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Seat No.: Enrolment
GUJARAT TECHNOLOGICAL UNIVERSITY
MBA SEMESTER 03 EXAMINATION SUMMER 2017
Subject Code: 2830009 Date: 09/05/2017
Subject Name: Corporate Taxation
Time: 02.30 PM TO 05.30 PM Total Marks: 70
Instructions:
1. Attempt all questions.
2. Make suitable assumptions wherever necessary.
3. Figures to the right indicate full marks.
Q.1 MCQ x 6 Marks)
1. Income tax in India is charged at the rate prescribed by:
The Finance Act
The Income Tax Act
The Central Board of Direct Tax
The Ministry of Finance
2. B contributed a sum of Rs. 30,000 to an approved institution for research in social science,
which is not related to his business. The amount of deduction eligible under section 35
would be:
Rs. 30,000
Rs. 45,000
Rs. 37,500
No deduction as it is unrelated to his business
3. The following is capital receipt
Dividend from investments;
Bonus shares;
Sale of technological know-how;
Compensation received for compulsory evacuation of place of business.
4. The following is not a venture capital undertaking for the purposes of section if engaged in business of
Generation of power;
Telecommunications;
Providing infrastructural facility;
Dairy farming whose shares are not listed in a recognised stock exchange.
5. In valuation of immovable property in Bangalore, the specified area means ............ of the aggregate area, for wealth-tax purposes.
60 per cent;
65 per cent;
70 per cent;
75 per cent.
6. Avoidance of Double taxation agreement:
Can Increase Tax Liability
Can Reduce Tax Liability
Does not have any impact on tax liability
Can impose tax liability in respect of income which is otherwise exempt under
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income tax Act.
Q1. Short Answer Definitions x 1 4 Marks)
1. Define Assessee.
2. Define Assessment Year and Previous Year
3. Write a note on Residence of Company.
4. Write the exemption of Gratuity for non- government employee.
Q.1.(c). Enlist Any Eight heads of income that is exempted from tax as per Income Tax Act. 04
Q.2. State the method of computation of Book Profit (115 JB) for the company. 07
A Ltd. is engaged in the business of carriage of goods. On April 2014, it owns 10 truck out of which are heavy goods vehicle). On May 2014, one of the heavy goods vehicles is sold by A ltd. to purchase a light goods vehicle on May 10, 2014 which is put to use only from June 17, 2014. Find out the net income of X ltd. for the assessment year 2015-16 taking into consideration the following data 07
Fright collected Rs. 8,90,000
Less: Operational Exp 6,40,000
Depreciation as per sec. 32 1,90,000
Other office Exp 15,000
Net profit 45,000
Other Income 6,70,000
OR
"When tax rates are falling, it is better to increase the financial leverage." Explain the truth of this statement using the following model which has three alternatives:
Equity dividend): 60% or 50% or 40% Cost of debt: 12%.
Tax rates likely to be 30% and 25% in the next three years. 07
Q.3.(a). Discuss the tax provisions for Sections 33AB-Tea/Coffee/Rubber Development Account and 44AE-Transport Operators. 07
Shree company, a firm is engaged in the business of paper trading (Turnover of 2014-2015) being Rs. 57,80,000. It wants to claim the following deduction. 07
Particulars Amount
Salary interest to partners
(as permitted by sec. 60,000
Salary to employees 4,90,000
Depreciation 2,70,000
Cost of material used 45,90,000
Others Expenses 3,45,000
Total 57,55,000
Net Profit 25,000
Determine the net income of Shree company for the current assessment year. Assuming long term capital gain is Rs. 40,000 the firm is eligible for deduction of Rs. 5,000 under sec 80G.
OR
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Q.3. Explain giving suitable example tax planning tax avoidance. 07
Alpha Ltd,is a manufacturing company. On April 2014, it owns Plant A and Plant B (depreciation rate: 15 per cent; depreciated value of block being Rs 2,40,000). Plant C (depreciation rate 15 per cent) is purchased by the company on June 10, 2014 for Rs 60,000.It is put to use on the same day.
Find out the tax consequences in the following different situations-
Plant B is destroyed by fire on January 25, 2015.Rs 10,000, being the compensation is paid by the insurance company on February 10, 2015.
ii) Plant and C are destroyed by fire on January 25, 2015. Compensation paid by the insurance company on February 10, 2015 is Rs 20,000. 07
Q.4. Give illustration to explain Indian income foreign income. 07
AXA Ltd., manufactures electric pumping sets. The company has the option to either make or buy from the market component Y used in manufacture of the sets. The following details are available:
The component will be manufactured on new machine costing Rs.81,157 (Net of taxes i.e. tax savings on account of depreciation) (original cost of the machine is Rs.1,00,000) with a life of 10 years. Material required cost Rs.2 per kg and wages Re. 0.30 per hour. The salary of the foreman employed is Rs.1,500 per month and other variable overheads include Rs.20,000 for manufacturing 25,000 components per year. Material requirement is 25,000kgs and requires 50,000 labour hours. The component is available in the market at Rs.4.30 per piece. Will it be profitable to make or buy the component? Does it make any difference if the component can be manufactured on an existing machine? 07
OR
Q4. When is Minimum Alternate Tax applicable? How is Minimum Alternate Tax Calculated? 07
Monster Ltd. company wants to expand its facilities using the following alternatives:
Particulars Alternative I Alternative II Alternative III
Share Capital 5,00,00,000 2,00,00,000 1,00,00,000
Debentures 2,00,00,000 1,50,00,000
Loan from Financial
Institution 1,00,00,000 2,50,00,000
Expected rate of return before tax is 25%. Rate of dividend is 20%. As a tax consultant advise the company that which alternative it should adopt and Why? (Assume that the tax rate applicable to the firm is Surcharge and EC and HSEC 07
Q.5. ABC Ltd. needs a component in an assembly operation. It is contemplating the proposal to either make or buy the aforesaid component.
If the company decides to make the product itself, then it would need to buy a machine for Rs. 8 lakh which would be used for 5 years. Manufacturing costs in each of the five years would be Rs. 12 lakh, Rs. 14 lakh, Rs. 16 lakh, Rs. 20 lakh and Rs. 25 lakh respectively. The relevant depreciation rate is 15 per cent. The machine will be sold for Rs. 1 lakh at the beginning of the sixth year.
If the company decides to buy the components from supplier the component would cost Rs. 18 lakh, Rs. 20 lakh, Rs. 22 lakh, Rs. 28 lakh and Rs. 34 lakh respectively in each of the five year.
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The relevant discounting rate and tax rate are 14% 33.99% respectively. Additional depreciation is not available. Should ABC Ltd. make the component or buy from outside?
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OR
Q.5. Shree Ltd. is contemplating an expansion programme. It has to make a choice between debt issue and equity issue for its expansion programme. Its current position is as under:
Rs.(in Crore)
10% Debt 80
Equity share capital(Rs. 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 programme is estimated to cost Rs. 200 crore. If this is financed through debt, the new rate of debt will be 10% and the P/E Ratio will be 6 times. If the expansion programme is financed through equity, new shares can be sold getting Rs. 25 per share and the P/E Ratio will be 7 times. The expansion will generate additional sales of Rs. 600 crore with return of 10% on sales before interest and tax. Suggest which form of financing should it choose?
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