Mukund Industries Ltd. (MIL), is a big corporate house, with presence in several industries and businesses, subsidiaries and sister concerns. As the Company Secretary, you are also a key person in the Group's taxation ma

CS Professional · Direct Tax Law & Practice · PYQS · June 2019
Mukund Industries Ltd. (MIL), is a big corporate house, with presence in several industries and businesses, subsidiaries and sister concerns. As the Company Secretary, you are also a key person in the Group's taxation matters, including international taxation. MIL holds a think tank meeting in the month of April, 2019 to arrive at a preliminary idea of its income-tax liability for the previous year 2018-19. Abhinav Pvt. Ltd.'s activities: Abhinav Pvt. Ltd. (APL) is one of the group companies, having a small presence in the overseas market also. It has agricultural lands in country L with which India does not have a DTAA. The global turnover of APL during this year was ₹210 crores. During the last 7 years, the company has been showing an increase of around 6% in its turnover, as compared to the earlier year. During the PY 2018-19, APL derived business income of ₹140 lakh from its Indian operations, but made a loss of ₹10 lakh from its core business operations in country L. From its agricultural operations in country L, APL made net surplus of ₹22 lakh. In country L, the income earned from other sources was ₹8 lakh. In country L, tax paid is ₹5.4 lakh. Agricultural income is taxed there and business loss can be set off against any other income in the same year. Results of Vaamana & Co.: MIL is a partner in a firm Vaamana & Co. On behalf of MIL, Mr. Vishnu, its director, is a working partner in the said firm. The Taxation Manager furnishes gist of the firm's workings, which are furnished infra. The partnership firm, has earned net profit of ₹79 lakhs, before remuneration to working partners. Only depreciation pertaining to current year has been considered in this. The partnership deed provides for remuneration of ₹40 lakhs to the working partners, and this amount has also been actually paid by the firm. The income from other sources earned by the firm during the PY 2018-19 is ₹76 lakhs. The firm has brought forward business loss of ₹7 lakhs (eligible for set off) and unabsorbed depreciation of ₹6 lakhs, both pertaining to the AY 2018-19. Workings of industrial undertaking owned by RPL: Rajalakshmi Textiles Pvt. Ltd. (RPL) is a subsidiary of MIL. Two industrial undertakings are owned by RPL, units P and Q. Both units are eligible for claiming deduction u/s 80-IA. During the PY 2018-19, unit P made a profit of ₹70 lakhs, while unit Q made a loss of ₹15 lakhs. Gross total income of RPL is ₹590 lakhs. MIL desires to start a subsidiary company in an "International Financial Centre". The Board of directors desire to know the income-tax concessions available to such company. Outline the same to the Board.

Answer & Explanation:

Income Tax Concessions available to a company being unit located in an "International Financial Services Center" Section 111A of the Income Tax Act, 1961: Levy of Short Term Capital Gains @ 15% even if Securities Transaction Tax 'STT' not Paid: Second proviso has been inserted in section 111A (1) of the Income Tax Act, 1961 to provide that short term capital gains arising from: transaction undertaken in foreign currency on a recognized stock exchange located in an International Financial Services Center would be taxable at concessional rate of 15% even if the securities transaction tax is not paid in respect of such transaction. Section 115JB of the Income Tax Act, 1961: Concessional Rate of MAT @ 9%: Sub-section 7 has been inserted in section 115JB of the Income Tax Act, 1961 to provide that in case of a company, being a unit located in International Financial Services Center and deriving its income solely in convertible foreign exchange, the minimum alternate tax shall be chargeable at the rate of 9% instead of 18.50%. Section 115-O of the Income Tax Act, 1961: Exemption from levy of Dividend Distribution Tax 'DDT': Sub-section 8 has been inserted in section 115-O of the Income Tax Act, 1961 to provide that no tax on distributed profits shall be chargeable in respect of the total income of a company being a unit located in International Financial Services Center, deriving income solely in convertible foreign exchange for any assessment year on any amount declared, distributed or paid by such company, by way of dividends (whether interim or otherwise) on or after 1st April, 2017 out of its current income either in the hands of the company or the person receiving such dividend.

Topics: International Taxation, Corporate Tax Planning

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