Question 1

Enumerate the cases where a return of loss has to be filed on or before the due date specified in section 139(1) for carry forward of the loss. Also enumerate the cases where losses can be carried forward even though the return of loss has not been filed on or before the due date.

OR

In the following cases relating to P.Y.2020-21, the total income of the assessees or the total income of any other person in respect of which he/she is assessable under Income Tax Act does not exceed the exemption limit. You are required to state with reasons, whether the assessee is still required to file the return of income or loss for A.Y.2021-22 in each of the following independent situations:

Accepted Answer

Under Section 139(1) of the Income Tax Act, 1961, a return of income is required only when the total income during the previous year exceeds the basic exemption limit. For A.Y. 2021-22 (P.Y. 2020-21), the basic exemption limit is ₹5 lakhs for individuals and HUFs. Since the question specifies that the total income in each case does not exceed the exemption limit, the analysis for each scenario is as follows:

**(i) Manish & Sons (HUF) - Residential House Sale with Section 54EC Investment:**

Return Filing Requirement: **NOT REQUIRED under Section 139(1).**

Reasoning: The HUF realized a long-term capital gain of ₹12 lakhs on the sale of a residential house. However, the entire amount was invested in Section 54EC bonds within the prescribed period. Section 54EC provides for exemption of LTCG to the extent of the amount invested in specified bonds (maximum ₹50 lakhs). Since the entire LTCG of ₹12 lakhs was so invested, the taxable LTCG becomes ₹0. Therefore, the total income is ₹0, which is substantially below the basic exemption limit of ₹5 lakhs. Consequently, no return is mandated under Section 139(1).

However, filing a return is **advisable and practically necessary** to substantiate and claim the Section 54EC exemption. Without filing a return, the benefit claimed may lack documentary support, and the exemption might be challenged during any subsequent assessment.

**(ii) Mrs. Archana - Resident and Ordinarily Resident with Foreign Asset:**

Return Filing Requirement: **N…

Question 2

Ajit was supposed to submit an appeal to High Court of Kolkata on 30th March, 2020, which was the last day on which such appeal could be submitted. Unfortunately, on that day High Court was closed due to total Lockdown all over India due to Covid-19 pandemic. Examine the remedy available to Ajit under the provisions of the General Clauses Act, 1897.

Accepted Answer

**Remedy Available to Ajit under the General Clauses Act, 1897**

**Relevant Provision — Section 10 of the General Clauses Act, 1897**

Section 10 of the General Clauses Act, 1897 provides the following rule regarding computation of time:

*"Where, by any Central Act or Regulation made after the commencement of this Act, any act or proceeding is directed or allowed to be done or taken in any Court or office on a certain day or within a prescribed period, then, if the Court or office is closed on that day or the last day of the prescribed period, the act or proceeding shall be considered as done or taken in due time if it is done or taken on the next day afterwards on which the Court or office is open."*

**Analysis of Ajit's Situation**

The essential ingredients for Section 10 to apply are:

**1. There must be a Central Act or Regulation directing/allowing an act:** The right to file an appeal before the High Court and the prescribed time limit for doing so are governed by applicable procedural law (a Central Act/Regulation). This condition is satisfied.

**2. The act must be directed or allowed to be done in a Court or office:** Submission of an appeal before the High Court of Kolkata clearly qualifies as an act to be done in a Court. This condition is satisfied.

**3. The act must be required on a certain day or within a prescribed period:** 30th March, 2020 was the last day (i.e., the last day of the prescribed period) for filing the appeal. This condition is satisfied.

…

Question 3

Mr. Ashish, a resident individual, aged 43 years, provides professional services in the field of interior decoration. His Income & Expenditure A/c for the year ended 31 March 2021 is as under:

Expenditure: To Employees' Remuneration & Benefits ₹13,66,000; To Office & Administrative Exp. ₹3,14,000; To General Expenses ₹75,000; To Electricity Expenses ₹65,000; To Medical Expenses ₹80,000; To Purchase of Furniture ₹48,000; To Depreciation ₹90,000; To Excess of income over exp. ₹39,43,000; Total ₹59,81,000

Income: By Consultancy Charges ₹58,80,000; By Interest on Public Provident Fund (PPF) —; Account ₹60,000; By Interest on Savings Bank Account ₹20,000; By Interest on National Savings Certificates VIII Issue (for 3rd year) ₹21,000; Total ₹59,81,000

The following other information relates t…

Accepted Answer

**Computation of Total Income of Mr. Ashish for Assessment Year 2021-22 (F.Y. 2020-21)**

Mr. Ashish is a resident individual (aged 43 years) providing professional services in interior decoration. His income is computed under **Profits and Gains of Business or Profession (PGBP)** as per Section 28 of the Income Tax Act, 1961, along with income from other sources.

**Income from Profession:**

Net surplus as per Income & Expenditure Account is ₹39,43,000. This figure requires the following adjustments:

*Add back — Non-professional income wrongly credited to I&E:*
(a) **Interest on PPF (₹60,000):** This is exempt under **Section 10(11)** of the Income Tax Act, 1961 and forms no part of professional income. It must be excluded entirely from professional receipts.
(b) **Interest on Savings Bank Account (₹20,000):** This is taxable under "Income from Other Sources" and not professional income.
(c) **Interest on NSC VIII Issue — 3rd year (₹21,000):** Interest accruing on NSC is taxable annually under "Income from Other Sources." The 3rd year interest is reinvested and taxable as it accrues.

*Add back — Inadmissible capital and personal expenditure:*
(d) **Purchase of Furniture (₹48,000):** This is capital expenditure and cannot be claimed as a revenue deduction. Depreciation under the IT Act will be allowed separately under **Section 32**.
(e) **Depreciation as per books (₹90,000):** Book depreciation is not deductible. It is replaced by depreciation computed under **Section 32*…

Question 4

Compute the total income and tax liability of Mr. Ashikh for A.Y. 2021-22, assuming that he has not opted for payment of tax under section 115BAC. Ignore provision relating to AMT and under section 14A relating to disallowance of expenditure incurred in relation to income not includible in total income.

Accepted Answer

**Note on Question Completeness:** The transaction details appear to start from item (b)/(ii), suggesting that item (i)(a) — which would contain Gross Professional Receipts for P.Y. 2020-21 — is not included in the excerpt. Accordingly, all individual adjustments are computed below; the final Total Income figure requires the gross receipts figure from the missing item.

**Scheme of Computation — Income from Profession (A.Y. 2021-22):**

Mr. Ashikh is a professional. Since P.Y. 2019-20 receipts were ₹ 2,00,000 (≤ ₹ 50 lakhs), Section 44ADA of the Income Tax Act, 1961 was potentially applicable in P.Y. 2019-20. The asset WDVs as on 01/04/2020 are given directly. For P.Y. 2020-21, he is assessed on regular basis (given that detailed expenses and depreciation are provided, which would be irrelevant under 44ADA).

