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CA FINAL (Sep 2025)

GROUP II – PAPER 4
DIRECT TAX LAWS & INTERNATIONAL TAXATION
(Series 1)
Time Allowed: - 3 Hours Maximum Marks: 100

This question paper comprises two parts, Part I and Part II.
Part I comprises MCQ & Part II comprises questions which require descriptive answers.
All questions relate to A.Y. 2025-26 unless stated otherwise in the question.

PART – I (MCQs)
All MCQs are compulsory

Question no. 1-15 carry 2 marks each

Case Study 1
M/s. Ganga Ltd., an unlisted public company, is in the business of growing rubber. The profit & loss
account for the year ended 31.03.2025 of the company shows a net profit ₹ 37.65 crores after debiting
depreciation of ₹ 30 crores.
The company has provided the following additional information:
(i) The company has deposited ₹ 30 crores in a special account with NABARD on 29.04.2025.
(ii) The company has brought forward losses of ₹ 6 crores pertaining to Assessment Year 2023-24.
Mr. A who continuously held 60% of shares carrying voting power since incorporation of the
company, had sold his entire holding to Mr. B on 01.08.2024.
(iii) The company had an accumulated balance of ₹ 200 crores in the special account with NABARD as
on 01.04.2024. It has withdrawn ₹ 40 crores and utilized the same for following purposes:
 Purchase of a new sprinkling machine for use in its operation ₹ 10 crores,
 Purchase of office appliances for corporate office at Chennai ₹ 10 crores.
 Purchase of computers and accessories ₹ 5 crores.
 Construction of a godown at a cost of ₹ 1 crore near the rubber estate to store raw rubber.
 Repairs to machinery ₹ 35 lakhs.
(iv) On 31.03.2025, the company has sold machinery which was purchased on 10.05.2021 for ₹ 10
crores. The purchase of the said machinery was in accordance with the scheme of deposit.
(v) Depreciation allowable as per Tax Audit Report is ₹ 28 crores.
You are required to answer the following:
1. What is the amount of deduction available under section 33AB?
(a) ₹ 30,00,00,000
(b) ₹ 15,06,00,000

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 (c) ₹ 39,65,00,000
(d) ₹ 15,86,00,000
2. Compute Agricultural Income of Ganga Ltd.
(a) ₹ 57,44,00,000
(b) ₹ 37,33,60,000
(c) ₹ 20,10,40,000
(d) ₹ 34,46,40,000
3. Compute Amount of brought forward losses pertaining to Assessment Year 2023-24 that
can be set-off from Business of A.Y. 2025-26.
(a) ₹ 6,00,00,000
(b) ₹ 3,60,00,000
(c) ₹ 2,40,00,000
(d) None of the Above
4. Compute Amount deemed as profits and gains of business or profession due to
misutilisation/non-utilisation of amount withdrawn from NABARD A/c.
(a) ₹ 23,65,00,000
(b) ₹ 10,00,00,000
(c) ₹ 33,65,00,000
(d) ₹ 13,65,00,000
5. Compute Taxable Income of M/s. Ganga Ltd. for A.Y. 2025-26.
(a) ₹ 14,10,40,000
(b) ₹ 57,44,00,000
(c) ₹ 20,10,40,000
(d) ₹ 37,33,60,000

Case Study 2
The following are the details about Alpha Co-operative society (referred to as Alpha Co-op), Beta Co-
operative Society (referred to as Beta Co-op) and Gamma Co-operative Bank (referred to as Gamma
Co-op) for the P.Y.2024-25-
Alpha Co-op is engaged in providing credit facilities solely to its members, the profits and gains from
which is ₹ 20 lakhs (computed) for the P.Y.2024-25. Alpha Co-op also derives interest of ₹ 3 lakhs
from investments in Delta Co-operative Society.
Beta Co-op is engaged in marketing of agricultural produce grown by its members, the profits and
gains from which is ₹ 40 lakhs (computed) for the P.Y.2024-25. It has employed 8 new employees
with salary of ₹ 22,000 p.m. on 1.6.2024. Salary is paid by ECS through bank account. It gets its
books of accounts audited under section 44AB. It also earns interest of ₹ 12 lakhs on fixed deposits
with Axis Bank and ICICI Bank.
Gamma Co-op is engaged in banking business in Bangalore, the profits and gains from which is ₹ 110
lakhs (computed) for the P.Y.2024-25. It also gets its books of account audited under section 44AB.
It is not a primary agricultural credit society or a primary co-operative agricultural and rural
development bank.

