|QUESTION FOR PRACTICE
|Q.1.||ABC Ltd. Has current profit of Rs. 150 lakhs and the company has distributed dividend of Rs. 55 lakhs. Compute income tax liability of the company and also additional income tax payable by the company. Also compute tax payable by the shareholders.|
|Ans.||Income tax liability Rs. 50,49,000 and additional income tax liability Rs. 7,71,375. Tax liability of shareholder is Nil.
|Q.2.||ABC Ltd. a domestic company has accumulated profits of Rs. 25 lakhs and the company has distributed dividends of Rs. 12 lakhs and onr of the shareholders Mr. X has received dividends of Rs. 1 lakhs. Compute tax payable by the shareholder and also additional income tax payable by the company.|
|Ans.||Tax payable by the shareholder: nil; Additional income tax payable by the company Rs. 1,68,300.
|Q.3.||ABC Ltd has bonus share capital of 10 lakhs and general reserve of Rs. 5 lakhs and the company has distributed in kind Rs. 48,000 to one of the shareholder who was holding 10% of the share capital. Compute dividends in the hands of the shareholder.|
|Q.4.||Mr. X is holding 100 shares of ABC Ltd. which were purchased by him on 01.10.1976 @ Rs. 10/-per share and market value of one share on 01.04.1981 was Rs.25/- and total number of shares issued by the company is 10,000. The company goes into liquidation on the liabilities including any additional income tax under section 115-O and out of Rs 25 lakhs, Rs. 10 lakhs is accumulated profits.Compute dividends in the hands of Mr. X and also capital gains.|
|Ans.||Dividend u/s 2(22) (c) Rs. 10,000 and long term capital gains Rs. 2,575.
|Q.5.||ABC Ltd a closely-held company has bonus share capital of Rs. 2 lakhs and the company has given a loan of Rs. 8 lakhs to one of the shareholders, who is beneficial owner of equity shares holding 10% of the voting power. Compute amount of dividend in the hands of shareholder.|
|Q.6.||Mr. X is beneficial owner of equity shares holding 10% of the voting power in ABC Ltd. a closely held company and he is partner in a partnership firm XY and has 20% share in the firm. The company has given a loan of Rs. 5 lakhs to the firm and company’s accumulated profits are Rs. 6 lakhs. Compute amount of dividend in the hands of shareholder and the firm. Compute amount of dividend in the hands of shareholder and the firm.|
|Ans.||Dividend in the hands of shareholder : Nil;dividend in the hands of firm : Rs. 5,00,000.
|Q.7.||Accumulated profits of ABC Ltd a closely-held company is 3 lakhs on 01.07.2005 and a loan of Rs 2 lakhs was advanced to X holding 13% shares on 01.07.2005 and a loan of Rs. 1.5 lakhs was advanced to Y on 01.10.2005 holding 11% shares. Compute amount of dividends in the hands of Mr. X and Mr. Y.|
|Ans.||X Rs. 2,00,000; Y Rs. 1,00,000.
|Q.8.||Mr. X holding 10% equity shares in ABC Ltd, a closely-held company and he has taken a loan of 3 lakhs on 01.10.2005 and the loan was repaid after ten days. The company has accumulated profits of 10 lakhs. Compute amount of dividends in the hands of Mr. X.|
|Q.9.||A trade deposit of 4 lakhs was given by a closely held company to one of the shareholders who is holding 10% of the voting power and it was subsequently adjusted against supply of goods. Compute amount of dividend in the hands of shareholders.|
|Q.10.||A Hindu Undivided Family through its Karta Mr X is a shareholder of a accumulated profits of Rs 10 lakhs. The company gives a loan of Rs. 3,50,000 to the H.U.F. Compute amount of dividend.|
|Q.11.||ABC Ltd is a company in which public are not substantially interested and the company has bonus share capital of Rs 5 lakhs and general reserve of Rs 7 lakhs and the company has given a loan of the shareholders who is holding 10% of the voting power. Compute amount of dividend in the hand of shareholder and also his tax liability.|
|Ans.||Dividend Rs. 7,00,000; tax liability Rs. 1,63,200.
