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Taxation II

Time allowed–3 hours


Total Marks–100

[N.B.-The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and of the way in which the answers are presented.
Separate answer books should be used for each section. Different parts, if any, of the same question
must be answered in one place in order of sequence.]
Marks
1. What amendments were made by the Finance Act 2008 in respect of the following?- 10
(a) Tax exemption of Dividend of a Mutual Fund and a Unit Fund.
(b) Increase in the special exemption limit of Income from Agriculture of an assessee having
Agriculture Income only and no other income.
(c) Deduction at source from interest on deposit of post office savings bank account.
(d) Deduction at source from rental value of vacant land, plant and machinery.
(e) Deduction of tax from advertising bill of newspaper, magazine and private television channel.
2. Briefly explain the tax implications in the following cases: 6
(a) Non-Governmental Organizations
(b) Private Educational Institutions
(c) Co-operative Societies
(d) Gratuity Fund of an international organization based in Bangladesh.
3. Specify the significant conditionalities in the following cases: 6
(a) Re-opening of assessment u/s 93 and 120
(b) Appeal (first) and appeal (Second)
(c) Appeal against Order of TRO
(d) Correction of apparent error.
4. What is meant by Double Tax-Treaty (TT)? What salient features are usually there in a TT?
With how many countries Bangladesh has entered into TT? Which one is the last one? TT is
regulated by which Section & Schedule of ITO 1984? 8
5. Indicate the two circumstances u/s 75(1) and seven conditions u/s 75(1A) when a person is
required to submit an annual tax return. 6
6. Mrs. Rahim FCA is a retired Government Officer. She is 71 years of age. Currently she works as
Advisors of XYZ Ltd. and ABC Ltd., private companies in Bangladesh. She also works as a part
time consultant for UNDP and World Bank. During the twelve months ended 30 June 2008 she
received the following income:
(a) From XYZ Ltd.
Basic Salary Tk.20,000/= p.m.
House Rent 11,000/= p.m.
Medical Allowance 2,000/= p.m
Conveyance Allowance 1,000/= p.m.
(b) From ABC Ltd.
Basic Salary Tk.20,000/= p.m.
House Rent 9,000/= p.m.
Entertainment Allowance 2,000/= p.m
Conveyance Allowance 1,000/= p.m.
Bonus Tk.40,000/= p.m
No car was provided by the company.
(c) Consultancy fees of Tk.4,00,000 in total from UNDP for her work in Bangladesh and
Tk.3,00,000 (in equivalent US dollar) from World Bank for her work in Bhutan and Nepal.
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(d) Rental income @Tk.25,000 p.m. from an apartment owned by her. It is used by a foreigner as his
residence. She paid municipal tax of Tk.40,000/=, land revenue of Tk.2,000/= and a fire
insurance premium of Tk.15,000/= during the year. The apartment remained vacant for 2 months
during the year.
(e) Dividends of Tk.50,000/= received from investment in shares of a number of listed companies.
(f) She made a capital gain of Tk.2,00,000 by buying and selling listed company shares during the year.
(g) She earned an interest income of Tk.15,000/= from post office savings bank account.
(h) She entered into a contract with a developer on 1/11/07 for erecting a six storied building
with 10 flats out of which she will get 5 flats free of cost. In addition, she will be given
Tk.60,00,000 in cash, to be paid in 3 equal installments of Tk.20,00,000 each in November
2007, 2008 and 2009. She received Tk.20,00,000 in November 2007.
(i) She had an apartment which was sold for Tk.1 crore (which was same as the Mouza value)
on 1 August 2007. The buyer paid all the costs (including 5% capital gain tax, stamp duty,
registration costs etc.) at the time of registration in August 2007. The apartment was bought
by her on 1 August 2000 at a cost of Tk.40 lac.
(j) Mrs. Rahim is a lecturer at the ICAB evening coaching classes and is also involved in the ICAB
examination process. She is also a regular contributor of articles to the ICAB Journal and
newspapers. From these sources she received the following additional income during the year:
Taka
Lecture Fees 60,000
Payments for articles published 25,000
Questions setting and scripts examination fees 12,000
She paid Tk.3,000 to a part-time typist for typing manuscripts of her articles.
(k) She received Tk.25,000 from agricultural land by selling crops.
(l) She received honorarium of Tk.50,000 during the year as a Board Director of Rupali Bank Ltd.
Other information are as follows:
• Mrs. Rahim has taken a life insurance policy in favour of her son and has paid quarterly
premiums of Tk.5,000/= each throughout the year.
• She spent Tk.10,000 on professional and technical books and publications during the year.
• She paid an annual subscription of Tk.4,800/= to ICAB on 1/7/07.
• She owns and maintains a motor car.
• She sold the shares of a listed company for Tk.2,00,000, which she bought for Tk.1,50,000 in the income
year 2006-2007, and for which she claimed and received the allowable tax rebate for the investment. She
has again bought shares of 3 other listed companies during the year for Tk.6,00,000/=.
• Mrs. Rahim’s declared income in the assessment year 2008-2009 is at least 20% more than
that of the assessment year 2007-2008.
Required:
Compute the total income of Mrs. Rahim for the assessment year 2008-2009, advising whether she
should submit the return under Section 82BB “Universal Self Assessment” or under normal procedure. 14
7. The following adjusted accounts appeared in the records of Oak Ltd., an accrual basis company, for
the year ended December 31, 2007. Numbers in brackets refer to the items in Additional Information.
Revenues and Gains
Tk.000
Net sales 90,000 (1)
Dividends 6,000 (2)
Interest 800 (3)
Gain on sale of shares 1,000 (4)
Equity in earnings of Tech Partnership 6,000 (5)
Keyman life insurance proceeds 25,000 (6)
Insurance proceeds from fire loss claim 1,500 (7)
Tax refund 500 (8)
Total 1,30,800

