1
ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)
END SEMESTER EXAMINATIONS – OCTOBER 2013
M.COM – III SEMESTER
CORPORATE TAX PLANNING
Duration: 3 Hrs Max. Marks: 100
SECTION – A
I) Answer any SEVEN questions (out of TEN). (7 x 5 = 35)
1. What is transfer pricing? What are the methods of determining arm’s length
price?
2. Explain the tax planning provisions with regard to amalgamation of two
companies.
3. Define slump sale. How do you find out the written down value in the hands
of transferor in the case of slump sale. Briefly explain the computation of
capital gain in the case of slump sale.
4. Explain the provisions u/s
• 44BBB
• 44BBA
5. Explain the provisions u/s
• 35ABB
• 35 AD
6. Explain the deduction in respect of new workmen u/s 80 JJAA.
7. Explain the capital gain exemption tax between India and Netherlands.
8. On receipt of assessment order for the assessment year 2013-2014 of X ltd the
chief accountant of that company finds that the following deductions claimed
by it in the return of total income have not been allowed:
• Expenditure of Rs. 15000 incurred on accommodations maintained, at
the place where the factory s located for the directors and other
employees of the company, who visit the factory for the purposes of the
company’s business.
• A sum of Rs. 17500 incurred for lunch at a five star hotel where seven
representatives of a prominent raw materials supplier were taken for
lunch and the purchase manager of the Assessee had accompanied
them
• Export markets development allowance on a sum of Rs. 18000 spent by
it in connection with a partly given to the overseas buyers of its
products.
• Claim for deduction of a sum of Rs. 450000 being the amount of liability
for gratuity for the calendar year 1991 calculated on actuarial basis for
which no provision was made in the books of accounts. The company
does not maintain any gratuity fund. It maintains its accounts on
2
mercantile basis. So far as gratuity liability is concerned, it has made
provision for the same in the books of account for the previous year
ended Dec 31, 1976. Thereafter it stopped making provision for
gratuity liability in the books of account. However, actual payment are
debited to P and L account
• Expenditure of Rs. 10000 incurred for drilling a tube well in the factory.
The drilling operations were given up as the water was hard and not
suitable for use. The expenditure thus became in fructuous.
9. XY ltd is having business in manufacture sale and export of goods. Its profit
and loss account for the year ending 31/3/2013 disclosed a net profit of Rs. 7.5
lakhs. Compute the assessable income for the assessment year 2013-2014 from
the following data
• Tax paid on behalf of foreign collaborator, the company having failed
to deduct tax on the remittances, such tax paid being Rs .30000 debited
to P& L account
• Commission paid to foreign buyer in violation of FEMA in the course
of invoicing exports, debited to P & l Account Rs. 40000
• Commission paid to local agents of foreign principals for securing
export orders, debited to Profit and loss account Rs. 20000
• Remuneration to MD comprised of salary at Rs. 45500 per month bonus
for the year Rs. 10000 and commission Rs. 20000 all debited to Profit
and loss account. The entire remuneration has been approved by the
company law board.
• Interest paid on borrowing made in excess of the limits laid down of
companies act Rs. 50000 debited to P & L a/c
• Contribution to a political party for securing help in getting loan from a
Government financial institution, charged to Profit and loss account Rs.
1 lakh
• Surtax paid Rs. 25000
• Interest paid for belated payment of income tax Rs. 8000 debited to P &
L a/c
• Insurance compensation received RS. 2 lakhs for damage to a
machinery, the expenditure incurred for repairing the same being Rs.
1,50,000 , the balance Rs. 50,000 credited to replacement reserve account
in the balance sheet
• Amount realized on sale of import entitlement Rs. 80000 taken to
reserve account in the balance sheet.
Give reasons for the additions and deletions suggested.
10. Write the applicability of general anti avoidance rule. What are the four tests
to be satisfied to declare impermissible avoidance arrangement
3
SECTION – B
II) Answer any THREE out of FIVE questions. (3 x 15 = 45)
11. Explain the Key factors for Tax Planning and key structures in Outbound
Investment in India
12. Briefly explain the implications of tax concession and incentives for corporate
decision in respect of setting up a new business. (with special reference to
location being free trade zone)
13. XYZ ltd needs a component in an assembly operation. It is contemplating the
proposal to either make or buy the aforesaid component
• If the company decides to make the product itself, then it would need
to buy a second hand machine for Rs. 8 lakhs which would be used for
5 years. Manufacturing costs in each of the five years would be Rs. 12
lakhs, Rs. 14 lakhs, Rs. 16 lakhs and Rs. 25 lakhs respectively. The
relevant depreciation rate is 15%. The machine will be sold for Rs. 1
lakh at the beginning of the sixth year
• If the company decides to buy the component from a supplier the
component would cost Rs. 18 lakhs, Rs. 20 lakhs, Rs. 22 lakhs and Rs. 28
lakhs and Rs. 34 lakhs respectively in each of the five years.
The relevant discount rate is 14% and 32.445% tax is applicable.
Additional depreciation is not available. Should XYZ ltd make the
component or buy from outside.
14. ABC ltd is an Indian company engaged in the business of manufacture and
sale of engineering goods. Its net profit for the year 2012-13 is Rs. 20000. The
following are the other particulars
a. Debits to P&L a/c include
• Penalty paid for default in payment of sales tax Rs. 10000
• Cost of machinery purchased and installed during the year Rs.
5000
• Cost of imported motor car Rs. 240000 and depreciation there on
Rs. 48000
• Rent for premised hired at Delhi for the stay of the company’s
employees when on tour for purposes of business. Rs. 10000
• Foreign tour expenses of executive director and his wife Rs.
50000 (the expenses of the wife are estimated at Rs. 24000, the
tour was undertaken for promotion of exports and the director
being a diabetic patient, it became necessary under medical
advice, for his wife to accompany him)
• Annual premium paid for personal accident insurance policy
taken by the company for its staff Rs. 10000
• Interest on deposits received by the company from public RS.
30000
• Security deposit paid for telex connection Rs. 10000
4
• Interest paid on money borrowed from bank for purchase of
shares in P.Inc a company incorporated in New York Rs. 10000
• Salary etc, paid to B the executive director
Salary Rs. 72000
Commission on sales RS. 30000
House rent allowance RS. 25000
Travel concession for self and wife in connection with his
proceeding on leave Rs. 5000
Rent for office premises of the company owned by the director
Rs. 12000
• Salary paid to Y an accounts officer : Salary Rs. 75000, bonus Rs.
18000, HRA Rs. 2400, special allowance Rs. 5000
• Depreciation of plant purchased during 2012-2013 Rs. 400000
(normal depreciation @33.33% of cost Rs. 1200000)
b. Credits to P&L a/c includes dividend received from foreign company
Rs. 50000
c. Following items were credited to capital reserve account
• The Assessee Company has purchased a plant on June 3 1988 for
Rs. 250000 for its research laboratory and claimed a deduction of
Rs. 250000. The research activity for which the machine is
purchased ceases in 2010-11 and the machine s brought into
business proper on Nov1, 2011 (market value Rs. 130000). The
machine is sold for Rs. 150000 on April 4, 2012. Rs 150000 is
credited to capital reserve account
• The Assessee Company has purchased a machine on Dec 1, 1988
for Rs. 300000 and claimed a deduction of Rs. 375000 (being 1.25
of Rs. 300000) as the machine was meant for an approved in
house research. The particular research activity for which the
machine was purchased ceases on Nov 1, 2012 and the machine
is sold, without being used for any other purposes on Dec 19,
2012 for Rs. 200000. This amount is credited to capital reserve
account.
The profit of Rs. 20000 is calculated before deducting income tax
You are required to compute the total income of the company for the
AY 2013-2014. Give reasons for the adjustments that you make in the net profit.
15. A plant is purchased for Rs. 100000. The depreciation rate is 15% (additional
depreciation rate is 20% in the first year) and the corporate tax rate is 32.445%.
The weighted average cost of capital is 10%. The life of the machine is 10
years. A loan of Rs75000 can be had by accepting public deposits at the
interest rate of 9% for financing the investment in plant. It is assumed that the
public deposits are repaid after 10 years. On the other hand the asset can be
obtained on lease. The lease rentals are at the rate of Rs. 34000 per annum for
primary lease period of 5 years. Beyond this peppercorn rentals Rs. 600 per
5
annum are to be paid. A lease management fee of Rs. 1000 is payable on
inception of the lease. In all three situations suggest the best option.
Section – C
III) ONE Compulsory Case study (No choice) (1 x 20 = 20)
XYZ ltd is considering the purchase of a new machine costing Rs. 60,000 with an
expected life of 5 years and salvage value of Rs. 3000 in replacement of an old
machine purchased 3 years ago for Rs. 30,000 with expected life of 8 years. The
present market value of this old machine is RS. 35000. Because of the purchase of
new machinery, the annual profits before depreciation are expected to increase by Rs.
12000. The relevant depreciation rate for the machine is 15% on WDV basis and tax
rate is 32.445%. Assume the after tax cost of capital (discounting rate) to be 14% and
additional depreciation is not available. Advise the company suitably
Latest Govt Job & Exam Updates: