CWA/ICWA Final :: Strategic Tax Management : December 2002

*F-16(STM)* *Revised Syllabus*
Time Allowed : 3 Hours		Full Marks : 100
Attempt Question NO. 1 which is compulsory and any five from the rest.
Marks

Reproduce the correct answer in the following cases. Give reasons for your answer in 3-4 sentences:

2x10

(a)

X (Presently a citizen of Nigeria) was born in Kanpur on March 17, 1980. His grandmother was born in Lahore in 1905. X in this case is-

(i)

A person of Indian origin;

(ii)

Not a person of Indian origin, or

(iii)

None of the above.

(b)

Income of the Municipal Corporation of Delhi (MCD), a local authority, under the head "Income from house property" is—

(i)

Exempt from tax;

(ii)

Chargeable to tax; or

(iii)

None of the above.

(c)

X, an employee of A Ltd., is provided education facilities for his children in an institution maintained by the employer. The perquisite is:

(i)	Exempt from tax;
(ii)	Chargeable to tax in case of other than low-paid employees only if cost of education exceeds Rs. 1,000 per month.
(iii)	Chargeable to tax in case of all employees; or
(iv)	None of the above.

(d)

X owns a house property in Delhi. A loan of Rs. 60,000 was taken on April 1, 1999 @ 15% p.a. for the construction of the house which was completed on March 31, 2000. Nothing has been repaid on loan account so far. The deduction on account of interest on borrowed capital for the AY 2002-03 is:

(i)

Rs. 9,000;

(ii)

Rs. 10,800,

(iii)

NIl.

(e)

X Ltd. wants to pay bonus of Rs. 1,05,000 to its employees for the previous year 2001-02. Rs. 50,000 is paid on October 10, 2002 and Rs. 55,000 is paid on December 10, 2002. The bonus allowable as deduction for the previous years 2001-02 and 2002-03 is—

(i)	Rs. 1,05,000 for the previous year 2001-02;
(ii)	Rs. 50,000 for the previous year 2001-02 and Rs. 55,000 for the previous year 2002-03;
(iii)	Rs. 55,000 for the previous year 2001-02; or
(iv)	None of the above.

(f)

X acquires goodwill of a business on June 10, 1980 for Rs. 78,600. The fair market value of the goodwill as on April 1, 1981 is Rs. 1,78,600. The cost of acquisition of such goodwill for X shall be—

(i)	Rs. 78,600;	(ii)	Nil;
(iii)	Rs. 4,78,600; or	(iv)	none of the above.

(g)

Deduction of tax under section 194EE is applicable in case of—

(i)	National Savings Scheme, 1978 only;
(ii)	National Savings Scheme, 1992 only;
(iii)	National Savings Scheme, 1987 and 1992, or (iv) none of the above.

(h)

C(HUF) is a Hindu undivided family, whose karta C is a person of Indian origin. During the previous year 2001-02, C is non-resident (as he is in india only for 25 days during April 2001). The family's business is controlled by a team of professionals in India under the guidance of C. Every year C becomes to India generally for 25-100 days. The family is—

(i)

Resident;

(ii)

Non-resident in India.

(i)

X, a non-resident foreign citizen, comes to India for the first time on April 10, 2001 for a visit of 100 days in connection with the shooting of cinematograph film in Delhi. For this, he has been paid a remuneration of Rs. 1,40,000 in India by A Ltd., a foreign company. None of the shareholders in A Ltd. is a citizen of India or resident in India. It is—

(i)

Chargeable

(ii)

Not chargeable tax in India.

(j)

Maximum Retail Price of a product [being personal deodorant] under Customs Tariff Heading No. 3307.20 is Rs. 1,500 and its assessable value is Rs. 1,000. As per Notification 13/2002-C.E.(N.T.), personal deodorant is assessable under Central Excise on the basis of Maximum Retail Price after allowing an abatement of 40%. Basic excise duty rate is 16%. The countervailing duty (CVD) payable under Customs Tariff Act on personal deodorant is—

(i)	Rs. 96;	(ii)	Rs. 240;
(iii)	Rs. 144;	(iv)	Rs. 160.

