Problem

Rupon Glass Manufacturing Ltd. is a publicly traded company enlisted with the stock
exchanges of Bangladesh having a paid up share capital of Tk. 50,00,000. Its Profit and Loss
Account for the last income year was as follows:

Taka Taka
To Opening stock 12,00,000By Sales 90,00,000
Purchase of jute 40,00,000 Closing stock 11,00,000
Purchase of coal 10,00,000 Share transfer fees 11,500
Wages 5,00,000 Sale proceed of old machine 11,00,000
Salaries and allowances 6,00,000 Rental income from office
General expenses 3,00,000 space let out 8,500
Income tax 1,00,000 Dividends 93,500
Fess for technical services 60,000
Interest on loan 50,000
Directors remuneration 1,25,000
Stock damaged in fire 2,65,000
Bonus to employees 3,00,000
Depreciation on fixed 5,00,000
assets 23,13,50
Net profit 0
1,13,13, 1,13,13,
500 500

On examination of the books of account of the company, the following additional

information was revealed:
(1) The company has valued the closing stock of Tk. 11,00,000 at cost price and
opening stock would have been Tk. 10,00,000, if valued at cost price.
(2) Dividend received from a public limited company having its registered office in
Bangladesh, and which had paid a dividend distribution tax (DDT) u/s 16D.

(3) General expenses include: Tk.

Employee club building construction 50,000
Opening of night school for the workers 10,000
Legal fees related to other taxes 15,000
Embezzlement of cash by cashier 5,000
Distribution of free sample 1,50,000
Repair and maintenance expenses for office space let out 4,250
(4) The cost price of the machine sold was Tk. 10,00,000 whereas its written down
value was Tk. 3,70,740. The machine was bought 6 years back.
(5) Interest on loan was paid to a non-resident, the company did not deduct tax at
source while making the payment thereon.
(6) Depreciation on fixed assets granted as per Third Schedule Tk. 4,50,000.
(7) The company disclosed total income in its return Tk. 23,13,500 and paid Tk.
6,66,000 as tax on the basis of return (including the income tax shown in the
Profit & Loss A/C) as follows:
Source of income Amount (Taka) Tax (Taka)
Dividend income 93,500 Exempted under para 22, Part A, Sixth nil
Sch.
Other income 22,20,000 @ 30% 6,66,000
Total income 23,13,500 Total tax payable u/s 74 6,66,000
 Tax paid on the basis of return 6,66,000
(8) The company paid dividend @ 10% during the last income year. Its accumulated
profit and free reserve up to the end of the last income year were Tk. 2,51,278
and Tk. 37,00,000 respectively.

Solution
Rupon Glass Manufacturing Ltd.
Income Year: 2003-04 Assessment Year: 2004-05
Particulars of Income Amount (Taka)

1. Income from House Property: u/s 24 (W-2 and Note-3) 5,950

2. Income from Business or Profession: u/s 28 (W-1) 22,02,047

3. Capital Gains: u/s 31 (W-3) nil

4. Income from Other Sources: u/s (W-4) 11,500

Total Income 22,19,497

Calculation of Tax Liability:

Amount (Taka)

1. On Dividend Income nil

2. On other income (22,19,497 @ 30%) 6,65,849

Gross tax on Total Income u/s 74 6,65,957

4. Additional tax @ 5% on undistributed profit Tk. 62,64,778 u/s 16B 3,13,239

(W-5)
Total tax 9,79,088

Less: Tax deducted at source Nil

Less: Advance tax paid (6,66,000)

Tax Liability before penalty 3,13,088

Workings:

W-1: Calculation of Income from Business or Profession:

Taka Taka
23,13,500
Net Profit as per Profit and Loss Account
Add: Items of deductions disallowed/allowed for other income-
head: 2,00,000

opening stock (12,00,000 10,00,000) 50,000

Employee club building construction
 Interest to non-resident, tax not deducted at source u/s 30(aa) 50,000

Income tax (shown in P. & L. A/C) 1,00,000

Repair & maintenance expenses (for office space let out) 4,250 4,04,250

Add: Items of deductions to be considered as per ITO:

1,50,00
Cost of distribution of free sample 0
5,00,000
Depreciation on fixed asset (as per accounts)
60,000 7,10,000
Fees for technical services

Less: Income to be shown under other heads:

93,500
Dividend received DDT paid u/s 16D
11,00,00
Sale proceeds of old machine 0
Share transfer fees 11,500
(12,13,500
Rent received 8,500 )

Add: Income not yet included:

6,29,26 6,29,260
Revenue profit from sale of old machine (10,00,000
0

3,70,740)
Less: Deductions allowed as per ITO:
4,50,000
Depreciation as per Third schedule
Cost of distribution of free sample u/s 30(f)(iv) and u/r 65C (up to 1,35,000 (5,85,000)
turnover Tk. 5 crore @ 1.5%, i.e., 1.5% of Tk. 90,00,000)

Profit before charging the above expense 22,58,510

Less: Deductions allowed as per ITO:
(56,463)
Fees for technical services u/s 30(h) [up to 2.5% of above profit]

Income from Business or Profession: u/s 28 22,02,047

N.B.: Following three expenses are not to exceed the limit specified in this behalf. The
calculation of the limit will be based on the profit before charging the expenses.

(i) Entertainment expenses u/s 30(f)(i) and u/r 65: On first Tk 10 lakh @ 4% and on balance
@ 2%.

(ii) Head Office expenses for branch company u/s 30(g): up to 10% [Effective from 1-7-
2003].

(iii) Payment by way of royalty, technical services fee, technical know how fee or technical
assistance fee u/s 30(h): up to 2.5% [Effective from 1-7-2003].

W-2: Calculation of Income from House Property:

Annual value (Rental income from office space let out) Tk. 8,500

Less: Repair & maintenance Actual Tk. 4,250

 Allowed equal to 30% of annual value u/s 25(1)(h) 2,550

Income from House Property Tk. 5,950

W-3: Calculation of Capital Gains:

Sale proceeds of old machine Tk.
11,00,000

Less: Cost of acquisition of the machine 10,00,000

Capital Gains (long-term), non-assessable u/s 32(5) & para 1,00,000

31A, Part A, 6th Sch.

W-4: Calculation of Income from Other Sources:

Share transfer fees Tk. 11,500

Dividends DDT paid u/s 16D Tk. 1,10,000 [non-assessable under para 22, Part A, nil
6thSch.]

Income from Other Sources 11,500

W-5: Calculation of Undistributed Profit u/s 16B:

Disclosed income Tk. 23,13,500

Accumulated profit 2,51,278

Free reserve 37,00,000

Undistributed profit Tk. 62,64,778

Md. Foysal Hossain Sohag

www.foysal.info