Kalpesh Classes

Questions 10-12 mark type

Question 01 (ID 01) (corporate taxation)​​ 

The profits as per P&L A/c of M/s. PQR Ltd. are Rs. 50 crores. You are requested to compute​​ the tax liability of the company under section 115-JB after taking into consideration the following information:

• Provision for Income Tax : Current Tax Rs. 10 crores and Deferred Tax Rs. 5 crores;

• Indirect Tax : Paid Rs. 1.5 crores; Provision Rs. 0.5 crores;

• The company had acquired shares of a listed company for Rs. 6 crores on 1st​​ of January three years back, which it had​​ sold​​ for Rs. 10 crores on 31st​​ of January. The Securities Transaction Tax on purchase and sale of shares​​ was​​ 0.075 % and 0.1 % respectively. The gains arising from such sale were credited directly to Investment Reserve A/c.

• The following extract of Balance Sheet is furnished​​ (Rs. crores):

The company has credited Rs. 15 crores out of Revaluation Reserve to the Profit & Loss A/c.​​ 

Question 02 (ID 02) (corporate taxation)​​ 

A domestic company, ABC Ltd., has an undertaking newly established​​ for export of computer software in​​ a​​ free trade zone, the profits of which have been merged in the net profit of the company as per Profit and Loss Account prepared in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act.​​ It furnishes the following particulars in respect of Assessment and seeks your opinion on the application of section 115JB. You are also required to compute the total income and tax payable by the company:

The company has represented to you that the excess realised on sale of land​​ cannot form part of the book profit for purposes of sec. 115JB. You will have to deal with this issue.​​ 

Question 03 (corporate taxation) (ID 07)

The accounts of a public company have been prepared in accordance with provisions of Parts II and III of Schedule VI to the Companies Act and its Profit and Loss Account laid before the Annual General Meeting for the previous year shows a net profit of Rs. 15 lakhs. The following information relevant for the purpose of computing its assessable income has been extracted from a scrutiny of the Profit and Loss Account:

Depreciation admissible under the Income-tax Act and Rules for the previous year is Rs. 19,50,000. The capital gain has been invested in specified assets under section 54EC. GST provided in the accounts has been remitted before the due date.​​ There is no loss or unabsorbed depreciation to be carried forward and adjusted as per income-tax assessment. You are required to compute the total tax liability of the company.

Question 04 (ID 08) ​​ (corporate taxation)​​ 

R Ltd. is a closely held company engaged in manufacture of insecticides and fertilizers. The value of plant and machinery owned by the company is Rs. 55 lakhs. Its profits and loss account for the year is as under :

The assessee claims the following as deductions:

The following further particulars are furnished.

Question 05 (ID 17) (corporate taxation)​​ (Revision ​​ / Home work)

Profit and loss account of X Ltd. for the year shows a net profit of Rs. 75 lakh after debiting/crediting the following items:

• Depreciation: Rs. 24 lakh (including Rs. 4 lakh on revaluation).

• Interest to financial institution not paid before due date of filing return of income : Rs. 6 lakh.

• Provision for doubtful debt: Rs. 1 lakh.​​ 

• Provision for unascertained liabilities: Rs. 2 lakh.

• Transfer to general reserve: Rs. 5 takh.​​ 

• Net agricultural income: Rs. 16 lakh.​​ 

• Amount withdrawn​​ from reserve created during 3 years back : Rs. 3 lakh (book profit was increased by the amount transferred to such reserve)

Other information –

Brought forward loss and unabsorbed depredation as per books are Rs. 12 lakh and Rs. 10 Lakh, respectively.
Compute Minimum Alternate tax.​​ 

Question 06 (corporate taxation) (ID 11) (Revision / Home work)

The net profit of ABP Ltd. as per Profit & Loss Account for the year is 100 lacs after debiting / crediting the following items :

• Provision for income-tax : 15 lacs

• Provision for deferred tax : 8 lacs

• Proposed Dividend : 20 lacs

• Depreciation debited to Profit & Loss Account is 12 lacs. This includes depreciation on revaluation of assets to the tune of 2 lacs.

