Corporate Tax Planning & Management

Mid Term Assessment-1

Maximum Marks: 20
Duration: 9:30 AM-11:00 AM

Note: All Questions are compulsory and carry equal marks

Que.1 Specify with reason, whether the following acts can be considered as
(i) Tax Planning; Or (ii) Tax Management; or (iii) Tax Evasion.
i) An individual tax payer making tax saver deposit of Rs. 1,00,000
in SBI
ii) A Firm obtaining declaration from lenders/depositors in Form N.
15G/15H and forwarding the same to income tax authorities.
iii) A company installed as air-conditioner costing Rs. 75,000 at the
residence of a director as per terms of his appointment but treats
it as fitted in quality control section in the factory. This is with
the objective to treat it as plant for the purpose of computing
depreciation.
iv) R Ltd. Issued a credit note for Rs. 80,000 as brokerage payable
to Mr. John who is the son of the MD of the company. The
purpose is to increase the total income of Mr John from Rs.
4,00,000 t0 Rs. 4,80,000 and reduce the income of R Ltd
correspondingly.
v) A company remitted PF contribution of both its own contribution
and employees contribution on monthly basis before due date.

Que. 2 Decide which one is better alternative –lease or buy –in the following
situations:
Tax Rate: 25% plus 4% cess
Cost of capital: 14%
Depreciation: 15%
Lease cost: Rs. 34,000 p.a. for 5 years (per Rs. 1 lakh)
Present value of Re.1 discounted @14% is a follows:
Year 1- .877; Year 2- .769; Year 3-.675; Year 4-.592; Year 5- .519
Assume that the Cost of Machine is Rs. 1,00,000 with salvage value of
Rs. 2,000 at the end of 5th year. There is not Tax liability on capital gains.

Que.3 Following is the P&L A/C of Z Ltd. An Indian company for the P/Y
2019-20/

Raw Material 15,00,000 Sales 60,00,000

Wages 25,00,000
Advertisement Exp. 2,50,000
Insurance 35,000
Audit fee 80,000
Depreciation 70,000
Provision for Tax 50,000
 Provision for Contingent 45,000
liabilities
Transfer to General 1,00,000
Reserves
Proposed Dividend 2,00,000
Office expenses 3,00,000
Losses of subsidiary 2,00,000
company
Legal Expenses 75,000
Repairs to Machinery 55,000
To Balance C/d 5,40,000
TOTAL 60,00,000 TOTAL 60,00,000

Additional Information:
(i) The above P&L a/c has been prepared as per Companies Act.
(ii) B/F Losses & Depreciation
As per books of A/C As per I/Tax
Act
B/F Business Loss 2,00,000 2,50,000
U/A Depreciation 1,00,000 2,00,000
Calculate:
(i) Total income tax liability as per normal provisions of I/Tax act
(ii) Book Profits & Tax Liability as per sec 115 JB
(iii) Ultimate Tax Liability of the company, if tax rate is 25% plus
4% cess

Que. 4
Mr. B Rathi submits the following information relevant for the A.Y. 2019-20:

Income Loss

Rs. Rs.
Taxable Income from Salary 2,42,000
---
Taxable Income from House Property:
House A 15,000
---
House B -
-- 17,000
House C -
-- 21,000
Taxable Profit from Business:
Business A 8,000
---
Business B -
-- 10,000
Business C (Speculative) 11,000
---
 Business D (Speculative) -
-- 23,000
Taxable Capital Gains:
Short-term Capital Gains 6,000
---
Short-term Capital Loss -
-- 28,000
Long-term Capital Gains 12,500
---
Taxable Income from Other Sources:
Income from Card Games 13,000
---
Loss from Card Games -
-- 7,010
Loss on Maintenance of Race Horses -
-- 6,000
Interest on Securities 4,000
---
Determine the gross total income of Mr. Rathi for the A.Y. 2019-20

Que. 5 Write short notes on-

a) Exempted Incomes
b) Factors to be taken into consideration while making a decision
regarding ‘Make or Buy’

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