Tax Planning For Business Decisions (Finance Elective P-Iv)

REG NO:

ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)

END SEMESTER EXAMINATION –MARCH/APRIL 2016

B.B.M. – VI SEMESTER

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

Duration: 3 Hours Max. Marks: 100

SECTION – A

Answer ALL the questions. Each carries 2 marks. (10×2=20)

What is tax planning? How is it different from tax avoidance?

Explain the conditions to be satisfied in order to avail deduction under section 10A

How is inter-corporate dividend taxed in the hands of the declaring company.

Explain the deductions in relation to Sec. 35D (Preliminary expenses)

Elucidate on the provisions relating to Sec. 36(1)(ii) with respect to any sum paid to the employee as bonus or commission for services rendered.

Explain the provisions relating to Sec. 36 (1)(ix) which highlights on the expenditure by a company for the purpose of promoting family planning amongst its employees.

Write the provisions relating to Sec. 40A (2) with regard to Payments made to relatives.

What is the eligible expenditure as per section 35ABB in respect of License fee for Telecommunication services?

What is presumptive taxation? Explain the need for the same.

10.

Write a note on provisions relating to section 10(23FB)- Income of Venture capital fund.

SECTION – B

II)

Answer any FOUR questions. Each carries 5 marks. (4×5=20)

11.

Write a note on provisions relation to Sec 80 JJA

12.

Explain provisions relating to Sec. 40(a) – Salary Payable outside India

13.

X ltd., is an Indian closely held company in which Mr.Param is a shareholder, who is holding 17% of the equity shares. The accumulated profits of the company as on 31-3-2014 amounted to Rs. 6,00,000. The company has given a loan of Rs. 1,00,000 to Param by an account payee cheque on 15-9-2014. The company does not have the business of advancing loans. Param repaid the loan to the company by an account payee cheque on 25-3-2015.

Discuss the tax treatment of the above loan and its repayment in the hands of Param for assessment year 2015-16.

14.

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

(A) On 1-4-2014, he was owner of 8 vehicles out of which 2 were heavy goods vehicles and 6 were other than heavy goods vehicles.

(B) On 15^th October 2014 he sold 2 other than heavy goods vehicles and purchased one new heavy goods vehicle on 20-10-2014

(D) Due to strike he could not use any of the vehicles for full month of February 2015.

Find out his income for the assessment year 2015-16 if he opts for scheme u/s 44AE.

15.

X and Co, a firm, is engaged in the business of paper trading (turnover of 2014-15 being Rs. 57,80,000) it wants to claim the following deductions-

Salary and interest to partners (as permitted by Sec. 40(b)	60,000
Salary to employees	4,90,000
Depreciation	2,70,000
Cost of material used	45,90,000
Other expenses	3,45,000
Total	57,55,000
Net profit (Rs. 57,80,000 minus Rs. 57,55,000)	25,000

Determine the net income of X & Co. For the assessment year 2015-16 assuming that:

(a) Long term capital gain is Rs. 40,000 and

(b) the firm is eligible for a deduction of Rs. 5,000 under Sec. 80G.

16.

Write Write a note on provisions relating to 801B with special reference to setting up of Business of an Industrial undertaking.

SECTION – C

III)

Answer any THREE questions. Each carries 15 marks. (3×15=45)

17.

Fiesta Ltd., established its undertaking for manufacturing of computer software in STP. The company provides the following particulars of its 5^th year of operations ended on 31-3-2014.

Domestic sales	25,00,000
Export sales	75,00,000
Profit of the business	10,50,000

Out of the total export sales, the company realised Rs. 25,00,000 in India and brought into India Rs. 47,00,000 within stipulated period. Due to insolvency of a foreign customer, the company suffered a loss due to bad debt amounting to Rs. 3,00,000. The Plant and Machinery used in the business had been depreciated @15% on straight line basis and depreciation of Rs. 3,00,000 was charged in profits and loss account. The machine was purchased on August 2010.

Calculate:

(a) Deduction u/s 10A and

(b) Taxable income of the company

18.

XYZ Ltd., a paper manufacturing concern, purchases a machine on March 1, 2002 for Rs. 6,10,000 for its Laboratory with a view to improving the quality of art paper manufactured by the company.

a. What will be the amount of deduction under section 35 on account of capital expenditure of Rs. 6,10,000 for the assessment year 2002-03

b. If the research activity for which the aforesaid machine is purchased ceases in 2013 and the machinery is brought into business proper on November 1, 2013 (Market value of the machine Rs. 2,30,000); depreciation is admissible at a rate of 15%; depreciated value of the ,relevant block of assets on April 1, 2013 is Rs., 14,07,860, the scientific research machine is sold for Rs. 1,90,000 on April, 4, 2014, what will be the amount of depreciation and amount of chargeable profit under section 41(3).

c. If the research activity for which the machine was purchased ceases on November 1, 2013 (market value of the machine: Rs. 2,30,000) and the machine is sold on April 4, 2014 without using it for another purpose, sale price being Rs. 1,90,000 or Rs. 5,40,000 or Rs. 8,10,000 or Rs. 15,00,000.

19.

X Ltd., a company which provides telecom services, acquires telecom license on April 5, 2014 for a period of 15 years which ends on March 31,2029 (license fees being Rs. 15 Lakh paid on May 6/5/2014.

The license is transferred by X Ltd. On December 20, 2016 for;

(a) 6, 92,000

(b) 13, 70,000 or

Compute the amount chargeable to tax.

20.

Chirag Ltd., (incorporated in 1999-2000) requires Rs. 50,00,000 to finance an expansion project. The expected rate of return before interest and tax is 30% of the investment in project. The debt can be raised by issuing 11% debentures. The company has following 3 options:

	OPTION I	OPTION II	OPTION III
Equity share capital	50,0,000	35,00,000	15,00,000
11% Debentures	–	15,00,000	35,00,000

The tax rate applicable to company is 30% plus surcharge 5% (if total income > 1 Crore) and 3% education cess (2% + 1% SHEC)

The company has decided to distribute the entire earnings as dividend. The rate of corporate dividend tax is 15% + 5% surcharge + 3% education cess (2% +1% SHEC).

Suggest the best options out of the three options.

21.

SABU Ltd., wants to acquire an automatic machine costing Rs. 12,00,000 for its manufacturing division and is considering the following two options:-

Option 1: to buy the machine by taking a loan of Rs. 12 Lakhs repayable in 6 instalments of Rs. 2,00,000 each together with interest @ 15% per annum.

Option II: to take it on lease rent of Rs. 3,00,000 payable at each year end. The lessor will charge 1% of cost of machine as file charges payable along with the lease rent of 1^st year

Other information:

(1) Tax rate 30%

(2) After-tax cost of capital 14%

(3) Rate of depreciation 25% on WDV basis

(4) Present value for Re. 1 @ 14%

At the end of year 1	Year 2	Year 3	Year 4	Year 5	Year 6
.877	.770	.675	.592	.519	.456

Suggest which option company should accept.

SECTION – D

IV)

Case Study (1×15=15)

22.

XYZ Ltd. Is considering the purchase of a new machine costing Rs.60,000 with an expected life of 5years with salvage value of Rs.3000 in replacement of an old machine purchased 3years ago for Rs.30,000 with expected life of 8years .The present market value of this old machine is Rs.35,000. Because of the purchase of new machinery, the annual profits before depreciation are expected to increase by Rs.12,000. The relevant depreciation rate for the machine is 15 percent on written down value basis and the tax rate is 32.445 percent . Assume the after Tax cost of capital (discounting rate) to be 14 percent and additional deprecation is not available .Advise the company suitably.