The Hindu Business Line : An interesting and challenging test

The June 2009 paper must have surprised the candidates as there were no questions on computation of corporate tax. Also, questions pertaining to recent developments such as determination of arm’s length price for transfer pricing, fringe ben efit valuation and court decisions have not been asked. The paper has, however, taken into account recent circulars and notifications and the bare Act. There is no compromise on the standard or quality of the paper though, and this is to be appreciated.

Test on concepts

Question 1, relating to computation of taxable income in the case of partnership firm, seeks application of Sections such as 40a(i), 40(b), 40A(3), 40A(7), 50C, 194J and 195. In addition to this, court decisions in cases such as Bhagyalakshmi & Co (55 ITR 660 (SC), Rasiklal & Co (229 ITR 458 SC) and Rajam Ramasamy & Sons (298 ITR 325 Madras) are to be applied.

Also, there is a query seeking the candidates to decide the requirement for tax deduction at source in respect of amounts paid to an assistant cameraman, which is covered by Notification No. 17(E) dated January 12, 1977. This is a challenging question, and it is difficult to secure full marks as an error in one step would result in variation in determination of the total income of the firm.

Question 2, consisting of three parts, has one direct question in respect of Section 80-IB(11C), which is easy to answer. Yet another one is meant for testing the knowledge as regards the distinction between ‘diversion of income and application of income’. The last portion is on tax relief under Section 91, where there is no tax avoidance treaty entered into by the Government of India with a foreign country.

This question is similar to the one asked in the November 1999 examination. Questions 3(b) and 4(a) are straightforward, the answers of which can be found in the statute book.

Question 6(b) relating to charitable trust is not complex, and a similar question appeared in the November 2000 examination.

Test on updating

The paper tests whether the candidates are up-to-date in the knowledge of recent circulars, notifications and amendments to the statutory provisions.

Question 2(a) deals with taxability of per diem allowance, which is exempt under Section 10(14) as per Notification 8/2005. Question 3(d) is in respect of tax deduction at source for payments made to a football coach, which is covered by Notification No. 88 of August 21, 2008.

There are four direct questions on recent statutory amendments. They are (i) Question 4(c) seeks application of the further proviso to Section 147; (ii) Question 4(d) relating to adjustment in respect of income returned dealt with by Section 143(1) of the I-T Act; (iii) Question 5(a) relating to Section 292BB for validating a proceeding which is otherwise invalid; and (iv) Question 5(b), which is on taxable income of a Sikkimese woman, is to be answered as per Section 10(26AAA).

Controversial issues

The paper, however, is not free from debate and controversy. Question 6(a) is debatable despite there being an apex court decision on the issue. This is because the question was not coined exactly on the reasoning by which the apex court decided the M. R. Doshi (211 ITR 1) case.

Similarly, Question 7(a) relating to transfer pricing is debatable as it is on whether ECB borrowing is at arm’s length price? Apparently, the borrowing in this case is not at arm’s length price but below the arm’s length price.

Question 4(b), on whether the assessee can challenge the reassessment notice, is not properly worded and might prompt multiple approaches to the solution, though the conclusion would be the same.

(The author is an Erode-based chartered accountant.)