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Corporate Tax India
QUESTION FOR PRACTICE

Q.1. Explain the terms ‘Corporation’ and ‘Corporation Tax’.

Q.2. Define the following keeping in view the previsions of the Income Tax Act, 1961 :
(a) Company,
(b) Indian Company,
(c) Domestic Company,
(d) Foreign Company,
(e) Public Sector Company,
(f) Company in which public are substantially interested.

Q.3. How is residence of a company determined for income tax purposes?
Explain the incidence of residence on tax liability of a company.

Q.4. Distinguish between an Indian company and a domestic company.

Q.5. State with reasons whether the following companies are those in which public are substantially interested :
(i) X Ltd. is a public company with a share capital of Rs. 3,00,000. It consists of 20,000 equity shares of Rs. 10 each and 1,000 – 8% Preference Shares or Rs. 100 each. Of this 5,000 equity shares and 900 preference shares are held by Govt. of India.
(ii) A Ltd. a private company, has issued 15,000 equity shares of which 4,000 are held by 2 directors, 500 by another directors, 2,500 by two public men and balance 8,000 by forty persons equally.
(iii) Ram & Co. Ltd., whose shares are listed on Mumbai Stock Exchange.
(iv) Z Co. Ltd. is registered u/s 25 of the Indian Companies Act, 1956 for promotion of commerce. It has been detected that it distributes a part of its members.
Hint : (i) Yes, (ii) No, (iii) Yes, (iv) No.

Q.6. A company’s share capital is held as follows :
Industrial Finance Corporation of India 25%; Life Insurance Corporation of India 10%; Members of the public 65%. Its shares are not listed in any recognised stock exchange.
State whether it is a “company in which public are substantially interested” ? If not, what should be done for it to become a company in which public are substantially interested?
Hint : No; Registering the shares in a recognised Stock Exchange.

Q.7. X Ltd. is in the business of producing electrical equipment. The goods manufactured by it have excellent export potential. The company has plans to enter export markets and is presently considering the following proposals :
(a) Setting up a separate unit in a free trade zone; or
(b) Establishing a 100% export-oriented unit.
Advise the company about the tax implications in each case.

Q.8. On April 1, 2011, X and his wife purchased all the shares of a private limited company. Upto March 31, 2011, the company had accumulated business losses of Rs. 5 lakh and unabsorbed depreciation amounting to Rs. 3 lakh. For the previous year 2011-12, the profits of business are computed at Rs. 4,50,000. Would the company be entitled to carry forward and set-off the past accumulated losses and unabsorbed depreciation? Would it make any difference if X and his wife had received the shares as a gift from a relative?

Hints :
(a) Shares purchased :
     (i) Business loss – No
     (ii) Unabsorbed depreciation – Yes
     (iii) Total Income – Rs. 1,50,000

(b)
Shares received as a gift from a relative :
     (i) Business loss – Yes
     (ii) Unabsorbed Depreciation – Yes
     (iii) Total Income – Nil
     (iv) C.F. business loss Rs. 50,000 and Unabsorbed depreciation Rs. 3,00,000.

Q.9. State, whether in the following cases, the company is one in which public are substantially interested :
(i) A club which is registered under Sec. 25 of the companies Act with an authorised capital of Rs. 5,00,000. Shares of the company are not listed on any stock exchange.
(ii) ABC Pvt. Ltd. of which 55% equity share capital is with promoters and the remaining 45% with three cooperative societies.
(iii) XYZ Ltd. which is subsidiary of ABC Ltd. a company in which public are substantially interested.
(iv) A Ltd. is a company engaged in the business of computers software, 60% of its equity shares are allotted to the promoters and the remaining 20% to members of the public. The company stands listed on the New York Stock Exchange; however its application for listing with National Stock Exchange of India is awaiting decision.
Hints : (i) Yes; (ii) No; (iii) Yes; (iv) No

Q.10. When does a company become ‘a company in which public is substantially interested’ as per section 2(18) of Income Tax Act?

Q.11. Explain the provisions of section 79 of the Income Tax Act as applicable to a company in which public are not substantially interested, pertaining to carry-forward and set-off of losses.

Q.12. A company incorporated outside India wishes to acquire the status of a domestic company as well as a resident company. What steps should it take to achieve the aforesaid objectives? Explain

Q.13. Explain the tax incentives available under Income Tax Act to industrial undertaking engaged in development of infrastructural facility.
Hint: See Sec. 80IA

Q.14. What are the tax incentives allowed to new industrial units set up in Special Economic Zones (SEZ) ?

Q.15. XYZ Pvt. Ltd. is a company incorporated on 1.4.2007, and the only capital issued is in the form of equity shares. The shares are held throughout by X, Y and Z, equally. The company has made losses / profits in the past as under and these have been accepted by the tax department on assessment: 

Assessment
Year
Business Loss
before depreciation
Rs.
Depreciation for the
relevant Assessment
Rs.
2007-08 -- 10,00,000
2008-09 -- 18,00,000
2009-10 9,50,000 12,50,000
Total 9,50,000 40,50,000

During the previous year ended 31.3.2011 X transferred his shares to A and during previous year ended 31.3.2012 B transferred his shares to Y. During the previous year ended 31.3.2011 the company made a profit of Rs. 15 lakh (before charging depreciation of Rs. 9,00,000) and during the previous year ended 31.3.2012 a profit of Rs. 50 lakh (before charging depreciation of Rs. 8,00,000).
Compute taxable income of the company with proper working for A. Y. 2012-13.

Ans. Taxable Income Rs. 1,50,000.

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