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You are required to answer the following:
6. Would Alpha Co-op and Gamma Co-op be entitled to deduction under section 80P for
A.Y.2025-26, if they do not opt for section 115BAD?
(a) Alpha Co-op is entitled to deduction u/s 80P only in respect of interest of ₹ 3 lakhs and
not in respect of profits and gains of ₹ 20 lakhs. Gamma Co-op is not entitled to
deduction u/s 80P.
(b) Alpha Co-op is entitled to deduction u/s 80P only in respect of profits and gains of ₹ 20
lakhs and not in respect of interest of ₹ 3 lakhs. Gamma Co-op is entitled to deduction
u/s 80P in respect of profits and gains of ₹ 110 lakhs.
(c) Alpha Co-op is entitled to deduction u/s 80P both in respect of profits and gains of ₹ 20
lakhs and interest of ₹ 3 lakhs. Gamma Co-op is entitled to deduction u/s 80P in respect
of profits and gains of ₹ 110 lakhs
(d) Alpha Co-op is entitled to deduction u/s 80P both in respect of profits and gains of ₹ 20
lakhs and interest of ₹ 3 lakhs. Gamma Co-op is not entitled to deduction u/s 80P.
7. Would the provisions of alternate minimum tax (AMT) be attracted in case of Alpha Co-
op, Beta Co-op and Gamma Co-op for A.Y.2025-26, if they do not opt for section 115BAD?
(a) Yes, the AMT provisions would be attracted in case of Alpha Co-op, Beta Co-op and
Gamma Co-op
(b) The AMT provisions would be attracted only in case of Alpha Co-op and Gamma Co-op
(c) The AMT provisions would be attracted only in case of Alpha Co-op and Beta Co-op
(d) The AMT provisions would be attracted only in case of Beta Co-op.
8. What would be the tax liability (rounded off) of Beta Co-op for A.Y.2025-26, if it opts for
section 115BAD? It may be assumed that the gross total income is the same under the
normal provisions of the Act and section 115BAD.
(a) ₹ 1,69,130
(b) ₹ 3,02,020
(c) ₹ 10,68,950
(d) ₹ 11,75,850.
9. What would be the tax liability (rounded off) of Beta Co-op for A.Y.2025-26, if it does not
opt for section 115BAD? AMT provisions, if applicable, have to be considered.
(a) ₹ 1,87,200
(b) ₹ 2,06,540
(c) ₹ 2,30,880
(d) ₹ 8,11,200
10. Would it be beneficial for Alpha Co-op, Beta Co-op and Gamma Co-op to opt for section
115BAD for A.Y.2025-26? It may be assumed that the gross total income is the same
under the normal provisions of the Act and section 115BAD in all cases.
(a) It would be beneficial for Alpha Co-op and Gamma Co-op to opt for section 115BAD, but
not for Beta Co-op.

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 (b) It would not be beneficial for Alpha Co-op, Beta Co-op and Gamma Co-op to opt for
section 115BAD
(c) It would be beneficial for Alpha Co-op to opt for section 115BAD, but not for Beta Co-op
and Gamma Co-op.
(d) It would be beneficial for Gamma Co-op to opt for section 115BAD, but not for Alpha Co-
op and Beta Co-op.