**Item (b) — Salary to Sister-in-law [Section 40A(2)]:** Payment of ₹ 25,000 per month to a sister-in-law (a specified relative under Section 40A(2)) exceeds the market rate of ₹ 20,000. Only ₹ 2,40,000 (₹ 20,000 × 12) is allowable. **Disallowance: ₹ 60,000** (₹ 5,000 × 12 excess over market rate).

**Item (ii) — Employees' EPF Contribution [Section 36(1)(va)]:** Employees' contribution of ₹ 10,000 for February 2021 was received by Mr. Ashikh and forms his income under Section 2(24)(x). Deduction under Section 36(1)(va) is available only when deposited by the due date prescribed under the Employees' Provident Fund Act. As amended by Finance Act 2021 (applicable from A.Y.…

Question 5

Based on the case details provided, answer the following parts.

Accepted Answer

**(a) Residential Status and Total Income of Mrs. Rohini — AY 2021-22**

**Residential Status: Non-Resident (NR)**
Mrs. Rohini is assessed as a Non-Resident based on contextual indicators — she receives pension from the Russian Government and pays insurance premium to a Russian insurer in Russia, indicating she is not ordinarily residing in India. (Exact determination requires number of days of stay; absent that data, NR is the reasonable exam-context inference.)

For a Non-Resident, only income received in India or accruing/arising in India is taxable under Section 5(2) of the Income Tax Act, 1961.

**Income from House Property:**
Rent received equals Annual Value for New Delhi property — ₹90,000. Standard deduction @ 30% under Section 24(a) = ₹27,000. Income from House Property = **₹63,000**.

**Capital Gains:**
LTCG on sale of land at New Delhi (Indian asset): **₹3,00,000** — taxable under Section 112 @ 20%.
STCG on sale of listed Indian company shares where STT paid (Section 111A): **₹60,000** — taxable @ 15%.

**Items excluded:**
— Pension from Russian Government: NOT taxable for NR (accrues outside India; not received in India).
— Premium paid to Russian LIC: Not income — it is an expenditure. Section 80C deduction is also not available as Russian LIC is not an insurer registered under the Insurance Act, 1938 operating in India.

**Total Income = ₹63,000 + ₹3,00,000 + ₹60,000 = ₹4,23,000**

**Tax Liability:**
STCG u/s 111A @ 15% on ₹60,000 = ₹9,000.
Basic exemption limi…

Question 6

The information extracted from the audited Financial Statement of Smart Solutions Private Limited as at 31st March, 2020 is as below: (1) Paid-up equity share capital of ₹ 50,00,000 divided into 5,00,000 equity shares (carrying voting rights) of ₹ 10 each. There is no change in the paid-up share capital thereafter. (2) The turnover is ₹ 2,00,00,000. It is further understood that Nice Software Limited, which is a public limited company, is holding 2,00,000 equity shares, fully paid-up, of Smart Solutions Private Limited. Smart Solutions Private Limited has filed its Financial Statement for the said year with the Registrar of Companies (ROC) excluding the Cash Flow Statement within the prescribed time line during the financial year 2020-21. The ROC has issued a notice to Smart Solutions Priv…

Accepted Answer

**Part (i): Small Company Classification with Public Company Holding**

Smart Solutions Private Limited SHALL NOT be deemed a small company despite meeting certain criteria. Section 2(85) of the Companies Act 2013 defines a small company as a company other than a public company with: (a) paid-up share capital not exceeding ₹50 lakhs, and (b) average annual turnover not exceeding ₹2 crores. While Smart Solutions meets both criteria (₹50 lakhs capital and ₹2 crores turnover), the crucial proviso disqualifies it. The proviso to Section 2(85) explicitly states that a company shall NOT be treated as a small company if its paid-up share capital is held as to not less than 25% by one or more public companies. Here, Nice Software Limited (a public company) holds 2,00,000 out of 5,00,000 equity shares, constituting 40% of the paid-up capital. This exceeds the 25% threshold. Consequently, the exemption from filing requirements cannot be extended to Smart Solutions Private Limited, and it must comply with all statutory requirements applicable to non-small private companies.

**Part (ii): Default in Filing Financial Statement**

Yes, Smart Solutions Private Limited has defaulted in filing its complete financial statement. Section 137 of the Companies Act 2013 and Rule 4 of the Companies (Accounts) Rules 2014 require the financial statements to include the Balance Sheet, Profit and Loss Account, Cash Flow Statement, and Statement of Changes in Equity. Rule 4A provides an exemption to smal…

Question 7

Explaining the provisions of the Companies Act, 2013, you are required to examine whether ABC Limited is required to constitute 'Corporate Social Responsibility Committee' (CSR) from the second half of the financial year 2020-21.

Accepted Answer

**Answer: YES, ABC Limited is required to constitute a Corporate Social Responsibility Committee from the second half of FY 2020-21.**

Under **Section 135(1) of the Companies Act, 2013**, every company having (i) net worth of ₹500 crore or more, OR (ii) turnover of ₹1000 crore or more, OR (iii) net profit of ₹5 crore or more during the financial year or immediately preceding financial year shall constitute a CSR Committee. The determination is governed by **Rule 5 of the Companies (Corporate Social Responsibility Policy) Rules, 2014**.

**Analysis for FY 2020-21:**

Initially, based on the immediately preceding FY 2019-20 (audited figures as on 31-03-2020), the company did not meet the criteria: Net Worth ₹100 crore (< ₹500 cr), Turnover ₹500 crore (< ₹1000 cr), Net Profit ₹1 crore (< ₹5 cr).

However, the provisional financial statements as on 30-09-2020 (end of first half of FY 2020-21) demonstrate that ABC Limited **does meet the criteria**: Turnover ₹1000 crore (equals the threshold) and Net Profit ₹5 crore (equals the threshold).

**Conclusion:**
The statutory language "during the financial year" in Section 135(1) requires assessment not only based on the preceding year but also on the company's performance during the current financial year. Once the provisional figures as on 30-09-2020 confirm that ABC Limited meets the thresholds, the company is mandatorily required to constitute the CSR Committee before the end of FY 2020-21. Therefore, from the second half of FY 202…

Question 8

Whether the argument is correct under the Indian Contracts Act, 1872?

Accepted Answer

**The argument of the mobile dealer is INCORRECT under the Indian Contracts Act, 1872.**

**Legal Position:**

Under **Section 11 of the ICA, 1872**, a minor is incompetent to enter into a contract. Any contract made by a minor is **void ab initio** (void from the beginning). The contract between Paul (minor) and the mobile dealer for the smartphone is therefore void, and Paul incurs no liability whatsoever.

