Fun Limited, a domestic company, set-up and commenced business of manufacturing of mixer grinder on 01-4-2023 in the State of Madhya Pradesh. The…

Computation of total income and tax liability of Fun Limited for A.Y.2024-25 under regular provisions of the Act Particulars Particulars ₹ Profits and gains of business or profession Net profit as per statement of profit and loss 1,47,50,000 Add: Items debited but to be disallowed - Depreciation as per books of account 34,00,000 - Consideration for designs & models [Consideration for designs & models of Mixer grinder is in the nature capital expenditure and hence, is an intangible asset which is eligible for depreciation as per section 32. Since lumpsum consideration has been debited to statement of profit and loss, the same has to be added back while computing business income] 36,00,000 - Purchased raw material at a price higher than the fair market value [As per section 40A(2), the difference between the purchase price (96 lakhs) and the fair market value (82 lakhs) has to be added back since the purchase is from a related party, i.e., Gold Ltd., a company in which directors of Fun Limited have substantial interest and at a price higher than the fair market value] 14,00,000 - Legal expenses for issue of bonus shares [There is no fresh inflow of funds or increase in capital employed on account of issue of bonus shares and there is only reallocation of the company's fund. Consequently, since there is no increase in the capital base of the company, legal expenses of 6lakhs in connection with issue of bonus shares is a revenue expenditure and is hence, allowable as deduction 1 ] Nil - Legal expenses for issue of right shares [Expenses incurred in relation to rights issue are of capital in nature 2 . Hence, not allowed as deduction from business income. Since, it is already debited in statement of profit and loss, the same has to be added back while computing business income] 8,00,000 92,00,000 2,39,50,000 Less: Items credited but to be considered separately - Short term capital gains on equity shares [Not taxable under this head] 15,00,000 - Cash Subsidy [Subsidy from State Government on acquisition of asset is reduced from the actual cost of the asset. Hence, such subsidy is not the income of Fun Limited. Since, subsidy is already credited in the statement of profit and loss, the same has to be reduced while computing business income] 15,00,000 30,00,000 2,09,50,000 Less: Depreciation as per Income-tax Rules - Depreciation 36,00,000 - Depreciation on New Plant and machinery [*50 lakhs x 15%, since it has been put to use for more than 180 days during the year] [Any expenditure for acquisition of any asset in respect of which payment or aggregate of payment made to a person in a day, otherwise than by an a/c payee cheque/ bank draft or use of ECS or through prescribed electronic mode, exceeds - 10,000, such expenditure would not form part of actual cost of such asset. Further, where any part of the cost of asset acquired has been met directly or indirectly, inter alia, by State Government, then, so much of the cost as relates to subsidy would not be included in the actual cost. Hence,10 lakhs paid by bearer cheque and 15lakhs of cash subsidy received by State Government for acquisition of asset would not be included in the actual cost of plant and machinery.] 7,50,000 - Additional depreciation on New Plant and machinery [*50 lakhs x 20%, since it has been put to use for more than 180 days during the year] 10,00,000 - Depreciation on Intangible asset, being designs & models of mixer grinder [36lakhs x 25% x 50%, since put to use for less than 180 days during P.Y. 2023-24] 4,50,000 58,00,000 1,51,50,000 Capital Gains - Short term capital gains on transfer of listed equity shares 15,00,000 - Short term capital gains on transfer of unlisted equity shares [Since not held for more than 24 months] Full value of consideration 22,00,000 Less: Cost of acquisition 12,00,000 10,00,000 25,00,000 Total Income 1,76,50,000 1 It was held by Apex Court in case of CIT vs. General Insurance Corpn. (2006) 286 ITR 232 2 It was held by Karnataka High Court in case of CIT Vs Motor Industries Ltd (1998) 229 ITR 137 Computation of tax liability Particulars Tax u/s 111A on Short-term capital gains on transfer of listed equity shares on which STT is paid [15lakhs x 15%] 2,25,000 Tax on other income [₹ 1,61,50,000 x 25%] 40,37,500 42,62,500 Add: Surcharge @7% since total income exceeds 1crore but does not exceed 10crores 2,98,375 45,60,875 Add: HEC@4% 1,82,435 Tax liability 47,43,310 Computation of tax liability of Fun Limited for the A.Y. 2024-25 under section 115JB Particulars ₹ Minimum Alternate Tax @15% on book profit of 3,20,00,000 48,00,000 Add: Surcharge@7%, since the book profit of the company > 1 crore but ≤ 10 crores 3,36,000 51,36,000 Add: Health and Education cess@4% 2,05,440 Tax liability under section 115JB 53,41,440 Since the regular income-tax payable is less than the minimum alternate tax, book profit of 3,20,00,000 would be deemed to be the total income of Fun Limited and it has to pay tax of 53,41,440. It would be eligible for MAT credit of MAT liability 53,41,440 Tax liability under the regular provisions of the Income-tax Act, 1961 47,43,310 MAT credit 5,98,130 Note – Since Fun Limited set up and registered on or after 1.10.2019 and has commenced operations before 31.3.2024, and engaged in manufacturing business, it is eligible for concessional tax regime under section 115BAB. In case Fun Limited opted for concessional tax regime u/s 115BAB, it would not be eligible to claim additional depreciation u/s 32 on plant and machinery. In that case, its total income and tax liability would be - Particulars Particulars ₹ Total Income under regular provisions of the Act 1,76,50,000 Add: Additional depreciation [No additional depreciation is allowable under section 32(1)(iia)] 10,00,000 Total Income 1,86,50,000 Computation of tax liability under section 115BAB Particulars Particulars ₹ Tax u/s 115BAB on business income [₹ 1,61,50,000 x 15%] 24,22,500 Tax u/s 111A on Short-term capital gains on transfer of listed equity shares on which STT is paid [15lakhs x 15%] 2,25,000 Tax u/s 115BAB on short term capital gains on transfer of unlisted equity shares [10lakhs x 22%] 2,20,000 28,67,500 Add: Surcharge @10% 2,86,750 31,54,250 Add: HEC@4% 1,26,170 Tax liability 32,80,420 Suggestion to Fun Limited Fun Limited should opt for section 115BAB, since the tax liability under section 115BAB is lower than the tax liability under the regular provisions of the Act and section 115JB.