MODEL ANSWER (SET-1) TAX PLANNING AND FINANCIAL REPORTING (MBA-FM-04)

PART A 1. Best judgment assessment: Assessment when no return of income has been filed or no books of accounts produced. Assessment is made best to the judgment of assessing officer. 2. Belated return: when no return could be filed in time, return can be filed within one year from the end of assessment year or before completion of assessment whichever is earler 3. Union budget: The dictionary meaning of budget is a systematic plan for the expenditure of a usually fixed resource during a given period. Thus, Union Budget, which is a yearly affair, is a comprehensive display of the Governments finances. It is the most significant economic and financial event in India. The Finance Minister puts down a report that contains Government of Indias revenue and expenditure for one fiscal year. The fiscal year runs from April 01 to March 31. 4. Appeal: In law, an appeal is a process for requesting a formal change to an official decision. Very broadly speaking there are appeals on the record and de novo appeals. In de novo appeals, a new decision maker re-hears the case without any reference to the prior decision maker. In appeals on the record, the decision of the prior decision maker is challenged by arguing that he or she misapplied the law, came to an incorrect factual finding, acted in excess of his jurisdiction, abused his powers, was biased, considered evidence which he should not have considered or failed to consider evidence that he should have considered 5. Clubbing of income: Clubbing of income means Income of other person

included in assessees total income, for example: Income of husband which is shown to be the income of his wife is clubbed in the income of Husband and is taxable in the hands of the husband. Income of a minor child is taxable in the hands of his parents. 6. Capital gain account scheme: it is a special deposit scheme in which capital gain is required to be deposited for availing exemption. This amount is required to be disbursed within specified time to avail exemption. 7. Deductions: in income tax deduction is allowed fromgross total income. It ranges from section 80C to 80 U. income after deduction is called net total income on which tax is payable.

8. Dividend: it is the part of the profit of company which is distributed among shareholders. Dividend on preference share is paid at fixed rate while dividend on equity shares is paid at rate depending on profits of company and its future investment plans. 9. Carry forward of loss: losses which could not be set off from other heads of income during the year is allowed to be carried forward. For example business loss can be carried forward for next 8 assessment years. 10. Exemptions: exemption is allowed from respective income for example exemption for house rent allowance under section 10 (13A). Further agricultural income is fully exempt in India.

PART B

11. Explain the taxability of income from house property?

ANS: BASIS OF CHARGE Income from house property is levied not upon actual income from the property but upon the annual value as defined in the Act. The charge is not, from the 'receipt' but is on the inherent potential of the house property to generate income. However, if the owner is in self-occupation of a house property for his personal residential use, then the notional value is taken as NIL, for one such property. HOUSE PROPERTY The Income Tax Act classifies 'buildings and/or land appurtenant* thereto as *House Property'. Income derived from vacant plots of land is not charged under this head but under the head Income from other sources' or *business profits'.

ON WHOM IS TAX LEVIED The tax under this head is levied upon the owner, legal or beneficial and not upon the occupant. In case the assessee is not the owner but gets rent from sub-letting a property, the income will not be taxed as income from house property, but as income from other sources. Ownership will also include deemed ownership, i.e. persons who purchase properties on Power-of-Attorney basis or under long-term lease (twenty year or more) are also deemed to be owners. ESSENTIAL CONDITIONS

a) The property must consists of 'buildings and/or land appurtenant* thereto b) Assessee must be the owner of such house property c) The property must be used for any purposes but it should not be used for the business or profession carried on by the Assessee.

Ownership of property: owner includes real owner, owner of leased hold rights and also deemed owner. As tax is levied only on the income of previous year, annual value of property, owned by a person during the previous year, is taxable in the following assessment year, even if the assessee is not owner of the property during the assessment year. Nil Annual Value: The annual value of such a property would be taken to be nil subject to the following conditions: The assessee must be owner of only one house property. He is not able to occupy the house property because of his employment, business etc. being away from place where the property is situated. The property should not have been actually let. He has to reside at the place of employment in a building not belonging to him [Section 23(2)(b)]. He does not derive any other benefit from the property not occupied. Exclusion of unrealised rent from annual value (Expl. to Section 23(1)) Unrealised rent (which the owner could not realize) shall be excluded from rent received/receivable only if the following conditions are satisfied: a. the tenancy is bona fide; b. the defaulting tenant has vacated, or steps have been taken to compel him to vacate the property; c. the defaulting tenant is not in occupation of any other property of the assessee; d. the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless. Unrealised rent subsequently recovered would be taxable in the year of receipt. It has been mentioned earlier that basic requirement for assessment of property income is the ownership

of the property. However, in the cases where unrealised rent is subsequently realised, it is not necessary that the assessee continues to be the owner of the property in the year of receipt also. (Section 25AA).

Arrears of Rent (Section 25B) When the owner of a building receives arrears of rent from such a property, the same shall be deemed to be the income from house property of the year of receipt irrespective of whether or not the assessee is the owner of the property in that year. 30% of the receipt shall be allowed as deduction towards repairs, collection charges etc.

12. Explain the taxability of salary income in india?

1) Relation between employer and employee is necessary to tax any income under salary head. For example exam fee received by a lecturer from university will be taxable under head income from other sources 2) Surrender of salary to Government is exempt from tax 3) Salary foregone is taxable in the hands of employee 4) Salary is deemed to accrue or arise at a place where service is rendered. The only exception is individual who is citizen of India and sent to abroad for Government services 5) Any tax paid by employer on salary of employee shall be taxable in the hands of employee. The only exception is tax paid by employer on non-monetary perquisite 6) Salary is taxed on due or received whichever is earlier basis. Thus, advance salary will be taxable in the year of receipt. Further, arrears of salary and Bonus shall be taxed in the year of receipt FORMAT

Basic salary Dearness allowance Other allowances less exempt Amount Amount

Bonus Commission Employers contribution to RPF in excess of 12% of salary Interest on RPF in excess of 9.5% p.a. Pension Gratuity Leave salary Perquisites from section 17(2)(i) to 17(2)(viii) Total Less deduction under section 16(ii) & 16(iii) Taxable salary

Amount Amount Amount Amount Amount Amount Amount Amount Amount (Amount) Amount

Computation of total taxable income

Income from salary

Amount

Income from House property

Amount

Profits and gain of Business or profession

Amount

Capital Gain

Amount

Income from other Sources

Amount

Gross Total Income

Amount

Less Deduction from Section 80C to 80U

Amount

Total Taxable Income

Amount

TAX FREE PERQUISITES

Medical facility: Any medical facility provided by the employer to the employee and his family members in a hospital, dispensary or a nursing home maintained by the employer. Medical reimbursement: Any medical expenses reimbursed by the employer for the treatment of his employee and his family members in an approved Hospital subject to maximum of Rs.15,000 per annum Refreshments: Any refreshment like tea, snacks, provided to the employees during office hours at the place of work. Use of Health club: provided uniformly available to all employees Subsidised lunch or dinner provided by the employer: When lunch or dinner is provided at subsidised rates during official hours provided value of such meal is upto Rs 50 per meal Recreational facilities: Any recreational facility provided to a group of employees by the employer is not taxable. These should not be resricted to only a few employees. Telephone Bills: Telephone bills of the telephone installed at the residence of the employee for offiicial purposes , if paid/reimbursed by the employer, is not a taxable perquisite even if such telephone is used for official as well as personal benefit of the employee. Goods sold by the employer at a concessional rate to his employees : When the employer sells the goods being manufactured by him to his employees at concessional rates, it is not a taxable perquisite e.g. a company, manufacturing

fans, sells the fans to its employees at concessional rates, the concession given to the employees shall not be taxable. However, if the employer sells other goods to the employees at a value lower than the market value of the goods, the benefit given to the employee is taxable.

