees earned (gross)380 Total Gross Receipt1,880 Expenses & Disallowances (including incurred at branch and those disallowable under the Act)1,560 Net before tax320 Income tax payable in India before tax credit80.54 Taxes paid outside India42 For the purpose of benchmarking management services fees under the Transactional Net Margin Method, the Profit Level Indicator (ratio of operating profit to operating costs) of comparable companies is as follows: Name of comparable companyProfit level indicator Company P21% Company Q28% Company R26.5% Company S23.5% Company T18% Company U14% Company V32% Company W17.5% Company X19% Company Y23% Company Z20% The income earned by Sachin during the year is as follows: Sl. No.Details of incomeAmount a.Salary from NL CoINR 25,00,000 b.Interest on loan to I CoINR 1,20,000 c.Consideration on sale of shares of U Co, a US company listed on NASDAQ.USD 1,50,000 The sale was undertaken on 15th October 2022 d.Dividend form U Co, a US company listed on NASDAQ, on 1st October 2022USD 12,000 The shares of U Co were acquired by Sachin on 1 January 2017 for USD 1,00,000. The fair market value of the shares on 31 January 2018 was USD 1,20,000. Sachin had acquired an immovable property in France for INR 7.5 crores on 1 January 2018. The same was not disclosed in the return of income of Sachin. During AY 2023-24, a notice was issued by the Assessing Officer alleging that the foreign assets were not adequately disclosed by Sachin. The fair market value of the property during AY 2023-24 is INR 8 crores. During the course of proceedings, Sachin was able to substantiate that income to the extent of INR 5 crores out of the INR 7.5 crores was duly assessed to tax in India. Additional information: (1) India-Netherlands and India-Australia have a DTAA in existence and both the countries are signatory to the Multilateral Instrument (MLI) and both the countries have notified the DTAA as Covered Tax Agreement (CTA) in its MLI deposit note to the Organisation for Economic Cooperation and Development (OECD). Also Article 2 of the DTAA's of both the countries is matched. (2) Reference to the Act would mean the Income-tax Act, 1961. (3) Reference to the Rule would mean the Income-tax Rules, 1962. (4) Consider SBI Telegraphic Transfer Bank Rate (TTBR) conversion rate as follows: DateExchange Rate for 1 USD (in INR) 1 January 201765 31 January 201867 1 April 202272 30 September 202274 1 October 202275 15 October 202276 Required: Choose the most appropriate alternative for the following MCQs: