CA Inter Cost & Mgmt — Question Paper — November 2020

Section 194N of the Income Tax Act, 1961 provides for Tax Deduction at Source (TDS) on cash withdrawals from bank accounts. This provision was introduced to promote digital transactions and monitor high-value cash withdrawals.

Applicability: The provision applies to cash withdrawals from a bank account maintained with any banking company or post office. It becomes applicable when the cumulative cash withdrawals made by a person from their bank account during a financial year exceed ₹10 lakhs. The threshold is cumulative, meaning TDS is triggered once the total withdrawals in the FY cross ₹10 lakhs.

Rate of TDS: TDS is deductible at the rate of 2% on the amount of cash withdrawal. The TDS is calculated and deducted at the time of withdrawal itself from the amount being withdrawn.

Deductors: Banking companies and post offices are responsible for deducting TDS under this section. They must deduct TDS from all cash withdrawals made after the cumulative threshold of ₹10 lakhs is crossed in the financial year.

Applicability to All Persons: The provision applies irrespective of whether the account holder has filed their income tax return or has PAN status. It applies to individuals, Hindu Undivided Families (HUFs), partnerships, companies, and all other entities.

Key Provisions: The TDS deducted is creditable against the assessee's income tax liability. The deductor (bank/post office) must issue a TDS certificate in Form 16A. The assessee must disclose the TDS in their income tax return. The deductor must furnish quarterly/annual TDS statements to the tax authority.

Exemptions: Certain withdrawals may be exempted, such as withdrawals made by banks for their own purposes, withdrawals authorized by RBI, and withdrawals as per court orders or government directives during emergency situations.

Objective: The primary objective is to encourage digital payments and maintain records of high-value cash transactions while discouraging black money circulation.

(a) Loan from ABC Private Limited — Deemed Dividend under Section 2(22)(e) of the Income Tax Act, 1961

ABC Private Limited is a company in which the public are not substantially interested (private limited company). Ms. Julie holds 10% of the equity share capital, making her a beneficial owner of shares carrying not less than 10% of the voting power. Any payment by way of loan or advance by such a company to such a shareholder is treated as deemed dividend under Section 2(22)(e), to the extent of the accumulated profits of the company.

Here, the loan received is ₹5,00,000, but accumulated profits are only ₹2,00,000. Therefore, ₹2,00,000 is treated as deemed dividend and is taxable in Ms. Julie's hands as Income from Other Sources under Section 56. The balance ₹3,00,000 is a genuine loan and is not taxable.

Note: Deemed dividend under Section 2(22)(e) does not attract Dividend Distribution Tax (DDT), and hence is not exempt under Section 10(34). It is fully taxable at normal slab rates.

(b) Interest on Enhanced Compensation — Section 56(2)(viii) read with Section 145B(1)

As per Section 145B(1), interest received on compensation or enhanced compensation shall be deemed to be income of the previous year in which it is received, irrespective of the year(s) to which it relates. Accordingly, the entire ₹5,00,000 received in PY 2019-20 is taxable in AY 2020-21, even though ₹1,50,000 relates to PY 2016-17, ₹1,50,000 to PY 2017-18, and ₹2,00,000 to the current year.

This amount is chargeable to tax as Income from Other Sources under Section 56(2)(viii).

As per Section 57(iv), a deduction of 50% of such interest income is allowed from this income. No other deduction whatsoever is permissible. Therefore, the advocate fees of ₹1,00,000 are NOT deductible, as Section 57(iv) expressly bars any other deduction.

Net taxable interest on enhanced compensation = ₹5,00,000 × 50% = ₹2,50,000.

Summary for AY 2020-21 — Income from Other Sources:
Deemed dividend u/s 2(22)(e): ₹2,00,000
Interest on enhanced compensation [₹5,00,000 less 50% deduction u/s 57(iv)]: ₹2,50,000
Total Income from Other Sources: ₹4,50,000

Computation of Total Income and Tax Liability of Mr. Ganesh (Age 58, Resident) for AY 2021-22

*Note: The question refers to 'Section 16AA of the Income Tax Act, 1991' — this section does not exist. The Income Tax Act was enacted in 1961, not 1991. Based on context (export turnover, industrial undertaking established 2005, profit first earned 2017-18), this is treated as Section 10AA of the Income Tax Act, 1961 (deduction for SEZ units). The deduction is Profit × Export Turnover/Total Turnover.*

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INCOME FROM HOUSE PROPERTY:

Mr. Ganesh occupies the ground floor (Annual Value = Nil) and lets out the first floor. Municipal taxes of ₹60,000 are apportioned 50:50 between the two floors. For the let-out floor: GAV = ₹2,28,000; Less: Municipal taxes (50%) = ₹30,000; NAV = ₹1,98,000; Less: Standard deduction u/s 24(a) @ 30% = ₹59,400; Income from HP = ₹1,38,600.

PROFITS AND GAINS FROM BUSINESS:

Total profit = ₹23,00,000. Deduction u/s 10AA = Profit × (Export Turnover/Total Turnover) = ₹23,00,000 × (₹10,00,000/₹20,00,000) = ₹11,50,000. Taxable Business Income = ₹11,50,000.

CAPITAL GAINS:

Vacant land acquired on 3.8.1995, sold on 10.11.2019. Held for more than 24 months → Long-Term Capital Asset. As the asset was acquired before 1.4.2001, cost of acquisition = Higher of actual cost (₹1,40,000 + ₹10,000 registration = ₹1,50,000) or FMV on 1.4.2001 (₹4,00,000) = ₹4,00,000. Indexed cost of acquisition = ₹4,00,000 × 289/100 = ₹11,56,000. Under Section 50C of the Income Tax Act, 1961, since SDV (₹14,00,000) exceeds 110% of actual consideration (₹11,00,000), full value of consideration = ₹14,00,000. LTCG = ₹14,00,000 − ₹11,56,000 = ₹2,44,000.

INCOME FROM OTHER SOURCES:

Royalty from abroad on artistic book: Gross royalty = ₹2,85,000; Less: Expenditure = ₹40,000; Net = ₹2,45,000. Interest on savings bank = ₹40,000. Share of profit from AOP (taxed at normal rate — included in GTI; rebate available u/s 86) = ₹47,000. Total Other Sources = ₹3,32,000.

GROSS TOTAL INCOME:
HP = ₹1,38,600 | Business = ₹11,50,000 | LTCG = ₹2,44,000 | Other Sources = ₹3,32,000 → GTI = ₹18,64,600.

DEDUCTIONS UNDER CHAPTER VI-A (Normal Regime):

Section 80C of the Income Tax Act, 1961: (a) LIP on person not dependent on Mr. Ganesh — NOT deductible (80C covers only self, spouse, children); (b) Premium of ₹48,000 on father's policy is treated as mediclaim under Section 80D, not 80C; (c) Tuition fees restricted to 2 children only = 2 × ₹14,000 = ₹28,000. 80C total = ₹28,000.

Section 80D: Health insurance premium for dependent father (assumed senior citizen) = ₹48,000 (within ₹50,000 limit for senior citizen parent) = ₹48,000.

Section 80QQB of the Income Tax Act, 1961: Royalty for artistic book from foreign source. Deduction = least of: (i) net royalty ₹2,45,000; (ii) amount remitted to India ₹2,30,000; (iii) maximum ₹3,00,000 = ₹2,30,000.

Section 80TTA of the Income Tax Act, 1961: Interest on SB account. Mr. Ganesh is 58 years (not senior citizen; 80TTB threshold is 60). Deduction = min(₹40,000, ₹10,000) = ₹10,000.

Total Deductions = ₹28,000 + ₹48,000 + ₹2,30,000 + ₹10,000 = ₹3,16,000.

TOTAL INCOME (Normal Regime) = ₹18,64,600 − ₹3,16,000 = ₹15,48,600 (Normal income = ₹13,04,600; LTCG = ₹2,44,000).

TAX LIABILITY — NORMAL REGIME:

Tax on normal income ₹13,04,600 = ₹2,03,880. Tax on LTCG u/s 112 at 20% = ₹48,800. Total = ₹2,52,680. Less: Rebate u/s 86 = ₹2,52,680 × (47,000/15,48,600) = ₹7,669. Tax after rebate = ₹2,45,011. Add: Health & Education Cess @ 4% = ₹9,800. Net Tax (Normal Regime) = ₹2,54,811.

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TAX LIABILITY — NEW TAX REGIME u/s 115BAC:

Under Section 115BAC, Section 10AA exemption and all Chapter VI-A deductions (80C, 80D, 80QQB, 80TTA) are NOT available. Business income = ₹23,00,000. GTI = Total Income = ₹30,14,600 (Normal income = ₹27,70,600; LTCG = ₹2,44,000).

Tax on ₹27,70,600 at new slab rates = ₹5,68,680. Tax on LTCG at 20% = ₹48,800. Total = ₹6,17,480. Less: Rebate u/s 86 = ₹6,17,480 × (47,000/30,14,600) = ₹9,626. Tax after rebate = ₹6,07,854. Add: H&E Cess @ 4% = ₹24,314. Net Tax (New Regime) = ₹6,32,168.

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CONCLUSION: Normal regime tax = ₹2,54,811 is significantly lower than new regime tax of ₹6,32,168. Mr. Ganesh should opt for the normal (existing) tax regime.

(i) Eligible Input Tax Credit (ITC) for January 2020

Raw Material A (SGST ₹60,000) — Not reflected in GSTR-2A:
The supplier has not filed GSTR-1; hence ITC is not appearing in GSTR-2A. Under Rule 36(4) of the CGST Rules, 2017 (as amended w.e.f. 01.01.2020 reducing the cap to 10%), provisional ITC in respect of invoices not uploaded by suppliers cannot exceed 10% of the eligible ITC available from GSTR-2A. The 70%/30% usage split is irrelevant — ITC is available when goods are received, not when consumed.

Raw Material B (CGST ₹50,000 + SGST ₹50,000) — In GSTR-2A:
10% of material was lost in an accident on the way to the factory. Under Section 17(5)(h) of the CGST Act, 2017, ITC is blocked on goods lost or destroyed, irrespective of negligence. Accordingly, ITC on 10% is blocked. Eligible ITC = 90% of ₹1,00,000 = CGST ₹45,000 + SGST ₹45,000.

Construction of Pipelines outside Factory (CGST ₹30,000 + SGST ₹30,000) — In GSTR-2A:
Pipelines laid outside factory premises constitute construction of immovable property (not plant and machinery). ITC is fully blocked under Section 17(5)(d) of the CGST Act, 2017. Eligible ITC = NIL.

Insurance Charges for Trucks (CGST ₹55,000 + SGST ₹55,000) — In GSTR-2A:
Trucks are used for transportation of goods, which is an exception carved out under Section 17(5)(a) of the CGST Act, 2017. Consequently, per Section 17(5)(ab), insurance services on such vehicles are also eligible. Eligible ITC = CGST ₹55,000 + SGST ₹55,000.

Rule 36(4) Working for Raw Material A:
Total eligible ITC from GSTR-2A = ₹45,000 + ₹45,000 + ₹55,000 + ₹55,000 = ₹2,00,000.
Provisional ITC = 10% × ₹2,00,000 = ₹20,000 (capped; actual SGST = ₹60,000, so restricted to ₹20,000).

Total Eligible ITC = CGST ₹1,00,000 + SGST ₹1,20,000 = ₹2,20,000

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(ii) Net Minimum GST Payable in Cash — January 2020

Output tax on outward supplies (inter-state ₹85,00,000 @ IGST 18%; intra-state ₹15,00,000 @ CGST 9% + SGST 9%):
- IGST: ₹15,30,000 | CGST: ₹1,35,000 | SGST: ₹1,35,000

ITC utilization as per Section 49 of the CGST Act, 2017 (mandatory order: CGST ITC → CGST → IGST; SGST ITC → SGST → IGST; cross-utilization between CGST and SGST not permitted):
- CGST ITC ₹1,00,000 set off against CGST liability ₹1,35,000 → Balance CGST = ₹35,000
- SGST ITC ₹1,20,000 set off against SGST liability ₹1,35,000 → Balance SGST = ₹15,000
- IGST ITC = NIL → IGST liability ₹15,30,000 remains payable in cash

Net GST payable in cash = IGST ₹15,30,000 + CGST ₹35,000 + SGST ₹15,000 = ₹15,80,000

Computation of Taxable Value of Supply under GST

As per Section 15 of the Central Goods and Services Tax (CGST) Act, 2017, the taxable value of supply shall be the transaction value, which is the price actually paid or payable for the said supply where the supplier and recipient are not related and price is the sole consideration for the supply.

Since the question states both conditions are satisfied (unrelated parties + price is sole consideration), the transaction value is accepted as the taxable value, subject to the following adjustments:

Inclusions under Section 15(2) — Added to Transaction Value:

(a) Any taxes, duties, cesses, fees, and charges levied under any law other than GST laws (e.g., customs duty, excise duty on petroleum).

(b) Any amount the supplier is liable to pay but which has been incurred by the recipient and not included in the price.

(c) Incidental expenses — including commission and packing — charged by the supplier to the recipient at the time of, or before, delivery.

(d) Interest, late fee, or penalty for delayed payment of consideration.

(e) Subsidies directly linked to the price, excluding subsidies provided by the Central or State Governments.

Exclusions under Section 15(3) — Deducted from Transaction Value:

(a) Discounts given before or at the time of supply — if duly recorded in the invoice.

(b) Post-supply discounts — allowed as deduction only if:
- Discount is established in terms of an agreement entered into at or before the time of supply;
- The recipient has reversed the Input Tax Credit (ITC) attributable to the discount.

Note: Since the question does not provide specific transaction figures, the final taxable value = Transaction Value + Inclusions under Section 15(2) − Allowable Discounts under Section 15(3).

The final answer should be computed by inserting the given figures into the above framework.

Determination of Taxable Value of Supply under Section 15 of the CGST Act, 2017

Under Section 15(1) of the CGST Act, 2017, the value of a taxable supply is the transaction value, i.e., the price actually paid or payable, subject to additions under Section 15(2) and deductions under Section 15(3).

Treatment of each element:

(a) List Price — ₹9,50,000: This is the base transaction value and is included in the taxable value.

(b) Municipal Taxes — ₹45,000: Under Section 15(2)(a) of the CGST Act, 2017, any taxes, duties, cesses, fees, and charges levied under any law other than GST shall form part of the taxable value. Municipal taxes are levied under local body laws and are separately charged to the recipient. Accordingly, ₹45,000 is includible in the taxable value.

(c) Outward Freight Charges under F.O.B. Contract — ₹65,000: In an F.O.B. (Free on Board) contract, the risk and title of goods pass to the buyer at the point of loading/shipment (F.O.B. point). The freight from that point to the buyer's factory is the liability of the recipient (M/s ACD Ltd.) and not of the supplier. Where the supplier collects such freight and pays it to the transporter on behalf of the recipient, the supplier acts as a pure agent as per Rule 33 of the CGST Rules, 2017. Since the conditions of pure agent are satisfied (expense is incurred on behalf of recipient, no profit element, and actual cost is recovered), such freight is excluded from the taxable value.

Conclusion: The taxable value of supply = ₹9,95,000.

(i) Veer Transport (GTA) paying IGST @ 12% — Supplier on Forward Charge

Where a Goods Transport Agency (GTA) opts to pay GST under the forward charge mechanism at 12% (with ITC), the GTA itself is the person liable to pay GST under Section 9(1) of the CGST Act, 2017. The reverse charge mechanism (RCM) under Section 9(3) of the CGST Act, 2017 read with Notification No. 13/2017-Central Tax (Rate) is triggered only when a GTA has NOT opted for forward charge (i.e., the 5% rate).

Since Veer Transport has expressly opted to pay IGST @ 12%, it has exercised the forward charge option. Accordingly, Veer Transport (the GTA) is liable to pay GST. The registration status of Dilip & Co. is immaterial in this case, as the tax liability has already shifted to the supplier under forward charge.

Conclusion: Veer Transport is liable to pay IGST @ 12%.

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(ii) Mr. Kamal Jain — Unregistered Author, Copyright Services

Services supplied by an author by way of temporary transfer of a copyright covered under the Copyright Act, 1957 relating to original literary works are covered under the Reverse Charge Mechanism (RCM) as per Notification No. 13/2017-Central Tax (Rate) issued under Section 9(3) of the CGST Act, 2017.

Where the supplier (author) is unregistered, the liability to pay GST shifts entirely to the registered recipient under RCM. Mr. Kamal Jain being unregistered does not exempt the transaction — it simply means the recipient bears the tax burden. The question also instructs us to ignore exemptions.

Conclusion: FOR Publications Ltd. (the recipient) is liable to pay GST under Reverse Charge Mechanism. Mr. Kamal Jain (the unregistered author) is not required to pay GST.

Assessment Year: 2020-21 (Previous Year 2019-20)

Step 1 — Income from Salary
Taken as computed: ₹2,20,000

Step 2 — Income from House Property (Let Out)
Annual Value: ₹1,50,000
Less: Standard deduction u/s 24(a) @ 30%: ₹45,000
Less: Interest on housing loan u/s 24(b) (no ceiling for let-out property): ₹3,16,000
Loss from House Property: ₹2,11,000

However, as per Section 71(3A) of the Income-tax Act, 1961 (inserted by Finance Act 2017, applicable from AY 2018-19), the set-off of loss from house property against any other head of income is restricted to ₹2,00,000 in any assessment year. The balance ₹11,000 will be carried forward u/s 71B for up to 8 assessment years (set off only against house property income).

Step 3 — Income from Business (Textile)
Business income before adjustments: ₹3,00,000
Less: Current year depreciation (mandatory first deduction): ₹60,000 = ₹2,40,000
Less: Brought-forward business loss of AY 2018-19 u/s 72: ₹90,000 = ₹1,50,000
(Eligible since Ms. Pooja has always filed return within due date u/s 139(1))
Less: Unabsorbed depreciation u/s 32(2) (restricted to available income): ₹1,50,000
Income from business = Nil; Unabsorbed depreciation carried forward: ₹73,000

Step 4 — Capital Gains
LTCG on debentures (taxable u/s 112): ₹75,000
LTCG on listed equity shares/STT paid (taxable u/s 112A, since Section 10(38) was withdrawn w.e.f. AY 2019-20 by Finance Act 2018): ₹1,50,000
Less: LTCL on equity shares (STT not paid): ₹1,00,000 — set off against LTCG u/s 70(3)
Net LTCG: ₹1,25,000

Step 5 — Share of Loss from Firm
Ignored. Under Section 10(2A), a partner's share of income (or loss) from a firm is neither taxable nor deductible in the hands of the partner.

Step 6 — Loss from Specified Business u/s 35AD
Loss of ₹20,000 cannot be set off against any other income u/s 73A. It can only be set off against profit of another specified business. Carried forward indefinitely.

Step 7 — Dividend from UTI Units
Exempt u/s 10(35) of the Income-tax Act, 1961 (dividend distribution tax regime prevailed for AY 2020-21; recipient-level taxation introduced only from AY 2021-22). Not included in GTI.

Step 8 — Inter-Head Set-Off
HP loss (₹2,00,000, restricted) → set off against Salary income: ₹2,20,000 − ₹2,00,000 = ₹20,000
Unabsorbed depreciation (₹73,000) → set off against LTCG (cannot be set off against salary per Section 71(2A)): ₹1,25,000 − ₹73,000 = ₹52,000

Gross Total Income = ₹20,000 + ₹52,000 = ₹72,000

Losses/Allowances to be Carried Forward:
1. Loss from House Property: ₹11,000 (u/s 71B; c/f for 8 AYs; set off only against house property income)
2. Loss from Specified Business (u/s 35AD): ₹20,000 (u/s 73A; c/f indefinitely; set off only against specified business income)
3. Unabsorbed Depreciation: Nil (fully absorbed in AY 2020-21)
4. BF Business Loss (AY 2018-19): Nil (fully absorbed in AY 2020-21)

Note: The principal repayment of ₹2,09,000 (₹5,25,000 − ₹3,16,000) is eligible for deduction u/s 80C (maximum ₹1,50,000) while computing Total Income from GTI — not considered here as question requires only GTI.

(a) Registration Liability of BRD Pvt. Ltd. [Assumed question based on scenario context]

Prior to 01.01.2020, petroleum "Z" was exempt from GST. Under Section 23(1)(a) of the CGST Act, 2017, persons engaged exclusively in the supply of exempt goods/services are not required to register, regardless of turnover. Hence BRD Pvt. Ltd. was not required to register during the period April–December 2019 even though its turnover for those 9 months reached ₹42 lakh.

However, with effect from 01.01.2020, the exemption on "Z" was withdrawn and GST @ 5% was levied. From this date, "Z" becomes a taxable supply. BRD's aggregate turnover for the period up to 31.12.2019 already stood at ₹42 lakh, which exceeds the threshold of ₹40 lakh applicable to suppliers of goods in normal category states like Gujarat (enhanced threshold notified w.e.f. 01.04.2019 vide Notification No. 10/2019-CT). Consequently, BRD Pvt. Ltd. becomes liable to be registered with effect from 01.01.2020 — the date on which the exemption was withdrawn. As per Section 25(1) of the CGST Act, 2017, it must apply for registration within 30 days from the date of becoming liable, i.e., by 31.01.2020.

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(b) E-way Bill Validity

As per Rule 138 of the CGST Rules, 2017, an E-way Bill (EWB) is mandatory before commencement of movement of goods where the value of the consignment exceeds ₹50,000, and the movement is in relation to a supply or otherwise (including inward supply from unregistered persons). The obligation to generate an EWB arises irrespective of whether the supplier is registered or unregistered.

Key points: (i) EWB is generated on the GST common portal by the registered person (supplier, recipient, or transporter). (ii) If the supplier is unregistered, the responsibility to generate EWB shifts to the recipient if registered, or the transporter. (iii) Certain goods listed in Annexure to Rule 138(14) are exempt from EWB requirements (e.g., goods of value ≤ ₹50,000, non-motorised conveyance, certain agricultural produce, etc.). Petroleum products falling outside GST (petrol, diesel, crude) are not separately exempt from EWB — if "Z" is now a taxable supply post 01.01.2020 and the consignment value exceeds ₹50,000, a valid EWB must be generated. Any statement claiming EWB is not required merely because BRD was previously unregistered or goods were exempt would be invalid after 01.01.2020.

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(c) Validity Under GST Laws

Once the exemption on "Z" is withdrawn effective 01.01.2020, any supply of "Z" on or after that date attracts GST @ 5%. As per Section 9 of the CGST Act, 2017, GST is leviable on all intra-state supplies of taxable goods. The liability to pay tax arises at the time of supply as determined under Section 12 of the CGST Act, 2017, which is the earliest of: (i) date of issue of invoice, (ii) last date by which invoice should have been issued, or (iii) date of receipt of payment. Any claim that GST is not payable on supplies of "Z" made after 01.01.2020 (even if the order was placed when it was exempt) would be invalid. The tax is triggered by the date of supply, not the date of order. Further, BRD, once registered, must charge GST @ 5% on all taxable supplies and remit the same to the government.

