CORPORATE TAXATION

ASSIGNMENT -1

FROM
RAGHAVENDRA. H. S
18MB0377
2ND YEAR MBA
FINANCE
PBMM PG CENTER
MYSORE

TO
VIBHA P
ASSISTANT PROFESSOR
PBMM PG CENTER
MYSORE
Q1. How is the income from business / profession computed under presumptive
basis under section 44AD and 44AE of the income tax act, 1961.

 Presumptive taxation – sec. 44AD

i. In the case of an assessee, being a resident individual, HUF or a firm other

than a LLP, carrying on any business whose gross receipts from such
business does not exceed Rs.1 crore, a sum equal to 8% of the gross
receipts shall be deemed to be the income from from such business.
ii. An assessee who is covered under this provision is not required to pay
advanced tax.
iii. If the assesse claims that his income is lower than the 8% prescribed, then
he shall maintain the books of account as per 44AA and get the same
audited as per 44AB.

 Business of plying, hiring or leasing goods carriage- sec. 44AE

In the case of an assessee who carries on business of plying, hiring or leasing goods
carriage and who owns more than 20 goods carriage, the income shall be deemed to be
Rs. 7500 from goods vehicle per month or higher amount as declared by him.

Q2. what are the principles under taxation in respect of capital receipts, revenue
receipts, capital expenditure and revenue expenditure ?

Capital receipt and revenue receipt, both are the very important components of accounting. It
is important to correctly differentiate between the two. Classification of these transactions
reflects in the final statements of the company. Let us learn more about them.

Capital Receipt:

These have a nature of non-recurrence, besides that, they are situated in the balance sheet in
the liabilities portion of them. The capital receipt is always in the interchange for
the income. The capital receipt is a kind of cash-flow in the business that does not occur
over and over again and this eventually, leads to the creation of liabilities in the future and
also, the decrement of assets takes place in the future.

All of the capital receipts are free from taxation unless there is a provision to tax it. Various

types of Gifts and loans are the types of the capital receipts that do not attract tax and are
tax-free. So, in addition to non-recurring, Capital receipts are those non-
routine receipts which either becomes a load and responsibility or cause a vivid depletion in
the assets of the government or any organization and business.

The following sources are the generators of the capital receipt:

  Additional capital and mentioned assets introduced by the owner or the possessor

 Debentures and the other  issues of debt instruments

 Loans borrowed from a bank or from a financial institution.

 Various insurance Claims.

 Issue of Shares
So, basically, capital receipts are those that are the derivation of the not so normal operations
of a business. Besides that, the effect of capital receipt is depicted in the balance sheet.
These receipts are not at all a part of normal operations of government business. For
example, a sale of fixed assets, etc.

Revenue Receipt:

These receipts are a major source of income for any kind of a business and without it, a
business can’t survive for long. This is a result of the normal and core business activities.
Being a normal business result is the reason for its recurring nature. However, there is a little
shortcoming associated with it. The benefits of revenue receipts are enjoyable only for the
current accounting year and not possibly after that.

The income received from the daily and periodic activities of business includes all the
operations that indulge cash into the business like:

 The sale of any kind of an inventory

 Income from services rendered

 Different types of discount Received from the suppliers

 Sale of scrap

 Interest received.

 Rent received
To sum it all, Revenue receipts are recurring receipts and their effect is shown on the income
statement. For a successful business, both receipts play a prominent role as they both
compliments each other.

Capital Expenditures and Revenue Expenditures:

To know about the capital expenditures and revenue expenditures, first of all, it is very
important to know about the meaning of expenditure beforehand. Expenditure is
basically spending of funds or money to avail services or for purchasing. Let’s take a look.

Expenditure:

Expenditure means spending on something. This can be a payment is cash or can also be the
exchange of some valuable item in exchange for goods or services. It is the process of
causing a liability by a commodity. Receipts and invoices keep the records of expenditures.
An expense is a word very similar to expenditure but expense shows the deduction in the
value of the asset while expenditure simply denotes the obtaining of assets. Two types of
expenditures are present on the basis of time durations, That is

 Capital expenditures

 Revenue expenditures

 Capital Expenditures

These are expenditures for high-value items that holds longer duration requirements. Capital
expenditures are long-term expenditures. In other words, when the expenses are made for a \
particular asset but they do not get completely consumed in the specific time. Due to
this the earning capacity increases, and in the meanwhile, the price of the assets decreases.

Consequently, the future costs are reduced because the costs of the assets are continuously
revised according to the depreciation taking place. There is a requirement to redo the capital
expenditures in the accounting year. These do not get exhausted in the accounting year and
benefits the user in the future years. Besides that, capital expenditures enhance the position
of the business and trade. There different types of capital expenditure are,

 Cash money spent on business purposes.