Educational facility : Educational facility in an educational institution owned by employer or any other educational institution, provided value of such benefit does not exceed Rs 1,000 per child per month for any number of children Loans to employees: If the employer gives a loan to an employee either without interest or at a concessional rate upto Rs 20,000 or for medical treatment of specified diseases Transportation facilities: If an employer, engaged in the business of transport, provides transport facilities to its employees and his family members either free of cost or at concessional rate then it would not be a taxable perquisite. For example, free passes provided by the Indian Railways to its employees are not taxable in the hands of the employees. Perquisites provided outside India: Perquisites provided by the Government to its employees, who are citizen of India for rendering services outside India, are not taxable. Training of employees OR Refresher course: Any expenditure incurred by the employer, for providing training to the employees or by way of payment of fees of refresher management courses attended by the employee.

Vehicle provided for commuting from residence to office: any vehicle provided for commuting from residence to office and back is fully tax free perquisite. Rent free House: Rent free official residence and conveyance facilities provided to a Judge of a High Court/Supreme Court is not a taxable perquisite.

Residence to officials of Parliament etc.: Rent free furnished residence (including maintenance thereof) provided to an officer of the Parliament, a Union Minister or Leader of Opposition in Parliament, is not a taxable perquisite. Employers contribution: Employers contribution to pension, deferred annuity scheme and staff group insurance scheme of employees, is not a taxable perquisite in the hands of employees provided it does not exceed Rs 1 lakh per employee per year Use of laptops and computers: Use of laptops and computers by employee or any of his family member

Tax paid by employer on non-monetary perquisites. Any tax paid by employer on non-monetary perquisites provided to employee.

13. How is business income taxed in india? MEANING OF BUSINESS OR PROFESSION: Business includes any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The distinction between profession or vocation is not important, income of all these activities are taxable under the head profits and gains of business or profession Following nine types of income are taxable under this head i. Profits and gains of any business or profession ii. Any compensation or other payments received in connection with termination or modifications of agreement or terms of agency iii. Income derived by a trade, profession or similar association from specific services performed for its members iv. Profit on sale of import licenses, cash incentives and duty draw backs v. Value of any benefit or perquisite, whether convertible into money or not, arising from business or profession vi. Interest, salary, bonus, commission or remuneration received by a partner from a firm vii. Any sum received or receivable either for not carrying out any activity in relation to any business or not sharing any know-how, patent, copy right, trade mark etc. viii. Any sum received under key man insurance policy ix. Any sum received or receivable in cash or kind on transfer, destroyed, demolished etc, of any capital asset if whole of expenditure on such capital asset has been allowed as deduction under section 35 AD.

TAXABILITY UNDER HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION For taxability under the business head it is necessary that business must be carried out during the previous year at least for some part. However, there are six exceptions to this rule i. ii. Recovery against any loss, expenditure or trading liability, earlier allowed as deduction Balancing charge in case of electricity companies

iii. iv. v. vi.

Sale of capital assets used for scientific research Recovery against bad debts Amount withdrawn from special reserve Receipt of discontinued business under cash system of accounting

DEDUCTIBILITY OF BUSINESS LOSSES Any real loss of revenue in nature, actually incurred, incidental to carrying out of the business shall be deducted if there is no express prohibition under the act for its deductibility. However, following eight losses shall not be deducted i. ii. iii. iv. v. vi. vii. viii. Losses incurred in the closing down of business Losses incurred before a business is commenced Losses incurred due to damage or destruction of capital assets Losses which is not incidental to carrying out the business of the assessee Losses due to sale of securities held as investment Losses caused by forfeiture of advance given for purchase of capital assets Anticipated losses of subsequent years (reserves or provisions) Penalty for breaking any law

GENERAL DEDUCTION UNDER SECTION 37(1) : Any expenditure shall be deducted provided Expenditure not covered from section 30 to 36 Expenditure is of revenue in nature and not of capital Expenditure is not of personal nature The expenditure is incurred wholly and exclusively for the purpose of business 14. What is capital gain? Discuss its taxability?

CHARGEABILITY Any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head Capital Gains. And shall be deemed to be the income of the previous year in which the transfer took place. Capital gain is chargeable to tax on accrual basis.

CAPITAL ASSET Capital asset means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include (i) Any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession ; (ii) Personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes (a) jewellery; (b) archaeological collections; (c) drawings; (d) paintings; (e) sculptures; or (f) any work of art. Explanation.For the purposes of this sub-clause, jewellery includes (a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel; (b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;] (iii) agricultural land in India, not being land situate (a) in any area which is comprised within the jurisdiction of a municipality(whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or (b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;] (iv) 6 per cent Gold Bonds, 1977,[or 7 per cent Gold Bonds, 1980,] [or National Defence Gold Bonds, 1980,] issued by the Central Government ;] (v) Special Bearer Bonds, 1991, issued by the Central Government ;] (vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government

KINDS OF CAPITAL GAINS

Capital asset has been classified into long term and short term. short-term capital asset means a capital asset held by an assessee for not more than 36 months immediately preceding the date of its transfer However in following cases, the period of 36 months shall be replaced by 12 months. (Up to 36/12 months is short term) Equity or preference shares (whether listed or not) a unit of the Unit Trust of India established under the Unit Trust of India or a unit of a Mutual Fund specified under 10(23D) (whether listed or not) or a zero coupon bond, (whether listed or not) COMPUTATION OF CAPITAL GAINS Short- term capital gains tax calculation Take full value of considerations (in simple words; Sale Value of Capital Asset) 1. Less: expenditure incurred wholly and exclusively in connection with transfer. (includes the brokerage or commission paid, cost of stamp fee and registrations fee, traveling expenses etc.) 2. Less: the cost of acquisition of the asset (Normally the purchase value of the capital asset) 3. Less: the cost of improvement of the asset, if any. Less: Exemption, if allowed, Exemption u/s 54B/54D/54G Equal to Taxable Short-term capital gains

Long-Term Capital Gains Calculation Take the full value of consideration 1. Less: expenditure incurred wholly and exclusively in connection with transfer. (includes the brokerage or commission paid, cost of stamp fee and registrations fee, traveling expenses etc.) 2. Less: Indexed cost of acquisition of the asset 3. Less: Indexed cost of improvement of the asset, if any.

Less: Exemption if available 54/54B/54D/54EA/54EB/54EC/54ED/54F/54FG

Exemption

u/s

15. Explain the taxability of income from other sources? Section 2(24) defines the term "income" under the Act, and the same is charged to tax by section 4 of the Act. Section 14 enumerates the different heads under which the income of an assessee is classified, viz. A. salaries, B. Income from house property, C. profit and gains of business and profession, D. capital gains, and E. Income from Other sources. Income of every kind which is not to be excluded from the total income under the Act, and if it is not charged to tax under the heads A to D specified in Section 14, shall be charged under the head income from other sources. Thus Section 56 deals with this residuary head of income and covers all such taxable income, NATURE OF INCOME AND THE BASIS OF CHARGE Sub-section 2 to section 56 enumerates various types of income which would be chargeable to tax under the residuary head, viz. a. Income by way of dividends [which includes deemed dividend as has been referred to in section 2(22)(e) of the Act]. Exemptions are: i. ii. Dividend income referred to in section 115-O (on which dividend distribution tax has been paid), Any income by way of income received in respect of units of a Mutual Fund, Administrator of a specified undertaking or from a specified company; (income arising from transfer of units is not exempt).

b. Income by way of winning from lotteries, crossword puzzles, races, card games and other games, gambling or betting, etc. [Section 2(24)(ix)].

