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Master of Business Administration - MBA Semester 3
MF0012-Taxation Management
(Book ID: 1760)
Assignment (60 Marks)
Note: Answers for 10 marks questions should be approximately of 400
words. Each question is followed by evaluation scheme. Each Question
carries 10 marks 6 X 10=60.
Q1. Mr. X (38 year) is employed by A Ltd. as marketing manager in
Pune. The following information is furnished by Mr. X for the previous
year ending 31st March 2015.
Basic salary Rs. 12,00,000 p.a., DA Rs. 40,000 p.a. (36 % of DA is
considered for gratuity and Pension, but not for Provident fund). Club
allowance Rs. 5,000 p.m., Furnishing allowance Rs. 2,000 p.m. and
HRA Rs. 40,000 p.m. Conveyance allowance is Rs. 2,000 p.m. which
can be used both for office and private purposes.
Up to August 31, 2014, he resides with his parents and does not pay
any rent. From September 1, 2015 he has been allotted a company
accommodation at Pune (population 23 lakhs) in lieu of house rent
allowance.
Club allowance has been discontinued from January 1, 2015. And Mr. X
has been provided by the company club facility for private (20 %) and
office use (80%). Expenditure by the company uptil 31st March 2015
was Rs. 20,500.
On 20 Nov. 2014, Mr X has taken an interest free loan from the
company (SBI lending rate for Similar loan being 18.5 % p.a.). Mr. X
and his employer contribute @ 10 % of his salary to P.F. Interest
Credited by the company in Provident Fund on June 1, 2014 @ 9.7 % is
Rs. 2,11,200.

Assuming that income of Mr. X from Other Sources Rs. (-30,000), find
out the net income and liability of Mr. X for the Assessment Year
2015-16.
Based on above Compute the taxable income and tax liability (before
deducting TDS) of Ms. X for the A.Y. 2015-16 Rs. 2,600 (being Incometax refund and Rs. 200 being Interest thereon)
Answer. Calculation of tax liability of Mr. X
Basic salary

1200000

Q2. a) How is advance money received against cost of acquisition

adjusted?
b) State giving reasons, whether the following assets are Short term
or Long term:
i) X purchases a house on 10th March 2012 and transfers on 6th June
2014.
ii) Y purchases unquoted shares in an Indian company on 10th March
2012 and transfers on 6th June 2012.
iii) Z acquires units of mutual fund on 7th July 2013 and transfers
those on 10th July 2014.
iv) A purchases diamonds on 12 September 2011 and gifts the same
to his friend B on 31st December 2014 and B transfers the asset on 20
October 2014.
Answer. a) Adjustment of advance money received against cost of acquisition
(Section 51)
It is possible for an assessee to receive some advance in regard to the transfer
of capital asset. Due to breakdown of negotiations the assessee may have
retained the advance. In calculating capital gains the above advance retained
by the assessee must be used to reduce the cost of acquisition.

Q3. Ms. A purchases a house property on 1st January 1976 for Rs.
95,000. She enters into an Agreement for sale of the same property to
Mr. X on 1st November 1983 and receives Rs. 10,000 as advance.
Following the demise of Mr. X immediately thereafter, the money was
forfeited by Ms. A. Later Ms. A gifts her property to her friend Ms. B
on 15th May 1985. The following expenses are incurred by Ms. A and
Ms. B for improvement of the property:

Particulars

Cost (Rs.)