• Profit from unit established in Special Economic Zone : 30 lacs​​ 

• Provision for permanent diminution in value of investments : 2 lacs

• Brought forward losses and unabsorbed depreciation as per books of the company as follows :

Compute book profit of the company section 115JB.

Question 07 (corporate taxation) (Revision ​​ / Home work) (ID 13)

Hyper Ltd. engaged in diversified activities earned a net profit of 14,25,000 after debit / credit of the following​​ items to it profit and loss account.

The company provides the following additional information:

• Depreciation includes 1,50,000 on account of​​ revaluation of fixed asset.

• Depreciation allowable as per income tax Rules is 2,80,000.

• Brought forward Business Loss/Unabsorbed Depreciation:

You are required to :​​ 

compute the total income of the company for the year giving the reasons for treatment of items and examine the applicability of section​​ 115JB of the income-tax Act, 1961, and compute book profit and tax credit to be carried forward.​​ 

Questions 15-20 mark type

Question (corporate taxation) (ID 12)

ABC Ltd., engaged in diversified activities, earned a net profit of 42,50,000 after debit /​​ credit of the following items to its profit and loss account:

The company provides the following additional information :

Brought​​ forward Business Loss/Unabsorbed Depreciation :

You are required to examine the applicability of section 115JB of the Income-tax Act,​​ 1961 and compute book profit and the tax credit to be carried forward, assuming that the total income computed as per the provisions of the Income-tax Act, 1961 is 25,00,000.

Question (corporate taxation) (ID 04)

Netherlands oil Corporation is a Foreign​​ Company engaged in the exploration of Oil and Gas in all countries including India. In respect of its Indian Business, the company has prepared the Profit and Loss Account in accordance with Part II and III of Schedule VI to the Companies Act, 1956 and such Profit and Loss Account for the previous year shows a Net Profit of Rs. 65 lakhs. The Net profit from activities in all other countries stands at Rs. 550 lakhs. The company informs that while arriving at the Net Profit as indicated above in respect of Indian business, the following debits / credits have been made in its Profit and loss Account.

The following additional information is also provided:

The company has brought forward tax credit​​ from 3 years back Rs. 500,000.

​​ You are requested to compute the total tax liability of the company. ​​ 

Question (corporate taxation) (Revision ​​ / Home work) ​​ (ID 06)

R Private Ltd., a closely held Indian company, is engaged in the business of manufacture​​ of paints in India. A profit or loss account for the year is given below: [Rs. (in lakhs)]

Additional information

Compute the total income of the assessee and the tax liability.

Question (corporate taxation) (ID 14)

The net profits of XYZ Ltd. for the year, after debiting / crediting​​ the following items, were 9 Lacs :

• The company had taken on lease an old building for the purpose of locating its business. Due to old age of the building, it was demolished and a new building put up, which was used for purposes of XYZ’s business from September PY, . The cost of the new building 10 Lacs was written off as revenue expenditure. The lessor permitted the company to have an extension of the lease by another twenty years.

• 1 Lacs was paid as an annual fee for technical services to a foreign collaborator under an agreement approved by the Government.

• The company collected 3 Lacs from its customers by way of GST 3 years back and had remitted it to the State Government in due time. On the levy being challenged in the High Court, the Court held the collection as illegal and the State Government refunded the amount to the company.

• Land development charges of 1.5 Lacs were paid to the State Industrial Development Corporation on allotment of a commercial plot.

• A criminal case was filed against a Director​​ of the company, in his official capacity. The company spent legal expenses of 50,000 defending him in the proceedings. The Director was acquitted of the charges at the end.

• The company issued in the year bonus shares to its shareholders and for that purpose fees of 1.5 Lacs were paid to the Registrar of Companies. These have been written off in the accounts as revenue expense.​​ 

• The company paid Rs. 70,000 as interest on deposits to some of the non-resident buyers on advances received from them. No tax at source was deducted on the payment.

