Download GTU MBA 2019 Winter 3rd Sem 2830009 Corporate Taxation Question Paper

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GUJARAT TECHNOLOGICAL UNIVERSITY
MBA - SEMESTER III - EXAMINATION — WINTER 2019

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Subject Code:2830009 Date:02/12/2019
Subject Name: Corporate Taxation
Time:10.30AM TO 01.30 PM Total Marks: 70
Instructions:

1. Attempt all questions.

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2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.

Q. 1(a) Multiple Choice Questions 6

1. Extra tax which a company has to pay because of minimum alternate tax, can be carried forward for
   A. 5 years B. 7 Years
   

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   C. 10 years D. No Carry forward
2. A person getting bonus shares will have to pay tax at the time of allotment of bonus shares.
   A. On the market value of bonus B. On the face value of bonus shares
   shares
   C. On the value determined by the D On Nothing
   

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   board
3. An Indian company is said to be resident in India if -
   A. Control and management of the B. Control and management of the
   affairs of a company is situated affairs of a company is situated
   wholly in India outside India
   

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   C. Control and management of the D. All of the above
   affairs of a company is situated
   partly in India and partly outside
   India
4. A company will pay dividend tax if=
   

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   A. Bonus shares are allotted to equity B. Bonus shares are allotted to
   shareholders preference shareholders
   C. Shares are allotted to debenture- D. Shares are allotted to employees as
   holders free of cost ESOP shares free of cost
5. Deduction under section 80JJAA is available in the following cases
   

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   A. Indian Company B. Foreign Company
   C. Limited Liability Partnership D. All of the above
6. Avoidance of double taxation agreement
   A. Can increase tax liability B. Can reduce tax liability
   C. Does not have any impact on tax D. Can impose tax liability in respect of
   

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   liability income which is otherwise exempt
   under Income Tax Act

(b) Define the following 04

1. Tax avoidance
2. Tax evasion

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3. Non-resident
4. Double taxation relief

(c) a. Explain any four differences of tax planning and tax management 04

Q.1

Q.3

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(a) A company which was started on April 1, 1999 and in 07
there are only equity shares. The shares are held throughout by X,
Y and Z equally. The company made losses/incurred depreciation
under and the same have been accepted in the income-tax assessments.

Assessment Year	Business Loss	Unabsorbed Depreciation	Total
2006-07	NIL	30,00,000	30,00,000
2007-08	NIL	18,00,000	18,00,000
2008-09	9,50,000	8,70,000	18,20,000
Total	9,50,000	56,70,000	66,20,000

During the year previous year ended March 31,2009, X transferred his

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shares to P and during the previous year ended March 31,2010, Y
transferred his shares to Q. during the previous year ended March
31,2009, the company made a profit of 12,00,000 (before debiting
6,00,000 for depreciation) and during the previous year ended March
31,2010, the company made a profit of 80,00,000 (before debiting

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5,00,000 for depreciation). Compute the taxable income of the company
for the assessment year 2010-11. Workings should form part of your
answer.

(b) X & company, a firm is engaged in the business of Civil construction 07
(Turnover of 2018- 2019) being 37,80,000. It wants to claim the

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following deduction.

Particulars	Amount ()
Salary & interest to partners (as permitted by sec. 40(b)	60,000
Salary to employees	4,90,000
Depreciation	2,70,000
Cost of material used	25,90,000
Others Expenses	3,45,000
Total	37,55,000
Net Profit	25,000

Determine the net income of X& company for the current assessment
year. Assuming taxable income from other business is 1,90,000, long
term capital gain is 40,000 & the firm is eligible for deduction of
5,000 under sec 80G.

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OR

(b) List out different areas of Tax Planning and explain any two in detailed. 07

(b) X Purchases 1,100 equity shares in A ltd. on June 11, 1979 @ 30 per 07
share (brokerage: 1%) on May 23, 1984, he gets 550 bonus shares. Fair
market value of shares in A ltd. on April 1, 1981 is 46. He sells 1,100

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original shares on March 10,2010 @ 116 per share (brokerage: 1%).
Further on March 29,2010, he sells 550 bonus shares @ 131 per share
(brokerage: 2%). Find out the amount of capital gains on the assumption
that securities transaction tax is not applicable.

X Ltd. manufactures electric pumping sets. The company has the option 07

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to either make or buy from the market component Y used in manufacture
of the sets.

The following details are available.

The component can be manufactured on new machine costing 1,00,000
with a life of 10 years. Power cost is 2 per hour. The salary of the foreman employed is 1,500 per month and

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other variable overheads include 20,000 for manufacturing 25,000
components per year. material requirement is 25,000 kgs. And requires
50,000 labor hours. The component is available in the market at 4.30 per
piece.

Will it be profitable to make or to buy the component? Does it make any

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difference if the component can be manufactured on an existing
machine?

