Business Taxation: End-Term Examination

Business Taxation: End-term Examination

PGP I, Slot 4, November to December, 2009

Answer: Set 1

Questions on Income Tax

Question No. 1

Pelican Early Learning Limited is a company engaged in the manufacturing of toys. The company set up a research centre for developing safe toys. The company made the following expenditures on the research centre during 2009-10.

1. Acquisition of equipment for research: Rs. 30 lakhs

2. Acquisition of Land: Rs. 20 lakhs

3. Salary of scientists- Rs. 40 lakhs

What is the total deduction the company is allowed for expenditure on scientific research under Section 35?

Answer: Section 35 allows all expenditure, revenue or capital with a weightage of 1.5, with the exception of land and building for manufacturing companies not falling under Schedule 11. Expenditure on land is not allowed to be deducted. Expenditure on construction or acquisition of building is allowed but without weightage.

Deduction allowed = (1.5)(30 + 40) = 1.5 x 70 = Rs. 105 lakhs.

Question No. 2

One-world Telecommunications Limited manufactures telecommunication equipment. The company set up a research centre for developing new equipments. The company made the following expenditures on the research centre during 2009-10.

1. Acquisition of equipment for research: 35 lakhs

2. Construction of building: 50 lakhs

3. Salary of scientists: 45 lakhs

4. Salary of administrative staff: 20 Lakhs

What is the total deduction the company is allowed for expenditure on scientific research under Section 35?

Answer: The Section allows all expenditure, revenue or capital with a weightage of 1.5, with the exception of land and building for manufacturing companies not falling under Schedule 11. Expenditure on land is not allowed to be deducted. Expenditure on construction or acquisition of building is allowed but without weightage.

Deduction allowed = 50 + (1.5)(35 + 45 + 20) = 50+150

= Rs. 200 Lakhs

Question No. 3

Sigma Retail Limited was given the certificate of incorporation on June 10, 2008. The following expenses were incurred in the month of May 2008 for the formation of the company.

1.