CWA/ICWA Final :: Strategic Tax Management : June 2004

*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

Answer any ten of the following, giving brief reasons bot exceeding 3 to 4 sentences;

2x10=20

(a)

State where the following forms are used—

(i)

EA–1,

(ii)

ER–2,

(iii)

Form H,

(iv)

SC (C) – 1

(b)

State True or False:-

(i)	If inputs are written off in books of account as obsolete, Cenvat credit will be reversed even if the inputs are lying in store room.
(ii)	Credit of Additional Excise Duty (Goods of Special Importance) can be utilized only for payment of Additional Excise Duty (Goods of Special Importance).

(c)

An assessee had procured machinery in April, 2000 for Rs. 10 lakhs. Duty paid on machinery was Rs. 1,60,000. It was commissioned in June, 2000. Assessee had availed 50% Cenvat credit of Rs. 80,000 in 2000-01, and Rs. 80,000 (balance 50% credit) in 2001-02. He sold the capital goods after use, in May, 2004 as second hand goods for Rs. 3,00,000. How much Excise Duty or 'amount' is payable while clearing the machinery?

(d)

A product which is covered under Section 4A provisions has MRP of Rs. 25 printed on the carton. It is cancelled by drawing two lines across the price, but the price is easily readable. Below that price, MRP price of Rs. 21 is shown to indicate the saving which will be made by buyer. The abatement available is 40% on MRP Excise duty rate is 16%. Calculate the excise duty payable.

(e)

State whether following processes would be 'manufacture' for purpose of Central Excise—

(i)	Recording of cassette,	(ii)	Making wire from wire rod,
(iii)	Changing of MRP on product,	(iv)	Printing of colour and logo on glass bottle.

(f)

State True or False:-

(i)	While classifying goods, if there is conflict between title of chapter and a chapter note, the title of chapter prevails.
(ii)	If an article equally merits classification under two headings in Customs Tariff, the heading that appears later in the Tariff prevails.

(g)

Fill in the blanks:- Method of calulating the assessable value in case of job work is based on decision of Supreme Court in _______. While calculating assessable value in case of job work, inward transport charges of raw material are ______ (includible/not includible) and notional profit of 10% is ______ (includible/not includible)

(h)

Mr. Shah was shareholder of an unlisted public company, holding 15% shares of the company. He took loan of Rs. 2,00,000 from the public company in April, 2003. It was repaid in March, 2004. The ITO proposes to treat the amount of Rs. 2,00,000 as Income of Mr. Shah. Is his action justified?

(i)

Sharma, a Government employee, gets Rs. 40,000 per annum as basic pay. In addition, he receives Rs. 8,500 as entertainment allowance. His actual expenditure on entertainment for official purposes, however, was Rs. 9,800. Discuss taxability of entertainment allowance received by Sharma.

(j)

Actual cost of machinery of assessee as on 1.4.2003 was Rs. 10,00,000 and its written down value as on date was Rs. 4,50,000. He purchased machinery of Rs. 6,50,000 in April, 2003. He had obtained loan of Rs. 5,00,000 from Bank @ 12% for purchase of machinery. The loan was disbursed on 1.4.2003. The assessee put the machinery to use on 1.11.2003. All the machinery is eligible for depreciation @ 25%. Calculate depreciation eligible for deduction for assessement year 2004-05.

(k)

Fill in the blanks:-
Accumulated losses of amalgamating company shall be allowed to be set off or carried forward by amalgamated company. If the amalgamated company holds continuously for a minimum period of ________ years from date of amalgamation at least three-fourths of _______ of the amalgamating company.

(l)

Name any four States where tax holiday for new industrial undertaking is available 9/s 80-IC of Income Tax Act, from assessment year 2004-05.

(a)

What is "slup sale"? Explain provision in Income Tax Act relating to slump sale.

(b)

Would the slump sale be liable for sales tax?

(c)

How the buyer can avail Cenvat credit capital goods and stock as on date of sale?

Please turn over

( 2 )

F-16(STM)
Revised syllabus

Marks

(a)

A company manufacturing consumer durables has factory in Tamilnadu. It has a depot in Maharashtra. Its product 'A' is dispatched to its depots in Maharashtra and sold from the depot to its dealers in Maharashtra. The depot administration expenses are Rs. 8 lakhs per annum. These do not include transport charges from Tamilnadu to Maharashtra. The dealers in Maharashtra are registered under CST Act. The present price for sale from Maharashtra depot is Rs. 22,500. Inclusive of transport charges from Tamilnadu to Maharashtra. Actual transportation charges from Tamilnadu to Maharashtra are Rs. 1,000 per piece. The depot price is inclusive of applicable excise duty @ 16%, but exclusive of Maharashtra sale tax. Sale from Maharashtra depot of product A are 2,000 pieces per annum. As an economy measure, it is proposed to close the depot in Maharashtra and make direct sale from Tamilnadu to dealers in Maharashtra Marketing department has stated that if goods are sold from Tamilnadu, total amount payable by dealers in Maharashtra should remain unaltered. Otherwise sales will be badly affected. Taxation department argues that this will reduce the profitability of the product, as the CST payable will have to be born by the company. Finance department is of the view that this extra tax burden will get offset by reduction in depot expenses and sight reduction in excise duty.