 Purchasing of  Plants and machinery items

 IT items

 Electric power equipment

 Permanent additions to existing fixed assets

 Revenue Expenditures

In contrast to the capital expenditure, revenue expenditures are not the high-value items,
instead, they are the routine expenditures that takes place in the normal business. In other
words, this kind of expenditure maintains fixed assets. Unlike capital expenditure, earnings
do not increase but stay maintained in revenue expenditure. The assets get consumed in an
accounting year and no future benefits are available. Also, the prices of assets remain fixed.
The assets are consumed in less than a year so there is a need to purchase them again. This is
a recurring type of expenditure. There are two sub-categories of revenue expenditures:

 Direct Expenses: These include the cost of manufacturing of raw material to turn

it into a finished product. For instance, Productive wages and salaries to workers,
shipping costs, legal expenses, electricity, and water bills, fuels costs,
rent, commissions, packaging charges.
 Indirect Expenses: These connect with only selling and distributing goods other
than manufacturing. For example, salaries, depreciation, machinery, items of furniture
and fixing, etc.

Q3. Amar traders engaged in manufacturing was in receipt of sales tax subsidy from
state government as the unit was in backward area .the subsidy is related to the sale
of its products and payable once the production is commenced .Amar traders
claims that the subsidy is capital receipt and hence cannot be included as income
.how do you deal with the above situation?

Amar traders who engaged in manufacturing as a unit is backward area the subsidy is
given by the state government is consider as the loan to Amar traders .this subsidy
amount from the state government is consider as capital in nature and this will be not
included in business income.

Q4. Is it mandatory for an assessee to claim depreciation under section 32 of the

income tac act ?
Conditions claiming for depreciation:
 The assessee must be the owner of the asset.
 The assessee must use the asset for the purpose of carrying on the business or
profession.
 The asset must be used during the relevant previous year.
 The asset must fall under the eligible class of assets.

Q5. Intelysis ltd ,charged depreciation on its assets at the rate prescribed in the
income tax rules in its accounts consistency .the assessing officer allowed the same
and consider the depreciation computed at the rate prescribed in the companies act
1956, for purpose of computation of book profit u/s 115JB for levy of minimum
alternate tax for the assessment year 2013-2014 ,examine the correctness of action of
the assessing Officer .
A company Is liable to pay tax on the income computed in accordance with the provision
of the IT act . But the profit and loss account of the company is prepared as per provision
of the companies act .
Minimum alternative tax(MAT) is computed at 15% (previously 18.5%) on book profit
plus applicable cess And surcharge.
Calculation of MAT Credit MAT-normal tax credit When mat for a company is greater
than its normal tax liability .the difference between MAT and normal tax liability is
called MAT credit .
Here in this case company charge the depreciation on its assets at some prescribed rate
as per IT rules .here ,they charge according to IT act . The minimum alternative tax they
levied for Assessment year 2013-2014 .
In this question the assessing officer disallowed the same and consider the depreciation
as per the company act 1956, for the purpose of book profit which is right
So, the action taken by the assessing officer with respect to calculation of depreciation is
right.

.
Q6 X .a non resident ,lent 500000 to y a resident in india . Y used the money
barrowed by him for the purpose of business in india .Y paid an interest of rs
75000 during the current financial year to X in the united kingdom .discuss the tax
liability of such interest in the hands of X in india .

Scope of total income

Particular. Resident. Not . Non res

Ordinery. Ident
Residient
Income received
Or deemed to received
In india. Taxable. Taxable. Taxable

Income accruing or
Arising or deemed
To accure or arise
In india. Taxable. Taxable. Taxable

Income accruing
Or arising outside
India. Taxable. Taxable. Taxable

In this case X is foreigner who lent rs 500000 to Y who is

Resident of india
Y paid the interest 75000 on 500000 the interest amount is arising in india .so .the
interest amount of 75000 to is taxable under all the heads that is ordinery ,not ordinery
and non resident.

Q7. Certain deductions are made only on actual payment. Discuss (sec. 43B)

What is Section 43B?

As per the income tax act, 1961 Section 43B states that only certain payments can be
claimed as an expense in the year which they have been paid and not in the year in which
the liability to pay such sum was incurred. This means that certain statutory expenses are
allowed to be claimed in the year of payment only. This section is with reference to
PGBP (profits and gains of business or profession).

Section 43B in Income Tax Act, 1961

This section in short, deals with certain types of payments and directs the taxpayer to
claim such payments as an expense in the same assessment year when it was actually paid
and not in the year in which the liability to pay such sum was incurred.

For example, Mr. Ram, owner of a logistics firm, has purchased a motorbike for
rendering the courier services for his firm in August 2017. This purchase can be labeled
as an actual expense/payment and pertains to the month of March 2017. For this, Mr.
Ram can claim a deduction for the year ending March 2017 itself by showing a proof of
this while filing his return in September 2017. If Mr. Ram pays this amount in October
2017, this deduction will be available for the year ending March 2018.

When filing the income tax returns, Mr. Ram can show the proof of making such payment
and claim the deduction in the same year (in which the amount was accrued).

Types of Payment Under Section 43B where the Provisions Apply:

If you follow a mercantile system of accounting, the payments stated below can be
claimed on the due basis:

 Tax - Any sum payable by the assessee by way of tax, duty, cess or fee and all
other types of taxes paid to government by whatever name it is called under the
law. This includes GST, customs duty or any other taxes paid. Interest paid on
these taxes are also eligible for deduction.