Jack (the major) was never a party to the original contract between Paul and the dealer. Jack's subsequent voluntary payment of the price does not, in law, create any contractual obligation or liability on Jack. A person cannot be made liable for a contract to which they are not a party and to which they have not agreed to be liable (e.g., as a surety or guarantor).

**Dealer's Remedy:**

The dealer's remedy lies under **Section 65 of the ICA, 1872** (Goods delivered without consideration). Since the smartphone was delivered under a void agreement, the dealer may seek restitution by either (i) recovering the mobile in kind from Paul, or (ii) claiming compensation from Paul's property or guardian. The dealer cannot pursue Jack merely because Jack paid the amount voluntarily.

**Conclusion:** The dealer's argument is legally unsound. Jack has no legal liability to the dealer.

**Follow-up: If Both Jack and Paul are Minors**

The answer remains **the same—the dealer's argument is INCORRECT**.

The position is unchanged because: (1) Paul's contract with the dealer is void r…

Question 9

A signs his name on a blank cheque with 'not negotiable crossing' which he gives to B with an authority to fill up a sum of ₹ 3,000 only. But B fills it for ₹ 3,000. It then endorsed it to C for a consideration of ₹ 5,000 who takes it in good faith. Examine whether C is entitled to recover the full amount of the instrument from B or A as per the provisions of the Negotiable Instruments Act, 1881.

Accepted Answer

**Answer to (a): Can C be a Holder in Due Course?**

No. Although C took the cheque for consideration (₹5,000) in good faith, C cannot be a holder in due course (HDIC) because the cheque bears a **'not negotiable' crossing**. Section 29 of the Negotiable Instruments Act, 1881 expressly provides that when a cheque is crossed with 'not negotiable', no transferee can acquire a better title than that of the transferor. Consequently, C takes the instrument subject to all equities and defects that existed against B, and cannot claim the immunity from defenses available to an HDIC under Sections 52-53.

**Answer to (b): C's Rights Against B**

C is entitled to recover the full amount (₹3,000) from B. B, having endorsed the cheque to C, is liable as an endorser under Section 51 of the Act. The liability of an endorser is absolute and unconditional unless the endorsement is made without recourse ('sans recourse'). Since there is no indication of such qualification, B remains liable to C for the full cheque amount, regardless of whether B exceeded the authority granted by A or any other defect in the transaction between A and B.

**Answer to (c): C's Rights Against A**

C's recovery from A is **limited**. Although A is the drawer and normally liable on a cheque, A has substantial defenses available:

1. **Exceeded Authority**: A authorized B to fill only ₹3,000. If the question intends that B filled the cheque for a higher amount (apparent from the ₹5,000 consideration mention), A is *…

Question 10

Can Mr. A initiate action against the company for failure to distribute the dividend within 30 days of declaration under the provisions of the Companies Act, 2013?

Accepted Answer

Yes, Mr. A can initiate action against the company for failure to distribute the dividend within 30 days of declaration under Section 127 of the Companies Act, 2013.

**Timeline Analysis:** The dividend was declared on 22nd February 2020. Under Section 127(1) of the Companies Act, 2013, payment must be effected within 30 days of declaration (by approximately 23rd March 2020). However, the dividend warrant was posted only on 22nd January 2021 and received by Mr. A on 5th February 2021. This represents a delay of approximately 11 months, grossly exceeding the statutory 30-day requirement. The postal delay experienced by Mr. A does not excuse the company; the company's obligation is to ensure the warrant is posted within 30 days, not to guarantee its receipt.

**Clear Breach of Section 127(1):** The company has violated Section 127(1) which mandates that every company shall pay any dividend within 30 days of declaration. Posting of dividend warrants constitutes payment under company law. The company's failure to post within the prescribed period is unambiguous statutory non-compliance.

**Interest Liability under Section 127(2):** When a company fails to pay dividend within the prescribed period, Section 127(2) makes it liable to pay interest at 12% per annum (or such rate as may be prescribed) on the dividend amount. Mr. A is entitled to recover this interest for the entire period of default from the due date.

**Criminal and Penal Consequences under Section 127(3):** The compa…

Question 11

Examine the validity of the following statements in respect of Annual General Meeting (AGM) as per the provisions of the Companies Act, 2013

Accepted Answer

**Examination of Validity of Statements Regarding Annual General Meeting under Companies Act, 2013:**

**(i) INVALID** – The statement is incorrect as to the prescribed period. As per Section 96 of the Companies Act, 2013, the first AGM of a company shall be held within a period of **NINE months** from the date of closing of the first financial year, not six months. The statement understates the permissible period and therefore is invalid.

**(ii) VALID** – This statement is correct. Section 96 of the Companies Act, 2013 specifically provides that the Registrar may, for any special reason, extend the time within which the first AGM shall be held by a period not exceeding three months beyond the nine-month period. This provision grants discretionary power to the Registrar to accommodate genuine circumstances preventing timely convening of the first AGM.

**(iii) VALID** – This statement is entirely correct. Section 96 clearly states that subsequent AGMs (second and onwards) shall be held within a period of **six months** from the date of closing of the financial year. This shorter period for subsequent AGMs (compared to nine months for the first AGM) reflects the expectation that the company's administrative machinery would be established and operational by then.

**(iv) VALID** – This statement is correct. Section 96 of the Companies Act, 2013 prescribes that there shall be a **maximum interval of fifteen months** between two consecutive AGMs. This provision ensures that shar…

Question 12

KSR Limited, an unlisted company furnishes the following data as on 31-3-2013: Paid-up share capital as on 31-3-2012: ₹ 45 Crore, Turnover for the year ended 31-3-2013: ₹ 120 Crore, Outstanding loan from bank as on 31-3-2021: ₹ 105 crore. Whether as per provision of the Companies Act, 2013 the company is required to appoint an Internal Auditor during the year 2021-2022?

Accepted Answer

The requirement to appoint an internal auditor is governed by **Section 138 of the Companies Act, 2013**. A company shall appoint one or more internal auditors if any of the following conditions are satisfied: (1) the company's turnover exceeds ₹5 crore, (2) the company has outstanding loans or borrowings exceeding ₹5 crore, or (3) the company is a holding, subsidiary, associate, or joint venture of a company meeting criteria (1) or (2).

**Analysis for KSR Limited:**

**Criterion 1 — Turnover Test:** The turnover for FY 2012-13 is ₹120 Crore, which far exceeds the ₹5 crore threshold. This criterion is **satisfied**.

**Criterion 2 — Outstanding Loans Test:** The outstanding loans from the bank as on 31-3-2021 are ₹105 crore, which exceeds the ₹5 crore threshold. This criterion is **satisfied**.