Evaluate the financial implications to decide whether it will be economical to close the depot in Maharashtra and advise Management about desirability or otherwise of closing the depot. Ignore effect of Maharashtra Sales Tax. If any.

(b)

Name the Cost Accounting Standard which is to be used while calculating cost of production for valuation for captive consumption under Central Excise. Is the standard mandatory? As per that standard, which of the following costs are includible/not includible in 'cost of production'?

(i)	Research and Development cost,	(ii)	Interest on capital borrowed,
(iii)	Lay-off wages to workmen,	(iv)	Packing cost.

(a)

Explain briefly the salient features of the scheme for estimation of income under profits and gains of retail traders under Section 44F of the LT. Act.

(b)

X purchases 2000 equity shares in B Ltd. at the rate of Rs. 32 per share (brokerage 2%) on 1st January, 1980. He gets 1000 bonus shares (by virtue of his holding 2000 shares) on March 15, 1984. Fair Market Value of shares of B Ltd on April 1st, 1981 is Rs. 48. On February 15, 2003 he transfers 2000 original shares @ 262 per share (brokerage 3%). On March 15th, 2003 he transfers 1000 bonus shares @ Rs. 275 per share (brokerage 3%)
Compute the total capital gain on transfer of shares.

(a)

State the factors that influence the managerial decision-making relating to owning or leasing fixed assets.

(b)

Explain the provision for amortisation of expenses under Income Tax Laws.

Discuss whether the following are taxable assets under Wealth Tax Act for assessment year 2003-04;

(a)	(i) Motor car, (ii) Gold deposit bonds;	(b)	Urban land;
(c)	Assets held by a minor child;	(d)	Assets transferred to son's wife.

4x4

X Ltd., carrying on business in manufacture and sale of textiles, showed a net profit of Rs. 8,50,000 in its Profit and Loss Account for the period ending March 31, 2003. On the basis of the following particulars noted from the company's accounts and ascertained on enquiry, compute, giving reasons, the total income of the company for the assessment year 2003-04. The company maintains books of account on the basis of mercantile system.

(a)

The general reserve account shows a credit of Rs. 1,75,000 under the head "Surplus on devaluation". The enquiries show that the company had exported textile to U.S.A. during the year 1986-87. The sale proceeds were placed in a separate bank account in U.S.A. which were utilized for import of cotton from time to time. After obtaining permission from the Reserve Bank of India. In January 2003 the company remitted to India a sum of Rs. 5 lakh, being the balance standing to its credit in the said bank account which included the above surplus realized on account of devaluation of the rupee in June, 1987. The company claims that the said surplus is not taxable, firstly, on the ground that the said surplus did not relate to the previous year and secondly, the said surplus is not a trading receipt.

(b)

The company had imported automatic looms under a special permission granted by the Textile Commissioner under the Cotton Textile (Control) Order, 1948. One of the conditions laid down while granting the permission was that the company should execute a bond in favour of President of India agreeing to export an agreed quantity of cloth and in default pay a sum calculated at the rate of 10 paise per metre to cover the shortfall. The company fell short of the target during the previous year as a result of which it was required to pay a sum of Rs. 40,000 towards the shortfall. The company has debited the said amount to "General expenses account".

(c)

The company has set up a laboratory for conducting research in textile technology. It has incurred a capital expenditure of Rs. 1,00,000 for the said purpose. The amount is shown in the balance sheet as "Laboratory equipment account" but is claimed as deduction in the return of income for the assessment year 2003-04.

(d)

The interest account includes payments amounting to Rs. 50,000 on deposits made by non-resident buyers of textile manufactured by the company. The said payments were made outside India without deduction of tax.

(e)

The legal charge includes a sum of Rs. 60,000 paid to solicitors for framing a scheme of amalgamation of another textile mill with the assessee company. The scheme is approved by the Central Government in public interest.

(f)

Travelling expenses include a sum of Rs. 1,25,000 being expenditure incurred by the directors of the company in connection with their tour to U.S.A. and U.K. for the purchase of new machinery for setting up a new plant for manufacture of caustic soda.

(g)

Rs. 1,00,000 (debited to profit and loss account) is paid to an approved National Laboratory with a specific direction that it shall be used for an approved scientific research programme.

What is the time limit in the cases given below?

(a)

Reassessment of X Ltd. for the assessment year 1983-84 [on a reference for the assessment year 1991-92 by the Commissioner, the Calcutta High Court has given a finding that a receipt of Rs. 40,000 was taxable for the assessment year 1983-84 and not for 1991-92. This finding was given by the High Court on January 10, 1999]

(b)

Recomputation of income of X for the assessment year 1982-83 [on an appeal by X (HUF), the Supreme Court has directed that a business Income of Rs. 76,000 pertains to X for the assessment year 1982-83 and not of X (HUF); the Court's judgment is given on December 10, 2000].

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