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(d) Restrictions on Utilization of ITC — Rule 86A of CGST Rules, 2017

Under Rule 86A of the CGST Rules, 2017, the Commissioner or an officer authorized by him (not below the rank of Assistant Commissioner) may, in writing and for reasons to be recorded, disallow debit of amounts from the Electronic Credit Ledger for discharge of tax liability.

Circumstances under which such restriction can be imposed:
(i) The credit has been availed on the basis of tax invoices or debit notes issued by a registered person who has been found to be non-existent or not conducting any business from his registered place;
(ii) The credit has been availed on the basis of invoices/debit notes where no actual supply of goods or services or both has taken place;
(iii) The credit has been availed on invoices/debit notes where the tax charged has not been paid to the Government;
(iv) The registered person availing the credit is found to have received supplies but not actually paid the consideration or has received supplies without genuine need.

The restriction once imposed shall cease to have effect after the expiry of one year from the date of imposition. The officer must give the registered person an opportunity of being heard before making the restriction permanent. Under Rule 86B of the CGST Rules, 2017, additionally, registered persons with taxable turnover exceeding ₹50 lakh in a month are required to mandatorily pay at least 1% of tax liability in cash (with specified exceptions for exporters, government entities, etc.).

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(e) Order of Discharge of Tax and Other Dues — Section 49 of the CGST Act, 2017

As per Section 49 of the CGST Act, 2017 read with Rule 88 of the CGST Rules, a registered person is required to discharge his tax liabilities in a prescribed order of priority. The electronic liability register records all dues and the discharge is to be made in the following sequence:

Step 1 — Self-assessed tax and interest for the current tax period: The taxpayer first discharges tax and interest declared in the current return (GSTR-3B).

Step 2 — Self-assessed tax and other dues for previous tax periods: Any outstanding from earlier periods under self-assessment must be cleared next.

Step 3 — Tax and other dues determined under Section 73 or 74 (demand/adjudication): Dues arising from audit, scrutiny, inspection, or adjudication proceedings (short payment, non-payment, wrongful ITC) are discharged thereafter.

Step 4 — Any other dues under the Act: All other amounts (penalty, late fee, interest separately determined, etc.) are discharged last.

ITC Utilisation Order within each head: As per Section 49(5) and Section 49A and 49B (inserted by Finance Act 2019): IGST ITC is utilised first for IGST liability, then CGST, then SGST/UTGST. CGST ITC is used for CGST first, then IGST. SGST/UTGST ITC is used for SGST/UTGST first, then IGST. Cross-utilisation (CGST against SGST or vice versa) is not permitted. Any remaining liability after ITC exhaustion must be paid in cash from the Electronic Cash Ledger.

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(f) When 'Services' / 'Provision of Services' is — and is not — a Supply

Under Section 7 read with Schedule II and Schedule III of the CGST Act, 2017:

Activities treated as SUPPLY OF SERVICES (Schedule II):
(i) Renting of immovable property for use in the course or furtherance of business;
(ii) Construction of a complex, building, or civil structure intended for sale (excluding transfer of undivided share of land);
(iii) Temporary transfer or permitting use of Intellectual Property rights not involving outright sale;
(iv) Development, design, programming, customisation, adaptation of information technology software;
(v) Agreeing to an obligation to refrain from an act or to tolerate an act or situation, or to do an act;
(vi) Transfer of the right to use any goods for cash, deferred payment, or other valuable consideration (without transfer of ownership);
(vii) Works contract services including construction, installation, completion, fitting out, etc.;
(viii) Supply of food, beverages, or human consumption by way of restaurant service, outdoor catering (composite supply with service as principal).

Activities NOT treated as Supply of Services (Schedule III — Negative List):
(i) Services rendered by an employee to employer in the course of or in relation to employment;
(ii) Services by any court or Tribunal established under law;
(iii) Functions performed by Members of Parliament, State Legislature, Panchayat, Municipality or other local authority;
(iv) Services of funeral, burial, crematorium or mortuary including transportation of deceased;
(v) Sale of land and sale of completed buildings (where entire consideration is received after issuance of completion certificate or after its first occupation, whichever is earlier);
(vi) Actionable claims other than lottery, betting, and gambling.

Computation of Gross Total Income of Shri Ram Kumar for AY 2020-21 (PY 2019-20)

(i) Income from Salaries [Section 15 of the Income Tax Act, 1961]:
Shri Ram Kumar holds two concurrent employments. Both salaries are fully taxable. Total gross salary = ₹1,80,000 + ₹2,40,000 = ₹4,20,000. Standard Deduction u/s 16(ia) of ₹50,000 is allowed (aggregate limit applicable across employments). Income from Salaries = ₹3,70,000.

