ST.JOSEPHS’ COLELGE OF COMMERCE (AUTONOUMOUS)

END SEMESTER EXAMINATION – MARCH/APRIL 2015

B.B.M.  – VI SEMESTER

FIN 606: TAX PLANNING FOR BUSINESS DECISIONS (FINANCE ELECTIVE)

Duration: 3 hours                                                                                    Max. Marks : 100

Section – A

1. Answer ANY TEN Questions. Each carries 2 marks (10×2=20)
2. How do you compute deduction u/s 10 A?
3. Name any four expenses which are expressly disallowed or allowed in computing income from business.
4. What is the scope of section 35E? (Prospecting for certain minerals)
5. Briefly explain the provisions of section 35D. (Preliminary expenses).
6. X Ltd is an Indian company. It owns an industrial undertaking which starts production on April 1 ,2013 On the same day , it appoints 94 casual workers . On May 1, 2013, it appoints 10 regular workmen (salary being 3000 per month). Find out the amount of deduction under 80JJAA for the assessment year 2014-2015.
7. Explain the need for tax planning.
8. Write a note on Section 44 D (Royalty Income of Foreign companies).
9. How do you treat payment in cash exceeding Rs 20,000?
10. Explain Tea development account as per section 33AB.
11. What do you mean by tax evasion?

Section – B

1. II) Answer any FOUR questions. Each carries 5 marks   (4×5=20)
2. X Ltd is engaged in the business of growing and manufacturing tea in India. During the previous year 2012-13, it deposits Rs 100 lakh in the ‘’special account’’ and claims the same as deduction under section 33AB (i.e 40% of the business profit: Rs 250 lakh) during 2013-14, the company withdraws Rs 35 lakh from the ‘’special account’’ which is utilized as follows-

• Rs 25 lakh on December 31, 2013 for the purpose of the scheme framed by the Tea board
• Rs 4 lakh for the other purposes on January 27,2014

Rs 6 lakh is not utilized up to March 31, 2014

Find out the amount chargeable to tax for the assessment year 2014-2015.

12. Mr A owns commercial vehicles and uses them for carriage of goods. He provides following information:

• On 1-4-2011 he was owner of 8 vehicles out of which 2 were heavy goods vehicles and 6 were other than heavy goods vehicles
• On 15^th October 2011 he sold 2 other than heavy goods vehicles and purchased one new heavy goods vehicle on 20-10-2011.
• He purchased 2 new other than heavy goods vehicles on 10-1-2012
• Due to strike he could not use any of the vehicles for full month of February 2012

Find out his income for the assessment year 2012-13, if he opts for scheme given u/s 44AE.

13. X a trader sells goods on credit to Y (outstanding balance on April 1 2013 Rs 40,000 and total bills issued during 2013-14 ` 60,000) out of Rs 1,00,000 he recovers only Rs 10,000 from Y during 2013-14. On March 31 2014 he writes off Rs 32,000 as bad debt. However on December 19, 2014.  X recovers from Y as full and final payment  (a) Rs. 15,000 or (b)Rs. 55,000 (c) Rs. 70,000.  Find out the tax consequences for different assessment years.
14. Distinguish between tax planning, tax avoidance and tax management.
15. X Ltd is a financial corporation for the purpose of section 36(1)(viii) Income of the taxpayer for the previous year 2013-14 from different sources is as follows (Rs in lakhs)

• From providing long-term finance for industrial /agriculture development

Or development of infrastructure facility (before any deduction under sec 36)         Rs. 1,120

• Business income from Other activities Rs.105

Compute the amount of deduction under sec 36(1)(viii) for the assessment year 2014-15 taking into consideration the following data:

1. Paid up-capital and general reserve on march 31^st, 2014 Rs 610 lakh
2. Balance standing to the credit of special reserve account as on April 1,2013 Rs 1050 lakh (and the same was allowed as deduction in the earlier years )
3. Amount transferred to special transfer account during 2013-14 is Rs 220 lakh .
4. Explain the provision of sections 40(a) (Salary payable outside India) and

40A (2) (payment of salary to relatives).

 

Section C

III) Answer ANY THREE Questions. Each carries 15 Marks                          (3X15=45)

17. X Ltd manufactures electric pumping sets The Company has the option to either make or buy from the market component Y used in manufacture of the sets.

 

 

The following details are available:

The component will be manufactured on new machine costing Rs 1 lakh with a life of 10 years. Material required cost Rs 2per Kg and wages Re 0.30 per hour. The salary of the foreman employed is Rs 1,500 per month and other variable overhead include Rs. 20,000 for manufacturing 25,000 components per year. Material requirement is 25,000 kgs and requires 50,000 labor hours.

The component is available in the market at Rs 4.30 per piece

Will it be profitable to make or to buy the component? Does it make any difference if the component can be manufactured on an existing machine?

18. X. Ltd is a widely held company. It is currently considering a major expansion of its production facilities and the following alternatives are available

	Alternative one Rs	Alternative two Rs	Alternative three Rs
Share Capital	50,00,000	20,00,000	10,00,000
Debentures (14%)	–	20,00,000	15,00,000
Loan from Financial Institutions /Bank (18%)	–	10,00,000	25,00,000

 

Expected rate of return (before tax) is 25 per cent .The rate of dividend of the company since  1980 is not less than 20 per cent and the date of dividend declaration is June 30 every year.

Which alternative the company should choose?

19. XYZ Ltd is a company registered in India .The balance sheet of the company on March 31, 2013 is as under

Liabilities	Rs	Assets	Rs
Preference share capital (issued for cash)	4,00,000	Fixed assets (before depreciation)	15,00,000
Equity share capital ·         Issued for cash ·         Issued as bonus share in 1960 and 1976 by capitalizing profits	6,00,000     6,00,000	Investments in share(market value Rs 13,00,000)	4,00,000
General reserve	3,00,000	Other assets	9,20,000
Investments allowances reserve	90,000
Depreciation reserve	1,00,000
Profit and loss A/c balance As on April 1 ,2012    Rs 2,40,000 Add: Profit of the year Ending March 31,2013 Rs 60000	3,00,000
Provision for taxation and dividend	2,30,000
Current Liabilities	2,00,000
	28,20,000		28,20,000

NOTE: profit and loss account balance on April 1, 2012 includes agriculture income of Rs 30,000

From the above information, elucidate on the provisions of section 2(22) (a to e)

20. Explain the provision of Section 10A and 10AA?
21. Write a short note on :
22. 80 – 1A , b) 80 – 1B

SECTION -D

1. IV) Case Study (15 Marks)
2. Mr. Ram has received offers from the employers of the Delhi for service as under:

	A	B
Salary	2,88,000	3,60,000
D.A	2,10,000	2,10,000
Bonus	24,000	60,000
Rent Free House ( FRV)	2,16,000	–
House Rent Allowances	–	1,08,000
He will pay rent Rs 18000 p.m	–	–
Mobile Phone	20,000	–
Telephone Allowances	–	15,000
Servant Allowances	–	12,000
Provision of Servants	25,000	–
Lunch Allowances	–	15,000
Free Lunch for 300 days at Rs 80 per Meal	24,000	–
Car Allowances	–	40,000
Free use of car (Small Car) (Both official and Personal use)	45,000	–
Professional tax paid	4,000	4,000

Which offer should Mr. Ram choose and why?

 

 

 

 

 

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