MF 0012TAXATION MANAGEMENT – Spring 2016

DRIVE SPRING2016
PROGRAM MBA
SEMESTER III
SSUBJECT CODE &NAME MF 0012TAXATION MANAGEMENT
BKID B1760
CREDIT 4
MARKS 60

 

Note:Answerallquestions.Kindlynotethatanswersfor10marksquestionsshouldbeapproximatelyof 400 words. Eachquestion is followed byevaluation scheme.

 

 

Q.

No

Question Marks TotalMarks
1  
Mr. X (38year) is employed byA Ltd. as marketingmanager inPune.The followinginformationis furnished byMr. X for the previousyear ending 31stMarch 2015.

 

Basic salaryRs. 12,00,000 p.a., DA Rs. 40,000 p.a. (36%of DA is considered for gratuityandPension, butnot for Providentfund). Club allowance Rs. 5,000 p.m., Furnishingallowance Rs.2,000 p.m. and HRARs.40,000 p.m.Conveyance allowance is Rs. 2,000p.m. which can be usedbothforofficeand private purposes.

Up to August31, 2014,he resides with his parents and does not pay any rent.FromSeptember 1,2015 hehas beenallotted acompany accommodation atPune (population 23 lakhs)inlieu ofhouserent allowance.

Club allowance has beendiscontinued fromJanuary1, 2015. And Mr. Xhas beenprovided

bythecompany club facility forprivate(20%) and officeuse(80%). Expenditure bythecompanyuptil31stMarch 2015 wasRs. 20,500.

On 20 Nov. 2014, Mr X has taken aninterestfree loanfromthe company (SBI lendingrate forSimilarloanbeing 18.5%p.a.). Mr. X and his employer contribute @10 %of his salary to P.F.InterestCredited bythecompanyin ProvidentFund on June 1, 2014 @ 9.7 %is Rs. 2,11,200.Assuming thatincome of Mr. X  fromOtherSourcesRs. (-30,000), find out the net incomeandliabilityof Mr. X for theAssessmentYear 2015-16.

 
A  

BasedonaboveComputethetaxableincomeandtaxliability(beforedeductingTDS)ofMs.XfortheA.Y.2015-16Rs.2,600(beingIncome-taxrefundandRs.200beingInterestthereon):

 

 

8

 

2

 

10

2 a) How is advance money received against cost of acquisitionadjusted ?
  b) Stategiving reasons,whether the followingassets are Short termor Longterm:

i)                    X purchases a houseon10thMarch 2012 and transfers on6thJune2014.

ii)                  Ypurchasesunquoted shares in an Indiancompany on 10thMarch 2012and transferson 6thJune 2012.

iii)                Z acquires units ofmutual fund on 7thJuly 2013and transfers those on10thJuly 2014.

iv)                A purchasesdiamondson 12 September 2011 and gifts the same to his friend B on 31stDecember 2014 and B transfers theasset on 20 October 2014.

A a)      Howisadvancemoneyreceivedagainstcostofacquisitionadjusted ?

b)      Stategivingreasons,whetherthefollowingassetsareShort term orLongterm:

·         Xpurchasesahouseon10thMarch2012andtransferson 6thJune2014.

·         YpurchasesunquotedsharesinanIndiancompanyon10thMarch 2012 andtransfers on 6thJune2012.

·         Zacquiresunitsofmutualfundon7thJuly2013andtransfers thoseon 10thJuly2014.

·         Apurchasesdiamondson12September2011andgiftsthesametohisfriendBon31stDecember2014andBtransfers theasset on 20October2014.

 

2

 

 

 

2

 

2

 

2

 

2

 

10

3 Ms. A purchases a house property on 1stJanuary 1976 forRs. 95,000. She enters into anAgreementfor sale ofthe same property to Mr. Xon 1stNovember 1983 andreceivesRs. 10,000

asadvance. Following the demise ofMr. X immediatelythereafter, themoneywas forfeited byMs. A. Later Ms. A giftsher propertyto her friend Ms. B on 15thMay 1985. The followingexpenses are incurred by Ms. A and Ms. B forimprovement of the property :

 

 

Particulars Cost    (Rs.)
Additions of tworoomsbyMs. A during 1978-79 25,000
Additionof first floor byMs. A during 1983-84 40,000
Additionof second floorbyMs. B during 1990-91 1,15,000

 

 

 

 

 

 
Ms. B enters into anagreement for sell the propertyfor RS. 8,50,000 to Mr. P on 1stApril 1993afterreceiving an advance of Rs. 50,000. Mr. P could not pay the balance amountwithin thestipulated timeof twomonths and Ms. B forfeits the amount of advance.

 

Ms. B finally transfers the property to Ms. C for Rs. 14,75,000 on 1stDecember 2014. Given theFair Market Value of the property on 1stApril 1981 being Rs. 1,15,000;Cost InflationIndex for1981-82 : Rs. 100;  for 1983-84 : Rs.116;  for 1985-86 : Rs. 133;  for 1990-91 : Rs. 182;for

1993-94 :Rs. 244 and 2014-15: Rs.1,024   compute theCapital gainsinthe hands of Ms. Bfor the AssessmentYear2015-16.

A Compute theCapitalgainsin the handsof Ms. B fortheAssessment Year 2015-16.  

10

 

10

 

 

4

i)                    Ms. Brinda, a U.S. citizen visits India on 1stJanuary2014 to studyand conductresearch on

Indianfolkculture. Shehas been regularly visiting India for 100 days inthepast fiveconsecutive years to carrythe research.Advise the residential status of Ms.Brindaunderextant rules referring to section 6 ofthe Income-tax Act 1961.

ii)                  What are the provisionsof Advance tax under section 2(1)?

A  

i)                    Ms. Brinda,aU.S. citizen visitsIndia on 1stJanuary2014tostudyandconductresearchonIndianfolkculture.ShehasbeenregularlyvisitingIndiafor100daysinthepastfiveconsecutiveyearstocarrytheresearch.AdvisetheresidentialstatusofMs.Brindaunderextantrulesreferringtosection6oftheIncome-taxAct 1961.

ii)                  WhataretheprovisionsofAdvancetaxundersection2(1) ?

 

 

5

 

 

 

 

 

 

 

 

 

 

5

 

10

5 Explain the need of Servicetax in India. Whatare the different approaches to Servicetax inIndia ?
 

A

ExplaintheneedofServicetaxinIndia.Whatarethedifferentapproaches to Service taxin India?  

10

 

10

6 Mr. X (aged 59 years) furnishes the followingProfit and Loss account for the year ended 31st

March, 2015. Computethe Gross Total Income of Mr. X under respectiveheads, his Net TaxableIncomeand Tax liabilityinthe assessmentyear 2015-16.

  Particulars Rs. Particulars Rs.  
GeneralExpenses 13,400 Gross profit 3,15,500
Bad debts 22,000 Commission 8,600
Advance tax 2,000 Brokerage 37,000
Insurance 600 MiscellaneousIncome 2,500
Salary to Staff 26,000 Bad DebtRecovery 11,000
Salary to Mr. X 51,000 Interest onDebenture

(Netinterest Rs.22,500 + TDSRs. 2,500)

25,000
Interest onCashCredit 4,000 Interest onFixed Deposits(NetinterestRs. 11,700 + TDSRs. 1,300) 13,000
Interest onloantoMrs.X 42,000    
Interest onCapital of Mr. X 23,000    
Depreciation 48,000    
Advertisement 7,000    

 

 

    Contributionto Employees’

Provident Fund

13,000      
Net Profit 1,60,600    
Total 4,12,600 Total 4,12,600
 

Supplementaryinformation:

Permissibledepreciationas per CBDT circular is Rs. 37,300 which includesdepreciationofpermanent glowsignboard.

 

i.             Advertisementexpenditure includes Rs. 3,000, being cost of permanentglow signboardaffixed outsidethe office premises.

ii.             Commissionaccrued butnot receivedRs. 4,500 is not credited to P & L Account.

iii.             Mr. X payspremiumofRs. 6,000 on his ownlife.

iv.             Generalexpenses includes :

a)      Rs. 500 spent forarranging a party for Mr. X’s son who arrivesfromCanada.

b)      Rs. 1,000 for contribution to a political party.

v.            Loan availed fromMrs.X was for payment of arrear tax.

A Mr.X(aged59years)furnishestheaboveProfitandLossaccount for theyear ended 31stMarch, 2015.

 

ComputetheGrossTotalIncomeofMr.Xunderrespectiveheads,hisNetTaxableIncomeandTaxliabilityintheassessmentyear 2015-16.

 

 

 

10

 

 

 

10

 

 

 

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