CA Final :: Direct Taxes : November 2002

Netherlands Oil Corporation is a Foreign Company engaged in the exploration of Oil and Gas in all countries including India. In respect of its Indian Business, the company has prepared the Profit and Loss Account in accordance with Part II and III of Schedule VI to the Companies Act, 1956 and such Profit and Loss account for the previous year ended 31.3.2002 shows a Net Profit of Rs. 65 Lakhs. The Net Profit from activities in all other countries stands at Rs. 550 Lakhs. The company informs that while arriving at the Net Profit as indicated above in respect of Indian business, the following debits/credits have been made in its Profit and Loss Account.

M/s Global Airlines incorporated as a company in USA operated its flights to India and vice versa during the year 2001-02 (April, 2001 to March, 2002) and collected charges of Rs. 125 lakhs for Carriage of passengers and Cargo out of which Rs. 65 lakhs were received in US Dollars for the Passenger Fare booked from New York to Mumbai. The total expenses for the year an operation of such flights were Rs. 195 lakhs. Income chargeable to tax of the Foreign Airlines may please be computed.

X Ltd. a Pharmaceutical Company having accumulated losses and unabsorbed depreciation to be set off in future for Rs. 130 lakhs and Rs. 250 lakhs as on 31.3.2001 was demerged on 16.5.2001 and 30% of its total Assets were transferred into the resulting Co. XY Ltd. How the Accumulated losses and Unabsorbed depreciation of the demerged company shall be dealt with in the return for Assessment Year 2002-03 of the resulting company:

An enterprise engaged in manufacturing of Steel Balls discontinued its activities and decided to lease out its Factory Building, Plant and Machinery and Furniture from 1.4.2001 on a Consolidated Lease Rent of Rs. 50,000 per month. Compute the income for Assessment Year 2002-03 of Assessee from following information:

Mr. rose out of his own funds had taken a FDR for Rs. 10,00,000 bearing interest @ 10% P.A. payable half-yearly in the name of his wife Lilly. The income of interest earned for the year 2000-01 of Rs. 1,00,000 was invested by Mrs. Lilly in the business of packed Spices, which resulted into a Net Profit of Rs. 55,000 for the year ended 31.3.2002. How the income of interest on FDR and Income from business shall be taxed for the Assessment year 2002-03?

Examine whether the following actions initiated/taken by the Income-tax Authorities are proper and valid under the provisions of the Act.

Specify the items of Capital Assets in respect of which the cost of acquisition shall be taken as `nil' under the provisions of the Income-tax Act, 1961 while computing Capital gains.

State the conditions, if any to be satisfied by the Assessee in order to get relief under section 273 A(4) of the Income-tax Act, 1961 regarding the waiver of penalty. Can the Commissioner of Income-tax refuse to grant relief, when the conditions laid down in the section are complied by the Assessee.

Mr. Biswas, a stock broker has defaulted with regard to his Income-tax payments and the Assessing Officer has attached his membership card of Stock Exchange under Section 281B of the Income-tax Act, 1961. Mr. Biswas contends that the membership card is not transferable and is not his personal Asset. Discuss the validity of attachment of the card by the Assessing Officer in the context of Section 281B of the Act.

Can the Assessing Officer complete the assessment under Section 144 of the Income-tax Act, 1961 even though there is no failure on the part of the assessee under Section 139(1), (4), (5), 142(1). 142(2A) or 143(2) of the Act? If so, under what situation?

How do you deal with the following situations? Give reasons for your answer. (The Assessment Year 2002-03).

Ramji Charitable trust has filed return of income for the Assessment Year 200102 within the stipulated time under Section 139(1) and applied only 50% of its income to Specified purposes. It intends to accumulate the balance 25% of income to be spent in future years. While completing the assessment, the Assessing Officer disallowed the accumulated income of 25% and taxed the same on the ground that the trust has not made any application under Section 11(2) along with return of income or even before the completion of assessment. Discuss the validity of the action of A.O. in this case.

Rahim and Iqbal, two Co-owners of immovable property situated at Delhi, agreed to sell the property to Mr. Abhijit for a consideration of Rs. 58 lakhs. At the time of registration, when the Sub-Registrar insisted for approval under Chapter XX-C of I.T. Act from appropriate authority, the co-owners argued that they agreed to transfer their property rights and each of them was to be paid an amount of consideration, which was less than the amounts specified, viz., Rs. 50 lakhs, each owner would get only Rs. 28 lakhs under the agreement and in such an event, Chapter XX-C would not apply. Discuss the tenability of Co-owners argument in the light of provisions of Chapter XX-C of I.T. Act.

The Assessee, a Co-operative Society, earned interest income out of the reserve funds, which had been invested with SBI/RBI in compliance with Statutory provisions in order to carry on banking business and claimed deduction under Section 80P(2)(a) of I.T. Act. The Assessing Officer declined to allow the claim, but restricted its claim to that part of interest income derived from working or circulating capital. Examine the validity of action of Assessing Officer.

KP Madhusudan & Co., a partnership firm, had taken certain bank drafts for payments to suppliers of Rice and it had made entries in the accounts a few days later, but not on the dates on which the bank drafts were obtained. The explanation of assessee was that sufficient cash balance was not available on those dates, it had obtained hand loans from friends and , as it had expected to repay such loans within a short time, no entries were made in its books of account in respect thereof. Due to inability to furnish evidence for such loans, the assessee offered the amount of Rs. 93,000 as additional income towards unexplained investment. Penalty proceedings were initiated by Assessing Officer under Section 271(1)(c) read with Explanation 1B of I.T. Act and levied a penalty of Rs. 37,975. Is levy of penalty justifiable?

Human Life Insurance Co. of U.K. conducted business in India during 2001-02. It seeks your advice for the computation of its income from Life Insurance business in India, in accordance with the provisions of Income-tax Act, 1961.

Designated Authority can determine any issue under the Income-tax act, 1961 by giving 1Advance Ruling'. Elaborate the meaning assigned to `Advance Ruling' under the aforesaid Act.

An appeal against an assessment order for Assessment Year 1992-93 is decided by the Income-tax Appellate Tribunal against the assessee and the order is served on the Commissioner on 27.12.2001. The Assessing Officer levies penalty under section 271(1)(c) of the Income-tax Act, 1961 vide his order dated 27.6.2002 for the aforesaid Assessment Year for which the appeal has been decided against the assessee. The assessee seeks your advice on the following:

Mr. Kamat a not Ordinarily Resident in India seeks your advice with regard to the furnishing of his Wealth-tax return. The value of assets held on 31.3.2002 is indicated below. You are requested to compute the Taxable Wealth of Mr. Kamat giving justification for the inclusion or exclusion of each item. The valuation date as indicated above is 31st March, 2002:

Explain the procedure for adoption of the value of Jewellery for the valuation date as at 31st March, 2002 and subsequent 3 years assuming the value of Jewellery has been determined by Valuation Officer as at 31st March, 2001