Since the company satisfies **both criteria** (turnover exceeding ₹5 crore and outstanding borrowings exceeding ₹5 crore), **YES, KSR Limited is required to appoint an internal auditor during FY 2021-2022**. The company does not qualify for any exemption. Note: The paid-up share capital is not a criterion for internal auditor appointment under Section 138.

Question 13

State the provisions of the Companies Act, 2013 relating to appointment of First Auditor of a Government Company.

Accepted Answer

**Provisions for Appointment of First Auditor of a Government Company under the Companies Act, 2013**

A **Government Company** is defined as a company in which not less than 51% of the paid-up share capital is held by the Central Government, State Government, or both, or which is a subsidiary of such a company.

**Key Provisions under Section 139(7) of the Companies Act, 2013:**

**Appointment Authority:** The First Auditor of a Government Company is appointed by the Central Government or the State Government (as applicable) **on the recommendation of the Comptroller and Auditor-General (CAG) of India**, not by the shareholders in the Annual General Meeting as in ordinary companies. This reflects the special oversight role of government bodies in such entities.

**Timing of Appointment:** The appointment must be made **within thirty days of the date of registration of the company** or from the date when the company becomes a Government Company, whichever is earlier. This ensures prompt audit arrangements from the inception of operations.

**Tenure:** The First Auditor so appointed shall hold office **till the conclusion of the first Annual General Meeting** of the company. Thereafter, auditors are appointed in the regular manner by the company.

**Qualifications and Disqualifications:** The auditor appointed must:
- Be a **Chartered Accountant** as defined under the Chartered Accountants Act, 1949, and registered with the Institute of Chartered Accountants of India (ICAI)
- …

Question 14

State Cricket Club was formed as a Limited Liability Company under Section 8 of the Companies Act, 2013 with the object of promoting cricket by arranging introductory cricket courses at district level and friendly matches. The club has been earning surplus. Of late, the affairs of the company are conducted fraudulently and dividend was paid to members. Mr. Cool, a member decided to make a complaint with Regulatory Authority to curb the fraudulent activities by cancelling the licence given to the Company.

Accepted Answer

**License Revocation:** Yes, **Section 8(11) of the Companies Act, 2013** provides for revocation of license granted to a Section 8 company by the **Central Government**. The license may be revoked if: (a) the company contravenes the provisions of its memorandum; (b) the affairs of the company are conducted in a fraudulent manner or in a manner prejudicial to public interest; (c) the company ceases to pursue the objects for which it was formed. In this case, fraudulent conduct of affairs and unauthorized payment of dividend (prohibited for Section 8 companies which must apply surplus towards their objects) constitute clear grounds for license revocation under this section.

**Winding Up:** Yes, the State Cricket Club may be **wound up** following revocation of its license. **Sections 271-275 of the Companies Act, 2013** provide the framework for winding up of companies. The company may be wound up by the **NCLT (National Company Law Tribunal)** or **Court** on the grounds of: (a) fraudulent or unlawful conduct of affairs; (b) when it is in the interest of the company or its members; (c) when the company has ceased to carry on business; (d) when the objects for which it was formed have been substantially attained or become impossible. Post-revocation, winding up is the mandatory procedure to settle liabilities and distribute remaining assets.

**Merger Restriction:** No, the State Cricket Club **cannot be merged** with M/s. Cool Net Private Limited. **Section 232-234 of the Co…

Question 15

AB & Associates, a firm of Chartered Accountants was re-appointed as auditors at the Annual General Meeting of X Ltd. held on 30-09-2019. However, the Board of Directors recommended to remove them before expiry of their term by passing a resolution in the Board Meeting held on 31-03-2020. Subsequently, having given consideration to the Board recommendation, AB & Associates were removed at the general meeting held on 25-05-2020 by passing a special resolution subject to approval of the Central Government. Explaining the provisions for removal of second and subsequent auditors, examine the validity of removal of AB & Associates by X Ltd. under the provisions of the Companies Act, 2013.

Accepted Answer

**Provisions for Removal of Second and Subsequent Auditors (Section 141):**

Section 141 of the Companies Act, 2013 governs removal of auditors other than the first auditor. Key provisions include: (1) Removal requires an **ordinary resolution** (not special resolution) passed at a general meeting; (2) The auditor must be given a copy of the Board's recommendation/notice of removal; (3) The auditor has the right to be heard and submit a memorandum in response; (4) The memorandum must be considered by the company before passing the removal resolution; (5) The resolution is effective once passed by the general meeting (more than 50% majority).

**Examination of Validity:**

The removal of AB & Associates by X Ltd. is **INVALID and improper** for the following reasons:

**1. Incorrect Classification and Procedure:** AB & Associates was "re-appointed" as auditors in 2019, making them a **second and subsequent auditor**, not the first auditor. Therefore, Section 141 applies, not Section 140. Under Section 141, removal requires an **ordinary resolution**, which requires a simple majority (50% + 1 vote). However, X Ltd. passed a **special resolution** (requiring 75% majority), which is the procedure applicable only to removal of the **first auditor** under Section 140.

**2. Wrong Type of Resolution:** The use of special resolution for removal of a subsequent auditor is procedurally incorrect and makes the removal invalid. Special resolution is mandatory only for first auditor remov…

Question 16

Examine the following cases with respect to their validity. State your answer with reasons.

Accepted Answer

**Sub-part (i): INVALID**

A bill of exchange expressed as 'payable on demand' is payable at sight or upon presentation. Under Section 21 of the Negotiable Instruments Act, 1881, the date of maturity of a bill payable on demand is the date on which it is presented for acceptance or payment, not any stipulated future date. Therefore, if the bill is presented on 01-01-2021, the maturity date is 01-01-2021 itself. The bill cannot be at maturity on 04-01-2021 merely because it is presented on 01-01-2021. The express mention of 'payable on demand' negates any fixed date of maturity. The statement is factually incorrect and invalid.

**Sub-part (ii): VALID (Drawer's claim is INVALID)**

The drawer's claim of discharge is not sustainable. Under Section 93 of the Negotiable Instruments Act, 1881, notice of dishonor must be given to all parties liable on the bill except the **acceptor**. The acceptor of a bill is the principal debtor and does not require notice of dishonor because the acceptor's obligation is primary and unconditional. The acceptor is the party from whom payment is primarily due. Notice of dishonor must be given to secondary parties liable (drawer and endorsers) to hold them liable. In this case, since notice has been given to all parties except the acceptor, the holder has complied with the statutory requirement. The drawer cannot claim discharge merely because notice was not given to the acceptor, as such notice is not required by law. The drawer is discharged only …

Question 17

Explain the impact of the two words 'means' and 'includes' in a definition, while interpreting such definition.

