MBA SEMESTER 3 MfO012- taxation Management (Book ID: B1210) Assignment Set- 2

Q1. Describe in brief the provisions for set off and carry forward of losses.
ANS: Income Head Set off in Same Assessment Year Income from Any Head of Income. Carried forward to Subsequent Assessment Year Only against Income from House Property. No of Years for which it can be carried forward

Nature of Loss

Income from House Property

House Property

Let Out Property Self Occupied Property

Speculation Business Other Business or Profession

Speculation Loss

Only against Speculation Profit. Any Income except Salary.

Only against Speculation Profit. Only against Profit or Gains from business or Profession.

Any Loss from Business or Profession other than Speculation Loss and Unabsorbed Depreciation

Capital Gains

Long Term Capital Gains

Only against Long term Capital Gains. Only against Capital Gains (Both Short Term & Long Term).

Only against Long term Capital Gains. Only against Capital Gains (Both Short Term & Long Term). Only against Income from owning and maintaining Race Horses.

Capital Gains

Short Term Capital Gains

Other Sources

Income from owning Only against and maintaining Race Income from Horses owning and maintaining Race Horses.

Other Sources Profit or Gains from Business or Profession

Income from Other Sources Unabsorbed Depreciation

Any Income. Any Head of Income except Salary.

No Carry Forward Any Head of Income except Salary.

NA

No time limit. Shall be carried forward to Subsequent assessment year and shall be deemed to be the Depreciation of that year.

Profit or Gains from Business or Profession

Scientific and Any Income Research Expenditure

Shall be carried forward to Subsequent assessment year and shall be deemed to be the Scientific ans Research Expenditure of that year.

NA

Profit or Gains from Business or Profession

Prospecting NA Expenditure(Installmen t)

Shall be carried Can be carried forward to forward upto the Subsequent 10th assessment assessment year year reckoned and shall be from the year of deemed to be commercial the Installment production. of that year. Shall be carried forward to Subsequent assessment year and shall be deemed to be the Family Planning Expenditure of that year.

Profit or Gains from Business or Profession

Family Planning Expenditure

NA

NA

Q2. Compute the net wealth and wealth tax liability of R Ltd. as on 31-3-2011. The company is engaged in jewellery business-exports and domestic sales: The company has taken a loan of Rs. 6,00,000 by mortgaging guest house and built the factory premises.

Hint : Net Wealth taxable Rs. 14,50,000; Wealth tax 14,500 Solution Rs. 430000 0 122000 0 650000 940000 0 960000 0 150000 0 800000 274700 00

Factory buildings Bank balance Unaccounted cash balance Silver ware Gold ornaments Motor cars Guest house in London Total Assets Less:Debt incurred in relation to an asset: Loan for factory premise Net wealth Less:Basic exemption Taxable Net Wealth Tax Payable @ 1%

600000 268700 00 254200 00 145000 0 14500

3. State the provisions relating to the computation of capital gains in the hands of shareholders of a company on a distribution of assets upon liquidation.
The meaning of transfer is given in Section 2 (47) whereas transactions not regarded as transfer are covered u/s 46 and 47. In the following transactions although there is a transfer, but it is not considered to be transfer for purpose of capital gains; 1. Where the assets of a company are distributed to its shareholders on liquidation of a company, such distribution shall not be regarded as transfer in the hands of the company [Section 46(1)];

2. Any distribution of capital assets on the total or partial partition of Hindu Undivided Family [Section 47 (i)]; 3. Any transfer of a capital asset under a gift or will or an irrevocable trust [Section 47(iii)] Proviso to Section 47(iii); Provides that transfer under a gift or irrevocable trust of a capital asset being shares, debentures or warrants allotted by a company directly or indirectly to its employees under the ESOP shall be regarded as transfer and chargeable as capital gain. 4. Any transfer of a capital asset by a company to its 100% subsidiary company provided the subsidiary company is an Indian company [Section 47 (iv)]; 5. Any transfer of a capital asset by a 100% subsidiary company to its holding company, if the holding company is an Indian company [Section 47(v)]; 6. Any transfer in a scheme of amalgamation of a capital asset by the amalgamating company to the amalgamated company, if the amalgamated company is an Indian company [Section 47 (vi)]; 7. Any transfer in a scheme of amalgamation of shares held in an Indian company by the amalgamating foreign company to the amalgamated foreign company if: a) at least 25% of the shareholders of the amalgamating foreign company continue to remain shareholder of the amalgamated foreign company, and b) Such a transfer does not attract capital gains tax in the country, in which the amalgamating company is incorporated [Section 47 (vi a)]; 8. Any transfer in a demerger, of a capital asset by the demerged company to the resulting company, if the resulting company is an Indian company [Section 47 (vi b)]; 9. Any transfer in a demerger, if a capital asset, being a share or shares held in an Indian company, by the demerged foreign company to the resulting foreign company; 10. Any transfer or issue of shares by the resulting company, in a scheme of demerger to the shareholders of the demerged company if the transfer or issue is made in consideration of demerger of the undertaking [Section 47 (vid)]; 11. Any transfer by a shareholder, in a scheme of amalgamation, of shares held by him in the amalgamating company if a) The transfer is made in consideration of the allotment to him or any share or shares in the amalgamated company, and b) The amalgamated company is an Indian company [Section 47(vii)]; c) The consideration received by the shareholder should only be shares. If the consideration includes anything in addition to shares then it will be treated as a transfer and there will be a capital gain.

