ASSESSMENT OF COMPANIES
1. From the following information, determine the tax liability of Z Ltd., domestic company, for the assessment year 2009-2010 and 2010-2011.
| S. No. | | Assessment year | | | Book-profits | | Total income | |
| | | | | | Rs | | Rs | |
| | 1. | 2009-2010 | | | 2,60,000 | | 1,30,000 | |
| | 2. | 2010-2011 | | | 2,20,000 | | 1,50,000 | |
| Solution: | | | | | | | | |
| Assessment | Book-profit | Total income | Tax on | Tax on | Tax credit | Tax credit | Tax payable | Tax credit |
| year | | | book-profit | total income | Tax on | set off: | after tax | balance |
| | | | @ 11.33% | @ 33.99% | book-profits | Tax on | credit set off, | |
| | | | and | and | minus tax on | total income | if any | |
| | | | rounded off | rounded off | total income | minus tax on | | |
| | | | (Sec. 288B) | (Sec. 288B) | | book profits | | |
| | Rs | Rs | Rs | Rs | Rs | Rs | Rs | Rs |
| 2008-2009 | 2,60,000 | 1,30,000 | 29,460 | 44,190 | | 14,730 | 29,460 | 44,190 |
| 2009-2010 | 2,20,000 | 1,50,000 | 24,930 | 50,980 | - | 26,050 | 24,930 | 26,050 |
| | | | Note: Tax payable is rounded off to the nearest multiple of Rs 10 (Sec. 288B) | | | | | |
| | | | | 2. Fashion Ltd., a well-diversified group, gives below its profit and loss account for the accounting | | | | |
| | year 2008-2009: | | | | | | | |
| | Particulars | | Rs | | | Particulars | | Rs |
| | Manufacturing expenses | | 9,00,000 | | | | | 10,00,000 |
| Salaries/wages | | | 5,50,000 | | | | | 15,00,000 |
| | Cultivation expenses | | 4,00,000 | | | Receipt from generation/distribution of | | |
| | Power generation/distribution expenses | | 4,00,000 | power | | | | 15,00,000 |
| | Irrigation expenses | | 6,00,000 | | | Receipt from water supply/ irrigation | | |
| | Expenses of I.U., located in backward | | | projects | | | | 10,00,000 |
| district | | | 5,00,000 | | | Receipt from I.U. set up in backward | | |
| | Expenses of I.U., located in free trade | | | | district in July 2003 | | | 9,50,000 |
| zone(Sec. 10A) | | | 1,50,000 | | | Transfer from Reserve & Provision a/c, | | |
| | Expenses of I.U. (Sec. 10B) | | 1,00,000 | | | debited to profit and loss account in 1995- | | 2,00,000 |
| | Expenses of I.U. (Sec. IOC) | | | 50,000 | | 1996 on account of free service under | | |
| | Provision for losses of subsidiary | | 4,00,000 | | warranty period | | | |
| | Sundry expenses | | | 10,000 | | | | |
| | Provision for bad and doubtful debts | | 2,00,000 | | | | | 2,00,000 |
| | Provision for bills under discount | | | 50,000 | zone (Sec. 10A) | | | |
| | Provision for sales tax, wealth tax against | | | | | | | 1,00,000 |
| demand notice | | | 3,30,000 | | Easthern Region (NER) (Sec. 10C) | | | 50,000 |
| | Income tax provision against demand | | | | Income from UTI | | | |
| notice | | | 3,00,000 | | | Long term capital gain on sale of equity | | 5,00,000 |
| | Dividend paid on preference shares | | 2,00,000 | | | shares , transaction chargeable to | | |
| | Proposed dividend on equity shares | | 4,00,000 | | | Securities Transaction Tax 35,00,000 | | |
| | Transfer to general reserve | | 1,00,000 | | | | | |
| | Dividend Equalisation reserve | | 2,00,000 | | | | | |
| | Penalties under direct tax laws | | | 60,000 | | | | |
| | Goodwill written off | | | 50,000 | | | | |
| Depreciation | | | 3,00,000 | | | | | |
| | Amortisation of patent rights | | | 30,000 | | | | |
| | Expenses on transfer of equity shares | | | 20,000 | | | | |
| Net profit | | | 42,00,000 | | | | | |
| | | | 1,05,00,000 | | | | | 1,05,00,000 |
| Tax Supplement | 1 |
The following additional information is provided as below:
1. Depreciation includes, a sum of Rs.1,00,000 on account of revaluation of building and plant
and machinery.
