mf0003 taxation management - i

8/14/2019 MF0003 Taxation Management - I

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Name: Rahul B. Joshi Roll No: 510827749

ASSIGNMENT SET 1

MF0003

TAXATION MANAGEMENT

1. A. The following items of incomes are received by Mr. Muralidhar for the previous

Year. Find out the taxable income for the relevant assessment year if the assessee isa) Resident b) Not Ordinarily resident and c) Non-Resident.

Ans:

Sr.

No. Incomes Resident

Not

Ordinarily

Resident

Non-Resident

IIncome from business in UK Rs.5lakh, received there itself except Rs.2

lakh received in India

500000 200000 200000

II

Income from dividends of foreign

companies received abroad Rs.3 lakh 300000 0 0

III

Income from business in Bangladesh,

business being controlled from IndiaRs.3 lakh

300000 300000 0

IV

Income from agriculture in Sri Lanka,

50% received in India Rs.6 lakh 1200000 600000 600000

V

Past untaxed Income earned outside

India but brought into India during the

previous year

0 0 0

VI

Income from pension received in India

for the past services rendered in

Myamnar, Rs.2 lakh

200000 200000 200000

Total Income 2500000 1300000 1000000

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1. B. State the meaning of tax evasion and tax avoidance and mention the differencewith illustrations.

Ans: Tax Avoidance and Tax Evasion

Tax avoidance

A distinction is made between avoidance and evasion of taxes. In the former case affairs

are so manipulated that the tax liability under the existing legislation, is reduced. Theintention of the law is not carried out due to defects or loopholes in legislation.

The taxpayer is able to avoid being subject under the general scope of tax. Some of the

important sources or illustrations of tax avoidance are as follows:

The absence of a clear and comprehensive definition of income for tax purposes.

Division of property among members of family to escape the effects of

progression.

The definition of expenses as permissible deduction is elastic. There is over-generous provision for the relief losses. Consequently, the businessmen claim all

types of deductions and sometimes manufacture losses for tax purposes.

Judicious use of trusts to reduce tax liability because of exemption.

The definition of expenses as permissible deduction is elastic.

Tax Evasion

In case of tax evasion, facts are deliberately misrepresented and tax liability is

understated. In either case Government lose the revenue. Both are antisocial as they

disturb the equity of tax as between honest and dishonest tax payers or assesses who cannot evade the tax in view of the circumstances in which income is earned.

Evasion takes place because:

Some persons are not in the list of assesses of the department,

Some persons are assessed to tax but do not disclose their full income.

The tax evasion may be partly due to the high rates of taxation and partly due to

the opportunities for making illicit gains, which had to be hidden from the

Government.

The tax department may be ill equipped in the matter of trained staff to cope

adequately with the problem of verifying the accuracy of the returns submitted by

the assesses. The evasion is also encouraged by the mild punishment with which itis let off.

The law permits prosecution, but the offences are usually compounded and tax evader

escapes publicity and prosecution. Tax evaders are not black listed and continue to

maintain their position in the eyes of the public and the Govt. There is also lack of public

opinion that would treat tax evaders as enemies of the society.

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In India most of the evasion takes place in non-salary incomes particularly those of selfemployed persons, big businessmen, merchants and small traders, middlemen, money

lenders and professional persons .In a large number of cases a complete record of all

transactions are not maintained. In the accounts some receipts are recorded at lowerfigures and some are not recorded at all. It is common to maintain duplicate, and at times

even triplicate, set of account books to dodge the taxation authorities. Inadmissible

expenses are inserted in the accounts and these are not always detected.

2. A. Mr. X purchased 10000 equity shares of TT Company listed in stock exchanges in

India and abroad and a constituent of BSE500 on 15 th March 2005 per share. He sold the

shares at Rs. 5000 per share on 31st December 2007. The brokerage and securitiestransaction tax deducted were 0.5% and 0.75% respectively. Examine the liability of Mr.

X to income tax for A.Y. 2008-09. Will your answer be different, if instead of selling the

shares in the market Mr. X privately transferred the shares to his son at the same price?(Cost of inflation factors: 2004 05 482; 2005 06 497; 2006 07 519; 2007 08 551)

Ans: Since the information about the purchase price is not available in the problem, it

cant be solved.

2. B. Srinivas purchased on 1992 10000 shares of BMC Ltd for Rs 5 lakhs by borrowing

money from a bank. He holds them as investments. He received dividend income onthese shares of Rs. 100000 for the previous year 2007 08 on 10 th December 2007. He

has paid interest of Rs. 85000 on the loan to the bank. Please advice Srinivas, how should

he deal with these facts in computing his income.

Ans: The dividend income received by Mr. Srinivas on shares of BMC Ltd will be

exempt from income tax u/s. 10 (34).

U/s. 10 (34) income earned by way of dividends from domestic company or any incomefrom the units of UTI, and the income received from the units of mutual funds specified

u/s. 10 (23D) of the Income Tax Act, 1961.

