MF0012-Taxation Management

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Master of Business Administration - MBA Semester 3
MF0012-Taxation Management
(Book ID: 1760)
Assignment (60 Marks)
Note: Answers for 10 marks questions should be approximately of 400 words. Each question is
followed by evaluation scheme. Each Question carries 10 marks 6 X 10=60.
Q1. Mr. X (38 year) is employed by A Ltd. as marketing manager in Pune. The following
information is furnished by Mr. X for the previous year ending 31st March 2015.
Basic salary Rs. 12,00,000 p.a., DA Rs. 40,000 p.a. (36 % of DA is considered for gratuity and
Pension, but not for Provident fund). Club allowance Rs. 5,000 p.m., Furnishing allowance Rs.
2,000 p.m. and HRA Rs. 40,000 p.m. Conveyance allowance is Rs. 2,000 p.m. which can be used
both for office and private purposes.
Up to August 31, 2014, he resides with his parents and does not pay any rent. From September
1, 2015 he has been allotted a company accommodation at Pune (population 23 lakhs) in lieu of
house rent allowance.
Club allowance has been discontinued from January 1, 2015. And Mr. X has been provided by
the company club facility for private (20 %) and office use (80%). Expenditure by the company
uptil 31st March 2015 was Rs. 20,500.
On 20 Nov. 2014, Mr X has taken an interest free loan from the company (SBI lending rate for
Similar loan being 18.5 % p.a.). Mr. X and his employer contribute @ 10 % of his salary to P.F.
Interest Credited by the company in Provident Fund on June 1, 2014 @ 9.7 % is Rs. 2,11,200.
Assuming that income of Mr. X from Other Sources Rs. (-30,000), find out the net income and
liability of Mr. X for the Assessment Year 2015-16.
Based on above Compute the taxable income and tax liability (before deducting TDS) of Ms. X
for the A.Y. 2015-16 Rs. 2,600 (being Income-tax refund and Rs. 200 being Interest thereon)
Answer. Calculation of tax liability of Mr. X
Basic salary
Q2. a) How is advance money received against cost of acquisition adjusted?
b) State giving reasons, whether the following assets are Short term or Long term:
i) X purchases a house on 10th March 2012 and transfers on 6th June 2014.
ii) Y purchases unquoted shares in an Indian company on 10th March 2012 and transfers on 6th
June 2012.
iii) Z acquires units of mutual fund on 7th July 2013 and transfers those on 10th July 2014.
iv) A purchases diamonds on 12 September 2011 and gifts the same to his friend B on 31st
December 2014 and B transfers the asset on 20 October 2014.
Answer. a) Adjustment of advance money received against cost of acquisition (Section 51)
It is possible for an assessee to receive some advance in regard to the transfer of capital asset.
Due to breakdown of negotiations the assessee may have retained the advance. In calculating
capital gains the above advance retained by the assessee must be used to reduce the cost of
Q3. Ms. A purchases a house property on 1st January 1976 for Rs. 95,000. She enters into an
Agreement for sale of the same property to Mr. X on 1st November 1983 and receives Rs.
10,000 as advance. Following the demise of Mr. X immediately thereafter, the money was
forfeited by Ms. A. Later Ms. A gifts her property to her friend Ms. B on 15th May 1985. The
following expenses are incurred by Ms. A and Ms. B for improvement of the property:
Cost (Rs.)
Additions of two rooms by Ms. A during 1978-79
Addition of first floor by Ms. A during 1983-84
Addition of second floor by Ms. B during 1990-91
Ms. B enters into an agreement for sell the property for RS. 8,50,000 to Mr. P on 1st April
1993after receiving an advance of Rs. 50,000. Mr. P could not pay the balance amount within
the stipulated time of two months and Ms. B forfeits the amount of advance.
Ms. B finally transfers the property to Ms. C for Rs. 14,75,000 on 1st December 2014. Given the
Fair Market Value of the property on 1st April 1981 being Rs. 1,15,000; Cost Inflation Index for
1981-82 : 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 the Capital gains in the hands of Ms. B for the
Assessment Year 2015-16.
Answer. Calculation of the capital gain of Ms. B for the A.Y 2015-16
Sale Proceeds
Less: Indexed cost of acquisition
Q4. i) Ms. Brinda, a U.S. citizen visits India on 1st January 2014 to study and conduct research on
Indian folk culture. She has been regularly visiting India for 100 days in the past five consecutive
years to carry the research. Advise the residential status of Ms. Brinda under extant rules
referring to section 6 of the Income-tax Act 1961.
ii) What are the provisions of Advance tax under section 2(1)?
Answer. i) Residential status: On the parameter of residence in India, there are three categories:
resident, non-resident, and not ordinarily resident. The definition depends upon physical presence
of the person in case of individuals, and upon control and management in case of companies and
Q5. Explain the need of Service tax in India. What are the different approaches to Service tax in
Answer. Service tax is a tax levied by Central Government of India on services provided or to be
provided excluding services covered under negative list and considering the Place of Provision of
Services Rules, 2012 and collected as per Point of Taxation Rules, 2011 from the person liable to
pay service tax. Person liable to pay service tax is governed by Service Tax Rules, 1994 he may be
service provider or service receiver or any other person made so liable. It is an indirect tax
wherein the service provider collects the tax on services from service receiver and pays the same
Q6. Mr. X (aged 59 years) furnishes the following Profit and Loss account for the year ended
31st March, 2015. Compute the Gross Total Income of Mr. X under respective heads, his Net
Taxable Income and Tax liability in the assessment year 2015-16.
General Expenses
Bad debts
Advance tax
Salary to Staff
Salary to Mr. X
Interest on Cash 4,000
Interest on loan to 42,000
Mrs. X
Gross profit
Miscellaneous Income
Bad Debt Recovery
Interest on Debenture
(Net interest Rs.22,500 + TDS Rs. 2,500)
Interest on Fixed Deposits
(Net interest Rs. 11,700 + TDS Rs. 1,300)
Interest on Capital of
Mr. X
Provident Fund
Net Profit
Supplementary information:
Permissible depreciation as per CBDT circular is Rs. 37,300 which includes depreciation of
permanent glow sign board.
i. Advertisement expenditure includes Rs. 3,000, being cost of permanent glow sign board
affixed outside the office premises.
ii. Commission accrued but not received Rs. 4,500 is not credited to P & L Account.
iii. Mr. X pays premium of Rs. 6,000 on his own life.
iv. General expenses include:
a) Rs. 500 spent for arranging a party for Mr. X’s son who arrives from Canada.
b) Rs. 1,000 for contribution to a political party.
v. Loan availed from Mrs. X was for payment of arrear tax.
A Mr. X (aged 59 years) furnishes the above Profit and Loss account for the year ended 31st
March, 2015.
Compute the Gross Total Income of Mr. X under respective heads, his Net Taxable Income and
Tax liability in the assessment year 2015-16.
Answer. Computation of Gross Total Income of Mr. X under respective heads, his Net Taxable
Income and Tax liability in the assessment year 2015-16:
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