Case Study 3
Mr. Jonny (person of Indian origin) whose age is 68 years returned to India on 2nd October, 2024 at
12:00 A.M. for permanently residing in India after a stay of about 10 years in U.S., provides the
sources of his various income and seeks your opinion to know about his liability to income tax
thereon in India in assessment year 2025-26. He is also resident of US in Previous Year 2024-25 as
per US Tax Law. Assume there is no double taxation avoidance agreement between India and US. Also
assume that Mr. Jonny has exercised the option to opt out of the default tax regime u/s 115BAC.
Details of Income earned by Mr. Jonny in Previous Year 2024-25 is as under:
Particulars ₹
(a) Profits from a business in Ranchi managed from US 1,23,000
(b) Income from property in US received there 36,000
(c) Income from agricultural land in Nepal received there and remitted to India later on. 33,500
(d) Interest on debentures in an Indian company received in US 6,200
(e) Income from profession in US which was set up in Patna, received there. 42,000
(f) Profits earned from business in US which is controlled from Jamshedpur, 25% of the 80,000
profits being received in Jamshedpur
(g) Fees for technical services rendered in Patna (connected with PE in India) but 1,25,000
received in US
(h) Untaxed Income from US of earlier years brought to India 15,500
(i) Dividend from a US company received in US 14,000
(j) Interest on development bonds issued in US, 40% of interest received in Patna 20,000

In the light of above facts, you are required to answer the following:
11. What would be the residential status of Mr. Jonny in A.Y. 2025-26 -
(a) Resident and Ordinary Resident
(b) Resident but Not Ordinary Resident
(c) Non-Resident
(d) Non-Resident Indian
12. Compute Total Income of Mr. Jonny for the A.Y. 2025-26 -
(a) ₹ 4,79,700
(b) ₹ 3,84,200
(c) ₹ 2,82,200
(d) ₹ 2,97,700
13. Compute the relief available to Mr. Jonny for the A.Y. 2025-26 u/s 91 -
(a) ₹ 4,378
(b) Nil

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 (c) ₹ 1,674
(d) ₹ 9,344
14. Fees for technical service earned by Mr. Jonny in India is taxable at _____ rate in A.Y. 2025-
26 -
(a) 10%
(b) 20%
(c) Slab Rate
(d) Not Taxable
15. Assume there is Double Taxation Avoidance Agreement between India and US, then as
per Article 4 of DTAA, Mr. Jonny will be treated as Resident of which country in A.Y.
2025-26 -
(a) US
(b) India
(c) Both US and India
(d) Neither India nor US

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 PART – II (Descriptive Questions)
This part comprises 6 questions. Question No. 1 is compulsory. Attempt any
4 questions out of the remaining 5 questions.

Question 1 (14 Marks)

Statement of Profit and Loss account of BAS Industries Ltd. engaged in production and marketing of
diversified products, shows a net profit (before tax) of ₹ 72,00,000 for the financial year ended 31 st
March, 2025 after charge of the following items:
A: Items debited to the Statement of Profit and Loss:
(i) Depreciation as per Companies Act, 2013: ₹ 24,00,000
(ii) Interest amounting to ₹ 60,000 for short payment of advance tax paid as per section 234B
relating to the assessment year 2023-24.
(iii) Interest and borrowing costs amounting to ₹ 9,50,000 and ₹ 7,00,000 though not meeting the
criteria for recognition as a component of cost, included in cost of opening and closing inventory,
respectively.
(iv) Expenditure of ₹ 41,000 paid in cash comprising of ₹ 22,000 directly paid to producer of dairy
farming products and ₹ 19,000 paid towards printing and stationery items to a trader.
(v) ₹ 3,50,000 paid to a contractor for carrying out repair work at factory premises. Tax was not
deducted at source on this payment.
(vi) ₹ 35,000 towards expenditure for earning income from transfer of carbon credits.
(vii) Contribution to electoral trust: ₹ 3,00,000 paid by way of cheque.
(viii) Expenditure towards advertising charges in a brochure of a political party registered under
section 29A of Representation of People Act, 1951: ₹ 40,000 paid by way of cheque.
(ix) Interest on term loans obtained from Cooperative Bank not paid before the due date of filing of
return of income (due date being 31.10.2025): ₹ 2,60,000
(x) Actual contribution to the pension scheme of employees: ₹ 1,90,000
B: Items credited to the Statement of Profit and Loss:
(i) Unrealised rent of ₹ 3,80,000 pertaining to financial year 2021-22 & 2022-23 recovered during
the year in respect of a commercial property owned by the company, which was sold by the
company on 23.03.2024.
(ii) Dividends from a foreign company: ₹ 1,60,000
(iii) Profit of ₹ 3,00,000 received from hedging contract entered into for meeting out loss in foreign
currency payments towards an imported printing machinery valued at ₹ 95 lakhs, installed on
15th December, 2024 and put to use from that date.
(iv) Interest from banks on fixed deposits net of TDS at 10%: ₹ 1,35,000
Additional Information:
(1) Depreciation as per Income-tax Rules: ₹ 28,00,000 exclusive of depreciation on the imported
printing machine referred to in item B (iii)
(2) Expenditure pertaining to previous financial year allowed on due basis, but paid in current
financial year in cash on 18.01.2025: ₹ 35,000
(3) Audit fee for the previous year 2023-24: ₹ 75,000. TDS deducted but not paid in the relevant
previous year. However, TDS was paid on 31.12.2024.

