SVKM’S NMIMS ' y School of Business Management N tine Year: 11 Program: MBA Marks: 30 Subject: Corporate Tax Planning Date: 4"" September 2014 ‘Time: 2 hrs (01,30 pm- 03.30 pm) FINAL EXAMINATION (2014 - 2015) NB: 1. All questions are compulsory and are of 10 marks each. 2. Show all workings to support your answer . Binari Lid., is engaged in the business of manufacture of garments ve proceeds of goods (domestic sale) © proceeds of goods (export sale) —— withdrawn from general reserve (reserve was ted in 1996-97 by debiting P&L Ajc) | Amount with drawn from revaluation reserve 50,000 Total _ ee “Less: expenses Depreciation (normal) __ Depreciation (extra deprecation | tion fees paid to a Other expenses Net profit al 14,560,500 | For tax | For | | > Deduetion under section 80-IB (30 per cent of | purposes | accounting | Rs.14,56.500) Rs, purposes | ~ Depreciation under section 32 (Rs.5,36,000) Rs, |The company wants to set off the following losses / 70.000 Compute the net income and tax liability of X Ltd, for the assessment year 2014-15 assuming that BinariLtd., has a Tong-term capital gain of %.60,000 under provisio (i) to section S4D (2) which is not credited in profit and loss account. ale.Q 2a, P & T Limited hus transferred its Textile Unit to CG Limited by way of slump sale on November 30, 2013. The summarized balance sheet of X Limited as on that date is given below: [Liabilities — [Paid up capi _ Reserves and surplus ~ 620 Polymer Unit "Tiabilities_ ‘Cement Unit Polymer Uni Textile Uni Cement Unit ‘Cement Unit _| Textile Unit otal Using the further information given below, compute capital gain arising from slump sale of Textile Unit and tax on such capital gain. i. Cost inflation index for Financial Year 2006-07 and Financial Year 2013-14 are 519 and 939 respectively Lump sale consideration on transfer of textile unit is &.880 lakhs. iii, Fixed assets of textile unit includes land which was purchased at 60 lakhs in the year 2006 and revalued at 8.90 lakhs as on March 31, 2013. iv. Other fixed assets are reflected at 8460 lakhs (i.e. 550 lakhs less value of land) which represents written down value of those assets as per books. The written down value of these assets u/s. 43(6) of the Income Tax Act is 8410 lakhs. vy, Textile Unit was set up by P & T. Limited in July, 2006. Q 2b MWPL, India exports bath furniture only to its holding company, MWC, Canada. The sale price per furniture set is CAD 2,500. The direct and indirect costs amount to CAD 1,750. The furniture industry in India, of the comparable companies, has carned total export revenue of CAD 3,750 million. The industry average of total expenses of comparable companies works out to 85%, Compute the arms length price of MWPL India. Exchange rate is €55 to 1 CAD. (5 mks) Q.3. The R&D Deptof Merk India Ltd, a pharmaceutical company spent Rs. 208 lacs on scientific research since October 2011 and have come up with a new drug to supposedly activate insulin and thus reduce dependence on insulin injections. The cash outflow spent on manufacture of the new drug was a total equipment cost of € 800 lacs & Rs. 8 Lacs on additional working capital on (01-04-13. The expected profits before depreciation and tax accruing on sale of the new drug in the next 5 years is 300, 320, 330 360 and 370 lacs per annum. At the end of 5 years it would be sold at its then book value. Cost of capital is 12%. Depreciation is 15% WDV and additional depreciation 20% on new Plant and Machinery as per income tax provisions. Tax rate is 33.99%. Is the project viable? (10 marks)