 Employer contribution - Any contribution made by the employer towards benefit

of their employees and comes under the category of a provident fund, gratuity or
superannuation fund. The employer must ensure that such a contribution is made
 before the due date of depositing these funds or before the due date of
filing income tax returns.

 Bonus or Commission - Any sum payable by the employer to the employee as

bonus or commission as payment for the services rendered. This amount must be
the real bonus or commission paid to employees and not given in the form of
dividends payable to them as shareholders.

 Interest Payable - Any amount payable as interest on loan borrowed from any
public financial institution, state financial corporation or state industrial
investment corporation in accordance with the terms and conditions under the
agreement.

 Interest Payable on Advance - Any amount payable as Interest on loans and

advances from a scheduled bank in accordance with the conditions governing such
a loan.

 Any amount under leave encashment provided by an employer to his employees.

 Any amount made by the taxpayer to the Indian Railways is allowed to be claimed
as an expense and when the payment is made. This has come into effect since FY
2017-2017.

Exception - When Deductible on Accrual Basis:

The taxpayer can claim deductions if they follow an accrual system of accounting
based on certain conditions:

 If a taxpayer follows a mercantile system of accounting.

 If all expenses are paid on or before the due date for submission of ITR.

 The evidence of all such payments made must be submitted by the taxpayer while
filing an ITR.

Q 8. Explain the provisions relating to tax on distributed profits of domestic

companies.

Tax on distributed profits of domestic companies.

 Every domestic company shall be liable to pay tax on any amount of dividend
declared, distributed or paid (whether interim or otherwise) to its shareholders,
whether out of current or accumulated profits.
  The tax on the dividend shall be charged at the rate specified in paragraph B of the
second schedule, on the amount referred to in sub-section(1)
 The amount referred to in sub-section (1) shall be reduced by the amount of
dividend, if any received by the domestic company during the financial year, if –
a) Such dividend is received from its subsidiary; and
b) The subsidiary has paid tax under this section on such dividend.
 The domestic company or the principal officer of such company responsible for
making payment of the dividend, as the case may be, shall be liable to pay the tax
on dividend to the credit of the central government within a period of fourteen
days from the date of declaration, distribution or payment of such dividend,
whichever is earliest.
 No deduction under any other provision of this code shall be allowed to the
domestic company or a shareholder inrespect of the dividend charged to tax or the
tax thereon.
 The tax on dividend so paid by the domestic company shall be treated as the final
payment of tax in respect of the dividend declared, distributed or paid and no
further credit shall be claimed by the domestic company or by any other person in
respect of the tax so paid.
 If the domestic company or, as the case may be, the principal officer of such
company responsible for making payment of the dividend does not pay the tax in
accordance with the provisions of this section.

9. Determine the amount of disallowance is the cases given below

a) generally x pay salary to his employee by the account payee cheaque salary of
december 2018 is ,however paid to three employee A,B and C by bearer cheaque
payment being 6000,10000 and 10500.
b) X ltd purchase goods on credit from Y ltd on may 2018 for 86000 which paid as
follows
5000 in cash May 11,2018
30000 by a bearer cheaque on may 31,2018
51000 by an account payee cheque may 16,2018

C) Z ltd cheque goods on credit from A ltd on may 10,2018 for 6000 and on may
31,2018 for 5000 total payment of 11000 is made by a crossed cheque on june
1,2018

D) A ltd purchase goods on credit from a relatives of director on june 20,2018 for
50000( market value 42000) the amount is paid is cash on june 25,2018.

E) B ltd purchase new material on credit from A who hold 20% equity share capital
in B ltd ( amt bill being 36000 market price being 9000 ) it is paid in cash to july
26,2018.
Provision :
Where the asessee incured any expenditure in respect of which a payment or aggregate of
payment made to a person in a day otherwise than by way of account payee cheque or
account payee draft ,exceeds 10000.
No deduction shall be allowed in respect of such expenditure sec 40(A) (3)

A) The salary paid A and B 6000,10000 respectively which does not exceed 10000
limit ,salary paid through bearer cheque to A and B is called allowed expences
But salary paid by C 10500 which exceed 10000 limit hence salary paid through bearer
cheque to C is allowed
B) X ltd purchase from Y ltd 86000 is which
1) 5000 in cash is consider as allowed amt which is less than 10000.
2) 30000 payment made by bearer cheque is dis allowed because the bearer
cheque amt exceeds 10000 limit u/s 40(A)(3)
3) Amt 51000 payment made by payee is consider as allowed because the
payment made by payee is consider as allowed for deduction .

C) Z ltd purchase goods worth 11000 on credit and the amt 6000 on may 10,2018
and 5000 on may 30,2018 , the total amt 11000 is made by a cross cheque hence
it is consider as allowed amount.

D) A ltd purchase goods 50000 ,where the market value is 42000 the amt condider
term of market value 42000 which is more than the 10000 of limit , it is consider
as disallowed payment .

E) B ltd purchase from A ltd for 36000 ,where the market 9000 , so in amt of 9000
is allowed .