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Appendix CS Professional Programme M - III (Solution upto June - 2012 & Questions of Dec - 2012 included) Paper - 6 : Advanced Tax Laws and Practice Chapter- 2 : Companies Under Income Tax Laws 2012 - June [3] Minimum Alternate Tax (MAT) under Section 115 JB of the Income Tax Act, 1961 : Where in the case of a company, the Income Tax payable on the total income as computed under the Income Tax Act, in respect of previous year relevant to the assessment year 2012-13 or thereafter is less than 18.5% of its book profit such book profit shall be deemed to be the total income of the assessee and tax payable by the assessee on such total income (book-profit)shall be the amount of the income-tax at the rate of 18.5%. Every company for the purpose of this section shall prepare its Profit and Loss Account for the relevant previous year in accordance with the provisions of Part II and III Schedules VI to the Companies Act, 1956. However, while preparing the annual accounts including Profit and Loss Account, the accounting policies, the accounting standards followed for preparing such accounts including profit and loss account and the methods and rates adopted for calculating the depreciation shall be the same as have been adopted for the purpose of preparing such accounts including Profit and Loss account as laid before the company at its annual general meeting in accordance with the provision of Section 210 of the Companies Act, 1956. For the purpose of MAT, book profit means the net profit shown in the profit and loss account for the relevant previous year prepared as aforesaid and would be subject to some adjustments as mentioned in section 115 JB of the Income Tax Act, 1961.

Appendix CS Prof. Prog. M - III Paper 6

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Every company to which section 115 JB applies shall furnish a report from Chartered Accountant certifying that the book profit has been computed in accordance with the provisions of section 115 JB alongwith the return of income filed. Alternative Minimum Tax for Limited Liability Partnership [Section 115 JC to115JF] As per newly inserted section 115JC where the regular income tax payable for a previous year by a limited liability partnership is less than the alternative minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of such limited liability partnership and it shall be liable to pay income-tax on such total income at the rate of 18.5%. Meaning of adjusted total income alternate minimum tax and regular income tax [Section 115JC (2) and section 115 JF] (i) "adjusted total income" shall be the total income before giving effect to this newly inserted chapter XII-BA as increased by the deduction claimed under any section included in chapter VI-A under the heading "C-Deduction in respect of certain incomes" and deduction claimed under Section 10AA [Section 115 JC (2)]; (ii) "alternative minimum tax" shall be the amount of tax computed on adjusted total income at a rate of 18.5%; and (iii) "regular income tax" shall be the income tax payable for a previous year by a limited liability partnership on its total income in accordance with the provisions of the act other than the provisions of this newly inserted Chapter XII-BA. Report of Chartered Accountant [Section 115 JC (3)] Every limited liability partnership to which this section applies shall obtain a report, in such form as may be prescribed, from an accountant certifying that the adjusted total income and the alternate minimum tax have been computed in accordance with the provisions of this chapter and furnish such report on or before the due date of filing of return u/s 139 (1). Tax credit for alternate minimum tax [Section 115 JD] 1. Credit for tax paid [Section 115JD (1)] : The credit for tax paid by a limited liability partnership under Section 115 JC shall be allowed to it in accordance with the provisions of this section. 2. How to compute tax credit [Section 115 JD (2)] : The tax credit of an assessment year to be allowed under Section 115 JD (I) shall be the excess of alternate minimum tax paid over the regular income tax payable of that year.

Appendix CS Prof. Prog. M - III Paper 6

3

3.

Interest not payable on tax credit allowed [Section 115 JD (3) ] : No interest shall be payable on tax credit allowed under sub-section (1). 4. Tax credit to be carried forward and set-off upto next 10 assessment years [Section 115 JD (4)] : The amount of tax credit determine u/s 115 JD (2) shall be carried forward and set-off in accordance with the provisions of Section 115 JD (5) and 115 JD (6) mentioned below but such carry forward shall not be allowed beyond the 10th assessment year immediately succeeding the assessment year for which tax credit become allowable u/s 115 JD (1). 5.Tax credit is allowed to the maximum extent of the excess of regular income tax over alternate minimum Tax : In any assessment year in which the regular income - tax exceeds the alternate minimum tax, the tax credit shall be allowed to set-off to the extent of the excess of regular income-tax over the alternate minimum tax and the balance of the tax credit, if any shall be carried forward. 6.Effect of assessment order to be adjusted [Section 115 JD (6)] : If the amount of regular income tax or the alternate minimum tax is reduced or increased as a result of any order passed under this act, the amount of tax credit allowed under this section shall also be varied accordingly. Chapter- 3 : Tax Planning 2012 - June [1] (b) Depreciation under Section 32 of the act is allowable on specified intangible assets being know - how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of a similar nature. The items of intangible assets have been discussed in brief hereunder : (1) Meaning of know-how : The expression know-how means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits (including searching for discovery or testing of deposits for winning of access thereto.) (2) Patents,

copyrights,

trademarks,

licences,

franchises, business or commercial rights : The above terms have not been defined under the Act. Thus, one may refer to the normal dictionary meaning assigned to them or look into laws governing the