• Overdraft interest of Rs 40,000 was paid to the company’s bank to enable the company to pay its income tax dues.​​ 

• The opening and closing stocks of the year were 90,000 and 1,17,000 respectively and were undervalued by 10%​​ on cost.​​ 

• Some investments were held by the company (not as stock in trade), which had to be depreciated by 4.8 Lacs due to a directive from the Government.​​ 

• Sale price of land (held as stock in trade) Rs. 10,00,000. Agreement for sale of land is executed​​ on 21st​​ of March and stamp duty @ 5% is paid by buyer Rs. 60,000.

The balance on 1st April, to the Profit and Loss Account, shown separately in the Balance Sheet, was a debit of 2 Lacs.

The company had the following claims brought forward from the prior years :

You are required to :

Calculate the total income of XYZ ltd. [Your answer should clearly indicate the reasons for the treatment of the individual items given above.] Examine the applicability of​​ section 115JB.

Question (ID 15) (corporate taxation) (Revision ​​ / Home work)

XYZ Ltd is engaged in the business of manufacturing fertilizer. Its profit and loss account shows a net profit of Rs. 500 lakh for the year after debiting and crediting the following items –

• Depreciation provided in accounts as per straight line basis Rs. 30 lakh.

• Normal depreciation allowable is Rs. 28 lakh. The company has made addition to machinery during the year to the extent of Rs. 100 lakh, in June.

• The company has made​​ cash payments for purchases and expenditure as below –

• • On June 4, Rs. 5 lakh (due to strike by bank staff)

  • On June 5, Rs. 7 lakh (due to cash demanded by the supplier)

  • On September 30, Rs. 10 lakh (half yearly closing for bank: a bank holiday)

  • Payment made​​ to transport operator for hiring of lorry as follows: May 7, Rs. 50,000; January 8, Rs. 75,000; March 2, Rs. 32,000.

• Rs. 5 Lakh contributed to a University approved and notified under section 35(1)(ii).

• GST of Rs. 1.45 lakh, pertaining to Last year was paid on December 10,.

• Rent paid and professional charges to a consultant including service tax was Rs. 5,61,800 and Rs. 2,24,720 respectively. Tax was not deducted on the service tax portion for both the payments.

• The company has imported 1000 kgs raw materials from a supplier in US at the rate $75 kg on March 29, 2014. The exchange rate was Rs. 59 per dollar when the imports were made. The payment to the supplier was made on January20, when the exchange rate was Rs. 62 per dollar. The company had not entered​​ into a forward contract to hedge the risk.​​ 

• The company has also purchased goods of Rs. 55 lakh from ABC Ltd. in which directors have substantial interest. The market value of the goods is Rs. 54 lakh.​​ 

• The company has incurred legal expenses for the following –

  • Issue of bonus shares Rs. 10 lakh.

  • Alteration of memorandum of association Rs. 2 lakh (in connection with increase of authorized capital). ​​ 

• Donation paid to a political party is Rs. 25 lakh.

Compute he total income and tax payable by the company​​ for the year, Ignore MAT provisions.​​ 

Question (ID 16) (corporate taxation) (Revision ​​ / Home work)

Profit and loss account of X (Pvt.) Ltd. for the year shows a profit of Rs. 75 lakh after debiting the following items –​​ 

• Rs. 2 lakh contributed to​​ Employees’ Welfare Trust.

• Rs. 12 lakh paid towards Course fee and hostel expenses for MBA course of a close relative of a director. The relative is not in employment with the company.

• Rs. 3.50 Lakh being expenses incurred on installation of a traffic signal, so as to facilitate its employees coming to office to overcome traffic jam and save office time.

• RS. 3 lakh spent of gift items distributed to various dealers under the company’s sales incentive scheme.

• Rs. 6 Lakh being expenses incurred on the travelling of the wife of MD, who accompanied him on tour to Singapore on invitation of Trade and Commerce Chamber, Singapore.

• Rs. 3 lakh being amount paid in March consequent upon change in currency rate due to exchange fluctuation in excess of the amount due to​​ the supplier of machinery.