(ii) Flat Transferred to Wife for Adequate Consideration:
Section 64(1)(iv) clubs income from assets transferred to spouse without adequate consideration. Since the flat was transferred on 1st September 2019 *for adequate consideration*, the clubbing provision is not attracted. The rental income (₹5,000 × 12 = ₹60,000) is taxable in the wife's hands only. Ram Kumar's income under this head = NIL.

(iii) Partnership Firm — Interest and Profit:
Under Section 64(1)(ii), where both the individual and spouse are partners in the same firm, the spouse's income from the firm is clubbed with the individual's income if the spouse's admission as partner is by virtue of the individual's influence (no technical/professional qualifications specified). Accordingly, wife's interest of ₹64,000 is clubbed with Ram Kumar. Wife's profit share (₹56,000) even if clubbed retains its character and remains exempt u/s 10(2A) (share of profit from firm). Ram Kumar's own profit share of ₹12,000 is similarly exempt u/s 10(2A). PGBP from firm = ₹36,000 (own) + ₹64,000 (wife's, clubbed) = ₹1,00,000.

(iv) Debentures Transferred to Wife:
Ram Kumar transferred 10% debentures worth ₹1,00,000 to his wife without consideration. Section 64(1)(iv) applies — income from such transferred assets is clubbed. Wife invested ₹3,30,000 in total (including the transferred ₹1,00,000) and earned ₹39,000. Proportionate income attributable to the transferred portion = (1,00,000 / 3,30,000) × 39,000 = ₹11,818 (clubbed with Ram Kumar as Income from Other Sources).

(v) Income of Minor Child Mansi Kumar (Aged 13):
Mansi Kumar is Ram Kumar's minor child. Although the property was transferred by Ram Kumar's mother (Mansi's grandmother), Section 64(1A) clubs all income of a minor child (other than income from manual work or skill/talent-based activity) with the parent having the higher total income before such clubbing. No such exception applies to property income. Exemption u/s 10(32) = ₹1,500 is available per minor child. Income clubbed = ₹15,000 − ₹1,500 = ₹13,500 (included under Income from House Property).

Summary — Gross Total Income of Shri Ram Kumar:

Income from Salaries: ₹3,70,000
Income from House Property (Mansi Kumar's income clubbed u/s 64(1A)): ₹13,500
Profits and Gains from Business/Profession (firm interest — own + wife's): ₹1,00,000
Income from Other Sources (debenture income clubbed u/s 64(1)(iv)): ₹11,818

Gross Total Income = ₹4,95,318

Mr. Thomas is a non-resident individual and citizen of Japan. The tax implications of each transaction are examined under Section 9 of the Income Tax Act, 1961 which deals with income deemed to accrue or arise in India.

(1) Interest received from Mr. Marshal (non-resident) used for investing in Indian company's debt fund:

Under Section 9(1)(v)(b), interest paid by a non-resident is deemed to accrue or arise in India if the money borrowed is used for the purposes of earning any income from any source in India. Mr. Marshal, though a non-resident, has used the borrowed funds to invest in an Indian company's debt fund — a source of income situated in India. Accordingly, the interest paid by Mr. Marshal to Mr. Thomas is deemed to accrue or arise in India. This interest income is taxable in India in the hands of Mr. Thomas.

(2) ₹10 lakhs received in Japan for granting licence for computer software from an Indian business unit:

Under Section 9(1)(vi), royalty payable by a resident is deemed to accrue or arise in India regardless of where it is received. Explanation 2 to Section 9(1)(vi) explicitly includes within the definition of "royalty" any consideration for granting a licence in respect of a computer programme (software). The payer here is a business unit situated in India (i.e., a resident). The fact that ₹10 lakhs was received in Japan is irrelevant — the place of receipt does not affect taxability. Accordingly, this royalty income of ₹10 lakhs is taxable in India.

(3) ₹10 lakhs from business of running a news agency — collection of news and views:

Under Section 9(1)(i), income from business is deemed to accrue or arise in India if there is a business connection in India. However, Explanation 1 to Section 9(1)(i) carves out specific activities that shall not constitute a business connection in India. One such excluded activity is: *"collection of news and views in India for transmission outside India, by or on behalf of a non-resident who is in the business of running a news agency or publishing newspapers, magazines or journals."* Mr. Thomas, being a non-resident running a news agency, earns income from collection of news and views — this activity falls squarely within the exclusion. Therefore, this income of ₹10 lakhs is not deemed to accrue or arise in India and is not taxable in the hands of Mr. Thomas for AY 2020-21.