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(4) Income from transfer of Carbon Credits amounting to ₹ 4,00,000 included in Net Profit (before
tax).
(5) The eligible salary and dearness allowance for the pension scheme referred to under section
80CCD is ₹ 10,00,000.
Compute the total income of BAS Industries Ltd., for assessment year 2025-26. Give brief reasons for
the treatment given to each of the items taken into consideration in computation of income of the
company. Assume that the company has not opted for section 115BAA.

Question 2A (8 Marks)
Siddarth Ltd. has an undertaking (Unit-X) in Special Economic Zone (SEZ) and another undertaking
(Unit-Y) in Free Trade Zone (FTZ) for manufacturing of computer software. It furnishes the following
particulars for its 5th year of operations ended on 31st March, 2025:
Unit X Unit Y
₹ (In Lacs) ₹ (In lacs)
Total Sales: 180 120
Export Sales: 120 10
(Inclusive of ₹ 10 lacs for onsite development of computer software
outside India by Unit X)

Profit earned 63 36
[After claim of bad debts under section 36(1)(vii) in Unit X]

Plant and machinery (Purchased in PY 2023-24) used in the business has been depreciated at 15% on
straight line method (SLM) basis and depreciation of ₹ 9 lacs was charged to profit and loss account in
the proportion of sales during the previous year. (Ignore Additional Depreciation)
₹ 100 lacs were realized out of export sales in time and balance of ₹ 20 lacs becomes irrecoverable due
to bankruptcy of one of the foreign buyers in Unit-X.
Compute the deduction under section 10AA of the Income-tax Act, 1961 and taxable income of Siddarth
Ltd. for the Assessment Year 2025-26.

Question 2B (6 Marks)
Manan who remained in Country X returned to India permanently in 1 st February 2024. He has a house
property in Country X from which he earned and received rental income of Country X $ 30,000 and
Country X $ 34,000 for the year ended 31st March, 2024 and 31st March, 2025, respectively, in bank
account maintained in Country X. He is eligible for basic exemption limit of Country X $ 18,200 and on
the balance income, he paid income-tax for both the years@ 20% in Country X. The tax was paid for the
let out property on income earned in Country
X for both the years on 5th April 2024 and on 10th April 2025, respectively, from his bank account in
India. His income from business in India is ₹ 12,50,000 for the year ended 31-03-2025.
He transferred land situated in Indore on 23.12.2024 to Mr. Sarthak for ₹ 80,00,000, which he acquired
on 18.5.2022 for ₹ 30 lakhs. Cost Inflation Index – FY 2022-23: 331; FY 2024-25: 363
The exchange rate of 1 Country X Dollar on various dates is given below:
31st March 2024 = ₹ 80; 05th April 2024 = ₹ 80.50; 31st December 2024 = ₹ 81;
31st March 2025 = ₹ 82; 10th April 2025 = ₹ 81.50 and 31st December 2025 = ₹ 83
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Compute the tax liability of Manan in India for assessment year 2025-26 under default tax regime.

Question 3A (8 Marks)
Examine the tax consequences in the case of the following charitable institution/trust, considering each
case independently:
(i) A charitable institution, having its main object as “any other object of general public utility”,
carries on business in the course of actual carrying out of such advancement of any other object
of general public utility and maintains separate books of account in respect of business. The gross
receipts during the year is ₹ 2 crore, which comprises of receipts of ₹ 44 lakh from such business
and ₹ 1.56 crore by way of voluntary contributions (not being corpus donations). It has applied
85% of its gross receipts for charitable purposes.
(ii) A charitable trust paid annual rent of ₹ 12 lakh in the P.Y.2023-24 and ₹ 15 lakh in the P.Y.2024-
25 in respect of a building used for charitable purposes, after deducting tax at source. However,
tax deducted on such rent in the P.Y.2023-24 was remitted only in January, 2025; and tax
deducted in the P.Y.2024-25 was remitted only in July, 2025.
(iii) A charitable trust registered under section 12AB with the object of “Relief of poor” changed its
object on 1.4.2024 to “any other object of general public utility”. The application of income in the
year P.Y.2024-25 was towards general public utility and not relief of poor. It has, however, not
applied for fresh registration under section 12AB (based on the modified object) upto 31.3.2025.

Question 3B (6 Marks)
Mr. Pravek (aged 41 years), a sportsman and an individual resident in India, furnishes the following
particulars of income earned in India and from Country Y. India does not have a Double Taxation
Avoidance Agreement with Country Y.
Particulars Amount (₹)
Income from India
Income from Salary (computed) 8,40,000
Dividend Income from Indian companies 10,50,000
Income/loss in Country Y
Gift in foreign currency from a friend (exempt in Country Y) 90,000
Dividend (taxed in Country Y) 2,30,000
Total rent from house property in Country Y (taxed in Country Y) 3,00,000
Municipal taxes paid for above house (Not allowed as deduction in Country Y) 30,000
Business loss (not allowed to be set off in Country Y) 1,60,000
Agriculture Income (taxed in Country Y) 2,20,000

Note: Country Y taxes dividend at the rate of 10% and all other incomes at the rate of 20%.
Compute total income and tax payable by Mr. Pravek in India for Assessment Year 2025-26 assuming
he wants to be taxed as per default tax regime under section 115BAC.

Question 4A (8 Marks)
Decide whether TDS provisions are attracted in the following:
(i) Mr. Soham purchased licensed copy of computer software from the software vendor (resident of

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 India) along with all right to use it for ₹ 50,000 to be used for business purposes.
(ii) StudyKart, an online education provider and a trust registered under section 12AB of the Income-
tax Act, pays ₹ 98,000 to Mr. Monty, a non-resident for providing web-based lectures.
(iii) Krunal & Co LLP withdrew from its bank account ₹ 70 lakhs by cash up to 31.08.2024 and ₹ 55
lakhs from 01.09.2024 to 31.03.2025. The purpose of withdrawal from bank was for buying
agricultural produce, from farmers/agriculturists, being raw material required for manufacture
for finished products by it.
(iv) Interest of ₹ 82,000 on Capital Gains Bond issued by Power Finance Corporation Ltd. to Mr. Ajay
(aged 47), a non-resident individual.

Question 4B (6 Marks)
Siddharth Garments Ltd, a company incorporated under The Companies Act, 2013 having factory and
registered office in Mumbai engaged in the manufacturing of Men’s wear, and selling various kinds of
garment products according to the requirement of the buyers across the world. The company sold
different garment products in the financial year 2024-25 different vendors as detailed under:
Product Type Trouser T-Shirt Office Wear Shirt Formal Shirt
Polo Inc. Oxfam Pty. UK (Subsidiary John Miller John Player
Sold to Vendor
Pty (US based Co.) of the Indian Co.)
Price Charged ₹ 1,400 ₹ 1,000 ₹ 1,200 ₹ 1,500
Quantity Sold 200,000 pcs. 250, 000 pcs. 150, 000 pcs. 190, 000 pcs.
Siddharth Garments Ltd. maintains a gross profit margin of 30% on the selling price. Siddharth
Garments Ltd has purchased the T-Shirts sold to its UK based subsidiary Oxfam Pty of UK from Mudra
Garments Ltd, of Ahmedabad at per piece price of ₹ 840/-.
Following functional differences were noticed between the transactions with Oxfam Pty of UK and
other parties:
(i) Sales to non-associated party have been made with a specialized packaging for which 3% margin
is included in the selling price.
(ii) Tagging on the product purchased is being required by the other clients of which cost was ₹ 3 per
piece whereas in case of sales made to Oxfam Pty of UK no tagging is to be done.
(iii) Products sold to non-associated parties involve a credit period of 6 months for which 0.5% per
month margin on selling price is ensured by Siddharth Garments Ltd.
Determine the arm’s length price based on the above information.