• Rs. 18,000 and Rs. 9,000 paid in cash on October 25, by two separate vouchers to a contractor who carried out certain repair work in the office premises.

• Interest of Rs. 2 lakh was paid in March to a company on a loan taken from​​ the company. Tax deducted at source from such interest was deposited in July of AY.

Additional information –

• Provision for audit fee of Rs. 6 lakh was made in the books for the last year without deducting tax at source. Such fee was paid to the auditors in​​ September after deducting tax under section 194J and the tax so deducted was deposited on October 7,.

• During the year the company purchased 10,000 shares of VK Private Limited at Rs. 40 per share. The fair market value of such shares on the date of transaction was Rs. 60 per share.

Compute total income of X (Pvt.) Ltd. for year and tax payable on such, income indicating reasons for treatment of each item. Ignore the provisions relating to minimum alternate tax.​​ 

Question (ID 18) (corporate taxation)​​ 

The profit and loss account of Indian Branch of Bank of UK, a bank incorporated in United Kingdom, for the year shows a net profit of Rs. 60 crore after debiting/crediting the following items –

Other relevant information –

• Interest on Government Securities accrued but not​​ due for last year Rs. 5 crore, which was credited to the Profit & Loss Account for the last year

• Depreciation allowable under Income - tax Rules: Rs. 12 crore.

• The assessee was allowed deduction of Rs. 10 crore for provision for bad debts under section 36(1)(viia) till last year and it wrote off bad debts for the first time in PY.

• Interest on Sub-Standard and doubtful categories of advances not recognised as income as per prudential norms of Reserve Bank of India : Rs. 15 crore.

• Land at Noida was acquired by the branch at a cost of Rs. 9 crore (indexed cost 14.58 crore) few years back.

Compute total income and tax payable by the Indian Branch of Bank of UK ignoring the applicability of the provision relating to minimum alternate tax. Give explanation for treatment of each item.​​ 

Question (ID 21) (corporate taxation)​​ 

The net profit of X Ltd. for the year amounts to Rs. 7,22,000 after debiting/crediting following items –

• Payment of interest on money borrowed from bank for purchase of land and building​​ :Rs. 2,22,000.

• Commission Rs. 1,00,000 paid in the month of February and Rs. 1,25,000 Paid in the month of March. Tax deducted at source from the payment was deposited to the Government on September 20 AY.

• Travelling expenses of Rs. 90,000 on a foreign tour of a director for negotiating collaboration with a foreign manufacturer for initiation of new line of business.

• Security transaction tax paid Rs. 10,000. Income from trading in shares already credited to profit and loss account Rs. 3,82,000.

• As restructuring of its debt, the company has converted arrears of interest of Rs. 3,00,000 on term loan into a new term loan with a revised repayment schedule. The company has paid Rs. 50,000 towards such funded interest during the year. Entire Rs. 3,00,000 is debited to profit and loss account. However, out of this a further sum of Rs. 50,000 is paid before the due date of submission of return of income.

• Rs. 5,00,000, being contribution to S Ltd (wholly owned subsidiary company) for construction of a school for the benefit of its employees.

• Provision for gratuity based on actuarial valuation is Rs. 6,00,000. Actual payment of gratuity of Rs. 1,50,000 was debited to provision for gratuity account.

• Payment of 200,000 to an agency for meeting corporate social responsibility obligation under the company law.

• Payment of Rs. 150,000 towards insurance policy of its key directors on account of key mans insurance policy with life insurance corporation of India.

Other information

Provision for bonus for 2 years back paid on December 15, : Rs. 98,000. It is inclusive of payment by bearer cheque of Rs. 34,000. As it pertains to an earlier year, it is not debited to current year’s P & L a/c.

Company has purchased a commercial vehicle of Rs. 8,00,000 for the purpose of business on​​ March 21, and calculated depreciation @ 15 per cent for the full year. Depreciation debited to the Profit and Loss account is calculated on all other assets as per the rates prescribed in the Income-tax Act, considering the useful lives of the assets.

