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MASTER OF FINANCE & CONTROL CORPORATE TAX PLANNING Semester - II Session-1

Prof. SURAJ PRAKASH
Copyright Amity University
CORPORATE TAX PLANNING
DEFINITION
Systematic analysis of differing tax options aimed at minimization of tax liability in current and future tax periods. 1.Whether to file jointly or separately, 2.The timing of a sale of an asset, 3.Ascertaining over how many years to withdraw retirement funds, 4.When to receive income, 5.When to pay expenditures, 6.The timing and amounts of gifts to be made, and Estate Planning are examples of tax planning. the
Copyright@ Amity University
RESIDENTIAL STATUS AND TAX INCOME
COMPANY & ITS STATUS

An Indian company is always resident in India. A foreign company is resident in India only if, during the previous year, control and management of its affairs is situated wholly in India. In other words, a foreign company is treated as non resident if during the previous year , control and management of its affairs is either wholly or partly situated out of India. The table given below highlights the same proposition-
16. Under section 2(17) the expression company is defined to mean the following: any Indian company
any body corporate incorporated under the laws of a foreign country; or any institution ,association or a body which is assessed/assessable as a company for any assessment year commencing on or before April 1,1970;or any institution ,association or a body, whether incorporated or not and whether Indian or non-Indian ,which is declared by general or special order of the central board of direct taxes to be a company.
17. An Indian company means a company formed and registered under the companies act,1956. Besides ,it includes the following: a. A company formed and registered under the law relating to companies formerly in force in any part of India other than the state of Jammu and Kashmir and the union territories specified in (e) infra: b. a corporation established by or under a central ,state or provincial Act; c. any institution ,association or body which is declared by the board to be a company under section 2(17) d.a company formed and registered under any law in force in the state of Jammu and Kashmir ; e. a company formed and registered under any law for the time being in force in the union territories of dadra and nagar haveli ,goa , daman diu and pondicherry.
18. domestic company means an Indian company or any other company which in respect of its income liable to tax under the act ,has made prescribed arrangements for the declaration and payment of dividends within India in accordance with section 194. In other words ,the definition of domestic company is made of two limbs,viz(1) it is an Indian company, and (2) it is any other company which in respect of its income liable to tax under the income tax act, has made the prescribed arrangements for declaration and payments within India ,of dividends payable out of such income. In other words if a company is an Indian company it will automatically be considered as a domestic company. In case of any other company, in order to become the domestic company it is essential that the said other company may have made the prescribed arrangement for the declaration and payments within India of dividends out of such income. The second limb of the definition of the domestic company may even apply to the foreign companies.
The condition regarding the arrangements to be made for declaration and payment of dividends in India is required to be fulfilled by companies other than the Indian companies 18.1 three requirements are to be satisfied cumulatively by a company before it can be said to be a company which has made the necessary arrangements for declaration and payment of dividends in India, within the meaning of section 194. 1. the share register of the company for all shareholders should be regularly maintained at its principal place of business in India ,in respect of any assessment year, at least from April 1 of the relevant assessment year. 2.the general meeting for passing of accounts of the relevant previous year and for declaring dividends in respect thereof should be held only at a place within India. 3. the dividends declared ,if any, should be payable only within India to all shareholders.
. foreign company means a company which is not a domestic company. 20.Industrial company means a company which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining. A company is deemed to be mainly engaged in the business of generation or distribution of electricity or any other form of power or in construction of ships or in the manufacture or processing of goods or in mining, if the income attributable to may in or more of the aforesaid activities ,included in its total income of the previous year is not less than 51% of such total income. However ,the board, defines industrial company as: a. a company which is mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in the mining, even if its total income from such activities is less than 51% of its total income; and b. a company which even though not mainly so engaged ,derives in any year 51% or more of its income from such activities .
the following activities are held as "manufacture or processing of goods on the basis of judicial pronouncements: Book publishing Mixing different types of tea to arrive at a desired blend Manufacture and selling of carpets but having a major source of income from sale of import entitlement Production of cinematographic films Tailoring clothes Conversion of computer cash vouchers ,invoices,etc,into balance sheet, stock accounted. Sorting out.washing,drying and blending wool Undergoing a change in a commodity as result a new and distinct commodity emerges.
21. a company registered as a company in which public is substantially interested in the following cases where: 1. Owned by government/RBI- a company owned by government or the reserve bank or in which not less than 40% shares are held by the government or the reserve bank or a corporation owned by the reserve bank. 2. Section 25 companies- a company registered under section 25 of the companies act 1956 namely companies for promotion of commerce, art,science , religion ,charity and prohibiting the payment of any dividends to its members.
3. A company without share capital- a company having no share capital and declared by the central board of direct taxes to be a company in which public are substantially interested. 4. Nidhi or mutual benefit society- a company which carries on as its principal business the business of acceptance of deposits from its members and which is declared by the central government under section 620A of the companies act to be a nidhi or mutual benefit society. 5. Company owned by a cooperative society- a company in which shares carrying not less than 50%of the voting power having been allotted unconditionally to or acquired unconditionally by and are throughout the relevant previous year held by one or more cooperative society.
6. listed companies- a company which is not a private company and its equity shares as on last date of the last previous year have been listed on a recognised stock exchange in India. 7.public limited company owned by government and/ or a widely held company- a company which is not a private company and its shares carrying 50% of the voting power have been allotted unconditionally to, or acquired unconditionally by and were throughout the relevant previous year beneficially held by i) the government company ii) a statutory corporation iii)a company in which the public are substantially interested or any wholly owned subsidiary company.
21.1 if a company is composed mostly of family members owning lions share in share capital, the onus to prove that it is a company in which public are substantially interested will be on the assesses. 22. investment company means a company whose gross total on come consists mainly of income which is chargeable under the heads income from the house property", "capital gains and income from other sources. 23.a company in which public are substantially interested is known as widely held company. 24.a company in which public are not substantially interested is known as closely held company.
RESIDENTIAL STATUS OF A COMPANY [SEC.6 (3)]
Place of control An Indian company company Control and management of the affairs of a company [for meaning see para 28.1] is-Wholly in India Resident
Resident or non-resident A company other than an Indian
Resident
-Wholly outside India
Resident
Non-resident
-Partly in India or partly outside India
Resident
Non-resident
Note: A company can never be Ordinarily or Non-ordinarily resident in India.
Control and management