Accepted Answer

**Meaning of 'Means' in a Definition:** When a statute uses the word 'means' in a definition, it provides an exhaustive and restrictive definition. The term is confined solely to what is explicitly stated, and nothing beyond those express words can be included. It is a definitive and complete definition that leaves no room for analogy or extension. For example, if a statute defines 'company' to mean 'a company formed and registered under the Companies Act, 2013,' only entities satisfying this precise criterion qualify as a company for that statute's purposes. The use of 'means' effectively closes the door to any broader or analogous interpretation.

**Meaning of 'Includes' in a Definition:** When a statute uses the word 'includes' in a definition, it provides an illustrative and non-exhaustive definition. It expands the ordinary or natural meaning of the term to encompass additional things beyond what might ordinarily be understood. The definition begins with the basic meaning and extends it by adding 'includes' to cover other things that fall within a similar class or category. For example, 'income includes income from salary, rent, and capital gains' means these are specified examples, but other forms of income may also be covered. The word 'includes' is expansive rather than restrictive.

**Impact on Statutory Interpretation:** The choice between these words significantly affects how courts interpret and apply statutory provisions. When 'means' is used, courts adopt a stri…

Question 18

Mr. Ramesh constructed a big house (construction completed in Previous Year 2020-2021) with 3 independent units. One unit of 1,600 sq.ft. floor area is let out for residential purpose at monthly rent of ₹ 15,000. A sum of 3,000 could not be collected from the tenant and a notice to vacate the unit was given to the tenant. No other property of Mr. Ramesh is occupied by the tenant. Unit - 1 remains vacant for 2 months when it is not put to any use. Unit - 2 (25% of the floor area) is utilized by Mr. Ramesh for the purpose of his business, while Unit - 3 (the remaining 25%) is utilized for the purpose of his business. Details about the house are as follows: Municipal valuation - ₹ 1,88,000; Standard rent under the Rent Control Act - ₹ 2,28,000; Municipal taxes - ₹ 20,000; repairs - ₹ 5,000; I…

Accepted Answer

**Answer: ₹1,46,433**

The house property comprises three units: Unit 1 (50% of total) let out for residential purpose, Unit 2 (25%) used for business, and Unit 3 (25%) used for business.

**INCOME FROM HOUSE PROPERTY (UNIT 1):**

Under **Section 23**, Gross Annual Value (GAV) is the highest of: (a) actual rent, (b) municipal valuation, (c) standard rent, or (d) 12% of capital value.

Unit 1 (50% of property):
- Actual rent received: ₹15,000 × 10 months = ₹1,50,000 (vacant 2 months; ₹3,000 uncollected excluded as not taxable under Section 119(3))
- Municipal valuation: ₹1,88,000 × 50% = ₹94,000
- Standard rent: ₹2,28,000 × 50% = ₹1,14,000
- **GAV = ₹1,50,000** (highest)

Under **Section 23(1)(c)**, a standard deduction of **30% of GAV** is allowed for let-out property:
- Standard deduction = ₹1,50,000 × 30% = ₹45,000
- **Net Annual Value (NAV) = ₹1,05,000**

Deductions under **Section 24** (allocated 50% to Unit 1):
- Municipal taxes: ₹20,000 × 50% = ₹10,000
- Repairs: ₹5,000 × 50% = ₹2,500
- Interest on borrowed capital: ₹6,000 × 50% = ₹3,000
- Ground rent: ₹6,000 × 50% = ₹3,000
- Fire insurance premium: ₹60,000 × 50% = ₹30,000
- **Total deductions = ₹48,500**

**Income from house property = ₹1,05,000 − ₹48,500 = ₹56,500**

**INCOME FROM BUSINESS (UNITS 2 & 3):**

Gross business income (given): ₹1,40,000

Deductible expenses (allocated 50% to Units 2 & 3):
- Interest on borrowed capital: ₹6,000 × 50% = ₹3,000
- Municipal taxes: ₹20,000 × 50% = ₹10,000
- Repairs: ₹5,000 × 50%…

Question 19

On 28th February, 2021 10,000 shares of XY Ltd., a listed company are held by Mr. B @ ₹50 per share and STT was paid at the time of sale of shares. These shares were acquired by him on 5th April, 2017 @ ₹ 395 per share by paying STT at the time of purchase. On 31st January, 2018, the shares of XY Ltd. were traded on a recognized stock exchange at the Fair Market Value of ₹ 390 per share.

Accepted Answer

**Answer: Taxable Capital Gain = NIL; Rate of Tax = 0% (Not Applicable)**

**Step 1: Classification as LTCG or STCG**
Holding period from 5th April 2017 to 28th February 2021 = 3 years 10 months, which exceeds 12 months. Therefore, this constitutes **Long-Term Capital Gain (LTCG)**.

**Step 2: Determination of Cost of Acquisition**
For listed shares acquired before 1st February 2018 on a recognized stock exchange where STT is paid, the cost of acquisition per **Section 112(1)(c) of the Income Tax Act, 1961** (as amended by Finance Act 2018) is the **LOWER of**:
(a) Actual cost of acquisition = ₹395 per share
(b) Fair Market Value on 31st January 2018 = ₹390 per share

**Cost of Acquisition = ₹390 per share** (the lower amount)

**Step 3: Calculation of Capital Loss**
Selling Price (28th February 2021): ₹50 per share
Cost of Acquisition: ₹390 per share
**Capital Loss = ₹50 − ₹390 = −₹340 per share**
**Total Capital Loss = ₹340 × 10,000 shares = ₹34,00,000**

**Step 4: Tax Implications**
This transaction results in a **capital loss of ₹34,00,000**, not a capital gain. Capital losses on listed securities do not result in tax liability. The loss can be carried forward for set-off against future capital gains (if any) in subsequent years, subject to time limit restrictions.

**Conclusion:**
**Taxable Capital Gain = NIL**
**Rate of Tax Applicable = 0% (Not Applicable)**
**Tax Payable = ₹0**

Question 20

Mr. A is the owner of residential house which was purchased on 1st September, 2016 for ₹ 9,00,000. He sold the said house on 4th September, 2020 for ₹ 19,00,000. Valuation as per stamp valuation authorities was ₹ 45,00,000. He invested ₹ 19,00,000 in NHAl Bonds on 21st March, 2021. The Cost Inflation Index for: F.Y. 2016-2017 - 264, F.Y. 2020-2021 - 301

Accepted Answer

**Capital Gain Computation:**

The **consideration for sale** under Section 50A of the Income Tax Act, 1961, is the **higher of actual sale price (₹19,00,000) or stamp valuation (₹45,00,000)**, which is **₹45,00,000**.

**Indexed Cost of Acquisition:** ₹9,00,000 × (301/264) = **₹10,26,136**

**Long-Term Capital Gain** = ₹45,00,000 − ₹10,26,136 = **₹34,73,864**

Holding period is 4 years (1st Sept 2016 to 4th Sept 2020), confirming LTCG classification for residential property.

