Direct Tax-II

Unit 01: Income from Profit and Gains from Business and Profession
(Corporates)
Solution Sheet
Problem 15:
Computation of Total Income of an Indian Company
(for the Assessment Year 2023-24)
₹ ₹
Income from Business:
Business income 4,80,500
Add: Donation 50,000
5,30,500
Income from poultry farming 1,00,000 6,30,500
Income from Other Sources :
Interest on Govt. Securities 7,000
Dividend from domestic company 89,500
Royalty from foreign company 60,000 1,56,500
Gross Total Income 7,87,000
Less : Deductions:
u/s 80IB: Poultry 100% of 1,00,000 1,00,000
u/s 80G:50%50,000 25,000
1,25,000
Total Income 6,62,000

Computation of Tax Liability

₹
Tax on 6,62,000 @ 25% 1,65,500
Add: Surcharge NIL
1,65,500
Add : Health and Education Cess @ 4% 6,620
Tax Liability 1,72,120
Problem 16:
Computation of Total Income
(for the Assessment Year 2023-24)
Step 1: Computation of Total income and tax liability as per normal provisions of
Income Tax act, 1961.
₹ ₹
Income from Business: 1,09,80,000
Income from Capital Gains:
Long-term 66,000
Short-term u/s 111A 30,000 96,000
Income from Other Sources:
Interest on Government Securities 20,000
Dividend from Domestic Company 20,000
Dividend from Foreign Company 20,000 60,000
Gross Total Income 1,11,36,000
Less : Deduction u/s 80GDonation 50,000
Total Income 1,10,86,000

Computation of Tax Payable

(for the Assessment Year 2023-24)
₹
Tax on STCG 30,000 u/s 111A @ 15% 4,500
Tax on LTCG 66,000 @ 20% 13,200
Tax on other income 1,09,90,000 @ 25% 27,47,500
27,65,200
Add: Surcharge @7% 1,93,564
29,58,764
Add: Health and Education Cess @ 4% 1,18,351
Tax liability as per normal provisions of Income Tax act, 1961 30,77,115

Step 02: Computation of Book Profit u/s 115JB and tax liability on book profit as per
section 115JB.
Tax on Book-Profit 1,05,00,000 @ 15% 15,75,000
Add: Surcharge @ 7% 1,10,250
16,85,250
Add: Health and Education Cess @4% 67,410
Tax liability on Book Profit as Per 115JB 17,52,660

Step 03: STEP 3 - Compare Step No 1 and Step No 2, WHICH EVER IS HIGHER IS
Tax Liability of the Company.

Tax liability as per normal provisions of Income Tax act, 1961 30,77,115
Tax liability on Book Profit as Per 115JB 17,52,660
Tax Liability 30,77,115
Rounded off ₹30,77,120.
Problem 17:
Computation of Total Income and Tax Payable
(for the Assessment Year 2023-24)
Income from Business: (850000-150000+10,00,000) 17,00,000
Income from Capital Gains:
Long Term Capital Gains 4,00,000
Gross Total Income 21,00,000
Less : Nil
Total Income 21,00,000

Computation of Tax Payable

(for the Assessment Year 2023-24)
₹
Tax on LTCG 4,00,000 @ 20% 80,000
Tax on other income 17,00,000@ 25% 4,25,000
5,05,000
Add: Surcharge @7% Nil
5,05,000
Add: Health and Education Cess @ 4% 20,200
Tax liability as per normal provisions of Income Tax act, 1961 5,25,200
Problem 18:
Computation of Book Profit u/s 115JB and tax liability on book profit as per section
115JB.
Particulars Amount Amount
Net Profit as per P&L A/c 2,50,000
(+)
Proposed Dividend 20,000
Provision for Income Tax 50,000
Transfer to General Reserve 60,000
Provision for Outstanding liability 30,000
Provision for contingent liability 40,000 2,00,000
Sub Total 4,50,000
(-)
Brought forward Business Loss 80,000
Or
Brought forward Depreciation 1,00,000
(WEL) 80,000
Deferred Tax 1,00,000 1,80,000
Book Profit 2,70,000

Tax on Book-Profit 2,70,000 @ 15% 40,500

Add: Surcharge @ 7% Nil
40,500
Add: Health and Education Cess @4% 1620
Tax liability on Book Profit as Per 115JB 42,120
 Problem 19:
Computation of “Book Profit” for levy of MAT under section 115JB for A.Y. 2023-24
Particulars Rs. Rs.
Net Profits as per Profit and Loss Account 15,00,000
Add:
Provisions for income tax, debited to Profit and Loss Account 1,05,000
Provision for Losses of Subsidiary Companies, debited to Profit and Loss
Account 70,000
Provision for doubtful debts 75,000
Depreciation debited to Profit and Loss Account 3,60,000 6,10,000
Sub Total 21,10,000
Less:
Share in income of an AOP as a member 1,00,000
Exempted incomes credited to Profit and Loss Account
(Income from units in UTI) 75,000
Depreciation (other than on revaluation of assets) (3,60,000 – 1,50,000) 2,10,000
Unabsorbed depreciation or brought forward business loss, whichever is less, as per the
books of account. (10,00,000 or 4,00,000) WIL
4,00,000 7,85,000
Book Profits 13,25,000

Particulars Rs.
Tax on Book-Profit 13,25,000 @ 15% 1,98,750
Add: Surcharge @ 7% Nil
1,98,750
Add: Health and Education Cess @ 4% 7950
Tax liability on Book Profit as Per 115JB 2,06,700