In determining residential status of a company, the following broad propositions should be kept in view : Meaning of control and management The term control and management refers to head and brain which directs affairs of policy, finance, disposal of profits and vital things concerning the management of a company. The place of incorporation of the company may not be the place where control lies- Control is not necessarily situated in the country in which the company is registered. A company may be resident in more than one country- Under the tax laws a company may have more than one residence. The mere fact that a company is also resident in a foreign country , would not necessarily displace its residence in India.
Central control and management lies where meetings of board of directors are held- Usually control and management of a companys affairs is situated at the place where meetings of board of directors are held. Moreover, control and management referred to in section 6 is central control and management and not the carrying on of day to day business of servants, employees or agents.
. Place of doing business may be different from place of control of business- The whole of business may be done outside India and yet the control and management of that business may be wholly within India. In order to determine the residence of a company, the real test to be applied is, where does the controlling and directing power function, or where is its head and brain.
Control is different from share holding control- Control does not mean share holding control. In the case of a subsidiary company managed by its local board of directors, it is difficult to establish that control and management of its affairs vests at the place where the parent company resides. A non-Indian companys de facto control must be in India for residential India-In order to hold that a non-Indian company is resident in India during any previous year, it must be established that such companys de facto is in India. Although central management and control has sometimes been stated in the form head, seat and directing power the question depends on the facts of the management and not on the physical situation of the thing that is managed. A company is managed by the board of directors and if the meetings of the board of directors are held within India, it may be said that the control and management is situated here.
Partial control from outside India -control and management does not mean carrying o a day to day business. Even a partial control outside India is sufficient to hold a foreign company as a non-resident.
CASE STUDY
XYZ ltd. is registered in Srilanka and is a subsidiary of an Indian company. The business of the company is stevedoring in Srilanka. The meetings of the board of directors and general meeting of share holders are held in Bombay. The affairs of the assessee-company are looked after by two mangers under two power of attorney which confer upon them the widest power and authority. The directors retain complete control over the matter delegated to the managers and from time to time give direction to the mangers as to how things should be done and managed. Discuss whether under these circumstances the control and management of XYZ ltd is situated wholly in India and the company is resident in India within the meaning of section 6.
SOLUTION TO CASE STUDY

A company registered outside India is treated as resident in India only if during the previous year. Control and management of its affairs is situated wholly in India. In construing the expression control and management it is necessary to bear in mind the distinction between doing business and control and management of business. Business and whole of it may be done outside India and yet the control and management of that business may be wholly situated within India. In the given problem the business of the assessee company is done in Srilanka. However, it is entirely irrelevant where the business is done and where the income has been earned. What is relevant and material is from which place has that business control and management? Control and management referred to in section 6 is capital control and management.
The control and the management contemplated by this section is not the carrying on of day-to-day business by servants, employs or agents. The real test to be applied is where is the controlling and directing power, or rather, where does the controlling and directing power function, or, to put in a different language there is always a seat of powers or the head and brain and what has got to be ascertained is: where is this seat of power or the head and brain? A business organisation has got to work through servants and agents, but it is not the servants and agents that constitute the seat of power or the controlling and directing power. It is that authority to which the servant employs and agents are subject, it is that authority, which controls and manages them which is the central authority, and it is at the place where the central authority concerns, the control and management is situated.
In the given problem, it is entirely unacceptable that the control and management is situated at Srilanka where its affairs are carried on and they are carried on by people living there appointed by the company with large power of management. To mangers under two powers of attorney look after all the affairs of the assessee- company in Srilanka. However, it is equally clear from the given facts that the central controls and management has been kept in Bombay and has been exercised by the directors in Bombay. Therefore control and management of the assessee company is situated wholly in India- Narottam and Pereira ltd v. CIT [1953] 23 ITR 454(bom.)
INCIDENCE OF TAX [SEC.5]
Indian income and foreign income Under the act, incidence of tax on a tax pair depends on his residential status and also on the placed and time of accrual or receipt of income. In order to understand the relationship between residential status and tax liability, one must understand the meaning of Indian income and foreign income.
Indian income- any of the following three is Indian income If income is received (or deemed to be received) in India during the previous year and at the same time it accrues (or arises or is deemed to accrue or arise) in India during the previous year. If income is received (or deemed to be received) in India during the previous year but it accrues (or arises) outside India during the previous year. If income is received outside India during the previous year but it accrues (or arises or is deemed to accrue or arise in India during the previous year.
Foreign income- if the following two conditions are satisfied, then such income is foreign income
Income is not received (or not deemed to be received) in India ; and
Income does not accrue (or arise or does not deemed to accrue or arise) in India
` Incidence of tax
RESIDENT IN INDIA
NON-RESIDENT IN INDIA
INDIAN INCOME
TAXABLE IN INDIA
TAXABLE IN INDIA
FOREIGN INCOME
TAXABLE IN INDIA
NON-TAXABLE IN INDIA
CONCLUSIONS
The following broad conclusions can be drawn Indian Income- Indian income is always taxable in India irrespective of the residential status of the tax payer. Foreign Income Foreign income is taxable in hands of resident in India. Foreign income is not taxable in hands of non-resident in India.
RECEIPT OF INCOME
Income received in India is taxable in all cases irrespective of residential status of the assesses. The following points are worth mentioning in this respect: RECEIPT VS. REMITTANCE the receipt of income refers to the first occasion when the receipt gets the money under his control .Once an amount is received as income , any remittance or transmission of the amount to another place does not result in receipt at other place-Keshav Mills Ltd. v.CIT[1953]23ITR 230(SC).
for instance ,an assesses, after receiving an income outside India, cannot be said to have received the same again when he brings or remits the same to India. The position will remain the same if income is received outside India by an agent of the assesses (may be a bank or some other person) who later on remits the same to India. Income after the first receipt merely moves as a remittance of money. The same income cannot be received by the person twice, once outside India and once within India.
