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CMA Intermediate · Direct and Indirect Taxation · Profits and Gains of Business or Profession

Kaveri Energy Ltd withdrew ₹80 lakh from its site restoration account on closing the account in the tax year. Under the agreement with the Central Government, ₹12 lakh is payable to the Government as profit share. What amount is deemed to be profits and gains of business for that tax year?

The deemed business profit is ₹68 lakh. On closure of the specified account, the amount withdrawn is reduced by any profit or production share payable to the Central Government under the agreement, so ₹80 lakh minus ₹12 lakh equals ₹68 lakh.

  1. A₹80 lakh
  2. B₹12 lakh
  3. C₹92 lakh
  4. D₹68 lakhCorrect

Explanation

On closure, deemed profits A = B - C, where B is the amount withdrawn (₹80 lakh) and C is the amount payable to the Central Government as profit or production share (₹12 lakh). So A = 80 - 12 = ₹68 lakh. Taxing the full ₹80 lakh ignores the deduction of the Government share.

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