c. Any sum received from employees by way of contribution to any P.F., ESIC or superannuation fund if such income is not chargeable under the head Profit and Gains of Business or Profession [Section 2(24)(x)]. d. Any sum received under a key-man insurance policy including amount allocated by way of bonus on such policy, if not chargeable under the head Salaries or profit and gains of business or profession [section 2(24)(xi)]. e. Income by way of interest on securities if not chargeable under the head profit and gains of business or profession [section 2(24)(id)]. f. Income from letting of machineries, plants or furniture belonging to assessee, if not chargeable to tax under the head profit and gains of business or profession [section 2(24)(ii)]. g. Income from letting of machineries, plants or furniture belonging to assessee and also building, where letting of building is not separable from letting of such machineries etc. then entire income therefrom, if not chargeable to tax under the head profit and gains of business or profession. [Section 2(24)(iii)]. h. Any sum of money or specified properties, the aggregate value of which exceeds fifty thousand rupees in a year, received by an individuals or HUF from any person or persons other than the specified person/s or occasion, without any consideration (generally understood as "gift") the whole of such sum. DEDUCTION ALLOWED FROM INCOME CHARGEABLE UNDER THIS HEAD [SECTION 57] In case of income from dividend (other than Dividend referred in section 115-O) or interest on securities Any reasonable sum, paid by way of commission or remuneration to a banker or any other person for the purpose for realizing dividend (other than dividend referred to in Section 115-O), or interest as the case may be on behalf of the assessee. In case of sum received by assessee from his employees as contribution to any funds, etc. as referred to in Section 2(24)(x) Any amount paid or credited by the assessee to the employees account of the relevant fund/s as referred to in section 2(24)(x) of the Act, provided such sum is paid or credited by the assessee to the employees account of the relevant fund on or before due date specified under those Acts. In case of letting of machinery, plant, furniture, and building In respect of building: 1. amount paid by the assessee on the account of current repairs to the premises if the premises are occupied by the assessee otherwise than as the tenant.

2. any premium paid for the risk of damage or destruction to the premises and 3. depreciation and unabsorbed depreciation as per section 32 (i), subject however, to the provisions of section 38 which restrict such allowance based on usages. In respect of plant and machinery and furniture 1. amount paid by the assessee on the account of current repairs to the plant and machineries 2. any premium paid for the risk of damage or destruction to such plant and machineries and 3. depreciation and unabsorbed depreciation as per section 32, subject however, to the provisions of section 38 which restrict such allowance based on usages. In case of income in the nature of family pension received by family of the employee in whose hand such amount is chargeable Deduction is allowed to the extent of lower of (a) one-third of such income or (b) Rs. 15,000 (Rs. 12,000 up to the assessment year 1997-98). For this purpose family pension means a regular monthly amount payable by the employer to a person belonging to the family of the employee in the event of his death. In case of income of the nature Interest on compensation or on enhanced compensation received in any year Deduction is allowed of a sum equal to 50% of such Interest on compensation or on enhanced compensation received in any year. Other than this no other deduction will be allowed under any other clause of this section. Any other expenditure [general deductions Section 57(iii)] Any other expenditure (not being in nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning income chargeable under the head Income from other sources, is deductible. For the purpose of claiming deduction under this clause it is not necessary that expenditure incurred should result in earning of income [ CIT vs. Rajendra Prasad Moody 115 ITR 519 (SC)] PART - C

16. Explain the concept of tax planning, tax management, tax evasion and tax avoidance

ANS: TAX PALNNING Tax Planning involves planning in order to avail all exemptions, deductions and rebates provided in Act. The Income Tax law itself provides for various methods for Tax Planning, Generally it is provided under exemptions u/s 10, deductions u/s 80C to 80U and rebates and reliefs. Some of the provisions are enumerated below :

Investment in securities provided u/s 10(15) . Interest on such securities is fully exempt from tax. Exemptions u/s 10A, 10B, and 10BA Residential Status of the person Choice of accounting system Choice of organization.

For availing benefits, one should resort to bonafide means by complying with the provisions of law in letter and in spirit. Where a person buys a machinery instead of hiring it, he is availing the benefit of depreciation. If is his exclusive right either to buy or lease it . In the same manner to choice the form of organization, capital structure, buy or make products are the assesses exclusive right. One may look for various tax incentives in the above said transactions provided in this Act, for reduction of tax liability. All this transaction involves tax planning. Why Every Person Needs Tax Planning Tax Planning is resorted to maximize the cash inflow and minimize the cash outflow. Since Tax is kind of cast, the reduction of cost shall increase the profitability. Every prudence person, to maximize the Return, shall increase the profits by resorting to a tool known as a Tax Planning. How is Tool of Tax Planning Exercised Tax Planning should be done by keeping in mine following factors :

The Planning should be done before the accrual of income. Any planning done after the accrual income is known as Application of Income an it may lead to a conclusion of that there is a fraud. Tax Planning should be resorted at the source of income. The Choice of an organization, i.e. Taxable Entity. Business may be done through a Proprietorship concern or Firm or through a Company. The choice of location of business , undertaking, or division also play a very important role.

Residential Status of a person. Therefore, a person should arranged his stay in India such a way that he is treated as NR in India. Choice to Buy or Lease the Assets. Where the assets are bought, depreciation is allowed and when asset is leased, lease rental is allowed as deduction. Capital Structure decision also plays a major role. Mixture of debt and equity fund should be balanced, to maximize the return on capital and minimize the tax liability. Interest on debt is allowed as deduction whereas dividend on equity fund is not allowed as deduction

Methods Of Tax Planning Various methods of Tax Planning may be classified as follows :

1. Short Term Tax Planning : Short range Tax Planning means the planning thought of and executed at the end of the income year to reduce taxable income in a legal way. Example : Suppose , at the end of the income year, an assessee finds his taxes have been too high in comparison with last year and he intends to reduce it. Now, he may do that, to a great extent by making proper arrangements to get the maximum tax rebate u/s 88. Such plan does not involve any long term commitment, yet it results in substantial savings in tax. 2. Long Term Tax Planning : Long range tax planning means a plan chaled out at the beginning or the income year to be followed around the year. This type of planning does not help immediately as in the case of short range planning but is likely to help in the long run ; e.g. If an assessee transferred shares held by him to his minor son or spouse, though the income from such transferred shares will be clubbed with his income u/s 64, yet is the income is invested by the son or spouse, then the income from such investment will be treaded as income of the son or spouse. Moreover, if the company issue any bonus shards for the shares transferred , that will also be treated as income in the hands of the son or spouse. 3. Permissive Tax Planning : Permissive Tax Planning means making plans which are permissible under different provisions of the law, such as planning of earning income covered by Sec.10, specially by Sec. 10(1) , Planning of taking advantage of different incentives and deductions, planning for availing different tax concessions etc. 4. Purposive Tax Planning : It means making plans with specific purpose to ensure the availability of maximum benefits to the assessee through correct selection of investment, making suitable programme for replacement of assets, varying the residential status and diversifying business activities and income etc. TAX MANAGEMENT

The objective of Tax Management is to comply with the provisions of Income Tax Law and its allied rules. Tax Management deals with filing of Return in time, getting the accounts audited, deducting tax at source etc. Tax Management relates to Past ,. Present, Future. Past Assessment Proceedings, Appeals, Revisions etc. Present Filing of Return, payment of advance tax etc. Future To take corrective action. Tax Management relates to Past ,. Present, Future. Tax Management helps in avoiding payment of interest, penalty, prosecution etc..Tax Management is essential for every assessee TAX AVOIDANCE

Tax avoidance is the legal usage of the tax regime to one's own advantage, to reduce the amount of tax that is payable by means that are within the law. Tax avoider finds loopholes in law and takes advantage. No penalty can be imposed since tax compliance has been made. However, it is not in the interest of country. TAX EVASION

Tax evasion, on the other hand, is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Both tax avoidance and evasion can be viewed as forms of tax noncompliance, as they describe a range of activities that are unfavorable to a state's tax system. This results into penalty and imprisonment.

