Relish Pvt. Ltd. (“R”) is an Indian company. Solar Inc (“S”) is a company incorporated in U.S.A. and its income is not chargeable to tax in India.…

CA Final · Direct Tax Laws and International Taxation · PYQS · May 2025
Relish Pvt. Ltd. (“R”) is an Indian company. Solar Inc (“S”) is a company incorporated in U.S.A. and its income is not chargeable to tax in India. Both are promoted by Mr. Pawan who holds 51% equity share capital and voting power in both R and S. The balance sheet of R as on 31st March, 2025 is as follows: Liabilities Amount (₹ million) Assets Amount (₹ million) Paid up capital and reserves 160 Fixed Assets 370 Loans: Current Assets 210 From S 302 Cash and bank balance 20 From others 98 400 Current liabilities 40 Total 600 Total 600 Additional information: The loan was advanced by S to R on 1st July, 2024 in rupee terms and carries 7% p.a. rate of interest. For borrowers with similar risk profile, S advances loan at 6% p.a. interest rate. R does not make any adjustment to its total income of 15 crores on account of application of provisions of Chapter X of the Income-tax Act, 1961 in its return of income for A.Y. 2025-26. From the information given above, choose the most appropriate answer to the following questions No. 10 to 12 -
(A) Yes, R and S are associated enterprises as not less than 75% of R's total loans have been availed from S.
(B) Yes, R and S are associated enterprises since the loan advanced by S to R is more than 50% of the book value of R's total assets.
(C) Yes, R and S are associated enterprises because Mr. Pawan holds voting power of 51% in both the companies.
(D) No, R and S are not associated enterprises.

Suggested Answer and Working Notes:

Correct Answer: Option (C)

Yes, R and S are associated enterprises because Mr. Pawan holds voting power of 51% in both the companies.

Topics: Transfer Pricing, Double Taxation Relief, Non-Resident Taxation

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