Presumptive taxation Transfer Pricing – International Taxation Case Study
GGC & CO. is a reputed firm of Chartered Accountant in Gurgaon, dealing in Audit, Direct Taxation, GST, Merger and Acquisition and cross-border taxation, etc. Following clients approached such firm for computation of their income-tax liability and filing of their income-tax return
Mr. A engaged in shipping business
Mr. A, a non-resident, approached such firm for calculation of his income tax and filing of his income tax return in India for the PY 2019-20. He is a tax resident of France and is engaged in the business of operation of ships in International traffic.
He provides following data for filing of his income tax return:-
a)On September 1, 2019, Mr. A collected INR 30 lakhs in California for shipping of goods from Chennai Port to California (It includes demurrage charges of INR 1 lakh and handling charges of INR 2 lakhs)
b) On October 1, 2019, Mr. A collected INR 40 lakhs in India for shipping of goods from port in New York.
c) On October 31, 2019, Mr. A collected INR 50 lakhs in New York for shipping of goods from port in New York to California.
d) He has incurred expenditure of INR 5 lakhs for business purposes in India, out of which INR 50,000 was paid in cash.
e) He also has brought forward business loss of INR 10,000 from trading business in India which was discontinued last year.
f) He has paid LIC insurance premium of INR 50,000 during the PY 2019-20 for insuring the life of his childhood friend.
What would be the tax liability of Mr. A on the basis of Section 44B of the Income Tax Act?
A Inc. engaged in shipping business
A Inc., a non-resident company, engaged in operation of ships in international traffic, which are Chartered from another non-resident company Beta Barbados. During the Previous year 2019-20, it collects following freight from the clients :-
a)On December 1, 2019, it collects INR 20 lakhs in India for shipment of goods from New Zealand Port to Indian port.
b)On December 30, 2019, it collects INR 50 lakhs outside India for shipping of goods from port in India to California.
c)It has incurred expenditure of INR 2 lakhs for business purposes in India.
d)It has also has brought forward business loss of INR 2 lakhs from trading business in India which was discontinued in 2017.
What would be the tax liability of A Inc. on the basis of ad-hoc assessment u/s 172(4) of the Income Tax Act ?
Presumptive taxation Transfer Pricing – International Taxation Case Study – Solution:-
Calculation of income tax liability of Mr. A for the PY 2019-20
| Particulars | Amount |
| Income from business or profession | |
| Presumptive income [INR 40 lakhs + INR 30 lakhs] * 7.5% [Working Note 1] | 5,25,000 |
| Less : Business Expenditure [Working Note 2] | Nil |
| Add: Disallowances u/s 40A(3) [Working Note 2] | Nil |
| Less: Brought forward business loss [Working Note 3] | 10,000 |
| Net Income | 5,15,000 |
| Tax | 15,500 |
| Add: Cess [17500*4%] | 620 |
| Total Tax Liability | 16,120 |
Calculation of income tax liability of A Inc. for the PY 2019-20
| Particulars | Amount |
| Income from business or profession | |
| Presumptive income [INR 50 lakhs * 7.5%] [Working Note 4] | 3,75,000 |
| Less : Business Expenditure [Working Note 5] | Nil |
| Net Income | 3,75,000 |
| Less: Brought forward business loss [Working Note 6] | Nil |
| Income after set-off | 3,75,000 |
| Tax [40% * 3,75,000] | 1,50,000 |
| Add: Cess [4%] | 6,000 |
| Total Tax Liability | 1,56,000 |
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