2. Past year losses, before depreciation, are given below:
| | Loss | Depreciation | |
| | Rs | Rs | |
| 2003-2004 | (-) 5,00,000 | (-) 6,00,000 | |
| 2004-2005 | Nil | (-) 5,00,000 | |
| 2005-2006 | (-) 7,00,000 | (-) 4,00,000 | |
| 2006-2007 | (-) 5,00,000 | Nil | |
| | Compute book-profits for the previous year 2008-2009/AY 2009-2010 for MAT under Sec. 115 JB. | | |
| | Computation of Book Profit for the AY 2009-2010 | | |
| Particulars | | Rs | Rs |
| Net profit as per profit and loss account | | | 42,00,000 |
| Add: | | | |
| (i) Cultivation expenses | | 4,00,000 | |
| (ii) Expenses of I.U. located in Free Trade Zone (Sec. 10A) | | 1,50,000 | |
| (iii) Expenses of I.U. under Sec. 10B | | 1,00,000 | |
| (iv) Provision of loss of subsidiary | | 4,00,000 | |
| (v) Provision for bad and doubtful debts— an unascertained liability | | 2,00,000 | |
| (vi) Provision for bills under discount— an unascertained liability | | 50,000 | |
| (vii) Provision for wealth-tax, sales- tax, against demand notice— | | — | |
| an ascertained liability | | | |
| (viii) Income-tax provision— an ascertained liability to be added back | | 3,00,000 | |
| (ix) Dividend paid on preference shares | | 2,00,000 | |
| (x) Proposed dividend on equity shares | | 4,00,000 | |
| (xi) Transfer to general reserve | | 1,00,000 | |
| (xii) Dividend Equalisation reserve | | 2,00,000 | |
| (xiii) Depreciation [Sec. 115JB(2)(g) w.e.f. AY 2007-2008] | | 3,00,000 | 28,00,000 |
| Adjusted profits | | | 70,00,000 |
| Less: | | | |
| (i) Sales of agriculture produce [Sec. 10(1)] | | 10,00,000 | |
| (ii) Receipt from I.U. in Free Trade Zone [Sec. 10A] | | 2,00,000 | |
| (iii) Receipt from I.U. Sec. 10B | | 2,00,000 | |
| (iv) Depreciation, excluding depreciation on account of revaluation | | 2,00,000 | |
| of assets | | | |
| (v) Brought forward loss or depreciation, whichever is less. | | 9,00,000 | |
| (vi) Withdrawals from Reserve & Provision for free sale service, | | 9,50,000 | |
| under warranty scheme | | | |
| (vii) Long-term capital gain on transfer of equity shares | | Nil | |
| {Sec. 10(38)] — see Note below | | | |
| (viii) Receipts from UTI [Sec. 10(35)] | | 50,000 | 35,00,000 |
| Book-profits | | | 35,00,000 |
| 2 | Tax Supplement |
Note: 1. Calculation of brought forward losses or depreciation:
| 2003-2004 | Loss | 5,00,000 |
| 2004-2005 | Loss/depreciation | Nil |
| 2005-2006 | Depreciation | 4,00,000 |
| 2006-2007 | Loss/depreciation | Nil |
1. Transfer from provision for after sale service, free of cost, made during the year 1996-1997,
debited to profit and loss a/c and now credited to profit and loss a/c and now credited to profit and loss a/c is an allowable deduction [Sec. 115-JB(2)].
2. Long-term capital gain from the transfer of equity shares in a company is exempt is chargeable
to securities trans action tax (STT). However, for the purposes of computing book-profits, it is not to be deducted [Sec. 10(38)]. Accordingly, the expenditure incurred for the transfer of equity shares has not been added back in computing book profits.
