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CA Final · Direct Tax Laws & International Taxation · Incomes which do not form part of Total Income

Ramesh Coffee Pvt Ltd sells coffee grown, cured, roasted and ground by it in India, mixed with chicory. Business income from this sale, computed normally, is Rs 80,00,000. Under Rule 271 it must also account for the cost of replanting dead coffee plants in an area already planted, which was not previously abandoned: cost Rs 4,00,000, and the company received a subsidy of Rs 1,00,000 for this which is not includible in total income under the Schedule III item referred to in the rule. Assume the Rs 4,00,000 is not already deducted in the Rs 80,00,000. What is the income liable to tax?

The income liable to tax is Rs 30,40,000. The replanting cost of Rs 4,00,000 is allowed in full without reducing the exempt subsidy, leaving Rs 76,00,000. For coffee grown, cured, roasted and ground, 40% is taxable, which equals Rs 30,40,000.

  1. ARs 30,40,000
  2. BRs 30,80,000Correct
  3. CRs 31,60,000
  4. DRs 32,00,000

Explanation

The replanting allowance is the cost without reducing the exempt subsidy (Rule 271(3)), so the allowance is Rs 4,00,000. Rule 271(2) allows it in computing the income, so Rs 80,00,000 less Rs 4,00,000 is Rs 76,00,000. For roasted and ground coffee the rate is 40%, giving Rs 30,40,000. Rs 30,40,000 is therefore the figure for 40% of Rs 76,00,000; check: 76,00,000 x 0.4 = 30,40,000. Hence the key must be Rs 30,40,000.

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