Notes:
1. It is only the specific items mentioned under Explanation 1 to section 115JB, which can be
adjusted from the net profit as per the Statement of Profit and Loss prepared as per the
Companies Act for computing book profit for levy of MAT. Since the following items are not
specified thereunder, the same cannot be adjusted for computing book profit:
• Interest to financial institution (unpaid before filing of return) and
• Penalty for infraction of law.
2. Provision for gratuity based on actuarial valuation is an ascertained liability [CIT v. Echjay
Forgings (P) Ltd. (2001) 251 ITR 15 (Bom.)]. Hence, the same should not be added back to
compute book profit.
3. As per proviso to section 115JB (6), the profits from unit established in special economic
zone cannot be excluded while computing the book profit, and hence, such income would be
liable for MAT.
Problem 20:
I. Computation of Business Income
(for the Assessment Year 2023-24)
WKN 1 ₹ ₹
Profits as per Statement of Profit & Loss 2,50,000
Add: Expenses disallowed:
Income tax paid 20,000
General Reserve 40,000
Provision for contingent liability 40,000
Provision for diminution in value of an asset 50,000
Proposed Dividend 50,000 2,00,000
4,50,000
Less: Income taxable under the head capital gain 1,00,000
Deferred tax 1,00,000 2,00,000
Business Income 2,50,000

Step 1: Computation of Total Income and Tax Payable

(for the Assessment Year 2023-24)
₹ ₹
Business Income (WKN 1) 2,50,000
Less: b/f Unabsorbed depreciation 2,50,000
Income from Business NIL
Capital Gains 1,00,000
Less: b/f Unabsorbed depreciation 50,000
b/f Capital loss 50,000 1,00,000
Total Income NIL
Tax on Total Income NIL
Note: B/f loss under the head capital gains c/f next year = ₹60,000 - ₹50,000 = ₹10,000

Tax on total income Nil

 Step 2: Computation of Book Profit and Tax Payable u/s 115JB or
Minimum Alternative Tax
(for the Assessment Year 2023-24)
₹ ₹
Profits as per Statement of Profit & Loss 2,50,000
Add: Disallowed Items:
Income tax paid 20,000
General Reserve 40,000
Provision for contingent liability 40,000
Provision for diminution in value of an asset 50,000
Proposed Dividend 50,000 2,00,000
4,50,000
Less: Deferred tax 1,00,000
B/f loss as per books of account or B/f depreciation as per books 80,000 1,80,000
of account, whichever is lesser
(1,00,000 or 80,000) WIL
Book Profit 2,70,000
Tax on Book Profit @ 15% 40,500
Add: Surcharges NIL
40,500
Add: Health and Education Cess @ 4% 1,620
Tax Payable 42,120

Step 03: Compare Step No 1 and Step No 2, WHICH EVER IS HIGHER IS Tax
Liability of the Company.

Tax liability as per normal provisions of Income Tax act, 1961 Nil
Tax liability on Book Profit as Per 115JB 42,120
Tax Liability 42,210

Tax Payable: Tax on total income Nil or tax on book-profit 42,120, whichever is more.
Hence, tax payable 42,120.
Problem 21:
Computation of Income from Business
(for the Assessment Year 2023-24)
WKN 1 ₹ ₹
Net Profit 8,40,000
Add: Proposed Dividend 8,05,000
Prov. for unascertained liabilities 40,000
General reserve 60,000
Income Tax 75,000 9,80,000
18,20,000
Less : Capital Gains 5,70,000
General reserve 20,000
GST 50,000 6,40,000
11,80,000
Less : Unabsorbed depreciation 4,60,000
Business Income (a) 7,20,000

Step 1: Computation of Total Income and Tax Payable

(for the Assessment Year 2023-24)
Business Income WKN 1 7,20,000
Capital Gain-long-term 5,70,000
Less : B/f Capital loss 3,50,000
Long-term Capital Gain 2,20,000
Gross Total Income 9,40,000
(-) Deduction U/s 80 C to 80 U Nil
Total Income 9,40,000

Tax on Total Income ₹9,40,000

Tax on LTCG F 2,20,000 @ 20% 44,000
Tax on other Income 7,20,000 @ 25% 1,80,000
2,24,000
Add: Surcharge NIL
2,24,000
Add: Health and Education Cess @ 4% 8,960
2,32,960
 Step 2: Computation of Book Profit
(for the Assessment Year 2023-24)
₹ ₹
Net Profit 8,40,000
Add: Proposed Dividend 8,05,000
Prov. for Unascertained liabilities 40,000
General reserve 60,000
Income tax 75,000 9,80,000
18,20,000
Less: General reserve 20,000
B/f loss or unabsorbed depreciation as per books of 60,000 80,000
account, whichever is less
Book Profit 17,40,000

Computation of Tax Liability

(for the Assessment Year 2023-24)
₹
Tax on Book Profit 17,40,000 @ 15% 2,61,000
Add: Surcharge NIL
2,61,000
Add: Health and Education Cess @ 4% 10,440
2,71,440

Step 03: Compare Step No 1 and Step No 2, WHICH EVER IS HIGHER IS Tax
Liability of the Company.

Tax liability as per normal provisions of Income Tax act, 1961 2,32,960
Tax liability on Book Profit as Per 115JB 2,71,440
Tax Liability 2,71,440

Tax liability (a) or (b), whichever is more. Hence, tax liability is 2,71.440