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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Value of Supply

Mehta Textiles Pvt Ltd sells fabric to Mehta Garments Pvt Ltd. Mr Ramesh Mehta holds 30% of the voting shares in each company. Under the Explanation to Section 15, what is the position?

They are related persons, because Mr Mehta holds thirty per cent of the voting shares of both companies, which is above the twenty-five per cent threshold in the Explanation to Section 15. Separate legal identity, directorship or pricing is irrelevant.

  1. AThey are related persons because one person holds 25% or more of the voting shares of bothCorrect
  2. BThey are not related because each company is a separate legal person
  3. CThey are related only if Mr Mehta is a director of both
  4. DThey are related only if the sales are below cost

Explanation

Clause (iv) deems persons related if any person directly or indirectly owns, controls or holds 25% or more of the outstanding voting shares of both. Mr Mehta holds 30% in each, so the test is met regardless of directorship or pricing. Separate legal personality does not prevent the deeming.

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