Fall 2009

MBA-III SEMESTER

MF0003 – TAXATION MANAGEMENT

(B0769)

ASSIGNMENT SET 1 – (30 MARKS)

Note: Answer all the questions. Each question carries 10 marks

1. Following are the taxable income of Sri. Akash for the previous year 2008-09

1. Income from salary accrued in India and received in India 75,000

2. Dividend income declared in United States but received in India 50,000
3. Income from long term capital gains in India 30,000
4 Interest on debentures of a company at Paris, received in India 10,000
5. Royalty received in Paris for technical fee provided for a business 15,000
carried on in London.
6 Interest received from Vivek, a non-resident on the loan provided to 6,000
him for the business carried on in India.
7. Profit from cloth business in Malaysia 85,000
Compute Sri. Akash’s total income for the assessment year 2009-10
if he is (i) Resident, (ii) Not Ordinarily Resident (iii) Non Resident.

Resident Not Ordinarily Non Resident

Resident

1. Income from 75000 75000 75000

salary accrued in
India and
received in India
2. Dividend income 50000 50000 50000
declared in
United States but
received in India

3. Income from 30000 30000 30000

long term capital
gains in India

4. Profit from cloth 85000 - -

business in
Malaysia

5. Royalty received 15000 - -

in Paris for
technical fee
Fall 2009

provided for a
business carried
on in London.

6. Interest received 6000 6000 6000

from Vivek, a
non-resident on
the loan provided
to him for the
business carried
on in India.

7. Interest on 10000 10000 10000

debentures of a
company at
Paris, received in
India

Total 271000 171000 171000

2. Compute income from house property from the following particulars for the assessment
year 2009-10

I II III IV
Municipal Value 40,000 45,000 50,000 52,500
Fair Rental Value 35,000 46,000 54,000 65,000
Rent received 32,000 37,000 45,000 55,000
Standard Rent 36,000 40,000 48,000 57,000
Vacancy Period 3 months - - -
Repairs 15,000 14,000 17,000 19,000
Municipal Tax:
- Paid 6,000 3,500 - -
- Due 1,800 2,400
The assessee had borrowed on 1.10.2002 Rs.3,50,000 at 14% for the construction of
the second house which was completed on 31-12-2005. As on 1-4-2008 Rs.3, 00,000
was outstanding. In respect of the fourth house one month rent was unrealized. The
claim was genuine and satisfied the conditions: and the recent received was for 10
months.

Preconstruction period is form 01.10.2002 to 31.12.2005i.e.,39 month

(3+12+12+12)

Interest for PCP = 3,50,000*14/100*39/100

=159250*1/5
Fall 2009

=31850 allowed for 5 years (2005-06 to 2009-10 previous years)

Computation of income from house property for the assessment years 2009-10

Rs. Rs. Rs.

I House:

I Expected Rent 40,000

II Actual rent receivable N.A.

III Actual rent received 32,000

G.A.V. 32,000

Less Municpal taxes paid 6,000

Annual value 26,000

Less: Standard deduction 30% 7,800 18200

II House:

II Expected Rent: 45,000

II Actual rent receivable N.A.

III Actual rent received 37,000

Gross Annual Value 37,000

Less Municpal taxes paid 3,500

Annual value 33,500

Less: Standard deduction 30% 10,050 23,450

Fall 2009

III House:

Expected Rent: 50,000

Actual rent receivable N.A.

Actual rent received 45,000

Gross Annual Value 45,000

Less Municpal taxes paid NIL

Annual value 45,000

Less: Standard deduction 30% 13,500 31,500

IV House:

Expected Rent: 52,200

Actual rent receivable N.A.

Actual rent received 55,000

Gross Annual Value 55,000

Less Municpal taxes paid NIL

Annual value 55,000

Less: Standard deduction 30% 16,500 38,500

Income from house Property 38,500

3. What is a Provident fund? Explain briefly various types of Provident Funds.

The word ‘Provident’ means to provide for the future, hence this fund is to provide for
the future. This fund is created by an amount deducted from the salary of the employee
every month at a certain rate. The employer also makes his own contribution to this
fund. These contributions are invested to earn interest, which is also credited to the
employee’s provident fund account. When an employee retires from his service,
Fall 2009

he receives this amount in lump-sum along with interest on it and is a great help to
him at that time. If unfortunately, the employee dies during the tenure of his service,
the amount of this fund is received by his wife and children or legal heirs, which is of
great help to them.

