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CA Final · Direct Tax Laws & International Taxation · Deductions from Gross Total Income

Sunrise Infra Ltd. runs an eligible infrastructure undertaking and also a separate trading business. For the tax year, the undertaking's accounts record a transfer of goods to the trading business at Rs. 6,00,000, whereas their market value on the date of transfer was Rs. 8,00,000. The undertaking's profits as per its accounts are Rs. 20,00,000, before considering this adjustment and any deduction. For computing the profits eligible for the Chapter's deduction, what profit of the undertaking is to be taken?

The eligible profit is Rs. 22,00,000. The Act requires profits of the undertaking to be computed as if goods transferred to another business had been sold at market value. The undertaking recorded Rs. 6,00,000 against a market value of Rs. 8,00,000, so profits rise by Rs. 2,00,000.

  1. ARs. 22,00,000Correct
  2. BRs. 20,00,000
  3. CRs. 18,00,000
  4. DRs. 28,00,000

Explanation

Under section 122(6), where goods are transferred from the eligible undertaking to another business at a price differing from market value, the undertaking's profits are computed as if the transfer were at market value. The undertaking sold at Rs. 2,00,000 below market, so profits increase by Rs. 2,00,000 to Rs. 22,00,000. Rs. 18,00,000 reverses the sign.

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