OR

Q.3 XYZ Ltd. needs a component in an assembly operation. It is 14
contemplating the proposal to either make or buy the aforesaid

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component.

1. If the company decides to make the product itself, then it would need
   to buy a machine for 8,00,000 which would be used for 5 years.
   Manufacturing costs in each of the 5 years would be 12,00,000,
   14,00,000, 16,00,000, 20,00,000 and 25,00,000 respectively. The
   

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   relevant depreciation rate is 15%. The machine will be sold for
   1,00,000 at the beginning of the 6™ year.
2. If the company decides to buy the component from a supplier the
   component would cost 18 lakh, 20 lakh, 22 lakh, 28 lakh and
   34 lakh respectively in each of the five year.

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The relevant discounting rate and tax rate are 14% and 33.2175 %
respectively. Additional depreciation is not available. Should XYZ Ltd.
make the component or buy from outside?

Q4 (a) ONGC has agreements (approved by the Government) with the 07
following three foreign companies which provide services and facilities

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to ONGC in connection with ‘prospecting for (or extraction/production
of) mineral oils in India-

Particulars	A INC	B INC	CINC
Date of Agreement	June 10,1982	June 10,1992	June 10,2002
Amount paid by ONGC on account services provided by foreign companies (in )	90 crores	90 crores	90 crores
Tax Liability borne by ONGC (in )	NIL	3.8007 crore	3.96828 crore

Find out the taxable income and tax liability of the foreign companies.
Discuss whether tax liability borne by ONGC would be perquisite
arising to B Inc. and C Inc. under section 28(iv) and would be taxable

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separately in addition to income computed under section 44BB.

(b) X (28 years) is a musician deriving income from concerts performed 07
outside India of 9,50,000. Tax of 1,90,000 was deducted at source in
the country where the concerts were given and remaining 7,60,000 is
remitted to India. India does not have any agreement with that country

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for avoidance of double taxation. If the Indian income of X is
2,00,000, what is the relief due to him under section 91 for assessment
year 2010-11?

OR

Assuming that X is changing over to section 44ADA and deposits 07

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22,000 in the public provident fund account.

Q.4 (a) Discuss in brief arm’s length price computation method. 07

(b) Find out the net income in the cases of Guruji (32 years) and Ganesh 07
(28 years) (both are retail traders at Mahadev Peth) from the following data
for the assessment year 2010-11:

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Particulars	Guruji ()	Ganesh ()
Sales turnover	20,00,000	30,00,000
Less: Expenses
Cost of Goods sold	18,00,000	27,00,000
Depreciation	5,000	7,500
Other expenses	1,60,000	2,40,000
Business Income	35,000	52,500
Other Income	1,07,500	1,15,000
Public Provident Contribution	15.000	30.000

Q.5 Mr. Sartaj Singh is interested in starting a new business but is confused 14
whether a partnership firm is a better option or a private limited
company for taxation working. He approaches the tax consultant and
provides him with the following details:

If a partnership firm is started:

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1. There are two partners Mr. Singh and Mr. Parulkar with an equal
   share of profit.
2. They want to draw the maximum permissible amount as salary. Both
   the partners will draw equal salary.
3. Income is from business (not from profession).

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4. They are entitled to simple interest at the rate of 12% on the capital
   contribution of 10,00,000.
5. They do not have any other income.

If a private limited company is incorporated:

1. Mr. Singh and Mr. Parulkar will be the two shareholders and directors
   

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   of the company.
2. They will draw salary. ‘As there is no maximum ceilings under the
   Income tax Act, they will draw salary @ 90% of profit up to 3,00,000
   of profit and 60% of balance. It is assumed that provisions of section
   40A(2) are not attracted.

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Assume taxable income before deduction of salary and interest to
partners 1in case of firm and taxable income before payment of salary to
the directors is either i) 10,00,000 or ii) 20 ,00,000 As a tax consultant
you are required to analyze the tax incidence under each level of income
for firm and company and advise accordingly.

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OR

A company is contemplating an expansion program. It has to make a 14
choice between debt issue and equity issue for its expansion program. Its
current position

Particulars	Amount ( in crores)
10% Debt	80
Equity share capital(" 10 per Share)	200
Reserves and Surplus	120
Total capitalization	400
Sales	1,200
Less: Total Cost	1,076
EBIT	124
Less: Interest	8
EBT	116
Less: Tax @ 33.99%	39.43
EAT	76.77

The expansion program is estimated to cost = 200 crore. If this is

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financed through debt, the new rate of debt will be 10% and the P/E
Ratio will be 6 times. If the expansion program is financed through
equity, new shares can be sold getting 25 per share and the P/E Ratio
will be 7 times. The expansion will generate additional sales of 600
crore with return of 10% on sales before interest and tax. Suggest which

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form of financing should it choose?

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