which includes the profit from core shipping activity (i.e. Rs.60.50 lakhs) and the profit from incidental activity (Rs.15,000), shall not be chargeable to tax. The following are the conditions to be fulfilled by the company for applicability of the tonnage tax scheme - (i) An option to get assessed under Chapter XII-G has to be filed by the company. (ii) The company is required to credit to a reserve account called Tonnage Tax Reserve Account, at least 20% of the book profits derived from its core and incidental activities to be utilized before the expiry of a period of 8 years for acquisition of a new ship for the purposes of the business of the company. Until the acquisition of a new ship, the amount can be utilized for the purposes of the business of operating qualifying ships. However, the amount should not be used for distribution of dividends or profits or for remittance outside India as profit or for creation of assets outside India. (b) Section 78(2) provides that where a person carrying on any business or profession has been succeeded in such capacity by another person, otherwise than by inheritance, then the successor is not entitled to carry forward and set-off the loss of the predecessor against his income. This implies that the only exception is when the business passes on to another by inheritance. The Apex Court, in CIT v. Madhukant M. Mehta (2001) 247 ITR 805 , has held that where the business is succeeded by inheritance, the legal heirs are entitled to the benefit of carry forward of the loss of the predecessor. Even if the legal heirs constitute themselves as a partnership firm, the benefit of carry forward and set off of the loss of the predecessor should be made available to the firm. In this case, the business of M was continued by his legal heirs after his death by constituting a firm. Hence, the exception given in section 78(2) along with the decision of the Apex Court discussed above apply in this case. Therefore, the firm is entitled to carry forward the business loss of Rs.2 lakhs of M.
FINAL EXAMINATION : NOVEMBER, 2005 46 (c) (i) Computation of total income of X Ltd. for A.Y.2005-06 Particulars Rs. Composite profits before allowing deduction under section 33AB 60,00,000 Less: Deduction u/s 33AB [Lower of 40% of Rs.60 lakhs (i.e. Rs.24 lakhs) or the actual amount deposited with NABARD (i.e. Rs.25 lakhs)] 24,00,000 36,00,000 As per Rule 8 of Income-tax Rules, 40% of this sum is subject to income-tax and the balance 60% is treated as agricultural income. Hence, the business income is 40% of Rs.36 lakhs 14,40,000 Add: Non-utilisation of amount withdrawn: Rs.2 lakhs [i.e.(Rs.20 lakhs – Rs.18 lakhs)] 40% is taxable as business income (the balance 60% is treated as agricultural income). 80,000 Business income 15,20,000 Less: Business loss brought forward from the previous year 10,00,000 Total income 5,20,000 (ii) Computation of total income of X Ltd. for A.Y.2006-07 Particulars Rs.
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