Question 5A (8 Marks)
(i) The Assessing Officer passed an assessment order u/s 143(3) on 20.11.2021 in which the
assessee committed mistake of reducing depreciation in computation of Income instead of adding
to income resulting in double deduction of depreciation. The AO did not correct the said mistake
in his order.
The assessee went up in appeal on other issues to the CIT(A) for the same Assessment year, who
decided the appeal on 28.6.2024. The AO gave effect to the CIT(A)'s order vide order dated
23.7.2024. The AO thereafter passed an order u/s 154 dated 26.4.2025 in which he rectified the
mistake of double deduction of depreciation committed in the order dated 20.11.2021.
Please discuss whether the time limit of 4 years as per section 154(7) would apply from the date

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 of original assessment order or the order of the Appellate Authority?
(ii) Mr. Ravi Prakash, a resident Indian aged 52 years, gifted a sum of ₹ 30 lakhs to his wife Mrs.
Sudha on the occasion of her 50th birthday. Out of the said sum, Mrs. Sudha purchased a car for ₹
29,52,000 inclusive of RTO charges of ₹ 2,15,000, insurance of ₹ 51,575, extended warranty of ₹
25,255 and accessories charges of ₹ 35,460 during the P.Y. 2024-25. These charges were shown
separately in the invoice. Mrs. Sudha’s furnished her Aadhaar No. to the dealer. She is a housewife
and does not have any income except rental income of ₹ 25,000 p.m. in respect of a house
property gifted to her by her father.
Mr. Ravi Prakash is of the opinion that his wife is not required to furnish return of income, since
her total income does not exceed the basic exemption limit. Examine.

Question 5B (6 Marks)
XYZ GmBH Germany is a foreign company engaged in manufacturing and sale of LED lights. It opened a
branch in Gurugram for sale of LED lights in India. The profit mark up was cost plus 40% in respect of
sales made by the branch. The XYZ GmBH, Germany also supplied the goods directly to various
customers in India. The turnover of the Gurugram branch for the year is ₹ 155 lakhs and direct sales by
XYZ GmBH to Indian customers is ₹ 80 lakhs.
The Assessing Officer wants to tax the profits arising to XYZ GmBH from direct sale to customers in
India though PE (i.e., branch in India) had no role to play in it. Decide the validity of the Assessing
Officers view in the context of OECD and UN Model tax Convention.

Question 6A (6 Marks)
X Ltd., an Indian company, paid interest of ₹ 95 lakhs to X Inc., a non-resident associated enterprise in
the P.Y.2024-25 on loan borrowed from it. X Ltd. also obtained loan of ₹ 5 crore@10% p.a. on 1.4.2024
from Y Inc., a foreign company in which it holds 20% voting power. X Inc. deposits ₹ 2 crore with Y Inc.
X Ltd. contends that the provisions of section 94B are not attracted in its case, since the interest paid to
non-resident associated enterprise does not exceed ₹ 1 crore in the P.Y.2024-25. The tax auditor is,
however, of the opinion that the interest of ₹ 20 lakh (i.e., 10% of ₹ 2 crore) also has to be considered
for the purpose of section 94B. X Ltd. contends that X Inc. has not deposited a corresponding and
matching amount of ₹ 5 crore with Y Inc, and hence, the provisions of section 94B will not be attracted
in this case. Examine the reporting requirement, if any, of the tax auditor in this case.

Question 6B (4 Marks)
Explain expression "Round Trip Financing" in relation to Impermissible Avoidance Agreement (IAA).

Question 6C (4 Marks)
M/s. ABC Limited, an Indian company makes an application to Board of Advance rulings in relation to
the tax liability of M/s. Pinicer Inc, a non-resident arising out of a transaction which is proposed to be
undertaken by ABC Limited with M/s. Pinicer Inc. The value of transactions entered into between both
the parties is ₹ 250 crores.
As per section 245Q, how many copies of application need to be filed by the applicant with the Board
and what would be the amount of fees to be accompanied with the application.
What is the remedy available to an applicant if the Board rejects its application? Also, state the time

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limit within which the applicant should exercise this remedy.

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