ACCTUAL VS. DEEMED RECEIPT It is not necessary that income should be actually received in India in order to attract tax liability. An income deemed to be received in India, in the previous year ,is also included in the taxable income of the assessee. The act enumerates that the following as income deemed to be received in India: Annual accretion (i.e., interest in excess of 9.5 per cent )to the credit balance of an employee in the case of recognised provident fund. Excess contribution of employer (i.e. in excess of 12 per cent) in the case of recognised provident fund.
Contribution made by the central government or any other employer in the previous year, to the account of an employee under a notified pension scheme referred to in section 80CCD. Transfer balance. Tax deducted at source. Deemed profit under section 41.
CASH V. KIND It is not necessary that income should be received in cash. Income may be received in cash or in kind. For instance, value of a free residential house provided to an employee I taxable as salary in the hands of the employees though the income tax is not received in cash.
RECEIPT V. ACCRUAL Receipt is not the sole test of chargeability to tax. If an income is not taxable on receipt basis it may be taxable on accrual basis. ACCRUAL OF INCOME Income accruing in India is chargeable to tax in all cases irrespective of residential status of the assessee. The words accrues and arises are used in contradistinction to the word receive. Income is said to be received when it reaches the assessee : when the right to receive the income become vested in the assessee, it is said to accrue or arise.
Exempted Incomes of Companies
SECTION 80-IA covers the following casesCase 1- Provision of infrastructure facility. Case 2- Telecommunication services. Case 3- Industrial parks. Case 4-Power generation, transmission and distribution or substantial renovation and modernisation distribution lines. Case 5- Undertaking set for reconstruction of a power unit. Case 6- A cross-country natural gas distribution network.
Profits and gains from industrial undertaking or enterprises engaged in infrastructure development etc [Sec. 80-IA]
CASE 1- INFRASTRUCTURE FACILTY An Indian company can claim this deduction if the following conditions are satisfied1. It should provide infrastructure facility. The enterprise must carry on the business of (a) developing or (b) maintaining and operating, or (c) developing, maintaining and operating any infrastructure facility. 2. There should be an agreement with the central government. 3. It should start operation on or after April 1, 1995. 4. Deduction should be claimed in the return of income. Return of income should be submitted on or before the due date of submission of return of income. Books of accounts should be audited.
AMOUNT OF DEDUCTION 100 Percent of the profit is deductible for 10 years. The deduction commences from the initial assessment year. What is initial assessment year? Initial assessment year, for this purpose, means the assessment year specified by the assesse at his option to the initial year. But it should not fall beyond the fifteenth of assessment year starting from the previous year in which the enterprise begins operating and maintaining the infrastructure facility. However, the benefit of deduction is available for 10 consecutive assessment years falling within a period of fifteenth assessment years beginning with the assessment year in which an assessee begins operating and maintaining infrastructure facility.
CASE 2- TELECOMMUNICATION SERVICES The following conditions should be satisfied1. It should be a new undertaking. 2. It should not be formed by transfer of old plant and machinery. 3. The undertaking should be engaged in providing telecommunication services. It should start providing telecommunication services (whether basic or cellular including radio paging, domestic satellite service or network of turning broadband network and internet services and electronic data inter-change service) at any time after March 31, 1995 but before March 31, 2005. Domestic satellite for this purpose means a satellite owned and operated by an Indian company for providing telecommunication services. 4. Deduction should be claimed in the return of the income. Return of the income should be submitted on or before the due date of submission of return of income. Books of accounts should be audited.
Amount of deduction- 100 percent of the profit is deductible in the first 5 years and 30 percent of the profit is deductible in the next 5 years. Deductions starts from the initial assessment year. Initial assessment year means the assessment year specified by the assessee at his option to be the initial year not falling beyond the fifteenth assessment year starting from the previous year in which the undertaking begins providing telecommunication services.
CASE 3 -INDUSTRIAL PARK OR SPECIAL ECONOMIC ZONE The following conditions should be satisfied1. It develops, develops and operates or maintain and operates an industrial park or a special economic zone. 2. The industrial park must start operating during April 1, 2006 and March 31, 2005. 3. Deduction should be claimed in the return of income. Return of income should be submitted on or before the due date of submission of return of income. Books should be audited.
Amount of deduction-If all the aforesaid conditions are satisfied 100 percent of profit is deductible for 10 years commencing from the initial assessment year. Initial assessment year means the assessment year specified by the assessee at his option to be the initial year not falling beyond the fifteenth assessment year starting from the previous year in which undertaking begins operating/developing an industrial park.
CASE 4 POWER GENERATION/ DISTRIBUTION The following conditions should be satisfied1. It should be a new undertaking. It should not be formed by transfer of old plant and machinery. 2. The undertaking must be set up in any part of India for the generation or generation and distribution of power during April 1, 1993 and March 31, 2011. Alternatively, the undertaking should start transmission or distribution at any time between April1, 1999 and March 31, 2011. Alternatively, it undertakes substantial renovation and modernisation of the existing transmission/distribution lines between April 1, 2004 and March 31, 2011. 3. Deduction should be claimed in the return of income. Return of income should be submitted on or before the due date of submission of return of income. Books of accounts should be audited.
Amount of deduction- If all the aforesaid conditions are satisfied 100 percent of profit is deductible for 10 years commencing from the initial assessment year. Initial assessment year means the assessment year specified by the assessee at his option to be the initial year not falling beyond the fifteenth assessment year starting from the previous year in which undertaking generates power or commences transmission or distribution of power.
CASE 5- RECONSTRUCTION OF POWER UNIT The following conditions should be satisfied1. It should be owned by an Indian company and set up for reconstruction or revival of a power generating plant. 2. It should be formed before November 30, 2005 with the majority equity participation by public sector companies for the purpose of enforcing the security interest of the lenders to the company owning the power generating plant and such Indian company is notified before December 31, 2005 by Central Government. 3. Such undertaking begins to generate or transmit or distribute power before March 31, 2011. 4. Deduction should be claimed in the return of income. Return of income should be submitted on or before the due date of submission of return of income. Books should be audited. Amount of deduction- 100 Percent of the profit is deductible for 10 years. The deduction commences from the initial assessment year.
CASE 6- LAYING AND OPERATING CROSS-COUNTRY NATURAL GAS DISTRIBUTION NETWORK The following conditions should be satisfied1. The undertaking is owned by an Indian company or by a consortium of such companies or by an authority or a board or a statutory corporation. 2. The undertaking has been approved by the Petroleum and Natural Gas Regulatory Board and notified by the Central Government. 3. One- third of its total pipeline capacity is available for use on common carrier basis by any person other than the assessee or an associated person. 4. It starts functioning on or after April 1,2007.
5. It fulfils such other conditions as may be prescribed. 6. The undertaking should not be formed by way of reconstruction or splitting up or by transfer to a new business of old plant and machinery. (subject to certain exceptions) 7. Deduction should be claimed in the return of income. Return of income should be submitted on or before the due date of submission of return of income. Books should be audited. Amount of deduction- 100 percent deduction will be available for 10 consecutive assessment years out of 15 years beginning from the year in which an undertaking lays and begins to operate the cross-country natural gas distribution network.
PROFITS AND GAINS BY AN UNDERTAKING OR ENTERPRISE ENGAGED IN DEVELOPMENT OF SPECIAL ECONOMIC ZONE [SEC. 80- IAB] The following conditions should be satisfied1. The taxpayer is a developer of a special economic zone. 2. The gross total income of the taxpayer includes profits and gains derived by an undertaking from any business of developing a special economic zone. 3. Such special economic zone is notified on or after April 1, 2005. 4. Deduction should be claimed in the return of income. Return of income should be submitted on or before the due date of submission of return of income. Books should be audited.
Amount of deduction- 100 percent deduction is available in respect of the aforesaid profit. Deduction is available for 10 consecutive assessment years. The deduction may be claimed, at the option of the taxpayer, for any 10 consecutive assessment years out of 15 years beginning from the year in which the special economic zone has been notified by the Central Government.
PROFIT AND GAINS FROM CERTAIN INDUSTRIAL UNDERTAKING OTHER THAN INFRASTRUCTURE DEVELOPMENT [SECTION 80-IB] Section 80-IB covers the following casesCASE 1 - Business of an industrial undertaking. CASE 2 - Operation of ship. CASE 3 - Hotels CASE 4- Industrial research CASE 5- Production of mineral oil
CASE 6 - Developing and building housing projects CASE 7- The business of processing, preservation and packaging of fruits or vegetables or integrated, handling, storage and transportation of food grains units. CASE 8 - Multiple theatres. CASE 9 - Convention centre. CASE 10 - Operating and maintaining a hospital in rural area. CASE 11 Hospital located in certain areas.
CASE 1: BUSINESS OF AN INDUSTRIAL UNDERTAKING The following conditions should be satisfied 1. It should be a new undertaking. It should not be performed by transfer of old plant and machinery. 2. It should manufacture or produce articles other than nonpriority sector items given in the Eleventh Schedule. This condition is, however, not applicable in the case of small scale industrial undertaking or an undertaking in a backward state. 3. Manufacture or production should be started with in a stipulated time-limit small scale industrial undertaking during April 1, 1991 and March 31, 2002, industrial undertaking in a backward State during April 1, 1993 and March 31, 2004, in the case of State of Jammu & Kashmir during April 1, 1993 and March 31, 2012,
industrial undertaking in a backward state during October 1, 1994 and March 31, 2004, cold chain facility during April 1, 1999 and March 31, 2004. 4.It should employ 10 workers (where manufacturing process is carried on with the aid of power) or 20 workers (where manufacturing process is carried on without the aid of power). 5. Deduction should be claimed in the return of income. Return of income should be submitted on or before the due date of submission of return of income. Books should be audited. Amount of deduction- If the above conditions are satisfied 100 percent of the profit is deductible for the first 5 years and 30 percent
(25 percent in the case of non-corporate assessee) for first 10 years. Tax holiday period is 10 years (12 years in the case of a co-operative society). However, in the case of an industrial undertaking in a Category B backward district, 100 percent tax holiday is available for first 3 years and for remaining period of tax holiday the partial deduction of 25 or 30 percent is available. Deduction commences from the previous year in which the industrial undertaking begins to manufacture or produce articles or things, to operate its cold storage plant or plants.
CASE 2- OPERATION OF A SHIP The following conditions should be satisfied1. A ship should be owned by an Indian Company and be wholly used for the purpose of the business carried on by the assessee. 2. It should not have, prior to its acquisition by the Indian Company, been owned and used in Indian territorial waters by a person. 3. It should be brought into use after March 31, 1991 but before April 1, 1995. 4. Deduction should be claimed in the return of income. Return of income should be submitted on or before the due date of submission of return of income. Books should be audited.
Amount of deduction- 30 percent of profit is deductible for first 10 years. The period of deduction commences from the initial assessment year, i.e., the year in which the ship is first brought into use. CASE 3- HOTEL INDUSTRY The following conditions should be satisfied1. The business of the hotel is not formed by the splitting up, or the reconstruction, of a business already in existence or by the transfer to a new business of building previously used as a hotel or of any machinery or plant previously used for any purpose. 2. The business of the hotel is owned and carried on by an Indian Company with a paid-up capital of Rs 5,00,000 or more.
3. The hotel starts functioning (at a place other than Calcutta, Chennai, Delhi and Mumbai) at any time during April 1,2007 and March 31, 2001. 4. Deduction should be claimed in the return of income. Return of income should be submitted on or before the due date of submission of return of income. Books should be audited. Amount of deduction- If the above conditions are satisfied 30 percent of profit is deductible for first 10 years. However, in the case of an approved hotel located in hilly area or rural area or a place of pilgrimage or in a notified area the quantum of deduction is 50 percent for first 10 years.
CASE 4 COMPANIES ENGAGED IN INDUSTRIAL RESEARCH The following conditions should be satisfied1. The taxpayer is a company registered in India. 2. Such company has scientific and industrial research and development as its main object. 3. It is for the time being approved by the prescribed authority (i.e., Secretary, Department of Scientific and Industrial Research). 4. Deduction should be claimed in the return of income. Return of income should be submitted on or before the due date of submission of return of income. Books should be audited.
Amount of deduction- 100 percent of the profit is deductible. Deduction is available for a period of first 5 years if the prescribed authority approves the company at any time before April 1, 1999. However, if the prescribed authority approves the company after March 31, 2000 but before April 1,2007, deduction is available for a period of first 10 years. CASE 5 MINERAL OILS The following conditions should be satisfied1. It should be a new undertaking. It should not be formed by transfer of machinery or plant previously used for any purpose. 2. The undertaking should be located anywhere in India.
3. It should commence production of mineral oil after March 31, 1997, or refining of mineral oil during October 1, 1998 and March 31, 2012 or production of natural gas ( in a specified block) on or after April 1, 2009. 4. Deduction should be claimed in the return of income. Return of income should be submitted on or before the due date of submission of return of income. Books should be audited. Amount of deduction- 100 percent profit is deductible for first 7 years.
CASE 6- DEVELOPING AND BUILDING HOUSING PROJECTS The following conditions are satisfied1. The project should be approved by a local authority before March 31, 2008. 2. The size of the plot of land is a minimum of one acre. 3. The undertaking commences development and construction of the housing project after September 30, 1998 and it should complete construction within 4 years from the end of the financial year in which the housing project is first approved on or before April 1, 2008, whichever is later.
4. The built-up area of the shops and other commercial establishments included in the housing project shall not exceed 5 percent of the aggregate built-up area of the housing project or 2000 sq.ft., whichever is less. 5. The built-up area of each residential unit should not be more than 1,500 sq.ft. (1000 sq.ft. in the cities of Delhi and Mumbai and any area within 25 kilometres). 6. Not more than 1 residential unit should be allotted to the same person. If allottee is an individual, no other residential unit in the housing project should be allotted to the individual, his/her spouse, minor children, Hindu Undivided Family etc. 7. Deduction should be claimed in the return of income. Return of income should be submitted on or before the due date of submission of return of income. Books should be audited.
Amount of deduction 100 percent of the profit of the housing project is deductible. CASE 7- BUSINESS OF PROCESSING, PRESERVATION AND PACKAGING OF FRUITS OR VEGETABLES, ETC. An undertaking deriving profit from the business of processing, preservation and packaging of fruits or vegetables or meat or meat products or poultry/ marine/ dairy products or from the integrated business of handling, storage and transportation of food grains is qualified for deduction at the rate of 100 percent of the profit for the first 5 years and 30 percent (25 percent in the case of non-corporate assessee ) for the next 5 years.
The following conditions are satisfied1. Such multiplex theatre is constructed at any time during April 1, 2002 and March 31, 2005. 2. The business of the multiplex theatre is not formed by the splitting up, or the reconstruction, of a business already in existence or by the transfer to a new business of any building or of any machinery or of plant previously used for any purpose. 3. Such multiplex theatre is not located at a place within the municipal jurisdiction of Kolkata, Chennai, Delhi or Mumbai. 4. Deduction should be claimed in the return of income. Return of income should be submitted on or before the due date of submission of return of income. Books should be audited. Amount of deduction- 50 percent of profit is deductible for first 5 years.
CASE 9- CONVENTION CENTRE The following conditions are satisfied1. Such convention centre is constructed at any time during April 1, 2002 and March 31, 2005. 2. The business of the convention centre is not formed by the splitting up, or the reconstruction, of a business already in existence or by the transfer to a new business of any building or of any machinery or plant previously used for any purpose. 3. Deduction should be claimed in the return of income. Return of income should be submitted on or before the due date of submission of return of income. Books should be audited. Amount of deduction- 50 percent of profit is deductible for first 5 years.
CASE10 -OPERATING AND MAINTAINING A HOSPITAL IN RURAL AREA The following conditions are satisfied1. The assessee owns an undertaking deriving profits from the business of operating and maintaining a hospital in a rural area. 2. Such hospital is constructed at any time during October 1, 2004 and ending on March 31, 2008. For this purpose a hospital shall be deemed to have been constructed on the date on which a completion certificate in respect of such construction is issued by the concerned local authority. 3. The hospital has at least 100 beds for patients.
4. The construction of the hospital is in accordance with the regulations, for the time being in force, of the local authority. 5. Deduction should be claimed in the return of income. Return of income should be submitted on or before the due date of submission of return of income. Books should be audited. Amount of deduction- 100 percent profit is deductible for the first 5 years
TAX LIABILITY OF COMPANY & DIRECITORS
PRESENTATION ON CTP
BY EKTA SARASWAT ROLL NO:A3110209012
FIRM 1. PARTNERS ARE INCRESED TO FIVE 2. Total salary payable to partners remains the same (maximum permissible)
PRIVATE LIMITED COMPANY 1. Directors are increased to five 2. Total salary payable to directors is increased to 90% of the total company(there is no maximum limit on remuneration payable to directors)
Taxable income before deduction of salary and interest (1) rs 500000 1000000 1500000 2000000 2500000 3000000
INTEREST Salary CAPITAL payable to TO 5 partners PARTNER S (2) RS 120000 120000 120000 120000 120000 120000 (3) RS 318000 618000 918000 1218000 1518000 1818000
Taxable income of firm after salary and interest (4) RS 62000 262000 462000 662000 862000 1062000
Tax liability of the firm
tax liability of the partners
Total tax as % of income (5+6) as % of (1) (7) RS 3.83% 8.10% 11.15% 13% 14.68% 16.35%
(5) RS 19158 80958 142758 204558 266358 328158
(6) RS NIL NIL 24514 55414 100528 162328
TAX INCIDENCE ON COMPANY AND FIVE DIRECTORS
Taxable income(b efore payment of salary to directors) (1) RS 500000 1000000 1500000 2000000 2500000 3000000
Salary to five directors
Taxable income of the company
Tax liability of the company
Taxable Tax of income of one one director director
Total tax of the company and five directors
(7)% of (1)
(2) RS 450000 900000 1350000 1800000 2250000 2700000
(3) RS 50000 100000 150000 200000 300000 350000
(4) RS 15450 30900 46350 61800 77250 92700
(5) RS 90000 180000 270000 360000 450000 540000
(6) RS NIL 2060 11330 26780 45320 67980
(7) RS 15450 41200 103000 195700 303850 432600
(8) 3.09% 4.12% 6.87% 9.79% 12.15% 14.42%
88.1-2 AS THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP in the case of the firm and partners, the allow ability of expenses incurred in providing perquisites to partners is highly doubtful. Even if such expenses are allowed as deductions, the same will be taxable in the assessment of individual partners (the concessional tax treatment of perquisites given by rule 3 will not be applicable in the absence of employeremployee relationship). In the case of companies, expenses on perquisites extended to directors are allowable as deduction. Moreover, perquisites in the hands of directors are taxable as per section 17 and rule 3.
Thank You
Please forward your query To: surajamity@yahoo.com CC: manoj.amity@panafnet.com
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PAN African eNetwork Project

MASTER OF FINANCE & CONTROL CORPORATE TAX PLANNING Semester - II Session-1

CORPORATE TAX PLANNING

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RESIDENTIAL STATUS AND TAX INCOME

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COMPANY & ITS STATUS

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RESIDENTIAL STATUS OF A COMPANY [SEC.6 (3)]

Resident or non-resident A company other than an Indian

-Wholly outside India

-Partly in India or partly outside India

Note: A company can never be Ordinarily or Non-ordinarily resident in India.

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Control and management

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SOLUTION TO CASE STUDY

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INCIDENCE OF TAX [SEC.5]

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Income is not received (or not deemed to be received) in India ; and

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Exempted Incomes of Companies

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TAX LIABILITY OF COMPANY & DIRECITORS

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Tax liability of the firm

tax liability of the partners

(5) RS 19158 80958 142758 204558 266358 328158

(6) RS NIL NIL 24514 55414 100528 162328

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