Question 1

What is the scope of direct tax advisory provided by a CA firm?

Accepted Answer

Advisory covers: (a) tax-efficient business structure (company vs. LLP vs. partnership — rate and compliance trade-offs); (b) salary and remuneration structuring (CTC optimisation under Section 17(2)/17(3)); (c) M&A transaction structuring (slump sale, itemised sale, demerger — comparative tax impact); (d) transfer pricing planning (documentation, benchmarking, APA); (e) capital gains planning (reinvestment under Sections 54/54F/54EC); (f) POEM and GAAR risk assessment for MNEs. All advisory must cite the specific section, circular, or court ruling supporting the position.

Question 2

When does Section 56(2)(x) — gift tax — apply to a business transaction?

Accepted Answer

Section 56(2)(x): if an individual or HUF receives any property (money, immovable property, movable property, shares) without adequate consideration and the shortfall exceeds ₹50,000, the shortfall is taxable as other income. For listed shares: shortfall between consideration and market price is taxable. For unlisted shares: shortfall between consideration and FMV (per Rule 11UA). Exceptions: receipts from relatives, receipts on marriage, receipts under will/inheritance. Corporate-to-corporate transactions: Section 56(2)(x) does not apply — applicable only to individuals and HUFs.

Question 3

What is a tax opinion vs. a tax ruling and which offers more protection?

Accepted Answer

A tax opinion from a CA/advocate is not binding on the tax department but is evidence of bona fide conduct — reduces penalty risk from 200% (misreporting) to 50% (under-reporting) if the position is disallowed. A CBDT Advance Ruling (Section 245Q) is binding on both the taxpayer and the income tax authorities for the specific facts — offers the strongest protection but takes 6–24 months and is limited to non-residents and certain resident transactions. For businesses, a CBDT Circular under Section 119 is the most useful authoritative guidance — binding on income tax officers, not on taxpayers.

Question 4

What is the Black Money Act and who should be concerned?

Accepted Answer

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 applies to residents with undisclosed foreign income or assets. Tax: 30% flat on the FMV of the foreign asset in the year of detection. Penalty: 3 times the tax (i.e., 90% of FMV) — effective burden of 120% of the asset's value. Criminal prosecution: 3–10 years. Required disclosure: Schedule FA in ITR annually. The Act applies regardless of when the asset was acquired — old assets in foreign accounts or properties not disclosed in ITR are at risk.

Question 5

What are the key documentation requirements for a transfer pricing advisory?

Accepted Answer

Section 92D: every international transaction (or specified domestic transaction above ₹20 crore) must have documentation: master file (for MNEs with consolidated revenue > ₹500 crore), local file (Form 3CEAA — transaction-level documentation), and country-by-country report (Form 3CEAD — for parent entities with consolidated revenue > ₹6,400 crore). Rule 10D prescribes content: description of the international transaction, analysis of comparables, benchmarking method, and computation of arm's-length price. The documentation must be ready before the tax audit report is filed.

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