Provident funds are of four kinds:

i) Statutory Provident Fund,

ii) Recognized Provident Fund

iii) Unrecognized Provident Fund,

iv) Public Provident Fund

Statutory Provident Fund. It is that Provident fund to which the Indian Provident
Fund Act, 1925 applies. Generally, this Provident Fund is maintained by
Government or Semi-Government offices, like local authorities, universities, other
recognized educational institutions, statutory corporations and nationalized banks, etc.,

Recognised Provident Fund. It is a fund to which the Provident Fund Act,1952,

applies. Under this scheme, any person who employs 20 or more employees is
under an obligation to register his firm or organization under the provident Fund Act,
1952, and start a provident fund scheme for the employees in his organization. It is
after 3 years of its establishment, that the registration should be done under this Act.
There is one more alternative also. The funds which are not established under E.P.F.
Act of 1952 have to be expressly recognized by the Chief Commissioner or
Commissioner of Income Tax. The Chief Commissioner or Commissioner recognizes
this fund only when he is satisfied that this fund fulfils certain conditions set-out in the
Income Tax Act of 1961. Generally this fund is maintained by scheduled banks,
factories and several business houses. Thus, this fund is maintained by private sector
organizations.

Unrecognised Provident Fund: It is that provident fund which is neither statutory nor
recognized. Any institution or organization can maintain this fund. It is approved by the
P.F. commissioner but not by the commissioner of income tax.

Public Provident Fund: The Public Provident Fund Scheme was started from Ist July,
1968, under the provision of PPF Act, 1968. Every individual (including a salaried
employee) can subscribe to this fund any amount being not less than Rs.500 and not
more than Rs.70, 000 in year. He can also deposit money in installments which
cannot exceed 12 in a year. An individual can open a public provident fund account
either on his own behalf or on behalf of a minor of whom he is the guardian. However,
an individual can open only one account in his own name. An account under this
Fall 2009

scheme can be opened at a branch of the State Bank of India or its subsidiaries or at a
branch of any of the nationalized banks authorized for this purpose by the Central
Government.

A withdrawal is permissible every year from the seventh financial year of the date
of opening the account, of an amount not exceeding 50% of the balance at the end
of the 4 preceding year or year immediately preceding the year of the withdrawal,
whichever is lower, less the amount of loan if any.PF scheme allows the
assessee to withdraw the entire amount at his credit, after adjustment of the dues if
any to government, on completion of 15 years after the end of the year in which the
account is opened. The first loan can be taken in the third financial year, upto
25% of the amount at the credit at the end of the first financial year. This facility can be
availed only before the expiry of 5 years from the end of the year in which the initial
subscription was made. The loan is repayable either in lump sum or in convenient
installments. The account can be transferred to any other accounts office. The interest
credited to the fund and amount standing to the credit of subscribers are
exempted from income tax and wealth tax respectively. Nomination facility is available.
NRI are not permitted to open account under this scheme.

MBA-III SEMESTER

MF0003 – TAXATION MANAGEMENT

(B0769)
Fall 2009

ASSIGNMENT SET 2 – (30 MARKS)

Note: Answer all the questions. Each question carries 10 marks

1. What are the expressly disallowed expenses while computing income under the head
profits and gains from business or profession?

2. Write short notes:

a. Unabsorbed depreciation

Unabsorbed Depreciation
Depreciation allowance for a particular previous year is first deductible from the profits
and gains of the business or profession. If the profits and gains of the same business
or profession are insufficient for this purpose, the balance of the amount of current
depreciation allowance is deductible from the profits of any other business or profession
of the assessee. If the profits of any other business or profession are also unable
to absorb the whole amount of depreciation allowance, the balance of such
allowance which remains unabsorbed can be set-off against any other taxable income
of the same year. If still, the whole amount of current depreciation allowance is not
deductible on account of the insufficiency of the other taxable income, the remaining
unabsorbed amount is called “Unabsorbed Depreciation”. If unabsorbed depreciation
cannot be wholly set-off, the amount of depreciation not set-off shall be carried
forward to the following assessment year. The unabsorbed depreciation shall be added
to the depreciation allowance for the following previous year or for the succeeding
previous years till such time it is fully deducted. In other words the unabsorbed
depreciation shall be treated as part of the current year’s depreciation.

b. General deductions (Section 37(1) )

General deduction [Sec. 37(1)

It is a residuary section:

Under section 37(1), the following conditions should be fulfilled, in order that a particular
item of expenditure may be deductible under this head: The expenditure should not be of
the nature described in section 30 to 36. It should be in respect of a business or
profession carried on by the assessee and the profits and gains of which are to be
computed and assessed. It should not be in the nature of personal expenses of the
assessee. It should have been paid out or expended wholly and exclusively for the
purpose of such business or profession. It should not be in the nature of capital
expenditure. It should relate to the previous year concerned. The following are the few
Fall 2009

examples of admissible general deduction under section 37:

1) Expenses incurred in the purchase, manufacture and sale of goods.