The company collected Rs. 3,00,000 from its customers towards GST of few years back and remitted it to the State Government in due time. On the levy being challenged in the High Court, the Court held the levy as illegal and the State Government refunded the​​ amount to the company in February PY. The company refunded Rs. 2,00,000 to the Customers and the remaining amount of Rs. 1,00,000 was shown under the head “current liabilities”.

Compute the income chargeable to tax and work out the amount of tax payable on such income, ignoring the provisions of section 115JB.​​ 

Question (ID 22) (corporate taxation) (Home work)

Moon India Ltd. engaged in manufacturing activity furnishes the following details:​​ 

Net profit as per Profit and Loss Account 50,00,000.

• The​​ company took a loan of 12,00,000 in the financial year 2011-12 for the purpose of relocation of its office premises. The lender waived 8,00,000 in the year and it is credited in the profit and loss account.

• Depreciation charged to Profit and Loss Account is 16,00,000. Depreciation as per Income-tax Act, 1961 amounts to 28,00,000 which includes the following:

Depreciation rate meant for computers has been adopted for (i) accessories like printers and scanners; and (ii) EPABX. The opening written down value of these is given below:

• • • Printers and Scanners 50,000

    • EPABX 2,00,000

Assume that there were no additions during the year.

• It incurred 2,50,000 as expenditure for public issue of shares. The public issue could not materialize on account of non-clearance by​​ SEBI. This amount is charged to Profit & Loss Account.

• It incurred expenditure of 2,00,000 towards issue of debentures. This amount has been capitalized in the books.

• The company paid 1,00,000 as compounding fee for violations in the pollution control regulations. This has been charged as revenue expenditure.

• The company lost cash of 25,00,000 due to theft when it was withdrawn from bank and taken to administrative office. It is not insured and hence, fully charged as revenue expenditure.

• 5,00,000 was spent​​ during the year towards permitted CSR activities as per 135 of the Companies Act, 2013. This is charged to Profit and Loss Account.

• It paid 2,00,000 to share broker for transacting shares listed in stock exchange and 1,00,000 to commodity broker for commodity transactions at MCX. Both the amounts are debited to Profit and Loss Account and no tax was deducted at source on these payments.

• It paid 50,000 to an electoral trust by cash and 1,00,000 by cheque to a registered political party. Both these are debited to Profit and Loss Account.

Compute the total income of the company.​​ 

Give reasons in brief for treatment of each of the above items. Ignore MAT provisions.

Other questions on corporate taxation

Question (corporate taxation) (ID 05)

Fun India Limited​​ has a carried forward credit of Rs. 2 lakh under section 115 JAA(3A) of the Income-tax Act from one year back. In the previous year, the company’s total income and “book profit” under section 115JB are Rs.5 lakh and Rs. 8 lakh respectively. Compute the tax payable by the company and the amount to be carried forward under section 115JAA.

Question (corporate taxation) (Revision ​​ / Home work) (ID 09)

Kalpesh Sanghavi was a director in a private company floated by, his brother. He resigned from directorship of the company with effect from 31-3-PY. For the year, tax and interest were found due against the company. As the departmental authorities could not recover the outstanding dues from the company, proceedings were initiated against Kalpesh Sanghavi under section 179(1). His salary from his employer, Punjab Roadways was attached in month of August. Subsequently, the company filed a revision petition for the stay against recovery proceedings. Can the recovery proceedings against Kalpesh Sanghavi be stayed ?

OR

In respect of the taxes due from a private limited company, which could not be recovered from it, the Tax Recovery Officer attached the properties of an erstwhile director for recovery thereof. It was contended by the director that notice under section 156 had not been served on him and, therefore, the proceedings for recovery were not valid. What is the correct legal position ?

OR

'A' was a director of a Private Company floated by his brother.​​ He​​ resigned​​ on​​ 31st​​ March. Tax and interest was due from the Company. Proceedings​​ were​​ initiated against ‘A’. His salary was attached. Company filed a revision petition for stay of recovery against the company. Can recovery against 'A' be stayed ?