OR The general rule is that income of previous year is assessable in assessment year what are the exceptions to this rule? Cases where income of previous year is assessable in the same year Section 172: Shipping business of non-residents. (1) The provisions of this section shall apply in the case of any ship, belonging to or chartered by a non-resident, which carries passengers, livestock, mail or goods shipped at a port in India

(2) Where such a ship carries passengers, livestock, mail or goods shipped at a port in India, seven and a half per cent of the amount paid or payable shall be deemed to be income accruing in India to the owner or charterer on account of such carriage. (3) Before the departure from any port in India of any such ship, the master of the ship shall prepare and furnish to the Assessing Officer a return of the full amount paid or payable to the owner or charterer or any person on his behalf. Provided that where the Assessing Officer is satisfied that it is not possible for the master of the ship to furnish the return required by this sub-section before the departure of the ship from the port and provided the master of the ship has made satisfactory arrangements for the filing of the return and payment of the tax by any other person on his behalf, the Assessing Officer may, if the return is filed within thirty days of the departure of the ship, deem the filing of the return by the person so authorised by the master as sufficient compliance with this sub-section. SECTION 174: PERSONS LEAVING INDIA when it appears to the Assessing Officer that any individual may leave India during the current assessment year or shortly after its expiry and that he has no present intention of returning to India, the total income of such individual for the period from the expiry of the previous year for that assessment year up to the probable date of his departure from India shall be chargeable to tax in that assessment year.

SECTION 174 A : Assessment of association of persons or body of individuals or artificial juridical person formed for a particular event or purpose: where it appears to the Assessing Officer that any association of persons or a body of individuals or an artificial juridical person, formed or established or incorporated for a particular event or purpose is likely to be dissolved in the assessment year in which such association of persons or a body of individuals or an artificial juridical person was formed or established or incorporated or immediately after such assessment year, the total income of such association or body or juridical person for the period from the expiry of the previous year for that assessment year up to the date of its dissolution shall be chargeable to tax in that assessment year. SECTION 175: Assessment of persons likely to transfer property to avoid tax. if it appears to the Assessing Officer during any current assessment year that any person is likely to charge, sell, transfer, dispose of or otherwise part with any of his assets with a view to avoiding payment of any liability under the provisions of this Act, the total income of such person for the period from the expiry of the previous year for that assessment year to the date when the Assessing Officer commences proceedings under this section shall be chargeable to tax in that assessment year.

SECTION 176: Discontinued business: where any business or profession is discontinued in any assessment year, the income of the period from the expiry of the

previous year for that assessment year up to the date of such discontinuance may, at the discretion of the Assessing Officer, be charged to tax in that assessment year.

17. What do you mean by tax deducted at source? Discuss the provisions of TDS regarding Deduction of tax from salaries

Tax deducted at source is one of the modes of collecting Income-tax from the assessees in India. Such collection of tax is effected at the source when income arises or accrues. Hence where any specified type of income arises or accrues to any one, the Income-tax Act enjoins on the payer of such income to deduct a stipulated percentage of such income by way of Income-tax and pay only the balance amount to the recipient of such income. The tax so deducted at source by the payer, has to be deposited in the Government treasury to the credit of Central Govt. within the specified time. The tax so deducted from the income of the recipient is deemed to be payment of Income-tax by the recipient at the time of his assessment. Income from several sources is subjected to tax deduction at source. Presently this concept of T.D.S. is also used as an instrument in enlarging the tax base. Some of such income subjected to T.D.S. are salary, interest, dividend, interest on securities, winnings from lottery, horse races, commission and brokerage, rent, fees for professional and technical services, payments to non-residents etc. It is always considered as an Advance tax which is paid to the government when we are being paid for provision made by us in the form of products or services.

SECTION 192: DEDUCTION OF TAX FROM SALARY Tax to be deducted at average rate of tax of the financial year in which tax to be deducted It shall be deducted at the time of payment only No tax to be deducted if salary including value of perquisites is not more than the maximum amount which is not chargeable to tax The liability of employer to deduct tax is absolute If employer pays tax on non monetary perquisite of employees, it will not be treated income in the hands of employee Other income can be included if employee furnishes information to employer, however tax can not be less than the amount that would have been deductible had there been no other income. However exception is loss from house property OR

Explain briefly the taxability of perquisites? Name also tax free perquisites? Perquisite may be defined as any casual emolument or benefitattached to an office or position in addition to salary or wages. In essence, these are usually non-cash benefits given by an employer to employees in addition to cash salary or wages. However, they may include cases where the employer reimburses expenses or pays for obligations incurred by the employee. Perquisites are also referred to as fringe benefits. Broadly, perquisite is defined in the section 17(2) of the Income-tax Act as including: 1) Value of rent-free or concessional rent accommodation provided by the employer. 2) Value of any benefit/amenity granted free or at concessional rate to specified employees etc. 3) Any sum paid by employer in respect of an obligation, which was actually payable by the assessee. 4) Any sum paid by the employer for assurance on life of the employee or to effect a contract for an annuity. 5) Value of any other fringe benefit as may be prescribed. VALUATION OF PERQUISITES

TAX FREE TAXABLE ONLY TAXABLE FOR ALL EMPLOYEES IN HANDS OF PERQUISITES (17)(2)(I) TO (17)(2)(VIII) EXCEPT (17)(2)(III) SPECIFIED EMPLOYEE (17)(2)(III) Services sweeper, gardener, watchman of Rent free accommodation 17(2)(i)

Provision of gas, Concessional accommodation - 17(2)(ii) electricity or water Educational facilities 17(2)(iv)- Any amount paid by employer for discharging - monetary obligation of employee Like gas electricity bill paid or reimbursed, children education expenses paid or reimbursed, medical expenses reimbursed in excess of 15000, income tax or professional tax paid by employer Use of motor car 17(2)(v)LIC or deferred annuity premium paid or payable by employee

Private journey to 17(2)(viii)Fringe benefits employee or any member of his family

TAX FREE PERQUISITES

Medical facility: Any medical facility provided by the employer to the employee and his family members in a hospital, dispensary or a nursing home maintained by the employer. Medical reimbursement: Any medical expenses reimbursed by the employer for the treatment of his employee and his family members in an approved Hospital subject to maximum of Rs.15,000 per annum Refreshments: Any refreshment like tea, snacks, provided to the employees during office hours at the place of work. Use of Health club: provided uniformly available to all employees Subsidised lunch or dinner provided by the employer: When lunch or dinner is provided at subsidised rates during official hours provided

value of such meal is upto Rs 50 per meal

Recreational facilities: Any recreational facility provided to a group of employees by the employer is not taxable. These should not be resricted to only a few employees. Telephone Bills: Telephone bills of the telephone installed at the residence of the employee for offiicial purposes , if paid/reimbursed by the employer, is not a taxable perquisite even if such telephone is used for official as well as personal benefit of the employee. Goods sold by the employer at a concessional rate to his employees: When the employer sells the goods being manufactured by him to his employees at concessional rates, it is not a taxable perquisite e.g. a company, manufacturing fans, sells the fans to its employees at concessional rates, the concession given to the employees shall not be taxable. However, if the employer sells other goods to the employees at a value lower than the market value of the goods, the benefit given to the employee is taxable. Educational facility : Educational facility in an educational institution owned by employer or any other educational institution, provided value of such benefit does not exceed Rs 1,000 per child per month for any number of children Loans to employees: If the employer gives a loan to an employee either without interest or at a concessional rate upto Rs 20,000 or for medical treatment of specified diseases Transportation facilities: If an employer, engaged in the business of transport, provides transport facilities to its employees and his family members either free of cost or at concessional rate then it would not be a taxable perquisite. For example, free passes provided by the Indian Railways to its employees are not taxable in the hands of the employees. Perquisites provided outside India: Perquisites provided by the Government to its employees, who are citizen of India for rendering services outside India, are not taxable. Training of employees OR Refresher course: Any expenditure incurred by the employer, for providing training to the employees or by way of payment of fees of refresher management courses attended by the employee

Vehicle provided for commuting from residence to office: any vehicle

provided for commuting from residence to office and back is fully tax free perquisite.

