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Master of Business Administration- smude MBA Semester 3 spring 2015

MF0012: Taxation Management
Q1. Explain the objectives of tax planning. Discuss the factors to be considered in tax planning.

Answer: Objectives of Tax Planning

The prime objectives of tax planning may be summarised as follows:
Reduction of tax liability: By proper tax planning, a tax payer can oblige the administrators of the
taxation laws to keep their hands off from his
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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.

Answer: Kinds of capital assets

For taxation purposes, the capital assets have been, divided into (a) Short-term capital assets and (b)
Long-term capital assets. They are described as below:
Short term capital assets: According to Section 2 (42A), a short-term capital asset means
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Q3. Explain major considerations in capital structure planning. Write about the dividend policy
and factors affecting dividend decisions.

Answer: Major considerations in capital structure planning

In planning the capital structure, one should keep in mind that there is no one definite model which
can be suggested/used as an ideal for all business undertakings. This is because of varying
circumstances of business undertakings. The capital structure depends primarily on number
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Q4. X Ltd. has Unit C which is not functioning satisfactorily. The following are the details of its
fixed assets:
Asset
Land
Goodwill (raised in books on
31st March, 2005)
Machinery
Plant

Date of
acquisition
10th February,2003
5th April, 1999
12th April, 2004

Book value (`
lakh)
30
10
40
20

The written down value (WDV) is ` 25 lakh for the machinery, and 15 lakh for the plant. The
liabilities on this Unit on 31st March, 2011 are 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 ` 48 lakh, goodwill ` 20 lakh, machinery 32
lakh, Plant 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?

Answer: Option1: Slump Sale

Computation of Net Wealth of Unit C:
Land (book value)
Goodwill (book value)
Machinery (WDV given)
Plant (WDV given)
Total
Less: Liabilities
Net Worth

Rs. in Lakh
30
10
25
15
80
35
45

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

Answer: Service tax is a tax levied on services rendered by a person and the responsibility of
payment of the tax is cast on the service provider. It is an indirect tax as it can be recovered from the
service receiver by the service provider in course of his business transactions. Service Tax was
introduced in
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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:
Particulars

Date

Date of submission 25th February, 2010

of bill of entry
Date
of
entry 5th March, 2010
inwards granted to
the vessel
Calculate assessable value and customs duty.

Exchange rate
declared by CBC & C
Rs.45/$

Rate of basic
customs Duty
8%

Rs.49/$

10%

Answer: Customs duty is a duty or tax, which is levied by Central Govt. on import of goods into,
and export of goods from, India. It is collected from the importer or exporter of goods, but its
incidence is actually borne by the consumer of the goods and not by the importer or the exporter
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