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Costs and Expenses
Cost of goods sold 52,500 (9)
Salaries and wages 26,000 (10)
Doubtful accounts 2,000 (11)
Taxes 9,000 (12)
Security services 300 (13)
Audit, accountancy and taxation services 500 (14)
Office Rent 600 (15)
Car Rental 100 (16)
Interest 2,500 (17)
Donations 1,800 (18)
Board meeting attendance fee 300 (19)
Depreciation 8,000 (20)
Other expenses 3,000 (21)
Corporate Income Tax 4,500 (22)
Total 111,100
Net Income 19,700
Dividends Paid 9,000 (23)

Additional information
(1) Trade accounts receivable at December 31, 2007, and at December 31, 2006, amounted to
Tk.3,30,00,000 and Tk.2,00,00,000 respectively.
(2) Dividends include:
i) Tk.20,00,000 declared and paid in 2007 by an unrelated taxable local company whose
shares are traded on DSE and CSE;
ii) Tk.20,00,000 received in 2007 from a Singapore based company which remitted the
dividend amount net of an withholding tax of Tk.2,00,000 in equivalent Singapore dollar;
iii) Tk.20,00,000 received in 2007 from a Russian company, which remitted the dividend
amount net of an withholding tax of Tk.4,00,000 in equivalent Rubel.
(3) Interest revenue comprises interest on government bonds issued in 1997 and purchased by
Oak in 1997.
(4) Gain on sale of shares arose from the following purchase and sale of shares in an unrelated
company listed on DSE and CSE:
Bought in 2004 Cost Tk.12,00,000
Sold in 2007 Proceeds of sale Tk.22,00,000
(5) Oak owns 50% of Tech Partnership. The other 50% is owned by an unrelated individual.
Tech reported the following tax information to Oak:
Oak’s share of:
Partnership ordinary income Tk.79,00,000
Net long-term capital loss (19,00,000)
The firm paid a tax of Tk.13,66,250 on the Oak’s share of net earnings.
(6) Oak owned the Keyman life insurance policy, paid the premiums, and was the direct
beneficiary. The proceeds were collected on the death of Oak’s Controller.
(7) Insurance proceeds were received in 2007 against claim for damage of stock of goods by
fire in 2006. The cost of goods damaged was Tk.10,00,000, and the market value on the
date of fire was Tk.18,00,000. The damaged goods did not have any salvage value.
(8) The tax refund arose from Oak’s overpayment of corporate Income tax on the 2007-2008 return.
(9) Cost of goods sold relates to Oak’s net sales.
(10) Salaries and wages include inter alia:-
(a) Salary of Finance Manager Tk.6,00,000 (consolidated) paid in cash, not by cheque or
bank transfer;
(b) Officers’ compensation of Tk.15,00,000 under Voluntary Retirement Scheme;
(c) Gratuity (unrecognized) provision of Tk.15,00,000 and gratuity payment of Tk.10,00,000;
(d) Incentive bonus of Tk.20,00,000 to officers and non-officers.
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(11) Doubtful accounts expense represents an addition to Oak’s allowance for doubtful accounts
based on an aging schedule whereby Oak “reserves” all accounts receivable over 120 days for
book purposes. The balance in Oak’s allowance for doubtful accounts was Tk.1,42,00,000 at
December 31, 2007. Actual bad debts written off in 2007 amounted to Tk.11,00,000.
(12) Taxes comprise payroll taxes, but do not relate to officers’ compensation, gratuity and incentive
bonus as in (10) above, for which neither any income tax has been deducted nor it has been
paid by the company.
(13) Security services include payments a to private security company. No income tax or VAT
was deducted at source from such payments.
(14) Audit, accountancy and taxation services include:
i) Audit fee Tk.2,00,000
ii) Accountancy services 2,00,000
iii) Taxation services 1,00,000
Accountancy services were provided by a firm of chartered accountants who were not the
auditors of Oak. No income tax or VAT was deducted from the above payments of
Tk.5,00,000.
(15) No income tax was deducted at source from office rent
(16) No VAT was deducted at source from car rental.
(17) Interest expense resulted from borrowing for working capital purposes.
(18) Donations were all paid in 2007 to Dhaka University, specifically designated for the
purchase of lab equipment.
(19) No income tax or VAT was deducted at source from Board meeting attendance fee paid to
10(ten) directors.
(20) Oak has always used written down value depreciation for both book and tax purposes.
(21) Other expenses include inter alia:-
(a) Premiums of Tk.15,00,000 on the Keyman life insurance policy covering the controller;
(b) Entertainment expenses of Tk.5,00,000 spent on the CEO’s birth day party; and
(c) Four foreign travels of CEO, each costing Tk.2,00,000. All foreign trips were for
business purposes.
(22) Corporate income tax is the amount estimated before preparation of the return. 60% of the
estimated amount of tax has been paid as advance tax during the year 2007.
(23) No dividend tax was deducted at the time of dividend payments to its shareholders, all of
whom are local. There are 10 institutional shareholders (five banks and five insurance
companies) holdings in total 10% of share capital, and all others are individuals.
The company has a tax loss (business loss) of Tk.10,00,000 carried forward from the assessment
year 2002-2003.
Currently Oak Ltd. is a publicly traded company with a paid up capital of Tk.3.5 crore. It was an
unlisted public company on 1/1/07. It raised an additional amount of Tk.20,00,000 paid up
capital from the then shareholders in January 2007. 50% of such capital money was received by
cheque and 50% in cash. The company became a listed company on 1/7/07.