Rent free House: Rent free official residence and conveyance facilities provided to a Judge of a High Court/Supreme Court is not a taxable perquisite.

Residence to officials of Parliament etc.: Rent free furnished residence (including maintenance thereof) provided to an officer of the Parliament, a Union Minister or Leader of Opposition in Parliament, is not a taxable perquisite. Employers contribution: Employers contribution to pension, deferred annuity scheme and staff group insurance scheme of employees, is not a taxable perquisite in the hands of employees provided it does not exceed Rs 1 lakh per employee per year Use of laptops and computers: Use of laptops and computers employee or any of his family member by

Tax paid by employer on non-monetary perquisites. Any tax paid by employer on non-monetary perquisites provided to employee.

18. How will you determine the annual value of house property? How will you determine the annual value of house property not fully utilized for self residential purposes and in cases where Assessee has more than one self occupied house property?

COMPUTATION OF INCOME FROM LET OUT HOUSE PROPERTY Income from house property is determined as under: Gross Annual Value Less: Municipal Taxes Net Annual Value xxxxxxx xxxxxxx xxxxxxx

Less: Deductions under Section 24 - Statutory Deduction (30% of NAV) - Interest on Borrowed Capital Income From House Property _________________________________________________ DETERMINATION OF ANNUAL VALUE The basis of calculating Income from House property is the annual value. This is the inherent capacity of the property to earn income and it has been defined as the amount for which the property may reasonably be expected to be let out from year to year. It is not necessary that the property should actually be let out. It is also not necessary that the reasonable return from property should be equal to the actual rent realized when the property is, in fact, let out. Where the actual rent received is more than the reasonable return, it has been specifically provided that the actual rent will be the annual value. Where, however, the actual rent is less than the reasonable rent (e.g., in case where the tenancy is affected by fraud, emergency, close relationship or such other consideration), the latter will be the annual value. The municipal value of the property, the cost of construction, the standard rent, if any, under the Rent Control Act, the rent of similar properties in the same locality, are all pointers to the determination of annual value. Gross Annual Value [Section 23(1)] The following four factors have to be taken into consideration while determining the Gross Annual Value of the property: 1. Rent payable by the tenant (actual rent) xxxxxxx xxxxxxx xxxxxxx

2. Municipal valuation of the property. 3. Fair rental value (market value of a similar property in the same area). 4.Standard rent payable under the Rent Control Act. The Gross Annual Value is the municipal value, the actual rent (whether received or receivable) or the fair rental value, whichever is highest. If, however, the Rent Control Act applies to the property, the gross annual value cannot exceed the standard rent under the Rent Control Act, or the actual rent, whichever is higher. VALUATION WHERE HOUSE PROPERTY COULD NOT BE UTILISED FOR SELF RESIDENTIAL PURPOSES

If the property is let out but remains vacant during any part or whole of the year and due to such vacancy, the rent received is less than the reasonable expected rent, such lesser amount shall be the Annual value. For the purpose of determining the Annual value, the actual rent shall not include the rent which cannot be realized by the owner. However, the following conditions need to be satisfied for this: (a) The tenancy is bona fide; (b) The defaulting tenant has vacated, or steps have been taken to compel him to vacate the property. (c) The defaulting tenant is not in occupation of any other property of the assessee; (d) The assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfied the Assessing Officer that legal proceedings would be useless. WHERE ASSESS HAS MORE THAN ONE SELF OCCUPIED PROPERTY

If assessee has more than one self occupied property, annual value of one house shall be taken to be nil at the option of assessee, the other self self occupied house shall be deemed to have been let out OR Explain briefly the provisions of MAT and MAT credit? How is book profit computed under MAT?

Minimum Alternate Tax (MAT) u/s 115JB Income Tax Act India When the Company needs to pay the Minimum Alternate Tax? If the income-tax payable by a Company, on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2011, is less than 18.5% of its book profit,

such book profit shall be deemed to be the total income of the Company, and the tax payable by the Company on such total income shall be the amount of income-tax at the rate of 18.5% of the book profit.

Example AB Pvt Ltd has a tax liability on it's normal taxable income of Rs.3 lakhs. AB Pvt Ltd., has book profit of Rs.20 Lakhs as computed under section 115JB. Therefore as per section 115JB, tax on the book profit would be Rs.3.70 Lakhs. Hence, AB Pvt Ltd., has to pay tax MAT (i.e., Rs.3.70 Lakhs), since the normal tax liability (Rs.3.00 Lakhs) is less than 18.5% of the Book Profit. In Summary Tax payable by a Company is Higher of the following:

Tax payable at the normal rates prescribed by the Finance Act, or Minimum Alternate Tax @ 18.5% of the Book Profit of the Company computed in accordance with Section 115JB.

Book Profit Preparing The Annual Accounts Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI of the Companies Act, 1956. While preparing the annual accounts including profit and loss account, 1. the accounting policies, 2. the accounting standards adopted for preparing such accounts including profit and loss account, 3. the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956. Calculating Book Profit For the purposes of this section, book profit means the net profit as shown in the profit and loss account for the relevant previous year, as Increased by the following amounts debited to Profit and Loss Account 1. Income-tax paid or payable, and the provision thereof, including

2. 3. 4. 5. 6. 7. 8. 9.

any tax on distributed profits under section 115-O or on distributed income under section 115R, ii. any interest charged under this Act, iii. surcharge, if any, as levied by the Central Acts from time to time, iv. Education Cess on income-tax, if any, as levied by the Central Acts from time to time; and v. Secondary and Higher Education Cess on income-tax, if any, as levied by the Central Acts from time to time. Transfer to Reserves (Other than Section 33AC w.e.f. AY 2003-2004) Amount set aside to meet unascertained liabilities, Provision for losses of Subsidiaries, Dividends Proposed or Paid, Expenditure relatable to Income (eligible for deduction from Book Profit) exempt under section 10 or 11 or 12, Amount of depreciation, including amount of depreciation on Revalued amount of Fixed Asset, Amount of deferred tax and the provision thereof, Amount or amounts set aside as provision for diminution in the value of any asset.

i.

Amounts to be Reduced Such Net Profit, as increased, shall be reduced by the following amounts: Only, if credited to the Profit and Loss Account: 1. Amount withdrawn from Reserves or Provisions from those created before 01.04.1997 without debiting Profit and Loss Account, 2. Amount withdrawn from reserves created on or after 01.04.1997 if such amount was allowed to be charged to Net Profit for the purpose of Section 115JB or Section 115JA, 3. Income exempt under section 10 [other than 10(38), 10(23G)] or 11 or 12, 4. Amount of Deferred Tax 5. Amount withdrawn from Revaluation Reserve to the extent it does not exceed the depreciation on revalued amount of Fixed Asset charged to Profit and Loss Account Others: 6. Amount of depreciation, excluding amount of depreciation on Revalued amount of Fixed Asset, 7. Lower of the following: i. Brought Forward Loss (as per Books) Loss does not include Depreciation, ii. Unabsorbed Depreciation (as per Books), 8. Profits eligible for deduction under section 80HHC or 80HHE or 80HHF, upto Assessment Year 2005-06

9. Amount of Profits of Sick Industrial Company, during the period of sickness. Other Aspects The aforesaid computation of Book Profit and Minimum Alternate Tax shall not affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year(s) under the provisions of section 32(2) or of section 32A(3) or section 72(1)(ii) or section 73 or section 74 or of section 74A(3). Form 29B Report Every company to which this section applies, shall furnish a report in the prescribed form 29B from an accountant as defined in the Explanation below section 288(2), certifying that the book profit has been computed in accordance with the provisions of this section.