(4) ₹10 lakhs from JCK & Co. (Indian partnership firm) for transfer of technical documents, designs and related services for setting up a Denim Jeans manufacturing plant in Surat:

Under Section 9(1)(vii), fees for technical services paid by a resident are deemed to accrue or arise in India (unless exclusively utilised outside India). "Fees for technical services" is defined under Explanation 2 to Section 9(1)(vii) to mean consideration for rendering managerial, technical, or consultancy services including the provision of services of technical or other personnel. Transfer of technical documents, designs, and providing related services for setting up a manufacturing plant in India constitutes fees for technical services. JCK & Co. is an Indian partnership firm (resident), and the services are utilised within India (Surat). Therefore, ₹10 lakhs is taxable in India in the hands of Mr. Thomas.

Computation of Total Income of Mr. Govind for Assessment Year 2020-21 (Previous Year 2019-20)

Assumptions / Share Structure:
Mr. Govind purchased 600 shares on 20.02.1984 at ₹130 per share. Based on the data in the problem, total shares at point of sale = 1,600 (1,000 converted to stock-in-trade + 600 remaining as capital asset). Accordingly, bonus shares received = 1,000 (cost = Nil). The FMV of ₹9,000 per share as on 01.04.2001 is taken for all shares. FMV at 31.01.2018 is taken as ₹2,100 (closing price on conversion date used as proxy, since 31.01.2018 price is not separately stated in the question). On a FIFO basis, the 1,000 shares converted to stock-in-trade comprise: 600 original shares + 400 bonus shares.

Head: Profits and Gains of Business or Profession (PGBP)

Under Section 45(2) of the Income Tax Act, 1961, when a capital asset is converted to stock-in-trade, the FMV on the date of conversion becomes the cost of the stock-in-trade for PGBP purposes. On 07.07.2019, Mr. Govind sold all 1,600 shares through the Bombay Stock Exchange (BSE) at ₹2,400 per share. The business profit on 1,000 SIT shares is:

- Sale proceeds: 1,000 × ₹2,400 = ₹24,00,000
- Less: Cost (FMV at 31.03.2018, i.e., closing price): 1,000 × ₹2,100 = ₹21,00,000
- Business Income (PGBP) = ₹3,00,000

Head: Capital Gains

Part A — Section 45(2): Long-Term Capital Loss on 1,000 shares converted to SIT

The capital gains on conversion to stock-in-trade arise in AY 2020-21 (the year the stock is actually sold). The full value of consideration = FMV on the date of conversion (31.03.2018) = ₹2,100 per share. Under Section 55(2)(b), for assets acquired before 01.04.2001, cost = higher of actual cost or FMV on 01.04.2001.

- For 600 original shares: Higher of ₹130 or ₹9,000 = ₹9,000 × 600 = ₹54,00,000
- For 400 bonus shares: FMV at 01.04.2001 = ₹9,000 × 400 = ₹36,00,000
- Total cost of 1,000 shares = ₹90,00,000
- Deemed sale value (FMV at conversion): 1,000 × ₹2,100 = ₹21,00,000
- Long-Term Capital Loss (Section 45(2)) = ₹21,00,000 − ₹90,00,000 = (₹69,00,000)

Part B — Section 112A: Long-Term Capital Loss on 600 bonus shares sold directly as capital asset

The 600 bonus shares (remaining after conversion) were sold on 07.07.2019 through BSE with STT paid. Holding period exceeds 12 months — Long-Term Capital Asset. Section 112A of the Income Tax Act, 1961 applies. Cost of acquisition under Section 55(2)(ac):
= Higher of [(a) FMV on 01.04.2001 per Section 55(2)(b) = ₹9,000] and [(b) Lower of (FMV on 31.01.2018 = ₹2,100) and (sale price = ₹2,400)]
= Higher of ₹9,000 and ₹2,100 = ₹9,000 per share

- Sale proceeds: 600 × ₹2,400 = ₹14,40,000
- Less: Cost (Section 55(2)(ac)): 600 × ₹9,000 = ₹54,00,000
- Long-Term Capital Loss (Section 112A) = (₹39,60,000)

Total Long-Term Capital Loss = ₹69,00,000 + ₹39,60,000 = ₹1,08,60,000

This loss cannot be set off against PGBP income. Under Section 74, the unabsorbed LTCL of ₹1,08,60,000 is to be carried forward and set off against Long-Term Capital Gains for up to 8 subsequent Assessment Years (till AY 2028-29).

Total Income of Mr. Govind for AY 2020-21 = ₹3,00,000

*(Long-Term Capital Loss of ₹1,08,60,000 carried forward to AY 2021-22 onwards.)*