Appendix-I : Solved Paper CS Final (New Syllabus ...

1 Appendix-I : Solved Paper CS Final (New Syllabus ) - Advanced Tax laws & Practice - Dec. 2014 CA. Yogendra Bangar & CA. Vandana BangarAPPENDIX-ISOLVED PAPERCS Final (New Syllabus ) - Advanced Tax laws & Practice - December, 2014[ PART A ]Question 1 :(a)Virat Ltd. is a widely held company. It is currently considering a major expansion of its production facilities and the following alternatives are available : ParticularsAlt-1 Alt-2 Alt-3(`)(`)(`)Share capital50,00,00020,00,00010,00,00014% Debentures-20,00,00015,00,00018% Loan from Bank-10,00,00025,00,000 Expected rate of return before tax is 30%.

2 Rate of dividend of the company since 1995 has not been less than 22% and date of dividend declaration is 30th June every year. Which alternative should the company opt with reference to tax planning ? (5 Marks, Dec. 2014-NS)Ans: Selection of the option Capital Employed = ` 50,00,000 Expected rate of return = EBIT 100 Capital Employed 30% = EBIT 100` 50,00,000 EBIT = ` 15,00, 1 :Issue of equity shares 2 :Issue of equity shares, debentures and borrowings form bankAlternative 3 :Issue of equity shares, debentures and borrowings from ,00,00015,00,00015,00,000 Less: Interest04,60,0006,60,000 EBT15,00,00010,40,0008,40,000 Less.

3 Tax @ ,63,5003,21,3602,59,560 EAT available for equity shareholders10,36,5007,18,6405,80,440 Share capital 50,00,00020,00,00010,00,000 Return on equity share capital (EAT/ Share Capital 100) : Company should opt for Alternative 3 since it offers the maximum rate of return to the shareholders.(b)XYZ LLP has income of ` 72,00,000 under the head 'profits and gains of business or profession'. One of its business is eligible for deduction @ 100% of profits under section 80-IB for the assessment year 2015-16. The profit from such business included in the business income is ` 58,00,000.

4 Compute the tax payable by the LLP, assuming that it has no other income during the previous year 2014-15. (5 Marks, Dec. 2014-NS)Ans: The relevant computations are as under : (i)Computation of tax liability of XYZ LLP 2015-16 (amount in ` ) - Profits and Gains of Business or Profession :Profit from unit eligible for deduction under Section 80 - IB58,00,000 Other Business Income14,00,00072,00,000 Gross Total Income 72,00,000 Less: Deduction u/s 80 IB (100 % of ` 58,00,000)58,00,000 Total Income 14,00,000 Tax liability as per normal provisions of Act4,20,000 Alternate minimum tax ( of ATI) of ` 72,00,000 [WN]13,32.

5 Solved Paper CS Final (New Syllabus ) - Advanced Tax laws & Practice - Dec. 2014 CA. Yogendra Bangar & CA. Vandana BangarSince alternate minimum tax is higher than tax as per normal provisions of the Act, XYZ LLP shall be liable to be pay alternate minimum tax as per Section 115JC13,32,000 Add : EC & SHEC @ 3%39,960 Total tax payable (rounded off)13,71,960 Working Note : Computation of Adjusted Total Income(ATI) (amount in ` ) :Profits and Gains of Business or Profession :Total Income 14,00,000 Add : Deduction u/s 80- IB58,00,000 Adjusted Total Income 72,00,000(c)The book profits of a company in the previous year 2014-15 computed in accordance with section 115JB are ` 60,00,000.

6 If the total income for the same period computed as per the provisions of the Income-tax Act, 1961 is ` 12,00,000, calculate the tax payable by the company in the assessment year 2015-16 and also indicate whether the company is eligible for any tax credit. (5 Mark, Dec. 2014-NS)Ans: Computation of tax payable by the company (amounts in `) :Book Profits under Explanation 1 to Section 115-JB60,00,000 Total Income as computed under the Act12,00,000 Tax on total income @ ,70,800 Tax on Book Profits @ ,43,300 Actual tax = MAT (being the higher of the aforesaid two)11,43,300 MAT credit to be carried forward (MAT paid Tax on total income)7,72,500 Question 2.

7 (a)Explain how the arm's length price in relation to an international transaction is computed under 'resale price method' as per rule 10B(1)(b) of the Income-tax Rules, 1962. (4 Marks, Dec. 2014-NS)Ans: Refer Q. No. 9 in Chapter 7 of this book.(b)What are the different form under advance ruling ? (4 Marks, Dec. 2014-NS)Ans: An applicant desirous of obtaining an advance ruling should apply to the Authority in the prescribed form stating the question on which the ruling is sought. The application has to be made in quadruplicate in Form Nos : (i)34C :Applicable to a non-resident applicant.

8 (ii)34D:Applicable to a resident having transactions with a non-resident.(iii)34E:Applicable to Public Sector Company as notified by government. (iv)34EA:For determining whether an arrangement is an impermissible avoidance arrangement as referred to in Chapter X-A or not. (Yet to be made applicable)(c)Discuss the mode of determination of fair market value of Employees Stock Option, if shares are :(i)Listed in a recognised stock exchange in India.(ii)Not listed in any recognised stock exchange in India. (4 Marks, Dec. 2014-NS)Ans: Refer Q. No.

9 30 in Chapter 1 of this book.(d)What are the objectives of tax planning ? (4 Marks, Dec. 2014-NS)Ans: Refer Q. No. 5 in Chapter 9 of this 2A : You are the Financial Controller in a manufacturing company having turnover exceeding ` 800 crore. Write a report for your Managing Director highlighting the legal position pertaining to the following : (15 Marks, Dec. 2014-NS)(i)Tax on distributed income by a company for buy-back of unlisted shares.(ii)Time-limit for completion of assessment/reassessment when a reference is made to the Transfer Pricing Officer (TPO).

10 (iii)Allowance for acquisition and installation of new plant and machinery under section 32AC.(iv)Tax consequences of assignment of keyman insurance policy before maturity by employer-company to its employee. : Solved Paper CS Final (New Syllabus ) - Advanced Tax laws & Practice - Dec. 2014 CA. Yogendra Bangar & CA. Vandana BangarAns: The legal position has been discussed as under :(i)Refer Q. No. 20 in Chapter 4 of this book.(ii)Refer Q. No. 32 in Chapter 6 of this book.(iii)Refer Q. No. 80 in Chapter 1 of this book.