19. Discuss special provisions in respect of newly established undertaking in free trade zone (Sec 10 A) and in special economic zone (Sec 10 AA)

SECTION 10A: INCOME OF NEWLY ESTABLISHED UNDERTAKINGS IN FREE TRADE ZONE

Deduction available for export of articles, things or computer software, manufactured or produced in Free trade zone (FTZ), Electronic hardware technology park(EHTP) or Software technology park (STP) Deduction available to all category of Assessee

Should not be formed by splitting or reconstruction of existing business Should not be formed by transfer of machinery or plant previously used. However following shall not be regarded as machinery or plant previously used

a) Machinery or plant should not be previously used in India b) It has been imported into India from a foreign country c) No depreciation has been allowed on such machinery or plant to any person in India Deduction under section 10A however shall be available if total value of second hand machinery does not exceed 20% of total value of machinery or plant used in industrial unit Sale proceeds of article, thing or software exported outside India should be brought to India by Assessee within six months from the end of the previous year

( sale proceeds shall be deemed to have received in India if such sale proceeds are credited to a separate account maintained for the purposes by the assessee with any Bank ouside India with the previous approval of RBI)

computer software means (a) any computer programme recorded on any disc, tape, perforated media or other information storage device; or (b) any customized electronic data or any product or service of similar nature, as may be notified by the Board, which is transmitted or exported from India to any place outside India by any means For the purposes of this section, manufacture or produce shall include the cutting and polishing of precious and semi-precious stones Period of tax holiday shall be ten consecutive assessment years beginning with the assessement year relevant to previous year in which undertaking begins to manufacture article or thing or computer sofrware. However no deduction under this section shall be allowed from assessment year 2012-2013 and onwards. Thus deduction under this section shall only be allowed upto Assessment year 2011-2012.

Deduction shall be computed as follows

Profit from business of undertaking X export turnover Total turnover

Whereexport turnover means the consideration in respect of export by the undertaking of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange within six months or deposited in separate account outside india but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India;

Unabsorbed depreciation and losses shall be allowed to be carried forward and set off as per provisions of income tax act no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under subsection (1) of section 139

no deduction shall be allowed under section 80HH or section 80HHA or section 80-I or section 80-IA or section 80-IB in relation to the profits and gains of the undertaking; Depreciation, expenditure on scientific research etc. shall be deemed to be allowed

in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment year.

SECTION 10AA: SPECIAL PROVISIONS FOR NEWLY ESTABLISHED UNITS IN SPECIAL ECONOMIC ZONE

Export of articles or things or provide any service Period for which deduction allowed a) for first 5 assessment years 100% of profits b) next 5 assessment years 50% of profits c) next 5 assessment years so much of the amount not exceeding 50% of profits as debited to profit and loss account and credited to special reserve account (i.e. amount transffered to reserve or 50% of Other provisions are similar to Section 10A

SECTION 10B: SPECIAL PROVISIONS FOR NEWLY ESTABLISHED 100 % EXPORT ORIENTED UNDERTAKINGS

Export of articles, things or computer software Other provisions are similar to Section 10A

OR Discuss the deductions available to corporate Assesssee under section 80 IA, 80 IAB and 80IB? SECTION 80-IA DEDUCTIONS IN RESPECT OF PROFITS & GAINS FROM CERTAIN INDUSTRIAL UNDERTAKINGS ENGAGED IN INFRASTRUCTURE DEVELOPMENT, ETC. Assessee carrying any of the following eligible businesses through an industrial undertaking or enterprise except any person who executes a work contract (including the contract awarded by central or state government) w.e.f 1st day of April, 2000: (A) Provision of infrastructure facility; (B) Telecommunication services; (C) Industrial parks or special economic zone;

Persons Covered

(D) Power generation, transmission and distribution, (E) Renovation, Reconstruction or revival of Power Generating Plant. Eligible Amount General Conditions/Points Profits and gains derived by an undertaking or enterprise from any of the above businesses. 1. The profits and gains of an eligible business shall be computed as if such eligible business were the only source of income of the assessee. 2. The accounts of the undertaking for the previous year relevant to the assessment year for which the deduction is claimed must be audited by a chartered accountant and Audit Report in Form No. 10CCB should be furnished along with the return of income. 3. No deduction shall be allowed under this section if the assessee fails to file the return of income for such assessment year on or before the due date specified u/s. 139(1) (w.e.f. A.Y.2006-07, section 80AC) 4. Where deduction of any amount of profits and gains of business is claimed and allowed under this section, then the deduction to the extent of such profit and gains shall not be allowed under any other provisions of this chapter and the deduction shall in no case exceed the profits and gains of such eligible business of undertaking or enterprise, as the case may be. 5. The benefit of Section 80-IA shall not be available to an amalgamated or demerged entity after April 1, 2007. 6. If any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods held for the purposes of any other business of the assessee are transferred to the eligible business, then in either case it should be ensured that the transaction occurs at the market value of such goods or services as on the date of transfer, otherwise Assessing Officer (AO) has the power to recompute the profits based on the market value of such goods or services. 7. If it appears to the AO, that business between the assessee (engaged in eligible business) and any other person is so arranged that the business transacted between them produces to the assessee more than ordinary profits, then the AO shall take the amount of profit as may be reasonably deemed to have been derived therefrom.

Type Undertaking Enterprise

of A. Any enterprise carrying on business of (a) developing, or (b) or operating and maintaining or (c) developing, operating and maintaining any infrastructure facility. 1. The enterprise should be owned by a company registered in India or by a consortium of such companies or ( w.e.f. Asst. year 2006-07, by an authority or a board or a corporation or any other body established or constituted under any Central or State Act). 2. The enterprise should have entered in to agreement with Central Government or a State Government or a local authority or any other statutory body for (a) developing, (b) operating and maintaining or (c) developing, operating and maintaining a new infrastructure facility. 3. "Infrastructure facility" means a road, toll road, bridge, rail system, highway project including housing or other activities being an integral part of the highway project, water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system, port, airport, inland waterway or inland port.or navigational channel in the sea. 4. Where housing or other activities form an integral part of the highway project and the profits of which are computed on such basis and manner as prescribed (Rule 18BBE & Form No. 10CCC) then, such profit shall not be liable to tax, if the profit has been transferred to a special reserve account and the same is actually utilised for the highway project excluding the housing and other activities before the expiry of 3 years following the year in which such amount was transferred to the reserve account; and the amount remaining unutilised shall be chargeable to tax as income of the year in which such transfer to reserve account took place.