3. Classic Exporters Ltd, runs a new industrial undertaking set up in 2002-2003 which satisfies the conditions of Sec. 80-IB. Given below is the profit and loss account for the previous year 2008-2009.
| Particulars | Rs | Particulars | Rs |
| Stock | 4,00,000 | Domestic sales | 24,00,000 |
| Purchases | 23,00,000 | Export sales | 43,00,000 |
| Salaries and wages | 9,70,000 | Export incentives Sec. 28(iiia)/(iiic) | 50,000 |
| Entertainment expenses | 1,30,000 | Profit of foreign branch | 2,50,000 |
| Freights and insurance attributable | 3,00,000 | Brokerage/commission/interest/ | 50,000 |
| to exports | | rent, etc | |
| Travelling expenses | 2,20,000 | Transfer from contingency reserve | 10,00,000 |
| Depreciation | 1,50,000 | Stock | 3,50,000 |
| Selling expenses | 1,20,000 | | |
| Income tax paid | 90,000 | | |
| Income-tax penalty | 20,000 | | |
| Wealth tax paid | 10,000 | | |
| Custom duty payable against | 30,000 | | |
| demand notice | | | |
| Provision for unascertained liabilities | 20,000 | | |
| Provision for ascertained liabilities | 50,000 | | |
| Proposed dividend | 3,00,000 | | |
| Loss of subsidiary company | 50,000 | | |
| Net profit | 32,40,000 | | |
| | 84,00,000 | | 84,00,000 |
You are further informed:
(i) Excise duty for 2007-2008, amounting Rs 1,20,000 was paid on 15 December 2008 (ii) Depreciation under Sec. 32 is Rs 2,20,000
(iii) During the year 2005-2006, contingency reserve, amounting Rs 10,00,000, debited to profit
and loss a/c, was added back to the extent of Rs 4,00,000 in the computation of bookprofits. The company has transferred the said reserve to the profit and loss a/c during the year.
(iv) Brought forward business loss/depreciation:
| Tax Supplement | 3 |
| PY | | Accounting purposes | | | | Tax purposes | | |
| | Loss | | | Depreciation | Loss | | Depreciation | |
| 2005-2006 | (-) 10,00,000 | | (-) | 1,00,000 | (-) | 5,00,000 | (-) | 2,50,000 |
| 2006-2007 | (-) | 2,00,000 | (-) | 3,00,000 | (-) | 1,00,000 | (-) | 2,00,000 |
| | | | Compute the following: (a) Total income, (b) Book-profits and (c) Tax liability. | | | | | |
| | | | | Computation of total income for the AY 2009-2010 | | | | |
| | | Particulars | | | | Rs | | Rs |
| Net profit as per Profit & Loss A/c | | | | | | | | 32,40,000 |
| Add: | | | | | | | | |
| 1. Income tax | | | | | | 90,000 | | |
| 2. Wealth tax | | | | | | 10,000 | | |
| 3. Custom duty payable | | | | | | 30,000 | | |
| | 4. Provision for unascertained liability | | | | | 20,000 | | |
| 5. Proposed dividend | | | | | | 3,00,000 | | |
| 6. Loss of subsidiary company | | | | | | 50,000 | | |
| 7. Income-tax penalty | | | | | | 20,000 | | 5,20,000 |
| | | | | | | | | 37,60,000 |
| Less: | | | | | | | | |
| | (i) Withdrawals from contingency reserve | | | | | 10,00,000 | | |
| (ii) Excise duty | | | | | | 1,20,000 | | |
| (iii) Depreciation | | | | | | 70,000 | | |
| | (iv) Brokerage, commission, interest and rent, etc. | | | | | 50,000 | | 12,40,000 |
| Business profits | | | | | | | | 25,20,000 |
| | | Add: Income from other sources: Brokerage/ commission, etc. | | | | | | 50,000 |
| Aggregated income | | | | | | | | 25,70,000 |
| Less: | | | | | | | | |
| | (i) Brought forward losses (Sec. 72) | | | | | 6,00,000 | | |
| | (ii) Brought forward depreciation [Sec. 32(2)] | | | | | 4,50,000 | | 10,50,000 |