|Q.12.||There is a partnership firm XY and Mr. X is holding 10% of the voting power of the company and he has 20% share in profits of the firm and a loan of Rs 3 lakhs has been given to this partnership firm by the company having general reserve of Rs 10 lakhs. Compute amount of dividend and discuss its taxability.|
|Ans.||Dividend Rs. 3,00,000; tax liability Rs. 1,00,980.
|Q.13.||If a closely held company has accumulated profits of Rs 10 lakhs and loan of Rs 7 lakhs was given to one of the shareholders who is holding 10% of voting power and subsequently loan of Rs 6 lakhs was given to another similar shareholder. Compute amount of dividend anddiscuss its taxability.|
|Ans.||1st shareholder dividend : Rs. 7,00,000; Tax liability : Rs. 1,63,200; 2nd shareholder dividend: Rs. 3,00,000; Tax liability : Rs. 40,800.
|Q.14.||Mr. X holds share carrying 25% of voting power in a domestic company in which public are not substantially interested. On 01.09.2005, he obtained a loan of Rs 5 lakhs @ 14% p.a. from the company and as on that date the company had accumulated profit of Rs 4 lakhs. Explain the tax implication in the hands of the company and also in the hands of shareholder.|
|Ans.||Dividend in the hands of the shareholder shall be Rs 4,00,000.
|Q.15.||Mr X is holding 12% equity shares in ABC Ltd, a company in which public are not substantially interested. X needs Rs. 7,00,000 to purchase a car for his personal use. He can rather borrow this money at an interest rate of 11% p.a. Business of ABC Ltd. is not money lending but it has sufficient accumulated profits to advance the requisite loan.
Suggest from tax point of view, whether-he should borrow from ABC Ltd. or finance company?
|Ans.||It is beneficial to take loan from the finance company. (If the loan is taken from, ABC Ltd., total amount payable is Rs. 2,40,200 and if loan is taken from finance company, amount payable is Rs. 1,05,000).
|Q.16.||Tanmay Ice-Cream Pvt. Ltd. gives you the following detail for the accounting year ended 31.03.2006 –|
|1. Paid up equity share capital is dividend into shares of Rs 10 each.
2. Sarvashri Ray Gandhi, Dikesh Ranka, Prasant Shroff and Tanmay Shah are registered shareholders each holding 10,000 equity shares fully paid up.
3. Reserve of accumulated profits on 01.04.2005 were Rs 40 lakhs.
4. Current year surplus was Rs 10 lakhs.
5. Current liabilities and provisions at year end amounted to Rs 1 lakh.
6. Fixed assets consisted of only one item that is, office buildings (at cost) of Rs 11 lakhs.
7. Preliminary expenses not written off (at year end) Rs. 40,000.
8. Current assets on 31.03.2006 amounted to Rs. 30,00,000.
9. Loans and advances granted in the year and outstanding at year end were Rs. 13,60,000.
|Trade deposit of Rs. 1,00,000 given to Ray Gandhi. He supplied a ‘softy’ ice machine in
April 2005 and the advance was adjusted against the cost of machinery supplied.
Loan of Rs. 3,00,000 given to Dikesh Ranka on 10.01.2006 out of which Rs. 1,00,000 was repaid by him on 30.03.2006.
Loan of Rs. 3,00,000 given to Smt. Anta Prasant Shroff at the specific request of Shri Prasant Shroff.
Loan of Rs. 4,00,000 to Tanmay Shah (HUF) who are the beneficial owners of shares registered in the name of Tanmay Shah.
Discuss the tax implications of the above transactions in the hands of- Shareholders and Tanmay Ice-Cream Pvt. Ltd.
|Ans.||(ii) Trade deposit of Rs. 1,00,000 given to Tanmay Ice-Cream Pvt. Ltd. will be treated as dividend. It is taxable in the hand of shareholders.
(iii) Loan of Rs. 3,00,000 is deemed dividend even if a previous year. It is taxable in the hands of shareholders.
(iv) Loan of Rs. 3,00,000 of Smt. Kanta Prasant Shroff at the specific request will be dividend in the hands of Prasant Shroff. It is taxable in the hands of Prasant Shroff.
(v) It is not a dividend.