2) General expenses incurred in the day to day running to the business.

3) Expenses incurred in defending a case for damages for breach of contract.

4) Amount of sales-tax paid and expenses incurred in connection with sales-tax

proceedings including appeals.

5) Compensation paid to an undesirable employee for the retrenchment of his services

or to a director to get rid of his services.

6) Contribution made to provident fund maintained for the benefit of employees

under an Act and with the previous approval of a state Government may not be
allowable u/s 36(1)(iv) but allowable u/s 37(1).

7) Commission, etc. paid for securing orders for the business.

8) Compensation paid to employees in connection with injury sustained by them or

accident met by them while on duty.

9) Royalties paid in connection with mines.

10) Insurance premium paid under a policy insuring its employees against injury or
against liability for compensation in respect of accident to its workmen.

11) Reasonable expenses incurred on the occasion of Dussehra, Diwali,

commencement of the business, etc.

12) Compulsory subscription or a subscription given to an association in the interest of

the business.

13) Legal expenses incurred in connection with the business or profession.

14) Legal expenses incurred by a director of a company in defending a suit brought

against him to challenge the validity of his election as a director; as it is incurred to save
his income from the source.

15) Interest on unpaid purchase price of any business assets purchased by an assessee
and put to use will be allowed.

16) Expenditure incurred to oppose nationalization or to prevent extinction of business.

17) Under executive instructions, cost of installing new telephone.

Fall 2009

18) Normal advertisement expenditure incurred to maintain the sales.

19) Penalty paid by the assessee for saving from confiscation the good which he
purchased from a third party without knowing that they had been illegally imported.

20) Amount paid by a director of a company in liquidation for compounding

misfeasance proceeding started against him by the liquidator.

21) Welfare expenditure incurred by the assessee.

22) Payment of excise duty.

23) Guarantee fee paid to he Government for loan obtained for purchase of
machinery.

24) Expenditure incurred in connection with alterations made in the Memorandum

or Articles of Association of a company if there alterations are warranted by the
changes made in Companies Act.

25) If an asseessee stand ss surety for the debt of another and it is usual in this trade to
guarantee debts, any payment made as a result of such guarantee may be allowed as
a business loss.

26) Professional tax levied by local authorities the payment of which is a necessary
condition for the carrying on the business within the area of a local authority.

27) Rebate granted by co-operative stores to their members on the value of the
purchases made by them.

28) The interest payable on arrear of cess is in the nature of compensation paid
to the Government of delay in the payment of cess and not as penalty, hence it is
deductible. Similarly, interest paid for delay in payment of municipal taxes is also
allowable as deduction.

29) Amount spent by an assessee in purchasing loom hours is deductible as revenue

expenditure.

30) Amount paid as damages to the Government Department for delay in the
execution of contracts was held to be allowable deduction, if the delay was inherent in
the nature of business carried on by the assessee.

31) Annual listing fee paid to Stock Exchange by public limited company is allowable.

32) Interest levied for failure to pay installment of the assets purchased on hire-purchase
basis is allowable.
Fall 2009

33) Expenditure incurred on inauguration ceremony is allowable.

34) Expenditure incurred on foreign tour of director for purposes of expansion of

business of the managed company is allowable.

35) Wife of chairman-cum-managing director accompanying him for fulfilling social

aspects. Expenses incurred on foreign tour of wife are deductible.

36) Liability to pay debenture premium is to be spread over the years between
date of issue and date of redemption.

37) Payment towards Flat Day Fund is deductible.

38) Cash shortage found in business at the end of the day.

39) Deposit made under ‘own your telephone’ scheme.

40) Expenses in connection with income tax, sales tax proceedings

3. Mr. Radha Krishna, an individual submits the following information relevant for the
assessment year 2009-10

Profit Loss
Salary Income (computed) 54.000
Income from House Property
House 1 17,000
House 2 23,000
Profit & Gains of business or Profession
Business X 7,000
Business Y 14,000
Business Z (speculative) 15,000
Business A (speculative) 19,000
Capital Gains
Short term capital gains 8,000
Short term capital loss 12,000
Long term capital gains on sale of land 24,000
Income from other sources:
Income from card games 6,000
Loss on card games 9,000
Loss on maintenance of race horses 4,500
Interest on securities 3,000
Determine the net income of Mr. Radha Krishna for the
assessment year 2009-10
Fall 2009

Computation of total income for the assessment year 2009-10

Income from salary

54,000

Income from salary

House 1 17,000

House 2 23,000