| Gross Total Income | | | | | | | | 15,20,000 |
| | | Less: Profit from industrial undertaking Sec. 80IB: 30% of | | | | | | |
| Rs 15,20,000 as included in GTI | | | | | | | | 4,56,000 |
| Total income | | | | | | | | 10,64,000 |
| | (b) Computation of Book Profits for the AY 2009-2010 | | | | | | | |
| | | Particulars | | | | Rs | | Rs |
| Net profits as per Profit & Loss A/c | | | | | | | | 32,40,000 |
| Add: | | | | | | | | |
| (i) Income tax | | | | | | 90,000 | | |
| | (ii) Provision for unascertained liability | | | | | 20,000 | | |
| (iii) Proposed dividend | | | | | | 3,00,000 | | |
| (iv) Loss of subsidiary | | | | | | 50,000 | | 4,60,000 |
| 4 | Tax Supplement |
| | | | 37,00,000 |
| Less: | | | |
| (i) | Withdrawals from contingency reserve | | |
| | (ii) Brought forward business loss or depreciation whichever is less | 4,00,000 | |
| | 2004-2005 Depreciation | 1,00,000 | |
| | 2005-2006 Loss | 2,00,000 | 7,00,000 |
| Book-profits | | | 30,00,000 |
| | (c) Computation of tax liability for the AY 2009-2010 | | |
| | Particulars | | Rs |
| (a) | 30% x 10,64,000 = 3,19,200 | | |
| (b) | 10% x 30,00,000 = 3,00,000 | | |
| | Since the amount of income tax on total income is more than the amount | | |
| | of tax on book-profits, Accordingly, tax liability is computed as under: | | |
| (i) Income tax | | | 3,19,200 |
| | (ii) Add: Surcharge on income tax @ 10% | | 31,920 |
| | | | 3,51,120 |
| | (iii) Add: Education cess @ 2% | | 7,022 |
| (iii) | Add: SHEC @ 1% | | 3,511 |
| Tax payable | | | 3,61,653 |
Note: No adjustment is required for depreciation debited to profit and loss a/c because it is not on account of revaluation of any asset.
4. Z Ltd is a qualifying shipping company which has got two qualifying ships during the previous year 2008-2009 :
Ship Ship A Ship B
Solution:
(i) Tonnage consisting of kilograms is ignored. (ii) If such tonnage is not a multiple of 100
tonnes and the last two digits are less than 50, the tonnage is reduced the tonnage is reduced to the previous lower tonnage which is a multiple of 100.
(iii) Tonnage rounded off = 37,900 tonnes Tonnage weight 37,949 tonnes and 990 kg 25,550 tonnes and 275 kg
Compute its tonnage income under Tonnage Tax Scheme for the assessment year 2009-2010.
Ship A
(i) Tonnage consisting of kilograms is ignored. (ii) If such tonnage is not a multiple of 100, and
is a multiple of 100
(iii) Tonnage rounded off - 25,600 tonnes No. of operational days 300 days 365 days
Ship B
last two degits are 50 or more, the tonnage is increased to next higher tonnage which
| Tax Supplement | 5 |
| Income— computation under TTS | | | Income— computation under TTS | |
| Daily TI: | Rs | | Daily TI: | Rs |
| First 1,000 tonnes = Rs 46 x 10 = | 460 | First | 1,000 tonnes = Rs 46 x 10 = | 460 |
| Next 9,000 tonnes = Rs 35 x 90 = | 3150 | Next | 9,000 tonnes = Rs 35 x 90 = | 3150 |
| Next 15,000 tonnes = Rs 28 x 150 = | 4200 | Next | 15,000 tonnes = Rs 28 x 150 = | 4200 |
| Balance 12,900 tonnes = Rs 19 x 129 = | 2451 | Balance | 600 tonnes = Rs 19 x 6 = | 114 |
| Daily TI: | 10,261 | Daily TI: | | 7,924 |
| Total TI for the previous year | 30,78,300 | | Total TI for the previous year | 28,92,260 |
| Rs 10, 261 x 300 = | | Rs 7,924x365 | | |
| 6 | Tax Supplement |
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