Appendix CS Prof. Prog. M - III Paper 6

4 acquisition

and

use

of

such

assets,

wherever

applicable. The Delhi Tribunal in the case of ONGC Videsh Ltd. v. DCIT (2009) held that participating rights acquired by the assessee in a production sharing agreement would be eligible for depreciation under Section 32 (1) (ii) of the act,

as

they

are

in

the

nature

of

business

and

commercial rights/license. Depreciation

on

goodwill

has

been

a

matter

of

considerable debate. The Mumbai Tribunal in the case of Kotak Forex Brokerage Ltd. v. ACIT (2009) held

that

"goodwill" is nothing but a positive reputation built by a person /company business-house over a period of time. Thus, goodwill is also a "business or commercial right of similar nature", and hence, eligible for depreciation under Section

32 of the Act. However, in another

judgement in the case of R.G. Keswani v. ACIT (2009) it was held that goodwill is not an intangible asset and is not eligible for depreciation under Section 32. The Kerala

High Court has held that goodwill paid for

acquiring a hospital with land building, equipment, staff, name, trademarks etc. is certainly for acquiring of business

and

commercial

rights

and

was

certainly

comparable with trademark, franchise, copyright etc. Thus, depreciation will be allowed on such goodwill which

akins

to

business or commercial

Ravindram Pillani v. CIT (2010)]

rights.

[B.

Appendix CS Prof. Prog. M - III Paper 6

5 On the issue of non-compete payments, the Chennai Tribunal in the case of ITO v. Medicorp Technologies India Pvt. Ltd. (2009) held that right acquired by payment of non-compete fee was in the nature of a business or commercial right similar to know-how, patents, copyrights, trademarks, licences and franchises, and is therefore eligible for depreciation under Section 32.

2012 - June [2] (a), (b) (a) Total interest for the year 2012-13 ` 10 crore x 12% p.a. x 70% = ` 84 lakh interest to be capitalized with cost of asset as per proviso to section 36 (1) (iii) ` 84 lakh  10 months/12 months = ` 70 lakh Interest to be claimed as deduction under Section 36 (1) (iii) = ` 14 lakh Note : Interest is capitalized for pre-commencement period i.e. from 01.04.2012 to 31.01.2013 (10 months) Calculation of Depreciation Allowance Actual cost of machine for the purpose of depreciation = ` 10 crore + ` 70 lakh = ` 10.70 crore Normal depreciation allowed under section 32 ` 10.70 crore x 15% x 50% = ` 0.80 crore Additional depreciation under Section 32 (1) (iia) ` 10.70 crore x 20% x 50% = ` 1.07 crore Total Depreciation allowable = ` 1.87 crore Note : Depreciation is restricted to 50% of the depreciation allowable, if asset is acquired during the previous year and put to use for less than 180 days. (b)The company was entitled to exemption in respect of the gardens, pathways, tennis court, etc. which were appurtenant to land under Section 2 (ea) (i) of the Wealth Tax Act, 1957 because the facts of the case are similar to Binny Ltd. v. Asstt. CIT

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6

(2010) wherein it was held that if the building together with the land is treated as an indivisible unit and enjoyed as such by the persons occupying the building, the entire extent of land is appurtenant to the building. The various amenities, such as roads, garden, play area etc., as long as they are used solely for residence and benefit for those grounds is confined to the residents of the house and their visitors, such grounds would qualify to be land appurtenant to the building. Chapter-4 : Tax Management 2012 - June [2] (c) Any mistake in the order passed by the Tribunal, which is apparent from the record, may be rectified by the Tribunal under Section 254 (2). Rectification under different cases may be examined as under: (i) No, possibility of a different view of laws does not justify the Tribunal to recall appellate order in exercise of the power u/s 254 (2). (ii) No, if the order passed was correct in law at the time it was passed, it does not cease to be correct-merely because of the retrospective amendment made to the provision. (iii) No, a subsequent decision of the Supreme Court cannot result in rectification, if at the time, the order was passed, it was consistent with law. (iv) Yes, non-consideration by the Tribunal of judgement cited before the Tribunal constitutes a mistake apparent from record within the meaning of section 254 (2). (v) No, an assessee cannot apply for rectification of the Tribunal’s order by raising fresh grounds which were not raised earlier. Chapter- 6 : Central Excise Laws 2012 - June [4] {C} (c) (i) Yes (ii) No (iii) No (iv) No (v) Yes 2012 - June [5] (a) Computation for the purpose of limit of ` 400 lakh

