MF0012–Taxation Management

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Master of Business Administration- MBA Semester 3
MF0012–Taxation Management-4 Credits
(Book ID: 1759)
Assignment (60 Marks)
Note: Answer all questions (with 300 to 400 words each) must be written within 6-8
pages. Each Question carries 10 marks 6 X 10=60
Q1. Explain the objectives of tax planning. Discuss the factors to be considered in tax
planning.
Answer. Objectives of tax planning
 Reduction of tax liability by utilizing the benefits available in the tax laws.
 Informed and pragmatic financial decision: A person adds the dimension of tax
incidence in his decision making on financial matters and it helps him to optimize his
Q2. Explain the categories in Capital assets. Mr. C acquired a plot of land on 15th June,
1993 for 10, 00,000 and sold it on 5th January, 2010 for 41, 00,000. The expenses of
transfer were 1, 00,000.Mr. C made the following investments on 4th February, 2010 from
the proceeds of the plot.
A) Bonds of Rural Electrification Corporation redeemable after a period of three years, 12,
00,000.
B) Deposits under Capital Gain Scheme for purchase of a residential house 8, 00,000 (he
does not own any house).Compute the capital gain chargeable to tax for the AY 2010-11.
Answer. Categories of capital assets
1. Short term capital assets
A short term capital assets means as per u/s 2(42A) a capital asset held by an assesses for
not more than (a) twelve months before its transfer in case of companies equity &
preference shares or any other security listed in a recognized stock exchange or units of
mutual funds and UTI or zero coupon bond and (b) 36 months before its transfer in the case
of any other asset.
Q3. Explain major considerations in capital structure planning. Write about the dividend
policy and factors affecting dividend decisions.
Answer. There are three major considerations in capital structure planning, i.e. risk, cost of
capital and control, which help the finance manager in determining the proportion in which
he can raise funds from various sources.
Risk- Risk is of two kinds, i.e. financial risk and business risk. Here we are concerned
primarily with the financial risk. Financial risk is also of two types:
Q4. X Ltd. has Unit C which is not functioning satisfactorily. The following are the details of
its fixed assets:
Asset
Land
Goodwill (raised in books on
31st March, 2005)
Machinery
Plant
Date of acquisition
10th February, 2003
Book value (Rs. lakh)
30
10
5th April, 1999
12th April, 2004
40
20
The written down value (WDV) is Rs. 25 lakh for the machinery, and Rs.15 lakh for the
plant. The liabilities on this Unit on 31st March, 2011 are Rs.35 lakh.
The following are two options as on 31st March, 2011:
Option 1: Slump sale to Y Ltd for a consideration of 85 lakh.
Option 2: Individual sale of assets as follows: Land Rs.48 lakh, goodwill Rs.20 lakh,
machinery Rs.32 lakh, and Plant Rs.17 lakh. The other units derive taxable income and
there is no carry forward of loss or depreciation for the company as a whole. Unit C was
started on 1st January, 2005. Which option would you choose, and why?
Answer.
Option 1: Slump sale
Computation of net worth of unit C
Rs. (in lakhs)
Land (book value)
30
Goodwill (book value)
10
Machinery (WDV)
25
Q5. Explain the Service Tax Law in India and concept of negative list. Write about the
exemptions and rebates in Service Tax Law.
Answer. Service Tax is a tax levied on the transaction of certain specified services by the
Central Government under the Finance Act, 1994. It is an indirect tax, which means that
normally the service provider pays the tax and recovers the amount from the recipient of
taxable service. In certain cases Government may shift the liability of payment of service tax
Q6. What do you understand by customs duty? Explain the taxable events for imported,
warehoused and exported goods. List down the types of duties in customs. An importer
imports goods for subsequent sale in India at $10,000 on assessable value basis. Relevant
exchange rate and rate of duty are as follows:
Particulars
Date
Exchange Rate
Declared by CBE&C
Rate of Basic
Customs Duty
Date of submission
of bill of entry
25th February, 2010
Rs.45/$
8%
Date of entry
inwards granted to
the vessel
5th March, 2010
Rs.49/$
10%
Calculate assessable value and customs duty.
Answer. A tax levied on imports (and, sometimes, on exports) by the customs authorities of
a country to raise state revenue, and/or to protect domestic industries from more efficient
or predatory competitors from abroad.
Custom duty: the word custom comes from Sanskrit word "kashtam" which means
difficulty. When goods imported into the country from another country which creates a
taxable events therefore it is mandatory to pay a duty to the government which is called
customs duty.
 Taxable events for imported goods: the taxable event arises when import occurs on
the day of crossing of the customs barrier but not the date on which goods land in
India or enter its territorial waters.
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