12. Any transfer of bonds or Global Depository Receipts referred to in Section 115AC(1) i.e. purchased in foreign currency, made outside India by a non-resident to another non-resident [Section 47(viia)]; 13. Any transfer of urban agricultural land in India before 1.3.1970 [Section 47 (viii)]; 14. Any transfer of a capital asset, being any work of art, archaeological, scientific or art collection, book, manuscript, drawing, painting, photograph or print, to the Government or a University or the National Museum, National Art Gallery, National Archives or any such other public museum or institution, as may be notified by the Central Government in the Official Gazette to be of national importance, or to be of renown throughout any State or States [Section 47(ix)]; 15. Any transfer by way of conversion of bonds or debentures, debenture stock or deposit certificates in any form, of a company into shares or debentures of that company [Section 47(x)]; 16. Conversion of FCEBs (Foreign Currency Exchangeable Bond) into shares or debentures of any company shall not be treated as transfer [Section 47(xa)].

4. Explain the different schemes of service tax planning

Different Schemes of Service Tax Planning Given below are the key schemes under which an assessee can reduce their tax liability: i) Regular Scheme under which, the works Contractor would have to pay service tax at the applicable rate of 12.36% and would be entitled to cenvat credit in respect of inputs, capital goods and input services. ii) The works Contractor can opt for the benefit of Notification No. 12/2003 dated June 20, 2003, as amended from time to time read with Rule 2A of the Service Tax (Determination of Value) Rules, 2006 which has come into effect from June 1, 2007, whereby, he would be entitled for an exclusion of the extent of the value of goods and materials used while computing the value of taxable services and would still be entitled for cenvat credit in respect of service tax paid on input services, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials. This exemption will apply only in such cases where (i) no Cenvat Credit on such goods and materials had been taken by the service provider, or (ii) if such Cenvat Credit had been taken by the service provider on such goods and materials, such service provider had paid the amount equal to such credit availed before the sale of such goods and materials. In other words, either the service provider should not have taken Cenvat Credit on such goods and materials, or, if he had taken such credit, he must reverse the credit before the sale of such goods and materials. iii) Abatement Scheme: Under Notification No 1/2006 dated March 1, 2006, as amended from time to time, whereby, the works Contractor is entitled to claim abatement to the extent of 67% of the value of services rendered by him. In effect, the works Contractor would have to pay service tax @ 4.08% and would not be entitled for any cenvat credit on inputs, capital goods and input services. iv) Composition Scheme: The newly introduced Composition Scheme, effective June 1, 2007, under which the works Contractor would be required to collect service tax @ 2.06% on the value of services rendered and would be entitled for cenvat credit in respect of input services and input capital goods.

Q5. During the P.Y. 2010-11, the gross total income of Mr. X is Rs. 4, 00,000. During the P.Y. he pays the following premiums on Medi-claim insurance policy by cheque. Calculate the amount of tax benefit under Section 80 D. (a) Mr. X 6,000 (b) Mrs. X 4,000 (c) Son (not dependent) 3,000 (d) Daughter (dependent) 2,000 (e) Father (not dependent) 1,500 (f) Mother (dependent) (age 68 years & resident in India) 2,000 Hint: Total deduction is Rs. 12,000
Solution The insurance premium paid for son and father will not qualify for deduction under section 80 D as they are not dependent upon Mr. X. Amounts qualifying for deduction are:Amount (in Rs) Mr. X 6,000 Mrs. X 4,000 Daughter 2,000 Total 12,000 ( limited to 10,000) Additional deduction for mother 2,000 Hence total deduction under section 80 D is Rs (10,000 + 2,000) = Rs 12,000

6. What is slump sale? Explain provisions relating to slump sale

Slump Sale has been one of the widely used ways of business acquisition in India. The concept of Slump Sale is quite old one but it gained popularity after 1990s. The concept of Slump Sale was incorporated in the Income tax Act, 1961 (the IT Act) by the Finance Act, 1999 when Section 2(42C) was inserted defining the term slump sale and Sec 50B Provisions of Section 50 B, applicable for computation of capital gains in the case of slump sale are given below: i) Any profits or gains arising from the slump sale affected in the previous year shall be chargeable as long term capital gains and shall be deemed to be income of the previous year in which the transfer took place. However, any capital asset being one or more undertakings owned and held by the assessee for not more than 36 months is transferred under the slump sale, then capital gain shall be deemed to be short term capital gain.

ii) In the case of slump sale of the capital asset being one or more undertaking,
the net worth of the undertaking shall be taken as cost of acquisition and cost of improvement. Net worth for this purpose is the aggregate value of total asset of the undertaking of division as reduced by the value of liabilities of such undertaking of division as reduced by the value of liabilities of such undertaking or division as appearing in the books of accounts. Any change in the value of assets on account of revaluation of asset of such undertaking or division shall be the written down value of block of asset determined in accordance with the provisions contained in sub-item (C) of Section 43(6)(c)(i) in the case of depreciable assets and the book value for all other assets. iii) The benefit of indexation will not be available. iv) Every assessee, in the case of slump sale, shall furnish along with the return of income, a report of a chartered accountant in form No. 3 CEA indicating the computation of the net worth of the undertaking or division as the case may be has been correctly arrived at