**Section 54EC Exemption Analysis:** The NHAI Bond investment was made on 21st March 2021, which is **199 days after the sale date (4th September 2020)**. The prescribed time limit under Section 54EC of the Income Tax Act, 1961 is **6 months from the date of sale** (expires 4th March 2021). Since the investment falls outside the 6-month window and no "reasonable cause for delay" is established under the 6-to-9-month provision, **Section 54EC exemption is not available**.

**Taxable Capital Gain** = **₹34,73,864** (entire LTCG, as no exemption available)

**Tax Computation:**
LTCG on residential property attracts tax at **20%** with indexation benefit allowed.

Tax on LTCG = ₹34,73,864 × 20% = **₹6,94,773**

Health and Education Cess @ 4% on tax = ₹6,94,773 × 4% = **₹27,791**

**Total Tax (before surcharge)** = ₹6,94,773 + ₹27,791 = **₹7,22,564**

*Note: Surcharge, if applicable, depends on total income of the assessee (not provided). At income levels above ₹1 crore, surcharge @ 25% on tax may be applica…

Question 21

Mr. Patel is a proprietor of Star Stores since 20-05-2018. He has transferred his shop by way of stamp sale for a total consideration of ₹ 40 Lakh. The professional fees & brokerage paid for this sale are ₹ 80,000. His balance Sheet as on 31-03-2021 is as under:

| Liabilities | ₹ | Assets | ₹ |
|---|---|---|---|
| Own Capital | 10,50,000 | Building | 5,00,000 |
| Bank Loan | 5,00,000 | Furniture | 5,00,000 |
| Trade Creditors | 2,50,000 | Debtors | 3,00,000 |
| Unsecured Loan | 2,00,000 | Other Assets | 8,00,000 |
| Total | 20,00,000 | Total | 20,00,000 |

Other Information:

1. No individual value of any asset is considered in the transfer deed.
2. Other assets include trademarks valuing ₹ 2,00,000 as on 01-04-2020 on which no depreciation has been provided.

Accepted Answer

**Calculation of Capital Gain on Transfer of Business**

**Step 1: Compute Net Amount Received**
Sale Consideration: ₹40,00,000
Less: Professional Fees & Brokerage: ₹80,000
Net Amount Received: **₹39,20,000**

**Step 2: Identify Assets Transferred**
From Balance Sheet as on 31-03-2021:
- Building: ₹5,00,000
- Furniture: ₹5,00,000
- Debtors: ₹3,00,000 (typically not transferred as capital asset)
- Other Assets (incl. Trademark valued at ₹2,00,000): ₹8,00,000

Assets transferred (excluding Debtors which are receivables):
Building + Furniture + Trademark + Other Current Assets = ₹5,00,000 + ₹5,00,000 + ₹2,00,000 + ₹6,00,000 = **₹18,00,000**

**Step 3: Calculate Total Capital Gain**
Net Sale Proceeds: ₹39,20,000
Less: Cost of Assets Transferred: ₹18,00,000
**Total Capital Gain = ₹21,20,000**

**Step 4: Asset-wise Allocation (Proportionate to Book Values)**
Allocation ratio: ₹39,20,000 ÷ ₹18,00,000

**Building:** (5÷18) × ₹39,20,000 = ₹10,88,889; Gain = ₹5,88,889 (Section 50A applies—LTCG)

**Furniture:** (5÷18) × ₹39,20,000 = ₹10,88,889; Gain = ₹5,88,889 (Section 50 applies—recapture of depreciation)

**Trademark:** (2÷18) × ₹39,20,000 = ₹4,35,556; Gain = ₹2,35,556 (LTCG if held >2 years)

**Other Assets:** (6÷18) × ₹39,20,000 = ₹13,06,667; Gain = ₹7,06,667

**Final Answer:** Capital Gain = **₹21,20,000** (comprising Section 50 gains, Section 50A gains, and goodwill/business income elements as detailed above)

Question 22

Mr. Siefan owns a chicken firm near Gurgaon, where he breeds them and sells eggs and live chicken to retail shops in Gurgaon. Mr. Flemming also owns a similar farm near Gurgaon, doing the same business. Mr. Flemming had to go back to his native place in Australia for one year. He needed money for travel so he pledged his farm to Mr. Siefan for one year. After one year Siefan received a deposit of ₹ 25 lakhs and went away. At that time there were 100,000 live birds (increase is due to hatching of eggs out of 10,000 eggs he had left), and 15,000 eggs. Mr. Siefan agreed to return 100,000 live birds and 10,000 eggs only. State the duties Mr. Siefan as Pawnee and advise Mr. Flemming about his rights in the given case.

Accepted Answer

**DUTIES OF MR. SIEFAN (PAWNEE):**

**Duty to Take Reasonable Care (Section 152, Indian Contract Act, 1872):** Mr. Siefan must take reasonable care of the pledged farm and its contents. He cannot be negligent in managing the birds or eggs. Any loss or damage caused by his negligence makes him liable to Mr. Flemming.

**Duty to Preserve the Goods (Section 153):** If the pledged goods suffer loss or damage due to Siefan's negligence, he is liable. In this case, if any birds died or eggs were damaged due to lack of proper care, Siefan must compensate Flemming.

**Limited Right of Use (Section 155):** Siefan can use the pledged goods only to the extent necessary for their preservation. He cannot breed birds or use the farm for commercial benefit beyond maintaining the pledged property. Any profit from commercial use belongs to Flemming.

**Duty to Return Goods (Section 157):** Upon redemption (payment of the loan), Siefan must return the pledged goods to Flemming. This includes the original items and any natural produce or increase thereof.

**RIGHTS OF MR. FLEMMING (PAWNOR):**

**Right to Redemption:** Flemming has the right to reclaim the pledged farm by repaying the ₹25 lakhs debt. Once the debt is paid, Siefan must release the goods.

**Right to All Natural Produce:** Under Section 157, all natural increase and produce of the pledged goods belong to Flemming, not Siefan. The 5,000 additional eggs (15,000 – 10,000) are the natural produce of the original eggs and belong entire…

Question 23

Mr. Harsha donated ₹ 50,000 to an NGO by cheque for sponsoring the education of one child for one year. Later on he found that the NGO was a fraud and did not engage in philanthropic activities. He gave a "stop payment" instruction to his bankers and the cheque was not honored by the bank as per his instruction. The NGO has sent a demand notice and threatened to file a case against Harsha. Advise Mr. Harsha about the course of action available under the Negotiable Instruments Act, 1881.

Accepted Answer

**Legal Position of Mr. Harsha:**

Mr. Harsha's position is legally sound. As the drawer of the cheque, he has an absolute right to countermand payment under **Section 43 of the Negotiable Instruments Act, 1881**, which allows any person authorized to draw on a banker to countermand payment of any cheque. Once a valid countermand instruction is given to the banker, the banker is not bound to honor the cheque (Section 139). The bank has correctly acted by not honoring the cheque.

**Mr. Harsha's Status:**
Mr. Harsha is not liable for the ₹50,000. The cheque has been legally dishonored through valid countermand. The fact that the NGO subsequently turned out to be fraudulent provided sufficient grounds for exercising this statutory right. The cheque itself remains a valid negotiable instrument, but its operation has been suspended by the countermand.

**Regarding the NGO's Threat:**
The NGO cannot claim payment based on the dishonored cheque itself. Their only legal recourse would be to file a civil suit for breach of contract or recovery of donation based on failure of consideration—not an action on the cheque. However, Mr. Harsha has a complete defense even in such a suit: **total failure of consideration**. The donation was given with the condition that funds would be used for education sponsorship. Since the NGO is fraudulent and engages in no philanthropic activities, the entire consideration has failed. Under contract law principles applicable to gifts, Mr. Harsha can succ…

Question 24

The offer of buy-back of own shares by a company shall not be made within a period of six months from the date of the closure of the preceding offer of buy-back, if any and cooling period to make further issue of same kind of shares including allotment of further shares shall be a period of one year from the completion of buy back subject to certain exceptions. Examine the validity of this statement by explaining the provisions of the Companies Act, 2013 in this regard.

Accepted Answer

The statement is **substantially VALID** as per the Companies Act, 2013, with important qualifications regarding exceptions.

**6-Month Cooling Period Between Successive Buy-Back Offers**

Section 68(2)(g) of the Companies Act, 2013 mandates that a company **cannot make an offer for buy-back of its own shares within six months from the date of closure of the preceding buy-back offer**, if any. This is an absolute prohibition with **no exceptions**. This cooling period ensures market stability, prevents sudden large-scale capital reduction, and protects shareholder interests by allowing the company time to stabilize after a buy-back.

**1-Year Cooling Period for Fresh Issue of Same Kind of Shares**

Rule 13(1) of the Companies (Share Capital and Debentures) Rules, 2014 provides that a company **cannot make any fresh issue of shares or other securities of the same kind as those bought back for a period of one year from the completion of buy-back**. The rationale is to prevent circumvention of buy-back regulations and defeat capital reduction objectives. However, the statement correctly notes that **certain exceptions exist**.

**Exceptions to the 1-Year Cooling Period**

Rule 13(2) specifies important exceptions where fresh issues may be made during the 1-year cooling period: (1) **ESOP Shares** – exercise of options granted before buy-back initiation under an employee stock option plan; (2) **Employee Stock Purchase Schemes** – shares issued pursuant to approved employee stock…

Question 25

ABC Limited proposes to issue series of debentures frequently within a period of one year to raise the funds without undergoing the complicated exercise of issuing the prospectus every time of issuing a new series of debentures. Examine the feasibility of the proposal of ABC Limited having taken into account the concept of shelf prospectus dealt with under the provisions of the Companies Act, 2013.

Accepted Answer

**Feasibility: YES, ABC Limited's proposal is feasible under the shelf prospectus mechanism.**

**What is Shelf Prospectus:**
A shelf prospectus is a prospectus that permits a company to issue securities (including debentures) in multiple tranches over a specified period without filing separate prospectuses for each tranche. It is governed by **Section 31 of the Companies Act, 2013**.

**Application to Debentures:**
Section 31 applies to all types of securities, including debentures. Therefore, ABC Limited can lawfully use a shelf prospectus to issue multiple series of debentures without the repetitive burden of filing separate prospectuses for each tranche.

**Validity Period and Mechanism:**
The shelf prospectus remains valid for **365 days from the date of closure of subscription to the first tranche**. During this 365-day window, ABC Limited can issue multiple tranches of debentures within the overall limit specified in the shelf prospectus. Each tranche need not require filing of a fresh prospectus, thereby avoiding the "complicated exercise" mentioned in the proposal.

**Conditions ABC Limited Must Satisfy:**
1. The shelf prospectus must be filed with the Registrar of Companies and must clearly specify: (i) the total amount of debentures to be issued; (ii) the terms and conditions applicable; (iii) the period within which tranches will be offered (not exceeding 365 days).
2. Each tranche of debentures must be issued strictly in accordance with the terms disclosed in the…

Question 26

Mr. Dharmesh who is 45 years old and his wife Mrs. Anandi is 42 years old furnished the following information: [Table with salary income, minor son income, minor daughter income, garment trading business income, cash gifts, and minor son fixed deposit income]. Compute the total income of Mr. Dharmesh and his wife Mrs. Anandi for Assessment Year 2021-22 assuming that they have not opted to be taxed under section 115BAC.

Accepted Answer

**Answer: Total Income of Mr. Dharmesh and Mrs. Anandi for AY 2021-22 is ₹32,06,000**

**Computation:**

Mr. Dharmesh's Total Income:
1. Salary income: ₹9,60,000
2. Garment trading business (net profit): ₹17,50,000
3. Minor son's income: ₹3,13,000 (comprising ₹3,08,000 + ₹5,000 FD interest)
4. Minor daughter's income from script: ₹1,86,000

**Application of Section 10(32):**
Under Section 10(32) of the Income Tax Act, 1961, income of a minor child is added to the parent's income, but relief is granted for income not exceeding ₹1,500 per minor child.

Minor son's taxable income: ₹3,13,000 – ₹1,500 = ₹3,11,500
Minor daughter's taxable income: ₹1,86,000 – ₹1,500 = ₹1,84,500

**Treatment of Cash Gift:**
The cash gift of ₹45,000 to the minor daughter is exempt from tax under Section 56(2)(vii) of the Income Tax Act, 1961, as it qualifies as a gift from a relative (parent). Hence, it is not included in taxable income.

**Final Computation:**
Mr. Dharmesh's Total Income = ₹9,60,000 + ₹17,50,000 + ₹3,11,500 + ₹1,84,500 = ₹32,06,000
Mrs. Anandi's Total Income = ₹0 (no income disclosed)

**Combined Total Income = ₹32,06,000**

Note: Since they have not opted for Section 115BAC, normal tax rates apply. Mrs. Anandi would file a nil return or a return showing only the minors' income allocation.

Question 27

Mr. X a resident individual submits the following information, relevant to the previous year ending March 31, 2021: [Table with income from salary, house property (Delhi, Chennai, Mumbai), business/profession (textiles, cosmetics, speculative business), capital gains, and other sources]. Determine the gross total income of Mr. X for the assessment year 2021-22 and the losses to be carried forward assuming that he does not opt to be taxed under section 115BAC.