(a)

Compute the income-tax liability of Mumbai Petro-chemicals Ltd., a closely held Indian Manufacturing Company for the AY 2002-03 from the following information given for the relevant previous year.

Profit and Loss Account	Rs.
Sale proceeds of goods (domestic sales)	25,00,000
Sale proceeds of goods (export sale)	6,00,000
Other receipts	3,00,000
Total	34,00,000
Less: Expenses
Administrative expenses	8,35,000
Provision for unascertained liabilities	60,000
Income tax	4,00,000
Depreciation	4,00,000
Outstanding customs duty	15,000
Proposed dividend	50,000
Loss of subsidiary company	40,000
	18,00,000
Net profit	16,00,000

12+4

For tax purposes, the company wants to claim the following:
Deduction under 80HHC, foreign remittance Rs. 5,00,000; Deduction under 80IB (30% of Rs. 16,00,000); Excise Duty pertaining to 1997-98 paid during 2001-02 Rs. 1,00,000; Depreciation under Section 32 Rs. 5,50,000; Brought forward loss of 1998-99 Rs. 12,00,000.

Please turn over

( 2 )

F-16(STM)
Revised syllabus

Marks

(b)

What are the essential requirements of "penultimate sale for export" under the Central Sales Tax Act.

(a)

State briefly the factors that influence the management decision relating to owning or leasing fixed assets.

(b)

Amit borrowed money for the purpose of business from different parties. The Assessing Officer questioned the allowability of interest expenditure on the following grounds:

(i)	At the time of borrowing the assessee had surplus funds and borrowing need not have been resorted to.
(ii)	Though the borrowing was genuine the rate of interest paid was excessive.
(iii)	The amount borrowed was utilized for acquisition of a capital asset.
(iv)	The investment made out of borrowed funds did not yield any profit in the year. — Discuss.

"The tax-payer is entitled to so arrange his affairs that the tax eligible under the appropriate Act is less than what otherwise it could be".
"The Courts are now concerning themselves not merely with the genuineness of a transaction, but with the intended effect of it on fiscal purposes. No one can now get away with a tax avoidance project with the mere statement that there is nothing illegal about it" — Discuss.

You are Manager (Taxation) of Company "X" which is manufacturer as well as exporter. Company 'X' is getting merged with Company 'Y'.

(a)

Discuss provisions applicable and actions you will take from angles of Income Tax, Central Excise, Customs and Central Sales Tax.

(b)

Amalgamation is 'tax neutral' for purposes of income tax. Explain with reference to provisions under Income Tax in respect of amalgamation.

(a)

An assessee availed Cenvat credit of duty paid on all the inputs. His clearances comprised of following:

(i)	Part of his final products was exported directly without payment of excise duty;
(ii)	Part of his final products were sold to another manufacturer. The manufacturer used them in his manufacture and then exported his final product. The goods were cleared under bond without payment of duty;
(iii)	Balance quantity of his final products for home consumption on payment of excise duty at normal rates—

Discuss provisions in respect of Cenvat credit which he had availed on inputs used in final products which were exported.

(b)

State the doctrine of unjust enrichment in case of refunds under Central Excise and Customs. Discuss applicability of this doctrine in case of

(i)	Goods captively consumed by importer and not sold;
(ii)	Goods cleared under Provisional Assessment.

(a)

How would you find out taxable value of a house property (commercial) for the purpose of wealth-tax?

(b)

X Ltd. gives a loan of Rs. 1,00,000 (interest-free) to an employee whose salary is Rs. 10,000 per month (no other allowance or perquisite is provided). The loan is given on November 1, 2001 and it is repayable in December 2004. Find out the value of the perquisite chargeable to tax for the assessment year 2002-03.

XYZ Ltd. is considering the purchase of a new machine costing Rs. 60,000 with an expected life of 5 years with salvage value of Rs. 3,000 in replacement of an old machine purchased 3 years ago for Rs. 30,000 with expected life of 8 years. The present market value of this old machine is Rs. 35,000. Because of the purchase of new machinery, the annual profits before depreciation are expected to increase by Rs. 12,000. The relevant depreciation rate of the machine is 25 per cent on written down value basis and the tax rate is 35 per cent. Assume the after tax cost of capital (discounting rate) to be 14 per cent. Advise the company suitably.

__________