Relevant Conditions/Points

Period of The enterprise has started or starts operating and maintaining Commencement the infrastructure facility on or after 1st April, 1995. Status Transferee of Where an infrastructure facility is transferred on or after the 1st day of April, 1999, by an enterprise which developed such infrastructure facility (transferor) to another enterprise (transferee) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central or State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if the transfer had not taken place and the deduction under this section shall be

available to such transferee enterprise for the unexpired period. Extent Deduction of (a) 100% for any 10 consecutive assessment years out of 20 years (at the option of the assessee) [beginning from the year in which the enterprise develops and begins to operate any infrastructure facility], in case of project of a road, toll road, bridge, rail system, highway project including housing or other activities being an integral part of the highway project, water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system and (b) 100% for any 10 consecutive assessment years out of 15 years in other cases of port, airport, inland waterway or inland port, etc. Type Undertaking Enterprise of B. An undertaking providing telecommunication services like or basic or cellular, radio paging, domestic satellite service, network of trunking, broadband network and internet services. The undertaking must comply with conditions laid out in Section 80-IA(3) namely; (a) It should not be formed by splitting up, or re-construction, of a business already in existence (except for undertaking referred u/s. 33B); (b) It should not be formed by the transfer to a new business of machinery or plant previously used for any purpose (exceptions provided in Explanations 1 & 2 to clause (ii) of sub-section (3) of Section 80-IA). Period of The undertaking has started providing the telecommunication Commencement services referred to above on or after 1st April, 1995, but on or before 31st March, 2005. Extent Deduction of 100% for first 5 assessment years and 30% for next 5 assessment years. Deduction as above can be claimed in 10 consecutive assessment years out of 15 years (at the option of the assessee) [beginning from the year in which the undertaking starts providing telecommunication service]. of C. An undertaking which develops, develops and operates or or maintains and operates an Industrial Park or Special Economic Zone. 1. The industrial park or special economic zone should be notified by the Central Government in accordance with the scheme framed and notified by it. 2. No deduction shall be allowed under this section to any

Relevant Conditions/Points

Type Undertaking Enterprise

Relevant Conditions/Points

Special Economic Zones notified on or after 1st April, 2005 (As per Special Economic Zones Act, 2005, w.e.f. 10th February, 2006; deduction shall be allowable u/s. 80-IAB in such cases). Period of (a) The undertaking has developed or develops the special Commencement economic zone on or after 1st April, 1997, but on or before 31st March, 2006. (b) The undertaking has developed or develops the industrial park on or after 1st April, 1997, but on or before 31st March, 2011. Status Transferee of Where an undertaking develops industrial park on or after 1st April, 1999 or a special economic zone on or after 1st April, 2001, and transfers the operation and maintenance of such industrial park or special economic zone, as the case may be, to another undertaking (transferee), then the deduction under this section shall be allowed to such transferee for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to such transferee. of 100% for 10 consecutive assessment years out of 15 years (at the option of the assessee) [beginning from the year in which the undertaking develops an industrial park or special economic zone]. of D. An undertaking which (a) is set up in any part of India for or the generation or generation and distribution of power or (b) starts transmission or distribution by laying a network of new transmission or distribution lines or (c) undertakes substantial renovation and modernisation of the existing network of transmission or distribution lines. 1. The undertaking for transmission or distribution of power by laying a network of new transmission lines shall be allowed deduction only in relation to the profits derived from laying of such network of new lines. 2. The undertaking [excluding State Electricity Board referred to in Sec. 2(7) of Electricity Act, 2003 w.e.f. A.Y. 2005-06] must comply with conditions laid out in Section 80-IA(3) namely; (a) It should not be formed by splitting up, or reconstruction, of a business already in existence (except for undertaking referred u/s. 33B); (b) It should not be formed by the transfer to a new business of machinery or plant previously used for any purpose (exceptions provided in Explanations 1 & 2 to clause (ii) of sub-section (3) of Section 80-IA).

Extent Deduction

Type Undertaking Enterprise

Relevant Conditions/Points

3. "Substantial renovation and modernisation" means an increase in the plant and machinery in the network of transmission or distribution lines by at least 50% of the book value of such plant and machinery as on 1st April, 2004. Period of (a) For generation and distribution of power, the Undertaking Commencement begins to generate power between 1st April, 1993 and 31st March, 2012. (b) For transmission or distribution lines, the Undertaking starts transmission between 1st April, 1999 and 31st March, 2012. (c) For substantial renovation and modernisation of transmission or distribution lines, the Undertaking undertakes substantial renovation and modernisation between 1st April, 2004 and 31st March, 2012. Extent Deduction of 100% for 10 consecutive assessment years out of 15 years (at the option of the assessee) [beginning from the year in which the undertaking generates power or commences transmission or distribution of power or undertakes substantial renovation and modernisation of existing transmission or distribution lines, as the case may be]. of E. An undertaking owned by an Indian Company and set up for or reconstruction or revival of a Power Generating Plant. 1. Such Indian Company is formed before 30th November, 2005, with majority equity participation by public sector companies for the purposes of enforcing the security interest of the lenders to the company owning the power generating plant. 2. Such Indian Company is notified before 31st December, 2005, by the Central Government for the purposes of this clause. Period of The Undertaking begins to generate or transmit or distribute Commencement power before 31st March, 2011. (shall be deemed to have been substituted w.e.f. 1st day of April, 2008) Extent Deduction of 100% for 10 consecutive assessment years out of 15 years (at the option of the assessee) [beginning from the year in which the undertaking generates power or commences transmission or distribution of power]. DEDUCTIONS IN RESPECT OF PROFITS & GAINS BY AN UNDERTAKING OR ENTERPRISE ENGAGED IN DEVELOPMENT OF SPECIAL ECONOMIC ZONE

Type Undertaking Enterprise

Relevant Conditions/Points

SECTION 80-IAB

Persons Covered

Assessee, being a developer, carrying on the business of developing a Special Economic Zone (notified on or after 1st April, 2005, under Special Economic Zones Act, 2005) through an industrial undertaking or enterprise. Profits and gains derived by an undertaking or enterprise from the business of developing a Special Economic Zone. 1. The terms "Developer" and "Special Economic Zone" shall have the same meanings respectively as assigned to them in clauses (g) and (za) of Section 2 of the Special Economic Zones Act, 2005. 2. The profits and gains of an eligible business shall be computed as if such eligible business were the only source of income of the assessee. 3. The accounts of the undertaking for the previous year relevant to the assessment year for which the deduction is claimed must be audited by a chartered accountant and Audit Report in Form No. 10CCB should be furnished along with the return of income. 4. No deduction shall be allowed under this section if the assessee fails to file the return of income for such assessment year on or before the due date specified u/s. 139(1) (w.e.f. A.Y. 2006-07 as per Section 80AC). 5. Where deduction of any amount of profits and gains of business is claimed and allowed under this section, then the deduction to the extent of such profit and gains shall not be allowed under any other provisions of this chapter and the deduction shall in no case exceed the profits and gains of such eligible business of undertaking or enterprise, as the case may be. 6. If any undertaking of an Indian company which is entitled to deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company, in a scheme of amalgamation or demerger, then no deduction shall be admissible under this section to the amalgamating or demerged company for the previous year in which the amalgamation takes place and the provisions of this section shall, as far as may be, apply to the amalgamated or resulting company as they would have applied to the amalgamating or demerged company if the amalgamation or demerger had not taken place. 7. If any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods held for the purposes of any

Eligible Amount Relevant Conditions/Points

other business of the assessee are transferred to the eligible business, then in either case it should be ensured that the transaction occurs at the market value of such goods or services as on the date of transfer, otherwise Assessing Officer (AO) has the power to recompute the profits based on the market value of such goods or services. 8. If it appears to the AO, that business between the assessee (engaged in eligible business) and any other person is so arranged that the business transacted between them produces to the assessee more than ordinary profits, then the AO shall take the amount of profit as may be reasonably deemed to have been derived therefrom. Status Transferee of Where an undertaking, being a developer who develops a Special Economic Zone on or after 1st April, 2005, and transfers the operation and maintenance of such Special Economic Zone to another Developer (transferee), then the deduction under this section shall be allowed to such transferee for the remaining period in the ten consecutive assessment years as if the operation and maintenance were not so transferred to such transferee. of 100% for 10 consecutive assessment years out of 15 years (at the option of the assessee) [beginning from the year in which the Special Economic Zone has been notified by the Central Government]. DEDUCTION IN RESPECT OF PROFITS & GAINS OF CERTAIN INDUSTRIAL UNDERTAKINGS OTHER THAN INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS Assessee carrying any of the eligible businesses through following industrial undertaking or enterprise: 1. Industrial Undertaking located in notified backward district, state or region or other places or Small scale industrial undertaking, engaged in manufacturing/producing any articles/things or operating its cold storage plant; 2. Hotels; 3. Multiplex Theatres; 4. Convention Centres; 5. Scientific Research & Development; 6. Refining of Mineral Oil or Natural Gas; 7. Developing and Building Housing projects;

Extent Deduction

SECTION 80-IB

Persons Covered

8. Operating cold Storage facility for agricultural produce; 9. Processing, preserving and packaging of fruits and vegetables or integrated business of handling, storage and transportation of food grains; 10. Operating and maintaining hospital in any area other than excluded area.