Accepted Answer

**Answer:** This question references a table of income figures that was not fully provided in the problem statement. However, the computation methodology for AY 2021-22 (PY ending March 31, 2021) is as follows, illustrated with reasonable assumptions based on the given scenario.

**Income Computation Structure:**

**1. Income from Salary:** ₹2,22,000 (fully includible under Section 15, IT Act, 1961). Salary is taxed completely as stated.

**2. Income from House Property:** House property income is computed separately for each property under Sections 22-24. For multiple properties (Delhi, Chennai, Mumbai):
- Compute net income/loss for each property: Rental income minus interest on borrowed capital (fully deductible under Section 24(b)) and other permitted deductions (Section 24(a)).
- Aggregate all house property incomes. **Note:** A loss from a self-occupied house (no income) cannot be created; only losses from let-out houses are aggregable. Loss from house property can be set off against any other income under Section 71.

**3. Income from Business/Profession:** Under Sections 28-44D:
- **Textiles and Cosmetics:** These are ordinary businesses. Compute profit/loss for each under standard provisions. Set off losses from one against profits of the other (both fall under business/profession head).
- **Speculative Business:** Compute separately. A loss from speculative transactions **cannot be set off against income of other sources** (Section 73). Any loss must be carried forw…

Question 28

X Electronics is a registered manufacturer of electrical appliances. It made contract with dealers that purchase of air conditioners of capacity 1.5 Ton will entitle them for 10% discount. Internal sales made during the month of October 2020 is ₹ 50,00,000.

Details of Intrastate supply: Supply of Microwave Oven ₹15,00,000; Supply of Refrigerators with Stabilizers (mixed supply) ₹40,00,000; Supply of Air Conditioners of capacity 1.5 Ton @ ₹50,00,000 for 300 pcs.

Intrastate inward supplies: Raw material ₹20,00,000; Paid Gym membership for employees ₹50,000; Truck purchased for transportation of goods ₹30,00,000.

X Electronics made supply of Air Conditioners (capacity 1.5 Ton) to only one dealer named Mr. L. Gym membership for employees is not obligatory for X Electronics under any law.

O…

Accepted Answer

**Computation of GST Payable by X Electronics for October 2020**

**Note on Internal Sales:** Internal sales of ₹50,00,000 represent intra-entity stock transfers within the same registered person (same GSTIN). These do not constitute a 'supply' under Section 7 of the CGST Act 2017 and are hence not liable to GST.

**Treatment of Discount on Air Conditioners:** A 10% discount was pre-agreed through a contract with dealers. As the discount was established before the supply and is linked to the relevant invoice, it qualifies for deduction from the transaction value under **Section 15(3) of the CGST Act 2017**. Accordingly, taxable value of ACs = ₹50,00,000 − ₹5,00,000 (10%) = **₹45,00,000**.

**Treatment of Mixed Supply (Refrigerators with Stabilizers):** Under **Section 8(b) of the CGST Act 2017**, a mixed supply is taxed at the highest rate applicable to any of its constituent supplies. Refrigerators attract 18% and stabilizers also attract 18%. Therefore, the entire mixed supply of ₹40,00,000 is taxed at **18%**.

**Computation of GST on Outward Intrastate Supplies:**

| Particulars | Taxable Value (₹) | CGST Rate | CGST (₹) | SGST Rate | SGST (₹) |
|---|---|---|---|---|---|
| Microwave Ovens | 15,00,000 | 9% | 1,35,000 | 9% | 1,35,000 |
| Refrigerators with Stabilizers (Mixed Supply) | 40,00,000 | 9% | 3,60,000 | 9% | 3,60,000 |
| Air Conditioners 1.5 Ton (after 10% discount) | 45,00,000 | 14% | 6,30,000 | 14% | 6,30,000 |
| **Total GST Liability** | **1,00,00,000** | | **11…

Question 29

Examine the validity of the following different decisions/proposals regarding Shifting of office by A Ltd. under the provisions of the Companies Act, 2013

Accepted Answer

**Sub-part (i): VALID**

The decision to shift the registered office from Thane to Dalar by passing a Special Resolution without obtaining Regional Director's approval is **valid**. Although both places fall within different local limits, they are situated within the jurisdiction of the same Registrar of Companies (Mumbai). As per Rule 12 of the Companies (Incorporation) Rules, 2014, when the registered office is shifted to a different local limit within the same State but under the jurisdiction of the same Registrar, a Board Resolution is sufficient. The company has passed a Special Resolution, which is more stringent than required and therefore valid. Importantly, the approval of the Regional Director is not required when both places fall within the jurisdiction of the same Registrar. The Regional Director's approval is needed only when the office is shifted to a different State or to a different Registrar's jurisdiction within the same State (Rule 12(3) and Rule 12(4) of the Companies (Incorporation) Rules, 2014). Hence, the absence of such approval does not render the decision invalid.

**Sub-part (ii): VALID**

The proposal to shift the Corporate Office from Pune to Mumbai by Board Resolution is **valid**. The statutory provisions regarding shifting of the registered office, as prescribed under Rule 12 of the Companies (Incorporation) Rules, 2014, apply exclusively to the registered office of the company. A Corporate Office, by definition, is merely an administrative or …

Question 30

Johnson Limited goes for Public issue of its shares. The issue was over subscribed. A default was committed with respect to allotment of shares by the officers of the company. There were no Managing Director or any other officer/person designated by the Board with the responsibility of Complying with the provisions of the Act. Who are the persons considered as officers in default under the Companies Act, 2013? Examine who will be considered in default in the instant case?

Accepted Answer

**Definition of Officer:** Under Section 2(59) of the Companies Act, 2013, an 'officer' includes any director, manager, Company Secretary, Chief Financial Officer, whole-time director, managing director, and any person in accordance with whose directions or instructions the Board is accustomed to act (de facto director). It also includes any person occupying the position of director by whatever name called.

**Officer in Default - Definition:** Section 2(60) of the Companies Act, 2013 defines 'officer in default' as an officer who falls into any of the following categories:

(a) **Knowingly authorises or permits any default** - where an officer knowingly allows or authorises a contravention of the Act's provisions.

(b) **Knowingly participates in or is privy to default** - where an officer is aware of and participates in or becomes party to a contravention.

(c) **Fails to take reasonable steps to prevent default** - where an officer has the means to prevent a contravention but fails to take reasonable steps to do so.

(d) **Knowledge test** - where an officer knew or reasonably should have known of the default but failed to take reasonable steps to prevent or stop it.

(e) **Specific provision for absence of designated officer** - Critically, Section 2(60) also provides that **where there is no Managing Director or any officer designated by the Board with specific responsibility for complying with the provisions of the Act, every director shall be deemed to be in default** …

CA Inter Taxation

Drill 5 questions from this paper — instant grading

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap