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Seat No.: Enrolment
GUJARAT TECHNOLOGICAL UNIVERSITY
MBA SEMESTER 3 EXAMINATION WINTER 2018
Subject Code:3539282 Date:06/12/2018
Subject Name: CORPORATE TAX PLANNING
Time: 10:30am To 01:30pm Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
Q.1 Answer the following questions:(2 Marks Each)
Company under section of Income Tax Act, 1961.
Domestic Company [Sec.2 of Income Tax Act, 1961.
Provision of Rebate under section 87A
Tax Planning
Tax Evasion
List out different areas of Tax Planning in context of Income Tax
Act,1961
How many years following losses to be carry forward?
1. House Property Loss
2. Loss from activity of owning and maintaining race horses
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Q.2 Discuss conditions to be fulfilled for the accumulated business loss and
the unabsorbed depreciation of the amalgamating company shall be
deemed to be business loss/ depreciation of the amalgamated company
for the previous year in which the amalgamation is affected.
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X Ltd., a domestic company, has distributed on 1/11/2018, dividend of Rs
230 lakh to its shareholders. On 1/10/2018, X Ltd. has received dividend
of Rs 60 lakh from its domestic subsidiary company Y Ltd., on which Y
Ltd. has paid dividend distribution tax under section 115-O. Compute the
additional income-tax payable by X Ltd. under section 115-O. Assuming
rate of DDT under section 115-O is 20.357647%.
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OR
Tonnage tax company operates only 1 qualifying ship throughout PY 2017-18.
The ship has net tonnage of 25000 tons and corporation tax rate is 30.9%
Compute tonnage tax liability.
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Q.3 Discuss the provisions of tax on distributed profits of domestic Companies
under section 115-O of Income Tax Act, 1961.
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On 1.4.2017, Y ltd commences the operation of warehousing facility for
storage of agri produce.
Exp incurred prior to 1.4.17:
Purchase of land for warehouse. Rs.5000000
Construction of cost of warehouse Rs.800000
Purchase of knowhow for warehouse Rs.1000000
Salary to staff Rs.78000
This exp is capitalized on 31.3.2017.
Exp incurred during 17-18
Construction cost of warehouse Rs.6000000
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Purchase of old plant (from domestic market) Rs.200000
Purchase of plant (from Germany) Rs.400000
Purchase of new plant Rs.900000
Purchas of Goodwill Rs350000
Compute amount of deduction under section 35AD.
OR
Q.3 Discuss the provision of tax planning with reference to sale of scientific
research assets based on following points.
1. Amount of deduction under section
2. Amount Chargeable to tax as business income in the year of sale
3. Amount chargeable to tax as capital gain according to sec.45
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X ltd manufacturing electric pumping sets. The company has option either to
make or buy from the market components Y used in manufacture of sets.
The Components will be manufactured on new machine costing Rs.77713
(net of taxes). Material required cost Rs2 per kg and Rs0.30 per hour in
case of wages. The salary of foremen employed is Rs1500 per month and
Variable overhead includes Rs20000 for manufacturing 25000
components p.a. Material requirements is 25000kgs and requires 50000
labor hours.
The components are available in market Rs4.30 per piece.
Will it be profitable to make or buy components? Does it make any difference if
components can be manufactured on existing machine?
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Q.4 Write short note on features of Tonnage Tax Scheme [SEC.115V TO
115VZC].
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X and Co firm of X and Y with Unlimited liability) is engaged in the
business of manufacturing (Turnover of 17-18 being Rs8850000 out of which
Rs400000 is received by account payee cheques or darft up to July 31,2018.
It wants to claim the following deductions.
Salary and interest to partners (as permitted by Sec40(b)] 60000
Salary to employees 490000
Depreciation 270000
Cost of material used 7590000
Other exp 345000
Total 8755000
Net profit (8850000-8755000) 95000
Determine the net income for AY2018-19 assuming LTCG is Rs40000 and firm
is eligible for deduction sec. 80G is Rs5000. The firm has brought forward loss
of Rs240000 (PY14-15) of trading which has been discontinued.
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OR
Q.4 Discuss the provisions related to Applicability, Non applicability and tax
liability as per Minimum Alternate Tax
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X ltd is a widely held company. It is currently considering a major expansion
of its production facilities and the following alternatives are available
Particulars Alt:1(Rs.) Alt:2(Rs.) Alt:3(Rs.)
Share capital 50,00,000 20,00,000 10,00,000
14% Debenture 20,00,000 15,00,000
18% Loan from Bank 10,00,000 25,00,000
Expected rate of return before tax Rs 25%. The rate of dividend of the company
since 1980 is not less 20% and date of dividend declaration is june30 every year.
Which alternative company should opt with reference to tax planning?
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Q.5 DG Ltd. wants to acquire a machine on 1st April, 2017. It will cost Rs 1,50,000.
It is expected to have a useful life of 3 years. Scrap value will be Rs 40,000. If
the machine is purchased through borrowed funds, rate of interest is 15% p.a.
The loan is repayable in three annual installments of Rs 50,000 each. If machine
is acquired through lease, lease rent would be Rs 60,000 p.a. Profit, before
depreciation and tax is expected to be Rs 1,00,000 every year. Rate of
depreciation is 15%. Average rate of tax may be taken at 33.99%. A ltd. seeks
your advice whether it should:
Acquire the machine through own funds, or
Take it on lease.
Present value factor shall be taken 10%. The Profit or loss on sale of the asset
is to be ignored. Answer the questions supported by working notes.
CASE STUDY:
(Practical Relevant to theory)
(NOS.) QUESTIONS EACH OF 7 MARKS with or
Suggested Guidelines:
1. Case Study Shall not be more than 500 Words, and must be typed
properly
2. Case Study must be In line with the relevant syllabus of the subject
3. Only a single Case Study of practical situation can be used but the
questions can have options of attempting or
Case relevant to the syllabus OR Practice Oriented Theory Question.
4 (NOS.) QUESTIONS EACH OF 7 MARKS
Advice whether asset should be taken on lease or on purchase. 14
Whether it should be acquired through own funds or borrowed funds?
OR
Q.5 The net profit of ACC ltd as per P&L a/c for the P.Y2017-18 is Rs.100 lakh after
debiting/crediting the following items:
Provision for income tax Rs.15lakh
Provision for deferred tax Rs.8lakh
Proposed dividend Rs.20lakh
Depreciation debited to P&L a/c is Rs.12lakh. It includes revalued
depreciation of asset Rs.2lakh.
Profit from unit established in SEZ Rs.30lakh
Provision for permanent diminution in value of investment Rs.2 lakh
Brought forward losses and unabsorbed depreciation as per books of
company are as
P.Y Brought forward loss(Rs.in
lakhs)
Unabsorbed
Depreciation(Rs.in lakhs)
14-15 2 5
15-16 3
16-17 10 2
Compute book profit of the company under section 115JB for the AY 2018-
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Compute tax liability under 115JB if MAT rate is 18.5%
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