Dear Professional Seniors & Friends,
Here is the Next post of MCQ on #concept_of_Distinct_person_in_GST and #Corporate_distribution_tax_under_Income_tax_ACT based practical professional knowledge in a unique manner to be self answered by participants. The detailed answer of these MCQs shall be posted next day for the self assessment of the participants.
MCQ 9.1: MCQ : Which of the following statement is not correct statement in case of distinct person as defined in GST Law in India?
A) Establishments of the same person shall always in treated as distinct person whether in the same state or in multiple states.
B) Distinct person shall always be considered as related parties.
C) S a registered person in Pune having his branch office at Mumbai as S Mumbai, these S and S Mumbai may not be known as distinct person as per GST Law.
D) Supply between distinct person may not happen at transaction value.
MCQ 9.2: A company gives a loan of Rs 1,00,000 to as shareholder Mr.X on 01.04.2018 who holds 25% shares in the company. The company declares dividend on 10.04.2018. The dividend payable to Mr. X of Rs 10,000 is adjusted against the loan of Rs 1,00,000. At what amount the company is liability to pay corporate distribution tax CTD?
A) Company shall pay CDT on dividend of Rs 100,000
B) Company shall pay CDT on dividend of Rs 10,000
C) Company shall pay CDT on dividend of Rs 40,000
D) Company shall pay CDT on dividend of Rs 30,000
Answer MCQ Challenge #009
Answer to MCQ 9.1: A i.e. Establishments of the same person shall always in treated as distinct person whether in the same state or in multiple states is Not the correct statement.
Answer to MCQ 9.2: D) (D) Company shall pay CDT on dividend of Rs 30,000.
(One may follow detailed practical analysis of MCQs as under)
Practical Analysis for MCQ 9.1: The concept in this MCQ is clear understanding on the extremely important and unique concept of ‘Distinct Person’ under the provision of the GST Law in India. It can be understood under the following points:
i) As per Section 22(5) of CGST Act, ‘Where a person who has obtained or is required to obtain registration in a State or UT in respect of an establishment, has an establishment in another State or UT, then such establishments shall be treated as establishments of distinct persons for the purposes of this Act; (Mandatory Distinct Person)
ii) As per Section 22 sub section 2, 3 and 4 of CGST Act, a person has an option to become distinct person in the same state based on business verticals. (Optional Distinct Person)
iii) As per clause 2 of schedule 1 of the CGST Act, ‘ supply between distinct person if made in the course or furtherance of business, even without consideration is deemed to be taxable supply.
iV) Rule 28 of the CGST Rules shall be applicable for valuation of supply between distinct person which also provides that in certain case transaction value can also be considered as value of supply.
Therefore in view of above, the correct Answer is A which is not correct statement except this all statements are correct.
Practical Analysis for MCQ 9.2: In this MCQ, the concept discussed is relating to calculation of dividend for the purpose of computing corporate distribution Tax (CDT) as per section 115 (O) of ITA read with section 2(22)(e) of ITA relating to deemed dividend. (We shall take up the detailed discussion on section 2(22)(e) of ITA in our next post). The following are the facts and legal position as amended by Finance Act 2018 which help us to reach the correct option:
i) The company has extended loan Rs. 100,000 to Mr. X a shareholder who is having 25% holding of the company, the amount of loan shall be termed as deemed dividend as per section 2(22)(e) of ITA and taxable u/s 115 (O) at rate 30% as amended by Finance Act, 2018
ii) As per section 115 (O) of ITA provides companies to pay CDT @ 15% on dividend excluding dividend payable as per section 2(22)(e).
iii) In our MCQ, Mr. A who is holding 25% shares of the company got Rs. 10,000, therefore total amount of dividend is Rs. 40,000 which should be taxable u/s 115(O) to be reduced by Rs. 10,000 which is already taxed as deemed dividend. As per the exclusion in clause iii) of section 2(22)(e). Therefore, in view of the above, the correct answer of our MCQ is (D) Company shall pay CDT @15% on dividend of Rs 30,000.
The point to be noted here is that the Finance Act 2018 makes BIG change shifted the tax incident in the hands of the company @ 30% of deemed dividend as covered u/s 2(22)(e) which was earlier taxable in the hands of the shareholder.
(Disclaimer: The objective of the MCQ post is just to discuss the concept, it may happen, by change of facts, the answer may be different. Please do not treat this as professional opinion; you can definitely have your own opinion.)
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