Jaipur (i)

Goods cleared with own brand name

(` in lakhs) Noida 75 100

Appendix CS Prof. Prog. M - III Paper 6

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(ii)

Clearance of plastic containers with brand name of Jolly names(packing material) 45 70 (iii) Goods cleared to 100% Eou (Deemed export) (Not includible) (iv) Export to Bhutan 50 60 (v) Job work under Notification No. 214/86 (Not includible) (vi) Job work under Notification No. 84/94 (Not includible) Total turnover 170 230 If the same manufacturer has more than one factory, the turnover of all factories has to be clubbed together for calculating the SSI exemption limit of `400 lakh. Since the aggregate value of clearing during the preceding financial year does not exceed ` 400 lakh (` 170 lakh + ` 230 lakh = ` 400 lakh), the company is eligible for SSI exemption in the financial year 2011-12. 2012 - June [6] (a) As per section 4 of the Central Excise Act, 1944, transaction value means only payment made by the buyers of the goods are includible in transaction value. In this case, optional extended warranty charges are paid by final customers and not by dealers. The facts of the case are similar to that in CC Ex v. Fords India Pvt. Ltd. (2010). In this case, it was held that only the first sale transaction warranty was optional, it was not a condition of sale. The sale of car and sale of extended warranty are two different businesses, which had no direct or proximate connection. Thus, contention of the department is not tenable in law and Menz Car Company is not required to include these charges in the assessable value of cars. 2012 - June [7] (a), (b) (a) Goods notified under Section 3A of the Central Excise Act, 1944 liable to duty based on annual capacity of production are given below : (i) Pan masala containing more than 15% betel nut; (ii) Pan masala containing tobacco, i.e. gutkha; (iii) Unmanufactured tobacco, bearing a brand name; (iv) Chewing tobacco; and (v) Jarda scented tobacco manufactured with the aid of packing machine and packed in pouches. Yes, the declaration of retail sale price is mandatory in case of such notified goods. The duty is fixed per month per packing machine based on retail sale price of pouches.

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(b)According to section 11AC (1) (a), a mandatory penalty equal to the duty short paid or not paid or erroneously refunded is payable if such non payment or short payment or erroneous refund was due to fraud, collusion, wilful mis-statement or suppression of facts, or contravention of any of the provisions of the act or rules with intent to evade payment of duty. In case of non payment or short payment of duty due to fraud, wilful misstatement etc. There is mandatory penalty equal to duty evaded under Section 11AC of CEA-neither more nor less. CBE&C has confirmed that under Section 11AC of CEA (Parallel section 114A of Custom Act), there is no discretion to adjudicating authority to impose penalty less than or more than the amount of duty evaded. If duty and interest and penalty is paid within 30 days of receipt of order of adjudicating authority, penalty shall be 25% of duty section 11AC (1) (c) of Central Excise Act introduced w.e.f. 08.04.2011-parallel proviso to section 114 of Customs Act. Chapter- 7 : Custom Laws 2012 - June [4] {C} (d) The importer shall be liable to pay interest on any differential amount payable after final assessment, from the first day of the month in which duty is provisionally assessee till the payment. Present interest rate is 18% w.e.f. 01.04.2011. The amount of interest in present case shall be arrived as under: (i) The amount of differential duty payable by Mr. Pradhan = (`12 lakh - ` 8 lakh) x 10.3% = ` 41,200. (ii) No. of days for which interest is payable.= 01.04. 2011 to 12.06.2011=73 days (iii) Amount of interest payable by Mr. Pradhan = ` 41,200 x 18% x 73 days /365 days = ` 1,483.20 = `1,483 (rounded off) 2012 - June [5] (b), (c) (b) Computation of Customs duty payable (i) Basic customs duty @ 10% ` of ` 1,50,000 15,000 (ii) Additional duty of customs (CVD) @ 10.3% of Tariff value i.e. 45% of ` 4,00,000 18,540 Total (BCD + CVD) 33,540 (iii) Education cess @ 30% of ` 33,540 1,006 Total Customs duty payable 34,546

Appendix CS Prof. Prog. M - III Paper 6

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In case of goods liable to excise duty based on tariff value, additional duty of customs will be computed on tariff value. (c) Calculation of Amount of fine ` Total assessable value of goods 5,00,000 Add : Total customs duty payable 1,20,000 Total cost to importer 6,20,000 Market price in India `1,000 x 1,000 10,00,000 Margin of profit 3,80,000 (i) Amount of fine equal to margin of profitdf 3,80,000 (ii) Maximum fine imposable under section 25 = Market price (—) Total customs duty = ` 10,00,000 (—) ` 1,20,000 = ` 8,80,000 2012 - June [6] (b), (c) (b) (i) The statement is false Section 65 provides that owner of any warehoused goods may carry on any manufacturing process or other operations in relation to warehoused goods with the sanction of AC/DC and subject to prescribed conditions on payment of prescribed fees. (ii)

The statement is true According

to

section

67

the

owner

of

any

warehoused goods may be removed from one warehouse to another, with the permission of proper officer and subject to such conditions as may be prescribed. (iii)

The statement is false As per section 59 the importer must execute a bond for twice the amount of duty assessed with

necessary surety or security. (c) (i) No, Commissioner (Appeals) does not have power to remand the case back to the adjudicating authority for fresh adjudication–MIL India Ltd v. C.C. Ex/(2007).