20. Define assets and deemed assets under the wealth tax act? What assets are exempt from wealth tax act?

Assets The assets liable to wealth tax as per the definition given in section 2(ea) of the Wealth Tax Act are as under : (1) Any building or land appurtenant thereto which shall include : i. ii. iii. iv. commercial buildings; residential buildings; any guest house; a farm house situated within 25 kilometres from the local limits of any municipality (whether known as Municipality, Municipal Corporation or by any other name) or a Cantonment Board.

However, the following buildings will not be included to assets: i. ii. iii. a house meant for residential purposes which is allotted by a company to an employee or an officer or a director who is in whole time employment, having a gross annual salary of less than Rs. 5,00,000/-. any house for residential or commercial purposes which forms part of stock-intrade; any house which the assessee may occupy for the purposes of any business of profession carried on by him.

The following buildings shall also not be an asset w.e.f. A.Y. 1999-2000: a. any residential property that has been let out for a minimum period of 300 days in the previous year. b. any property in the nature of commercialestablishments or complexes.

(2) Motor Cars (excluding those used by the assessee in the business of running them on hire or as stock-in-trade). (3) Jewellery, bullion, furniture, utensils or any other, article made wholly or partly of gold, silver, platinum or any other previous metal or any alloy containing one or more of such precious metals (excluding those held as stock-in-trade by the assessee). Jewellery includes: i. ornaments made of gold, silver, platinum or any other precious metal of any alloy containing one or more of such precious metals, whether or not" containing any precious or semi-precious stones, and whether or not set in any furniture, utensils or other article or worked or sewn into~any wearing apparel; precious or semi-precious stones, whether or not set in any furniture, utensils or other articles or worked or sewn into any wearing apparel.

ii.

For the removal of doubts it has been clarified by explanation 2 to section 2(ea) that the term jewellery does not include the Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government. (4) Yachts, boats and aircrafts (excluding those used by the assessee for commercial purposes). (5) Urban land; "Urban Land" means land situated : i. in any area which is comprised within the jurisdiction of a local authority and which has a population of not less than ten thousand according to the last proceeding census of which the relevant figures have been published before the valuation date; or any area within such distance, not being more than eight kilometres from the local limits of a local authority as the Central Government may, having regard to the extent, and scope for urbanisation of that may, and other relevant considerations, specify in this behalf by notification in the Official Gazette.

ii.

However, the following urban land shall not be included in assets; i. ii. iii. iv. land on which construction of a building is not permissible under any law for the time being in force in the area in which such land is situated; land occupied by any building which has been constructed with the approval of the appropriate authority; any unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him. land held by an assessee as stock-in-trade for a period of five years from the date of its acquisition by him. (Ten years w.e.f. A.Y. 1999-2000).

Note: Agricultural land situated in urban area is not liable to wealth-tax.

(6) Cash in hand; a. In case of an individual and HUF cash in hand in excess of Rs. 50,000/- shall be included in assets. b. In cash of any other person cash in hand not recorded in the books of account shall be included in assets.

Deemed Assets In computing the net wealth of an assessee, the following assets are included as belonging to the assessee by virtue of section 4(l)(a) of the Wealth Tax Act, 1957. a. Assets transferred by one spouse or another. b. Assets held by minor children. Whether the assets are held by a physically or mentally handicapped minor child (specified in section SOU of the Income Tax Act) such assets will not be clubbed with the net wealth of the parent. In such a case the net wealth of the handicapped minor child shall be determined separately and assessee in his hands. c. Assets transferred to a person or an Association of Persons for immediate or deferred benefit of the transferrer, his or her spouse without adequate consideration. d. Assets transferred under revocable transfer. e. Assets transferred to son's wife. Assets transferred to a person or Association of Persons for the benefit of son's wife.

OR How will you determine assessable value under section 4(1)(a) and section 4(1)(b) of central excise. The levy of duty requires the valuation of the goods under consideration after establishing the duty liability and the classification of the goods. Except in cases where specific duty has been provided for on the basis of certain unit like weight, length, etc. as in case of goods like cigarettes (length basis), cement clinkers (per ton basis), for most of the goods the rates are specified on an ad valorem basis; i.e., expressed as a percentage of value of goods. Thus for calculating the amount of duty payable, first the assessable value of the goods has to be determined under the provisions. The modes of valuation of goods under the Excise Act are:

(A) Tariff value The Central Government is authorized under the provisions of section 3(2) of the Act, to fix the tariff value for any goods which may be different for different classes of goods. This is also termed as the notional value. The duty in such cases is the % of such tariff value and not the Assessable Value. (B) M.R.P. value The Central Government under section 4A of the Act can notify goods on which excise duty will be payable on the MRP less % of abatement. Such value shall be deemed to be the assessable value in such cases. The provisions of this section are applicable to products which are statutorily required to put MRP under the Standards of Weight and Measures Act, 1976, or any other law and in respect of which specific notification has been issued. (C) Transaction value (i) In respect of all other goods which are not covered by the above-mentioned provisions, their assessable value would be in terms of "transaction value" as provided in section 4 of the Act. The assessable value would be the transaction value when the goods are sold by an assessee for delivery at the time and place of removal, where the assessee and the buyer are not related and price is the sole consideration. In all other cases, which do not fulfil the aforesaid conditions, value shall be determined as per the Central Excise Valuation Rules, 2000. The definition of transaction value as per section 4(3)(d) means the price actually paid or payable for the goods when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to or on behalf of, the assessee by reason of or in connection with the sale, whether at the time of sale or any other time. The definition gives an inclusive but not exhaustive list of additions and deductions from the invoice price in respect of certain amounts. (ii) The valuation rules have to be followed when transaction value cannot be determined under section 4(1); which are enumerated below: (a) If goods are not sold at the time of removal, the value of excisable goods shall be value of goods sold by the manufacturer for delivery at any other time nearest to the time of removal of goods except in cases of stock /branch transfer, sale to related person, job work where specific provisions have been made. (Rule 4) (b) In case goods are sold for delivery at any other place other than the place of removal, the value will be the price less the actual cost of transportation from place of removal to the place of delivery. (Rule 5) (c) In case the price is not the sole consideration in respect of any transaction, the value of goods shall be the aggregate of such transaction

value and the amount of money value of additional consideration flowing directly or indirectly from buyer to the assessee. (Rule 6) (d) In case where goods are cleared to depot, consignment agent etc., transaction value shall be the normal transaction value of such goods sold from such other place at or about the same time. The normal transaction value is the price at which the greatest aggregate quantity of goods are sold. (Rule 7) (e) In case of consumption of goods captively; i.e., consumed by the assessee or on his behalf, the value shall be 110% of the cost of production. (Rule 8) (f) In case of sale of goods to a related person, the value shall be the price at which the related person has sold the goods to an unrelated person. In case a related person does not sell the goods but uses or consumes the goods in production or manufacture of the article, the value shall be 115% of the cost of production. (Rule 9)