MF0012 - TAXATION MANAGEMENT

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ASSIGNMENT

DRIVE	WINTER 2016
PROGRAM	MBADS – (SEM 3/SEM 5) / MBAN2 / MBAFLEX – (SEM 3) / PGDFMN – (SEM 1)
SUBJECT CODE & NAME	MF0012 - TAXATION MANAGEMENT
SEMESTER	3
BK ID	B1760
CREDITS	4
MARKS	60

Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.

Q1.Explain the objectives of tax planning. Discuss the factors to be considered in tax planning.

Answer: Objectives of tax planning :

A. Objective of raising revenue:

 The basic and primary objective of taxation is raising revenue.  Enormous amount needed by modern governments for National defense, creation of infrastructure and social upliftment schemes make regular and systematic resource mobilization compulsory.

B. Regulatory objectives:

Taxation performs an important regulatory role in different socio economic aspects.

• Regulatory consumption:

Q2.Explain the categories in Capital assets. Mr. C acquired a plot of land on 15th June, 1993 for 10,00,000 and sold it on 5th January, 2010 for 41,00,000. The expenses of transfer were 1,00,000.Mr. C made the following investments on 4th February, 2010 from the proceeds of the plot.

 a) Bonds of Rural Electrification Corporation redeemable after a period of three years, 12,00,000.

b) Deposits under Capital Gain Scheme for purchase of a residential house 8,00,000 (he does not own any house).Compute the capital gain chargeable to tax for the AY2010-11.

(Explanation of categories of capital assets 4 marks ; Calculation of indexed cost of acquisition 2 marks; Calculation of long term capital gain 2 marks; calculation of taxable long term capital gain 2 marks) 10marks

Answer : Categories of capital assets :

1. Collectibles :

Long-term investments in collectibles are taxed at a flat 28%. Short-term investments in collectibles are taxed as short-term capital gains at your ordinary income tax rates. Collectibles include the following items:

• stamps,
• coins,
• precious metals,
• precious gems,
• rare rugs,
• antiques,
• alcoholic beverages, and
• fine art.

2. Real Estate :

Real property will

Q3. Explain major considerations in capital structure planning. Write about the dividend policy and factors affecting dividend decisions.

Ans. Major considerations in capital structure planning

1. Risk of two kinds, that is, financial risk and business risk: In the context of capital structure planning, financial risk is more relevant. Financial risk is of two types:

(a) Risk of cash illiquidity:

(b) Risk of variation in the earnings to equity shareholders in relation to expectation:

.

2. Cost of capital: Cost of capital is an important consideration in capital structure decisions. It is obvious that a business should be at least capable of earning enough revenue to meet its cost of capital and finance its growth.

3. Control

Q4.X Ltd. has Unit C which is not functioning satisfactorily. The following are the details of its fixed assets:

Asset	Date of acquisition	Book value (Rs. lakh )
Land Goodwill (raised in books on 31st March, 2005) Machinery Plant	10th February, 2003 5th April, 1999 12th April, 2004	30 10 40 20

The written down value (WDV) is Rs. 25 lakh for the machinery, and Rs.15 lakh for the plant. The liabilities on this Unit on 31st March, 2011 are Rs.35 lakh.

The following are two options as on 31st March, 2011:

Option 1: Slump sale to Y Ltd for a consideration of 85 lakh.

Option 2: Individual sale of assets as follows: Land Rs.48 lakh, goodwill Rs.20 lakh, machinery Rs.32 lakh, Plant Rs.17 lakh.

The other units derive taxable income and there is no carry forward of loss or depreciation for the company as a whole. Unit C was started on 1st January, 2005. Which option would you choose, and why?

(Computation of capital gain for both the options 4 marks; Computation of tax liability for both the options 4 marks ; Conclusion 2 marks) 10marks

Answer

 : 

Q5. Explain the Service Tax Law in India and concept of negative list. Write about the exemptions and rebates in Service Tax Law.

Ans. Service Tax Law in India

Service tax was introduced in India in 1994 by Chapter V of the Finance Act, 1994. It was imposed on an initial set of three services in 1994 and the scope of the service tax has since been expanded continuously by subsequent Finance Acts.

There is no separate Service Tax Act, but all pronouncements relating to service tax are in the annual Finance Acts. Service Tax Rules, 1994

Q6. What do you understand by customs duty? Explain the taxable events for imported, warehoused and exported goods. List down the types of duties in customs. An importer imports goods for subsequent sale in India at $10,000 on assessable value basis. Relevant exchange rate and rate of duty are as follows:

 

 Calculate assessable value and customs duty.

Ans. Customs Duty

Customs duty is the duty imposed on goods imported into the country. In the years before globalisation it was difficult to import goods on account of stiff duty rates and procedures, especially for less developed and developing nations like India. Ajoke used to be that the word ‘customs’ was said to come from Sanskrit ‘kashtam’ meaning difficulty.

Ø  Taxable event for imported goods – The taxable event with respect to imports is the day of crossing of the ‘customs barrier’ and not the date on which goods land in India or enter its territorial waters.

Ø  Taxable event for warehoused goods –

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