Required:
Compute the total income and the total income tax liability of Oak Ltd. for the relevant
assessment year, based on the above information. While making the above computations, any
non-compliances of the relevant provisions of the tax laws (income tax as well as VAT) by the
company are to be considered strictly in accordance with the legal provisions for such non-
compliances,. If considered necessary, you may make assumptions in the light of the relevant
tax provisions. 20
8. (a) Indicate adjudication authority limit(s) of VAT officials. 3
(b) Briefly describe defaults & offences and penalties & prosecutions under VAT regulations. 8
9. What do you understand by the following term(s) under the Registration law: (a) Touts (b) IGR
(c) IRO (d) Compulsory registration. 4

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10. Indicate the rate(s) of Stamp-duty for the following:


(a) Acknowledgement (b) Affidavit (c) Conveyance (d) Letter of allotment (e) Notarial act (f)
Share warrant. 3

11. SOS Company provides the following information about its production & sales:
Tk.
Purchase of Raw materials 20,00,000
Direct wages 2,50,000
Administrative expenses 70,000
Selling expenses 20,000
Depreciation of Machinery 30,000
The Company sells its products by adding 25% margin on cost. The opening and closing stock of
raw materials are recorded at Tk.50,000 and Tk.40,000 respectively.
Required:
Determine VAT if the rate is 15% assuming that opening and closing stock of finished goods
were Tk.30,000 and Tk.20,000 respectively. 5

12. Mr. A made the following gifts during the Income Year 2007-2008:
(i) Gift to Mrs. A on her birthday Tk.5,00,000;
(ii) Gift to a relative not dependent on him Tk.3,00,000;
(iii) Gift to Chittagong Medical College Tk.2,00,000;
(iv) Gift to his brother made in contemplation of death Tk.3,50,000;
(v) Gift to his son-in-law a house property at Canada valued at Tk.2 crore including furniture
and fixture worth Tk.4,00,000;
(vi) He transferred an amount equivalent to Tk.6,00,000 from his bank account in U.K. to his
daughter’s account;
(vii) Payment to the widow of one of his employees Tk.3,50,000 who died in an accident.
Investigation disclosed that he had waived off his claim against his brother for Tk.2,00,000 who
took it as loan. He also transferred a piece of land to his brother’s wife at Tk.60 lac, the market
value of which is estimated to be Tk.1.50 crore.
Required:
Compute the gift tax to be paid by Mr. A. 7

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