Master of Business Administration- MBA

Semester 3
MF0012 Taxation Management
Q1. Explain the objectives of tax planning. Discuss the
factors to be considered in tax planning.
Objectives of Tax Planning:
The prime objectives of tax planning are:
a. Reduction of tax liability by utilising the benefits available in
the tax laws.
b. Informed and pragmatic financial decisions: A person adds the
dimension of tax incidence in his decision-making on financial matters,
and this helps him optimise his decisions.
c. Multi-dimensional investment decisions: In a democratic
welfare state like India the government requires substantial investment
in infrastructure, education and

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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, 2016 for 41,00,000. The expenses of
transfer were 1,00,000. Mr. C made the following investments
on 4th February, 2016 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 AY2016-17.
Answer:
Categories of capital assets
For taxation purposes, the capital assets have been, divided into (a)
short-term capital assets and (b) long-term capital assets.
(a) Short-term capital assets: According to Section 2(42A), a shortterm capital asset means a capital asset held by an assessee for not
more than:
a. 12 months before its transfer in case of company shares, (equity or
preference), or any other security listed in a recognized stock
exchange, or units of UTI and mutual funds or a zero coupon bond, and
b. 36 months before its transfer in the case of any other asset
Capital gains arising from the transfer of short-term capital asset are
called short-term capital gains.

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Q3. Explain major considerations in capital structure

planning. Write about the dividend policy and factors
affecting dividend decisions.
Major considerations in capital structure planning
Broadly, the following factors would be worth considering, while
planning the capital structure.

1. Risk of two kinds, that is, financial risk and business risk: In
the context of capital structure planning, financial risk is more relevant.
Financial risk is of two types:
(a) Risk of cash illiquidity: As a firm raises more debt, its risk of cash
illiquidity increases. This is for two reasons. First, higher proportion of
debt in the capital structure increases the commitments of the
company with regard to fixed charges that is, interest on borrowed
capital and instalments in which it has to be repaid. If the cash is not
enough to meet these commitments the company will be in a liquidity

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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

The written down value (WDV) is Rs. 25 lakh for the machinery,
and Rs.15 lakh for the plant. The liabilities on this Unit on 31st
March, 2016 are Rs.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 Rs.48 lakh,
goodwill Rs.20 lakh, machinery Rs.32 lakh, Plant Rs.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?
Computation of Capital Gains
Solution
:
Option 1: Slump sale
Computation of net worth of Unit C
Land (book value)
Goodwill (book value)
Machinery (WDV)
Plant (WDV)
Total
Less: Liabilities
Net worth

In lakhs
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.

Service Tax Law in India: Service tax was introduced in India in 1994
by Chapter V of the Finance Act, 1994. It was imposed on an initial set
of three services in 1994 and the scope of the service tax has since
been expanded continuously by subsequent Finance Acts.
There is no separate Service Tax Act, but all pronouncements relating
to service tax are in the annual Finance Acts. Service Tax Rules, 1994
were enacted to begin with, and with notifications from time to time
the law has been amended and updated.
The new section 65B introduced in the Finance Act, 2012 defines
services in Clause 44.

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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.

Calculate assessable value and customs duty.

Answer:
Customs Duty: Customs duty is the duty imposed on goods imported
into the country. In the years before globalisation it was difficult to
import goods on account of stiff duty rates and procedures, especially
for less developed and developing nations like India. Ajoke used to be
that the word customs was said to come from Sanskrit kashtam
meaning difficulty.
But the origin of the word is something else. Centuries ago, it was
customary for a trader coming to sell his/her wares in a particular
kingdom to offer gifts to the king, and seek his approval to sell his/her
goods in that kingdom. This customary practice

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