Appendix CS Prof. Prog. M - III Paper 6

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(ii) Yes Commissioner (Appeals) can condone the delay in filing the appeal before him for a further period of 30 days–section 35 of the Central Excise Act and section 128 of the Customs Act. 2012 - June [7] (c) Determination of duty where imported goods consists of articles liable to different rates of duty, (Section 19). Except as otherwise provided in any law for the time being in force, where goods consist of a set of articles duty shall be calculated as follows :(a)articles liable to duty with reference to quantity shall be chargeable to that duty; (b)articles liable to duty with reference to value shall, if they are liable to duty at the same rate, be chargeable to duty at that rate, and if they are liable to duty at different rates, be chargeable to duty at the highest of such rates; (c) articles not liable to duty shall be chargeable to duty at the rate at which articles liable to duty with reference to value are liable under clause (b); Provided that — Accessories of, and spare parts or maintenance and repairing implements, for any article which satisfy the conditions specified in the rules made in this behalf shall be chargeable at the same rate of duty as that article ; Cases where different rate of custom duty is applicable If the importer produces evidence to the satisfaction of proper officer regarding the value of any articles liable to different rates of duty, such article shall be chargeable to duty operately at the rate of applicable to it. Chapter- 10 : Basic Concepts of International Taxation 2012 - June [8] (i) Report on applicability of Transfer Pricing provisions in India To The Chairman ABC and Co. Ltd., This is with reference to your enquiry regarding the applicability of transfer pricing provisions to your overseas manufacturing company which is going to start a permanent establishment in India with new manufacturing unit in Madurai district. As per transfer pricing provisions permanent establishment is considered as associated enterprise thus, understanding of these provisions is essential to avoid any tax dispute /litigation. The highlights of transfer pricing provisions applicable in India are as follows : Transfer pricing regulation ("TPR") are applicable to the all enterprises that entered into an "international transaction" with an "Associated Enterprises". Therefore, generally it

Appendix CS Prof. Prog. M - III Paper 6

11

applies to all cross border transactions entered into between associated enterprises. These regulations relates to: 1. Computation of income from international transactions having regard to the Arm’s length price : Any income arising from an international transaction shall be computed having regard to ALP. Meaning of arm length’s price [Section 92F (ii) : Arm’s length price means a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises in uncontrolled conditions. As per section 92 (c) (i) the arm’s length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method: (a) Comparable Uncontrolled Price Method (CUPm) (b) Resale Price Method (RPM); (c) Cost Plus Method (CPM); (d) Profit Split Method (PSM); (e) Transaction Net Margin Method (TNMM), (f) Such other method as may be prescribed by the Board. 2. Associated Enterprise : As per section 92 A (i) "associated enterprise" in relation to another enterprise means an enterprise : (a) which participates, directly or indirectly, or through one or more intermediaries in the management or control or capital of the other enterprise; or (b) in respect of which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in its management or control or capital, are the same persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of other enterprise. As per section 92F (iii), "Enterprise" means a person (including a permanent establishment of such person) who is, or has been, or is proposed to be engaged : (1) in any activity relating to the production, storage, supply, distribution, acquisition or control of : (a) Articles or goods, or (b) Know-how, patents, copyrights trademarks, licences franchises or any other business or commercial rights of similar nature of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights,or

Appendix CS Prof. Prog. M - III Paper 6

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(c)

Any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights; or (2) in the provisions of service of any kind, or (3) in carrying out any work in pursuance of a contract, or (4) in investment, or (5) in providing loan, or (6) in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate. Whether such activity or business is carried on, directly or through one or more of its units or divisions or subsidiaries, or Whether such unit or division or subsidiary is located at the same place where the enterprise is located or at a different place or places. As per section 92F (iii) a "Permanent establishment", includes a fixed place of business through which the business of the enterprise is wholly or partly carried on. 3. "International transaction" (Section 92B) According to section 92B (i),for the purpose of this section and sections 92, 92C, 92D and 92E “international transaction” means a transaction between two or more associated enterprises, either or both of whom are non residents. The transaction must be in the nature of— (i) purchase sale or lease of tangible or intangible property, or (ii) provision of services, or (iii) lending or borrowing money, or (iv) any other transaction having a bearing on the profits, income, losses or assets of such enterprises. Further, it shall include a mutual agreement or arrangement between two or more associated enterprise for : (a) the allocation or apportionment of, or (b) any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. 4. Keeping and maintain of information and document by a person entering into international transaction : As per rule 10 D (i),every person who has entered into an international transaction shall keep and maintain documents relating to international transaction.

