PNG LLP, a limited liability partnership in India, is involved in the development of software and providing IT-enabled services through two distinct…

CA Final · Direct Tax Laws and International Taxation · MTP · May 2025
PNG LLP, a limited liability partnership in India, is involved in the development of software and providing IT-enabled services through two distinct units: Unit A and Unit B. Unit A is located in a Special Economic Zone (SEZ), while Unit B is situated in the Domestic Tariff Area (DTA). For the 6th year of its operations, which ended on 31st March 2025, the LLP has provided the following information related to its activities and financial performance: Items (Amount in ₹ Lacs) Unit A Unit B Export Turnover 1200 920 Domestic Turnover 200 460 Duty Draw Back 38 38 Profit on sale of Import Entitlement 24 Nil Salaries paid 540 192 Other expenses 420 473 Net Profit of the year 502 753 Additional Information: (i) Unit A: Expenses of 24lacs are disallowable under section 43B and export sales proceeds received in India amounted to 1040 lacs. Export sales of 1200lacs include freight and insurance of 200lacs and realization of 1040lacs includes amount of insurance and freight charges of 140lacs. (ii) Unit B: Export sales received in India was 850lacs. Expenses charged and are to be disallowed as per section 40A(3) are of 47lacs. Compute tax payable by PNG LLP for the Assessment Year 2025-26.

Suggested Answer and Working Notes:

Computation of total income of PNG LLP Particulars ₹ (in lacs) Profit from Unit A [502 lakhs +24 lakhs, being disallowance u/s 43B] 526 Profit from Unit B [753lacs +47 lacs, being disallowance u/s 40A(3)] 800 1326 Less: Deduction under section 10AA [See Working Note below] 174 Total Income 1152 Tax on total income@30% 345.60 Add: Surcharge@12%, since total income > 1 crore 41.47 387.07 Add: Health and Education cess @4% 15.48 Tax liability (as per normal provisions) 402.55 Computation of Adjusted total income and Alternate Minimum tax of PNG LLP as per the provisions of section 115JC for A.Y. 2025-26 Particulars ₹ (in lakh) Total income as per the normal provisions 1152 Add: Exemption under section 10AA 174 Adjusted Total Income 1326 [email protected]% of Adjusted Total Income 254.31 Add: Surcharge @12% as the adjusted total income is > 1 crore 29.44 274.75 Add: Health and Education cess @4% 10.99 Alternate Minimum Tax as per section 115JC 285.74 Since the tax payable as per the normal provisions of the Act is more than the alternate minimum tax payable, the total income as per normal provisions shall be liable to tax and the tax payable for A.Y. 2025-26 shall be - 402.55 lakhs. Working Note: Computation of deduction under section 10AA in respect of Unit A located in a SEZ Particulars ₹ (in lacs) Total turnover of Unit A = (1200lacs +200 lacs) – 200lacs, being freight and insurance included therein. Since freight and insurance has been excluded from export turnover, the same has to be excluded from total turnover also 1200 Export Turnover of Unit A 1040 Export sale proceeds received in India Less: Insurance and freight not includible in export turnover 140 900 Profit “derived from” Unit A Net profit for the year 502 Add: Disallowance under section 43B 24 526 Less: Items of business income which are in the nature of ancillary profits and hence, do not constitute profit ‘derived from’ business for the purpose of exemption under section 10AA Duty drawback 38 Profit on sale of import entitlement 24 62 464 Deduction under section 10AA (6th year of operations) Profit derived from Unit A X Export turnover of Unit A / Total turnover of Unit A = 50% of 464 x 900/1200 = 174

Topics: Profits and Gains of Business or Profession

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