Interest on loan taken for purchase of shares of BMC Ltd will not be deductible in

computing income under the head Other Sources as this expense is incurred in relationto dividend income which is exempt from tax.

3. A. What are the common features of excise duty and customs duty?

Ans: Prima Facie both the taxes are indirect taxes which enables govt. to generaterevenue for the country.

Central Excise Duty: Central Excise Duty is a tax levied by the Central Govt. on the

goods produced or manufactured in India. It is an indirect tax because the burden of thistax falls on consumers and not on the producer or manufacturer, who pays the tax in first

instance. Producers or manufacturers pass on this tax to the consumers by increasing the

price of the article. Thus Excise Duty is a tax levied on those dutiable goods which areproduced or manufactured in India and it has no relationship with the sale of these goods.

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Excise Duty is the main sources of income generation for the Government among indirect

taxes.

Central Excise Act 1944 is the basic act which provides all the information about the

implications of the law such as charging of duty, time and manner of payment of duty,

execution of bonds, powers and duties of excise staff, provision of arrest, penalty etc.

In 1985, a new Act by title Central Excise Tariff Act was passed.

Features of excise duty are as under:

Excise Duty is levied on goods manufactured In India.

The burden of the tax falls on the consumers.

Excise duty is payable when the goods are removed from the place of

production.

Excise duty is levied throughout India in the same form.

Excise duty is imposed on manufactured goods only once except when

these goods become the raw material for some other goods. In thissituation CENVAT CREDIT is available.

Customs Duty: Custom duty refers to the duty levied on import as well as export of the

goods. Import or export duty is a Union subject and power to levy is derived from

constitution under Entry No 83 to List (union list) of the Seventh Schedule.

Customs Act 1962 is the main Act which provides for levy and collection of duty,

import/export procedures, prohibitions on importation and exportation of goods,penalties, and offences etc. Sec. 12 of the Customs Act provides that duties of Customs

shall be levied at such rate as may be prescribed under the Customs Tariff Act 1975 on

goods imported or exported from India.

The duties can be levied on the following basis:

Specific Duty: Its a kind of duty which is levied on certain physicalmeasurement of goods such as weight, length, volume, thickness etc. of the item.

In such cases calculation of duty payable is comparatively easy. However, the

disadvantage is that even if selling price increases, revenue earned under suchduty doesnt increase correspondingly. Frequent revisions of rates have to be done

which is a slow & time consuming process.

Ad Valorem Duty: It is a duty levied the basis of valuation of goods. The

valuation in money term may be as per tariff value (Notional Value) fixed by theBoard or assessable value based on the transaction Value. The Customs Tariff Act

1975 stipulates various rates based upon Ad Valorem principle.

The types of Customs Duties are as under:

Basic Customs Duty

Additional Customs Duty

Safeguard Duty

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Countervailing Duty

Special Additional Duty

Anti dumping or Dumped Articles

National Calamity Contingent Duty of customs

Assessable Value: For thepurpose of determining customs duty, the value of such goods

shall be deemed to be the price at which such goods (or like goods) are ordinarily sold fordelivery at the time and place of importation or exportation in international trade. The

necessary condition is that the seller and the buyer have no interest in the business of

each other or one of them has no interest in the business of the other and the price is thesole consideration for the sale.

There are various expenses which need to be considered for computing the assessable

value of the goods for levy of the Customs Duty. Customs Duty is levied at certainpercentage of the assessable value.

Customs is an indirect source of revenue generation for the Govt. The Govt. encourages

The domestic industries and export by increasing the Customs Duty on imports,decreasing the duty on exports. The domestic prices of the essential commodities can be

controlled by verifying the Customs Duty.

3. B. State with reason/s whether the following are inter-state sale transactions.

i) Mr. Ram from Bhuvaneswar went to Bombay and had his lunch there.

Ans: No. The delivery taken place within the state of Maharashtra.

ii) Bharath came down from Delhi to Mumbai to purchase goods at Mumbai andtook them back to Kolkata branch run by him.

Ans: No, as the goods were delivered to the purchaser within the same state of selling

i.e. Maharashtra.

iii) Chitra came to Chennai from Jalandhar and bought goods and asked the dealer to

send the goods through the carrier to Delhi- to a customer.

Ans: Yes, the goods move from the state of the seller to the state of the purchaser and

are being sent by the seller himself.

iv) Eresi came to Calcutta and purchased jute, asked his dealer to send the goods to

Delhi, but the dealer sold the goods to Mitra and transported the goods to Howrah.

Ans: No, as the goods are delivered from Calcutta to Howrah within West Bengal.

v) Taj group of hotel supplies food and drinks to Air India at Mumbai and Air Indiaserves the good and drinks to the passengers as soon as the flight crosses Indian

Territory.

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Ans: No, as the dealer sells the goods to Indian Airlines within the state, it can betreated as an export sale.

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