Appendix CS Prof. Prog. M - III Paper 6

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5.

Furnishing of report from an Accountant by a person entering into such transaction : Every person who has entered into an international transaction during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed. Hence company is advised to keep the above provisions in mind before taking any sort of initiative regarding above subject matter.

Chapter- 11 : Advance Ruling and Tax Planning 2012 - June [8] (ii) "Advance Ruling" [Section 245 N] means, (i) a determination by the authority in relation to a transaction which has been undertaken or is proposed to be undertaken by a non-resident applicant; or (ii) a determination by the authority in relation to the tax liability of a non-resident arising out of a transaction which has been undertaken or is proposed to be undertaken by a resident applicant with such non-resident. (iii) a determination or decision by the authority in respect of an issue relating to computation of total income which is pending before any income-tax authority or the Appellate Tribunal. Who can seek Advance Ruling As per section 245 N (b) of the Income Tax Act, the advance ruling under the income-tax act could be sought by : (a) A non-resident (b) Resident having transactions with non-residents. (c) Specified categories of residents. Application for Advance Ruling [Section 245Q] (a) An application for obtaining an advance ruling shall be made in quadruplicate in Form 34C, 34D or 34E as the case may be and shall be verified in the manner as may be prescribed. (b) Application should be accompanied by a fees of ` 2,500 in favour of authority of Advance Ruling. (c) Application must be signed by a person making application or any authorized representative. (d) Application must be addressed to the Secretary and submitted either in person or by registered post.

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(e)

If application found to be defective then the secretary may send the application for removing defect within such time limit as may allow. (f) An applicant may withdraw an application within 30 days from the date of application. Procedure on Receipt of Application [Section 245R] On receipt of an application, the authority shall forward one copy of the application to the commissioner having jurisdiction over the case of the applicant and if considered necessary by the authority, relevant records can also be obtained from the Commissioner. Section 245 R (2) of the Income-Tax Act provides that the authority may, after examining the applicant and the records called for either ‘allow’ or ‘reject’ the application. The word allow, has been used synonymously with ‘admit’. In other words, after examining the records, the authority either admits or rejects the application. In case authority has admitted the application, it is empowered to collect or received additional material and it will examine all the material thus available to it at the time of hearing and pronouncing a ruling on the application. In case the application has been rejected then an opportunity of being heard must be given to the assessee. The authority shall pass the ruling in writing within six months of the receipt of application and copy of the order thereof shall be sent to the commissioner and assessee. Power of Authority [Section 245U] The authority has all the powers of a Civil Court in respect of— (a) discovery and inspection; (b) enforcing the attendance of any person including an officer of a banking company and examining him on oath; (c) issuing commissions and compelling the production of books of account and other records. Applicability of Advance Ruling [Section 245S) The advance ruling shall be binding : (a) on the applicant who had sought it, and (b) in respect of the specific transaction in relation to which advance ruling was sought. It shall be also binding on the commissioner and all the Income Tax authorities subordinate to the Commissioner. The advance ruling will be continue to remain in force unless there is a change either in law or in fact on the basis of which the advance ruling was pronounced. Chapter- 12: Taxation of Inbound Transactions 2012 - June [8] (iii)

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Tax on income of foreign institutional investors from securities or capital gains arising from their transfer (1) Where the total income of a foreign institutional investor includes (a) Income other than income by way of dividends referred to in section 115-O, received in respect of securities (other than units referred to in section 115 AB); or (b) Income by way of short term or long term capital gains arising from the transfer of such securities, the income-tax payable shall be the aggregate of (i) the amount of income-tax calculated on the income in respect of securities referred to in clause (a), if any included in the total income at the rate of 20%; (ii) the amount of income-tax calculated on the income by way of short-term capital gains referred to in clause (b), if any, included in the total income, at the rate of 30%. Provided that the amount of income tax calculated on the income by way of short-term capital gains referred to in section 111A shall be at the rate of 15%, (iii) the amount of income tax calculated on the income by way of long-term capital gains referred to in clause (b), if any included in the total income, at the rate of 10% ; and (iv) the amount of income-tax with which the foreign institutional investor would have been chargeable had its total income been reduced by the amount of income referred in clause (a) and clause (b). (2) Where the gross total income of the foreign institutional investor---(a) consists only of income in respect of securities referred to in clause (a) of sub-section (i), no deduction shall be allowed to it under section 28 to 44C or clause (ii) or clause (iii) of section 57 or under chapter VI-A; (b) includes any income referred to in clause (a) or clause (b) of sub-section (i) the gross total income shall be reduced by the amount of such income and the deduction under chapter VI-A shall be allowed as if the gross total income as so reduced, were the gross total income of the foreign institutional investor. (3) Nothing contained in the first and second provisos to section 48 shall apply for the computation of capital gains arising out of the transfer of securities referred to in clause (b) of sub-section (i).

Appendix CS Prof. Prog. M - III Paper 6

16 Chapter- 14 : Objective Questions 2012 - June [1] (a) (i) The statement is false: The minimum penalty for failure to get accounts audited under Section 44AB or furnish audit report along with return of income is ` 1,50,000 or one-half percent of total sales and is imposed by Assessing Officer. (ii) The statement is true: The minimum penalty for failure to deduct tax at source or failure to pay wholly or partly the tax under Section 115 -O (2) or second proviso to section 194 B is a sum equal to the amount of tax omitted to be deducted or paid. (iii) The statement is true : A non-resident company’s tax liability depends upon the accounting entry passed by the resident company in India. The Hon’ble Supreme Court in case of standard Triumph Motor Company Ltd. v. CIT held that when an Indian residential company passes an entry crediting a non-resident company with an amount of royalty payable, it tantamount to receiving income in India and hence, falls into the Indian Tax net. (iv) The statement is true : Section 139 (i) of Income Tax Act, 1961, provides that in case of a corporate assessee, it is mandatory to file its return of income even if there is loss or nil income, Section 139 further provides that a corporate assessee has to file return of income by e-filing only with digital signature. (v) The statement is false: Where the judgement of a High Court is changed or reversed in an appeal by the Supreme Court, it is binding on all courts within the territory of India under Article 141 of the constitution. 2012 - June [4] {C} (a), (b) (a) (i) (d) Entry 54 of List II (ii) (a) Mobile phones (iii) (b) ` 1,000 (iv) (b) Three times of the value of the goods (v) (b) ` 75,000 (b) (i) destination (ii) upto ` 5,000

Appendix CS Prof. Prog. M - III Paper 6

17

(iii) not subject to (iv) Public interest (v) Computed value Question Paper of Dec. - 2012 Chapter- 2 : Companies Under Income Tax Laws 2012 - Dec [1] (a) Discuss briefly the treatment of un-availed tax credit of minimum alternate tax (MAT) in case of conversion of a private company or unlisted public company into a limited liability partnership (LLP). (3 marks) 2012 - Dec [2] (b) Whether minimum alternate tax (MAT) under section 115JB is payable in advance and interest under sections 234B and 234C is payable on failure to pay such advance tax? Also explain whether MAT credit admissible under section 115JAA has to be set-off against the assessed tax payable before calculating the interest under sections 234A, 234B and 234C. You may take help of decided case law, if any. (6 marks) 2012 - Dec [3] (a) Discuss with the help of an example, the cascading effect of dividend distribution tax and the remedial action taken by the government. (7 marks) Chapter- 3 : Tax Planning 2012 - Dec [1] (b) Enumerate the conditions prescribed in the proviso to section 47 (xiiib) in order to avail of total exemption from capital gains tax upon transfer of capital assets by a private company or an unlisted public company to a limited liability partnership (LLP).(6 marks) (c) Comment in brief on the allowability of depreciation under section 32— (i) Both the stipulated conditions under section 32 have been complied with but assessee company has not claimed the depreciation. (ii) A Ltd. and B Ltd. jointly owned plants in the proportion of 80% and 20% respectively and put to use by both the companies during the previous year 2011-12. (iii) X Ltd. acquired following assets during the previous year 2011-12, but could not use them: (a) High powered inverter costing ` 2,50,000; and (b) Fire extinguisher costing ` 75,000. (2 marks each) 2012 - Dec [3] (b) Does the Income-tax Appellate Tribunal has the following powers—

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(ii) (c)

Power to grant indefinite stay in any proceeding relating to an appeal under section 254(2A)? (3 marks) A company incorporated outside India is not liable to wealth-tax in India. Discuss.(2 marks)

Chapter-4 : Tax Management 2012 - Dec [2] (a) The Assessing Officer issued a notice under section 142(1) on the assessee on 18th December, 2011 calling him upon to file return of income for the assessment year 2011-12. In response to the said notice, the assessee furnished a return of loss and claimed carry forward of business loss and unabsorbed depreciation. State whether the assessee would be entitled to carry forward as claimed in the return. (9 marks) 2012 - Dec [3] (b) Does the Income-tax Appellate Tribunal has the following powers— (i) Power to recall its order in entirety under section 254(2); (3 marks) Chapter- 6 : Central Excise Laws 2012 - Dec [4] {C} (c) Star Manufacturing Ltd. defaulted in payment of central excise duty of ` 1,00,000 in the month of April, 2012. The company wants to pay this amount of duty in July, 2012 out of the CENVAT credit taken in the months of June and July, 2012. Advise Star Manufacturing Ltd. in this regard. (5 marks) (d) Discuss whether a manufacturer of excisable goods is eligible to take the CENVAT credit of excise duty paid on motor vehicles. (5 marks) 2012 - Dec [5] (a) Superb Electronics Ltd. is a manufacturer of electronic transformers, semi-conductor devices and other electrical and electronic equipments. During the course of such manufacture, the assessee also manufactured machinery in the nature of testing equipments to test their final products and stated in their balance sheet that the addition to the plant and machinery included testing equipments. The department demanded excise duty on such testing equipments. The assessee denied the liability contending that: (i) Assembly of testing equipments from various parts and components bought from outside didn’t amount to manufacture. Moreover, these were assembled for purely research and development purposes, but research being unsuccessful, same were dismantled; (ii) Even if manufacture was involved, the testing equipments were not marketable; and (iii) The said project was undertaken only to avoid import of such equipments from the developed countries to save the foreign exchange. Examine the veracity of the assessee’s contentions with reference to a decided case law.(5 marks)

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(c)

In an appeal proceeding, the Customs, Excise, Service Tax Appellate Tribunal (CESTAT) looked into shareholding pattern and arrived at a conclusion that the assessee and the buyer were inter-connected companies and also held that appointment of department’s cost accountant for the purpose of valuation audit under section 14A of the Central Excise Act, 1944 was valid in law. On an application of the assessee for rectification, the CESTAT in the same evidence and arguments, altogether changed its conclusion and held that the assessee and the buyer were not inter-connected companies and also that the cost accountant should be a cost accountant in practice. The department alleged that CESTAT rectification order amounted to review, which was not permissible in view of section 35C(2) of the Central Excise Act, 1944. Examine whether the CESTAT’s order of rectification is bad in law. Cite relevant case law also. (5 marks) 2012 - Dec [6] (a) From the following particulars, compute the assessable value for central excise purposes. Out of 1,000 units manufactured, 800 units have been cleared to a sister unit for further production of excisable goods on assessee’s behalf, the balance 200 units are lying in the stock: ` Direct material consumed (inclusive of excise duty @ 10.3%) 2,20,600 Direct labour and direct expenses 1,60,000 Works overheads 40,000 Research and development costs 25,000 Administration overheads (75% related to production) 80,000 Inputs received free of cost from sister units 35,000 Abnormal losses (not included above) 24,000 Advertisement and selling costs 36,000 VRS compensation to employees (not included above) 1,20,000 Realisable value of scrap/wastage 20,000 (5 marks) (b) Bhanu Enterprises is a manufacturing company. In the financial year 2011-12, the details of its clearances of goods are as follows:

(` in lakhs)

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(i) (ii)

Total exports (including export to Bhutan ` 50 lakh) Clearances of excisable goods without payment of duty to a 100% EOU (iii) Clearances of non-excisable goods (iv) Job work under Notification No. 84/94-CE dated 11th April, 1994 (v) Clearances of packing materials which bear the brand name of Ravi Ltd. and meant for packing its products

300 100 20 175 40

Clearances of goods notified under section 4A of the Central Excise Act, 1944 (retail sale price of goods ` 100 lakh; abatement notified 40%; and transaction value ` 80 lakh). On the basis of above information, you are required to ascertain the eligibility of Bhanu Enterprises for exemption based on the value of clearances in terms of Notification No. 8/2003-CE dated 1st March, 2003 as amended for the financial year 2012-13. Also give suitable notes. (5 marks) 2012 - Dec [7] (a) (i) Smart & Co. took CENVAT credit amounting to ` 2 lakh on inputs wrongly included in their RG 23A Register in the month of February, 2012. During audit, the internal audit party pointed out the mistake in August, 2012. Smart & Co. immediately reversed the amount from balance of ` 15 lakh in their CENVAT credit account lying since February, 2012. Examine whether the company is liable to pay interest on the amount of CENVAT credit taken wrongly. (3 marks) (b) Mention the circumstances under which the penalty is imposable on any person under Rule 26 of the Central Excise Rules, 2002. (6 marks) Chapter- 7 : Custom Laws 2012 - Dec [5] (b) Sun Power Ltd. is registered under ‘Project Import Regulations, 1986' for import of power equipments at concessional rate to implement a project for setting-up of a power plant. It imported a gas turbine and generator under the Project Import Regulations, 1986, but before these could reach the project site, these were lost/ destroyed in the sea within India. The department denied project import concession under the heading 9801 and demanded full duty, as the goods were not used in the project. Discuss in the light of decided case law, whether the demand made by the department is tenable in law. (5 marks)

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2012 - Dec [6] (c) Bhaskar Ltd. has imported certain equipments from Japan at CIF value of 5,00,000 Yen. Other details are as under: (i) (ii) (iii) (iv) (v) (vi)

Air freight Insurance charges Freight from airport to factory in India Date of presentation of bill of entry (Exchange rate notified by CBEC 1 Yen = ` 0.40) Date of arrival of goods in India (Exchange rate notified by CBEC 1 Yen = ` 0.42) Commission payable to the agent in India

90,000 Yen 10,000 Yen ` 20,000 28th April, 2012 8th May, 2012

10% of FOB cost (Not included in CIF value of 5,00,000 Yen) in Indian rupees Arrive at the assessable value for the purposes of customs duty providing brief notes wherever required with appropriate assumptions. (5 marks) 2012 - Dec [7] (a) (ii) Mention the ‘relevant date’ for the purpose of issuing show cause notice for demanding customs duty under section 28 of the Customs Act, 1962 in the following cases: (a) Where duty has been erroneously refunded; (b) Where duty is provisionally assessed; and (c) Where duty is not levied at the time of importation of goods. (3 marks) (c) Briefly mention the provisions about temporary detention of baggage in the Customs Act, 1962. (3 marks) Chapter- 10 : Basic Concepts of International Taxation 2012 - Dec [8] Attempt the following: (i) “The Finance Act, 2011 has expanded the scope of powers of the Transfer Pricing Officer (TPO) under section 92CA.” Discuss. (4 marks) (iv) A non-resident foreign company has a permanent establishment (PE) in India, in respect of which royalty ` 101 lakh was earned from an Indian company in pursuance of an agreement dated 10th June, 2009 (expenditure incurred on PE in India ` 12,37,600). Compute the gross tax liability of foreign company ignoring TDS/ advance tax for the assessment year 2012-13, assuming that there is no other income of the company for the year. (4 marks) (vi) Write a note on unilateral relief under section 91.

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(4 marks) Chapter- 11 : Advance Ruling and Tax Planning 2012 - Dec [8] Attempt the following: (ii) When can an advance ruling become void? Explain.

(4 marks)

Chapter- 12: Taxation of Inbound Transactions 2012 - Dec [8] Attempt the following: (iii) What will be the tax treatment for dividend received by Indian companies from specified foreign companies under section 115BBD? Expl (v) Distinguish between ‘inbound transactions’ and ‘outbound transactions’. (4 marks) Chapter- 14 : Objective Questions 2012 - Dec [4] {C} (a) Write the most appropriate answer from the given options in respect of the following: (i) Section 61 of the Customs Act, 1962 provides for warehousing in the case of capital goods intended for use in any 100% export oriented undertaking (EOU) till the expiry of— (a) One year (b) Three years (c) Five years (d) None of the above. (ii) Rule 2(b) of the Central Excise Rules, 2002 defines ‘assessment’ to include— (a) Summary assessment (b) Scrutiny assessment (c) Self-assessment made by the assessee and provisional assessment under Rule 7 (d) Ex-party assessment. (iii) Section 11BB of the Central Excise Act, 1944 provides for the payment of interest @ 6% per annum on refund of duty which is not paid to the applicant within— (a) 30 Days (b) 1 Year (c) Three months (d) None of the above.

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(iv)

The Customs, Excise, Service Tax Appellate Tribunal (CESTAT) may in its discretion, refuse to admit an appeal where the amount of fine or penalty determined does not exceed— (a) ` 1 lakh (b) ` 2 lakh (c) ` 50,000 (d) None of the above. (v) Fees for filing an appeal to the CESTAT under section 35B of the Central Excise Act, 1944 when the amount of duty and interest demanded and penalty levied is more than ` 50 lakh is— (a) ` 1,000 (b) ` 10,000 (c) ` 5,000 (d) None of the above. (1 mark each) 2012 - Dec [4] {C} (b) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s): (i) There is no separate enactment for the levy of service tax. __________ provides for the legal basis for the levy and collection of service tax in India. (ii) The authority for advance ruling is required to pronounce its advance ruling in writing within__________days from the date of application. (iii) A computer print-out is admissible__________in any proceeding under the law relating to customs without further requirement of production of the original document itself. (iv) Every assessee is required to submit a monthly return in proper form of production or removal of goods and other relevant particulars to the Superintendent of central excise within__________days of the succeeding month. (v) Where the value of the export goods cannot be determined under Rules 4 and 5 of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 the value shall be determined under Rule 6 by__________. (1 mark each)

Shuchita Prakashan (P) Ltd. 25/19, L.I.C. Colony, Tagore Town, Allahabad - 211002 Visit us : www.shuchita.com

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