Additions of two rooms by Ms. A during 1978-79

Addition of first floor by Ms. A during 1983-84

25,000
40,000

Addition of second floor by Ms. B during 1990-91

1,15,000
Ms. B enters into an agreement for sell the property for RS. 8,50,000
to Mr. P on 1st April 1993after receiving an advance of Rs. 50,000. Mr.
P could not pay the balance amount within the stipulated time of two
months and Ms. B forfeits the amount of advance.
Ms. B finally transfers the property to Ms. C for Rs. 14,75,000 on 1st
December 2014. Given the Fair Market Value of the property on 1st
April 1981 being Rs. 1,15,000; Cost Inflation Index for 1981-82 : Rs.
100; for 1983-84 : Rs.116; for 1985-86 : Rs. 133; for 1990-91 : Rs. 182;
for 1993-94 : Rs. 244 and 2014-15: Rs.1,024 compute the Capital
gains in the hands of Ms. B for the Assessment Year 2015-16.
Answer. Calculation of the capital gain of Ms. B for the A.Y 2015-16
Sale Proceeds
Less: Indexed cost of acquisition

14,75,000
70,356

Q4. i) Ms. Brinda, a U.S. citizen visits India on 1st January 2014 to
study and conduct research on Indian folk culture. She has been
regularly visiting India for 100 days in the past five consecutive years
to carry the research. Advise the residential status of Ms. Brinda
under extant rules referring to section 6 of the Income-tax Act 1961.
ii) What are the provisions of Advance tax under section 2(1)?
Answer. i) Residential status: On the parameter of residence in India, there
are three categories: resident, non-resident, and not ordinarily resident. The
definition depends upon physical presence of the person in case of individuals,
and upon control and management in case of companies and HUFs.

Q5. Explain the need of Service tax in India. What are the different
approaches to Service tax in India?
Answer. Service tax is a tax levied by Central Government of India on
services provided or to be provided excluding services covered under negative
list and considering the Place of Provision of Services Rules, 2012 and collected

as per Point of Taxation Rules, 2011 from the person liable to pay service tax.
Person liable to pay service tax is governed by Service Tax Rules, 1994 he may
be service provider or service receiver or any other person made so liable. It is
an indirect tax wherein the service provider collects the tax on services from
service receiver and pays the same

Q6. Mr. X (aged 59 years) furnishes the following Profit and Loss
account for the year ended 31st March, 2015. Compute the Gross
Total Income of Mr. X under respective heads, his Net Taxable Income
and Tax liability in the assessment year 2015-16.
Particulars
General
Expenses
Bad debts
Advance tax
Insurance
Salary to Staff
Salary to Mr. X

Interest
Cash Credit

Particulars
Gross profit

22,000
2,000
600
26,000
51,000

Commission
Brokerage
Miscellaneous Income
Bad Debt Recovery
Interest on Debenture
(Net interest Rs.22,500 + TDS
Rs. 2,500)
Interest on Fixed Deposits
13,000
(Net interest Rs. 11,700 + TDS
Rs. 1,300)

on 4,000

Interest
on
loan to Mrs. X
Interest
on
Capital of Mr. X
Depreciation
Advertisement
Contribution to
Employees
Provident Fund
Net Profit
Total

Rs.
13,400

Rs.
3,15,5
00
8,600
37,000
2,500
11,000
25,000

42,000
23,000
48,000
7,000
13,000

1,60,6
00
4,12,6
00

Total

4,12,6
00

Supplementary information:
Permissible depreciation as per CBDT circular is Rs. 37,300 which
includes depreciation of permanent glow sign board.
i. Advertisement expenditure includes Rs. 3,000, being cost of
permanent glow sign board affixed outside the office premises.

ii. Commission accrued but not received Rs. 4,500 is not credited to P
& L Account.
iii. Mr. X pays premium of Rs. 6,000 on his own life.
iv. General expenses include:
a) Rs. 500 spent for arranging a party for Mr. Xs son who arrives from
Canada.
b) Rs. 1,000 for contribution to a political party.
v. Loan availed from Mrs. X was for payment of arrear tax.
A Mr. X (aged 59 years) furnishes the above Profit and Loss account
for the year ended 31st March, 2015.
Compute the Gross Total Income of Mr. X under respective heads, his
Net Taxable Income and Tax liability in the assessment year 2015-16.
Answer. Computation of Gross Total Income of Mr. X under respective
heads, his Net Taxable Income and Tax liability in the assessment year 201516:

Spring-2016
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