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MF0012—Taxation Management


Master of Business Administration- MBA Semester 4

MF0012—Taxation Management-4 Credits

(Book ID: 1759)

Assignment (60 Marks)

Note: Answer all questions (with 300 to 400 words each) must be written within 6-8 pages. Each Question carries 10 marks 6 X 10=60

Q1. Explain the objectives of tax planning. Discuss the factors to be considered in tax planning.

Answer. Objectives of tax planning

Tax planning is a broad term that is used to describe the processes utilized by individuals and businesses to pay the taxes due to local, state, and federal tax agencies. The process includes such elements as managing tax implications, understanding what type of expenses are tax deductible under current regulations, and in general planning for taxes in a manner that ensures the amount of tax due will be paid in a timely manner.

One of the main focuses of tax planning is to apply current tax laws to the revenue that is received during a given tax period. The revenue may come from any revenue producing


Q2. Explain the categories in Capital assets. Mr. C acquired a plot of land on 15th June, 1993 for 10, 00,000 and sold it on 5th January, 2010 for 41, 00,000. The expenses of transfer were 1, 00,000.Mr. C made the following investments on 4th February, 2010 from the proceeds of the plot.

A) Bonds of Rural Electrification Corporation redeemable after a period of three years, 12, 00,000.

B) Deposits under Capital Gain Scheme for purchase of a residential house 8, 00,000 (he does not own any house).Compute the capital gain chargeable to tax for the AY 2010-11.

(Explanation of categories of capital assets 4 marks ; Calculation of indexed cost of acquisition 2 marks; Calculation of long term capital gain 2 marks; calculation of taxable long term capital gain 2 marks) 10marks

Answer. Categories of capital assets

1. Business Assets

Fixed assets used in your business are taxed as ordinary gains. Business assets include all furniture, equipment, and machinery used in a business venture. Examples include computers, desks, chairs, and photocopiers. Ordinary gains are reported on IRS Form 4797.

2. Small Business Stock

Capital gains and losses on small business stock may qualify for preferential tax treatment. Gains may be partially excluded under Section 1202, Gain on Small Business Stock, if the company had total assets of $50 million or less when the stock was issued. Losses may be


Q3. X Ltd. has Unit C which is not functioning satisfactorily. The following are the details of its fixed assets:

Asset Date of acquisition Book value (Rs. lakh)

Goodwill (raised in books on 31st March, 2005)



10th February, 2003



5th April, 1999

12th April, 2004







The written down value (WDV) is Rs. 25 lakh for the machinery, and Rs.15 lakh for the plant. The liabilities on this Unit on 31st March, 2011 are Rs.35 lakh.

The following are two options as on 31st March, 2011:

Option 1: Slump sale to Y Ltd for a consideration of 85 lakh.

Option 2: Individual sale of assets as follows: Land Rs.48 lakh, goodwill Rs.20 lakh, machinery Rs.32 lakh, and Plant Rs.17 lakh. The other units derive taxable income and there is no carry forward of loss or depreciation for the company as a whole. Unit C was started on 1st January, 2005. Which option would you choose, and why?

(Computation of capital gain for both the options 4 marks; Computation of tax liability for both the options 4 marks ; Conclusion 2 marks) 10marks



Q4. What do you understand by customs duty? Explain the taxable events for imported, warehoused and exported goods. List down the types of duties in customs. An importer imports goods for subsequent sale in India at $10,000 on assessable value basis. Relevant exchange rate and rate of duty are as follows:





Exchange Rate Declared by CBE&C


Rate of Basic Customs Duty



Date of submission of bill of entry


25th February, 2010






Date of entry inwards granted to the vessel 5th March, 2010 Rs.49/$ 10%



Calculate assessable value and customs duty.

Answer. A tax levied on imports (and, sometimes, on exports) by the customs authorities of a country to raise state revenue, and/or to protect domestic industries from more efficient or predatory competitors from abroad.

Customs duty is based generally on the value of goods or upon the weight, dimensions, or some other criteria of the item (such as the size of the engine, in case of automobiles). Customs duty is levied on goods imported in India. It is levied on Ports. If goods are imported by illegal means and CD is not paid then these goods are called smuggled goods and liable for prosecution. Only permitted goods can be imported into the country. There are restrictions on


Q5. Explain the Service Tax Law in India and concept of negative list. Write about the exemptions and rebates in Service Tax Law.

Answer. Service Tax is a tax levied on the transaction of certain specified services by the Central Government under the Finance Act, 1994. It is an indirect tax, which means that normally the service provider pays the tax and recovers the amount from the recipient of taxable service. In certain cases Government may shift the liability of payment of service tax to the receiver of service as a measure of administrative convenience. It is often referred to as ‘reverse charge’ in common language.


Q6. Explain major considerations in capital structure planning. Write about the dividend policy and factors affecting dividend decisions.

 Answer. There are three major considerations in capital structure planning, i.e. risk, cost of capital and control, which help the finance manager in determining the proportion in which he can raise funds from various sources.

Risk- Risk is of two kinds, i.e. financial risk and business risk. Here we are concerned primarily with the financial risk. Financial risk is also of two types:


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